Forced Sale of Samsung Electronics Shares Worth 31 Trillion Won... 4 Concerns Over the 'Samsung Life Insurance Act' (Comprehensive)

①Inevitable Changes in Group Governance Structure
②Risk of Losing 'Aljja' Investment Destinations
③Risk of Acquiring Samsung Electronics Shares
④Capital Market Instability Due to Sale

[Asia Economy Reporter Oh Hyung-gil] With Lee Jae-yong, Vice Chairman of Samsung Electronics, becoming the largest individual shareholder of Samsung Life Insurance, public attention is once again focused on the National Assembly.

Depending on whether the amendment to the Insurance Business Act, commonly known as the ‘Samsung Life Insurance Act,’ is passed in the 21st National Assembly, there are concerns that it could not only shake Samsung Group’s governance structure but also increase management instability at the country’s top life insurer and cause great turmoil in the capital market.

According to the insurance industry on the 3rd, the amendment to the Insurance Business Act proposed by Democratic Party lawmakers Park Yong-jin and Lee Yong-woo aims to change the evaluation standard for the proportion of stocks held by insurance companies in other companies, as stipulated in Article 106 of the Insurance Business Act, from ‘acquisition cost’ to ‘market price.’

The purpose is to prevent in advance the transfer of management crises from affiliated companies to insurance companies when the assets held by insurance companies become concentrated in specific affiliates.

Under the current Insurance Business Act, insurance companies can hold stocks and bonds of affiliated companies up to 3% of their total assets. As of the end of last year, Samsung Life Insurance’s total assets amounted to 336 trillion won, of which it holds an 8.51% stake (581,571,148 shares) in Samsung Electronics.

The acquisition cost of Samsung Electronics shares by Samsung Life Insurance in the 1980s was 540 billion won, but calculated at market price (81,200 won as of 10 a.m. on the 3rd), it amounts to about 41 trillion won. If the amendment passes, Samsung Life Insurance would have to sell Samsung Electronics shares worth 31 trillion won, exceeding 10 trillion won, which is 3% of its total assets.

However, the insurance industry is concerned that if the stocks held are evaluated at market price, variables will come into play depending on stock price fluctuations.

There are concerns that asset management standards could be destabilized. If Samsung Electronics’ stock price rises or falls further, the company would be forced to either purchase additional shares or sell shares, making asset management more complicated.

Globally, only South Korea and Japan separately regulate investment limits for major shareholders or affiliates. When Japan introduced market price evaluation in 2001, it evaluated stocks of subsidiaries and related companies at acquisition cost, and other securities at the lower of acquisition cost or market price.

[Image source=Yonhap News]

If No Investment Destination Comparable to Samsung Electronics is Found... Losses Will Affect Policyholders and Shareholders

Samsung Life Insurance can secure huge cash immediately by selling its Samsung Electronics shares, but it also faces the problem of losing a ‘prime’ investment destination. Last year, Samsung Electronics conducted a special dividend totaling 13.1243 trillion won as part of its shareholder return policy.

NH Nonghyup Securities estimated that Samsung Life Insurance’s dividend income from Samsung Electronics exceeds 980 billion won. The insurance industry widely agrees that, given the recent low-interest-rate environment, the possibility of finding a new investment destination that can generate billions of won in annual profits is virtually slim. Losing a stable investment destination is not beneficial to the interests of policyholders and shareholders in the mid to long term.

Who will buy the Samsung Electronics shares if they are disposed of is also an issue.

In the securities industry, a scenario of transferring Samsung Electronics shares to Samsung C&T is being discussed, but Samsung Life Insurance would face tax burdens from capital gains, and Samsung C&T would inevitably bear the cost burden of acquiring the shares. Considering Samsung Electronics’ status in the domestic stock market, the shock to the market would be unavoidable.

An insurance industry official said, “At first glance, the amendment to the Insurance Business Act may seem like a problem only for Samsung, but from the industry’s perspective, it concerns the principles of asset management and institutional rationality. Although a seven-year grace period is provided after the law’s passage, the immediate socioeconomic impact could be significant.”

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