Page 21 - WTW Asia Insurance Market Report
P. 21

Bankruptcy of Hanjin                                           IFRS4

When Korean creditors pulled the plug on Hanjin’s              The Korean government is seeking to adopt the
financing in the last days of August 2016, its fleet was       International Financial Reporting Standards (IFRS) 4 Phase
reportedly carrying 530,000 teu (20-ft equivalent units)       II by the year 2020. According to this standard, insurers’
in manufactured goods and USD 5 billion in debt. The           liabilities will be based on market value, instead of book
collapse of Hanjin left USD 14 billion of cargo stranded       value. This allows a fairer assessment of an insurers’ ability
at sea, triggering a number of Marine claims from cargo        to withstand stress and forces them to build reserves
owners. Following this incident, cargo owners began            worth 50 trillion Won (USD 44 billion) to cover potential
shifting their business to shipping lines deemed more          losses. Life insurers are largely impacted by this because
financially stable. A number of shipping lines have            they have sold long-term life insurance policies with high
embarked on mega-mergers or teamed up with rivals.             fixed interest rates in the 1990s and 2000s. Most major
For example, three Japanese rivals, Nippon Yusen KK,           insurers have the ability to prepare for the implementation
Mitsui O.S.K. Lines Ltd. and Kawasaki Kisen Kaisha Ltd.        of this rule as they can liquidate significant real-estate
announced in November 2016 their plan to merge and gain        holdings, but smaller insurers may feel the impact of a
control of 7 percent of the world’s container-shipping trade.  more stringent solvency regime. The impact of this rule is
This move indicates the industry’s effort to adapt to a world  presently unknown but could possibly contribute to the
in which freight rates have been under pressure since          slight hardening of markets due to shortage of capital.
2008, and similar announcements can be expected in the
coming year.

                                                               21Asia Insurance Market Report 2016
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