Insurance Firms Nearing Market Debut

Preliminary conclusions on 4 main issues-

Four main issues involving life insurance companies are the nature of them, ways to deal with excess capital, whether or not to distribute gains on valuation of assets, and the relevancy of distributing dividends to contracting parties.

According to listing advisory committee’s guidelines, an insurance company is similar to a corporation because the supreme decision-making body is a general meeting of shareholders. Because a contracting party is a creditor who pays premiums and is entitled to benefits and dividends, a life insurance company is supposed to distribute dividends after being publicly listed.

On the contrary to that, some civic groups, including the People’s Solidarity for Participatory Democracy, define a life insurance company as a “Mutual Insurance Company” where contracting parties are shareholders. In this sense, a contracting party is entitled to stocks.

The committee also interprets that excess capital in forms of retained earnings should be given to contracting parties. Kyobo Life Insurance Co. has 66.2 billion won and Samsung Life Insurance Co. has 87.8 billion won in retained earnings.

The People`s Solidarity for Participatory Democracy (PSPD) and other civic groups think that gains on valuation of assets such as land, and buildings should be given to contracting parties before being listed

The committee said a related rule regarding valuation of assets was scrapped in 2000, and distributing unrealized profits weakens companies’ fiscal soundness.

It concluded that paid dividends to existing contracting parties were relevant.

Listings will be allowed for life insurance companies after 17 years of restrictions-

Discussions involving listing of life insurance companies first emerged in 1989 when Kyobo Life Insurance Co. revalued its assets for preparation for listing. In 1990, Samsung Insurance revalued its assets. In August, 1990, the then Ministry of Finance set a guideline under which 30 percent of its gains on revaluation go to shareholders, another 30 percent to contracting parties, and the remaining 40 percent as retained earnings

The government, however, stopped the discussion of the issue in December, 1990 when the stock market went sour.

The issue emerged again in 1999, when Lee Kun-hee, chairman of Samsung Group, gave 3.5 million shares of Samsung Insurance to creditors to pay debs.

In December 2002, creditors of Samsung Motors asked the government to draw up listing requirements for life insurance companies in order to sell stocks of Samsung Insurance But the discussion was once again blocked by civic group opposition.

Discussions over the issue resumed February this year when an advisory committee at the Securities and Futures Commission was established.

More challenges to come-

The Financial Supervisory Commission is expected to set a final plan regarding listing within the year and revise listing requirements for securities market. Then, life insurance companies will be able to be listed from last year.

Tong Yang Life Insurance Co. changed its date for listing from March 2008 to the second half of next year, and Kyobo and Samsung will start the market research needed for listing soon.

It sill remains to be seen whether the plan will be realized because opposition from some civic groups is strong.

They argue, “Life insurance companies are corporations on the surface, but not so in reality because they share profits and risks with contracting parties. Therefore, gains from listing should be given to contracting parties as a form of stocks.”

A PSPD member and Hansung University professor Kim Sang-jo said, “The committee concluded that contracting parties are entitled to stocks in 2003, but say differently this time. If necessary, we will stage a protest to block the revision.”

Jae-Dong Yu jarrett@donga.com legman@donga.com