KDB Life Heavily Criticized by FSC, Long-Term Business Plan Found Deficient

[Asia Economy Reporter Oh Hyung-gil] KDB Life Insurance received a series of criticisms in the comprehensive inspection conducted by the Financial Supervisory Service (FSS) at the end of last year. In particular, it was found that although capital reinforcement was necessary, the management did not report to the board of directors nor prepare additional reinforcement plans. The financial authorities notified KDB Life Insurance of management caution measures and warned them to prepare an effective mid- to long-term capital reinforcement plan.

According to the financial authorities and the insurance industry on the 12th, the FSS recently notified KDB Life Insurance of a total of 14 comprehensive inspection results, including 6 management caution measures and 8 improvement items.

KDB Life Insurance, which succeeded in turning a profit for the first time in four years last year, set an overly optimistic target in its five-year business plan, expecting a sharp increase in pre-tax profit in 2024. However, it was confirmed that factors such as the decline in operating asset yield due to the expansion of long-term bonds, burden interest rates, and increased labor costs from single premium dollar insurance sales were not reflected.

The FSS ordered KDB Life Insurance to prepare practical countermeasures such as the required scale of capital reinforcement by scenario and year-by-year capital reinforcement plans and report them to the board of directors.

It was also pointed out that related regulations such as separate standards and manuals for setting credit risk tolerance limits were not established, resulting in the risk calculation officer arbitrarily calculating risk limits. Risk tolerance management was found to be inadequate, with cases exceeding the allowed limits without separate responses despite increased risk amounts.

Key Performance Indicators (KPI) were also criticized. It was revealed that KDB Industrial Bank, which promoted the sale of KDB Life Insurance from 2012 to 2017, set the evaluation weight of net profit during that period the highest, exacerbating the deterioration of management performance.

To increase KPI scores, instead of holding high-quality assets such as high-interest government bonds favorable for improving mid- to long-term operating asset yields, bonds were reclassified and sold to secure bond valuation gains and disposal gains due to interest rate declines. The financial authorities viewed that this caused side effects such as the expansion of interest rate losses and decline in operating asset yields after 2017, worsening management performance.

In the insurance contract underwriting process, contracts requiring handwritten signatures, such as contracts subject to insurance contract comparison guidance, duplicate subscriptions to indemnity medical insurance, and life insurance contracts of others, were operated as automatic screening targets without a system to verify handwritten signatures.

For no- and low-surrender value insurance products, it was confirmed that the subscription documents were included as part of the product description rather than as application documents, and there was no system to verify overwriting or handwritten signatures. The recommendations from the financial consumer protection status evaluation were not implemented, and measures to prevent incomplete sales by corporate insurance agencies were also found to be insufficient.

Meanwhile, KDB Life Insurance must take measures within a certain period (6 months for management caution items, 3 months for improvement items) and submit a report summarizing the required actions to the FSS.

This content was produced with the assistance of AI translation services.