[Financial New Paradigm ESG] Samsung Life Insurance Act and Financial Group Supervision Act... Concerns Over 'Excessive Regulation'

Amendment to the Insurance Business Act Targets Samsung Life
Asset Management Ratio Acquisition Evaluated at 'Market Price' Not 'Cost'
If Passed, Must Sell 20 Trillion Won Excluding 3% Stake

Complex Corporate Group Supervision Act Called "Double Regulation"
Prudential Regulations Already Applied by Industry Sector

[Asia Economy Reporter Ki Ha-young] As the political sphere continues to introduce bills related to governance, the financial sector is expressing concerns that these regulations are excessive. Although the purpose is to strengthen soundness management and establish risk management systems, the side effects are considered to be greater.

The amendment to the Insurance Business Act, commonly referred to as the Samsung Life Act, directly targets the governance structure of the Samsung Group. The bill, proposed in June last year by Park Yong-jin and Lee Yong-woo, members of the National Assembly's Political Affairs Committee from the Democratic Party of Korea, centers on evaluating insurance companies' asset management ratios based on 'market value' rather than 'acquisition cost.'

Under the current Insurance Business Act, insurance companies have been allowed to hold shares of major shareholders or affiliates up to 3% of total assets based on acquisition cost to prevent asset loss risks. However, the amendment proposes changing the evaluation standard for insurance companies' holdings of other companies' stocks from the acquisition 'cost' at the time of purchase to 'market value.' Similar bills were introduced in the 19th and 20th National Assemblies but failed to pass. There is speculation that the ruling party, which holds a majority in the 21st National Assembly, may push it through.

As of the end of September last year, Samsung Life held an 8.51% stake in Samsung Electronics. When valued at acquisition cost, the value is about 540 billion KRW (1,000 KRW per share), which accounts for less than 0.2% of Samsung Life's total assets. However, based on the stock price at the end of September, the stake's value is approximately 29 trillion KRW, representing 8.9% of Samsung Life's total assets. If the Samsung Life Act passes, Samsung Life would have to sell nearly 20 trillion KRW worth of shares exceeding 3% of its total assets.

The insurance industry voices concerns that evaluating held stocks at market value could cause greater confusion due to stock price volatility. Looking at overseas cases, only South Korea and Japan separately regulate investment limits for major shareholders or affiliates in insurance companies. Even Japan bases the investment limit calculation for subsidiary and related company stocks on acquisition cost.

Bills aimed at strengthening soundness management and establishing risk management systems for financial conglomerates such as Samsung and Hyundai Motor have also passed the National Assembly. At the end of last year, during the first regular session of the 21st National Assembly, the 'Act on the Supervision of Financial Conglomerates' was submitted to the plenary session and approved. It is one of the three fair economy laws promoted by the ruling party alongside the Commercial Act and the Fair Trade Act.

The law applies to corporate groups operating two or more financial companies with assets exceeding 5 trillion KRW. Currently, six groups including Samsung, Hyundai Motor, Hanwha, Mirae Asset, Kyobo, and DB are subject to the new law. Representative financial companies include Samsung Life, Hanwha Life, Kyobo Life, DB Insurance, Mirae Asset Daewoo, and Hyundai Capital.

These companies must establish policies and standards for internal control and risk management at the group level. The Financial Services Commission can order financial conglomerates to submit management improvement plans, such as capital increases, if their capital adequacy evaluation results fall below standards set by presidential decree.

The financial sector points out that since soundness regulations are already applied by industry sectors such as insurance and securities, this constitutes 'double regulation.' While the European Union (EU) and Australia deduct overlapping capital among financial companies, South Korea's approach is considered excessive as it reflects abstract group risks as well.

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