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[Asia Economy Reporter Oh Hyung-gil] Despite recommendations from financial authorities to reduce payments, the brand usage fees paid by Hanwha insurance affiliates to the Hanwha Group in the first half of this year have increased compared to last year.

Earlier this year, financial authorities pointed out to Hanwha General Insurance that the level of brand usage fees relative to operating profit exceeded expectations, causing a deterioration in profitability, and advised them to reduce the brand usage fees.

According to the Financial Supervisory Service's electronic disclosure system on the 4th, Hanwha General Insurance paid 6.087 billion KRW to the Hanwha Group in the first half of the year under the name of brand license usage fees. This amount is 10.5% higher than the 5.531 billion KRW paid in the first half of last year, marking the highest brand usage fee for the first half of the year in the past four years.

Hanwha stated that the increase in brand usage fees is due to higher sales this year. Hanwha calculates the brand usage fee by multiplying the usage rate (0.3%) by the amount obtained after deducting advertising expenses from sales revenue. Hanwha General Insurance's sales in the first half increased by 1.3% year-on-year to 1.4987 trillion KRW.

Since brand usage fees tend to increase more in the second half than in the first half, the total brand usage fees for this year are expected to rise significantly compared to last year.

Previously, the Financial Supervisory Service issued a management caution to Hanwha General Insurance regarding brand usage contract operations. A management caution is an administrative guidance that requests financial companies to exercise caution or voluntarily improve.

At that time, the Financial Supervisory Service noted that while it is generally not problematic for major groups to pay brand usage fees to holding companies or specific affiliates that own brand rights, Hanwha General Insurance's burden of brand usage fees was relatively high.

They expressed concern that bearing hundreds of billions of KRW in brand usage fees despite operating losses could contribute to worsening profitability.

Hanwha General Insurance's operating profit decreased by 44.4% from 199.5 billion KRW in 2017 to 110.9 billion KRW in 2018, and turned to an operating loss of 86.3 billion KRW last year. However, brand usage fees have been increasing annually, with 18.5 billion KRW paid in 2018 and 20.7 billion KRW last year. This year, they disclosed that they will pay 22.1 billion KRW in brand usage fees, a 6.8% increase from last year.

The authorities also recommended that the criteria for calculating brand usage fees be reasonably improved. Since insurance premiums steadily increase regardless of market conditions, leading to proportional increases in insurance company sales, the authorities explained that increasing advertising expenses based on sales revenue is inappropriate.

The Financial Supervisory Service stated, "Hanwha General Insurance additionally bears group joint advertising costs proportional to sales revenue separately from brand usage fees, resulting in a higher burden compared to non-financial affiliates," and added, "It is necessary to enhance the rationality of the brand usage fee payment criteria and adjust the scale of brand usage fee payments to an appropriate level considering the extent of profitability deterioration."

A financial authority official said, "Considering the time elapsed since the management caution was issued, it appears that corrective measures have not yet been implemented," and added, "We will closely review whether there are any improvements along with the related matters."

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