Financial Services Commission Declares MG Sonhae Insurance a Troubled Financial Institution... Public Sale Underway (Comprehensive)

[Asia Economy Reporter Song Hwajeong] MG Insurance (hereinafter MG Insurance) has been designated as a financially distressed institution, and going forward, procedures such as public sale and liquidation will be carried out.

The Financial Services Commission (FSC) decided to designate MG Insurance as a financially distressed institution at its regular meeting held on the 13th. The FSC explained that, based on the evaluation of assets and liabilities as of the end of February this year, MG Insurance’s liabilities exceeded its assets by 113.9 billion KRW, meeting the criteria for designation as a financially distressed institution under the Act on the Structural Improvement of the Financial Industry (Financial Industry Structural Improvement Act). The FSC added that financial authorities had been encouraging MG Insurance to normalize its management through management improvement requests and orders, but considering that MG Insurance’s submitted management improvement plans were disapproved and capital increases were delayed, it was difficult to expect management normalization.

MG Insurance implemented only 23.4 billion KRW out of the 149.4 billion KRW capital increase plan submitted in October last year, and only 19.4 billion KRW out of the 29.4 billion KRW paid-in capital increase plan by December last year. Although it submitted a 10 billion KRW Letter of Commitment (LOC) in December last year, only 4 billion KRW was actually executed. Furthermore, in the management improvement plan submitted in March this year, the deadline for capital increase completion was arbitrarily extended to June. The 36 billion KRW paid-in capital increase plan for March was not executed and was extended again to the end of April, and there is no concrete evidence such as an LOC for the 90 billion KRW paid-in capital increase planned for June.

The FSC explained the reason for designating MG Insurance as a financially distressed institution despite the capital increase and self-rescue plans presented in April, stating, "Even if the capital increase is completed as planned, the factors for designation as a financially distressed institution will not be resolved," and "The proposed paid-in capital increase scale is insufficient, making it impossible to convert subordinated bonds into equity, resulting in a continued shortage of net assets." It added, "It also considered that sufficient opportunities for self-normalization have been given since July last year, but there has been no substantial progress."

The FSC plans to promptly initiate liquidation procedures such as public sale together with the Korea Deposit Insurance Corporation (KDIC). The KDIC decided on the liquidation method, including sale and contract transfer, based on the principle of minimizing costs. In the case of Green Insurance in 2012, it took 7 to 8 months from designation as a financially distressed institution to completion of liquidation. The FSC stated, "Since the company’s plan is impossible and uncertain, prompt liquidation procedures are inevitable," and "The expansion of distress and increased liquidation costs over time ultimately result in a burden on the public." Regarding the necessity and scale of public fund injection, it explained, "Whether public funds will be injected will be determined according to the KDIC’s liquidation procedures in the future, and it is difficult to predict this at the current stage."

At the regular meeting on the same day, the FSC suspended the execution of duties of MG Insurance’s executives (registered executives) who failed to comply with capital increase orders under the management improvement order, pursuant to Article 14 of the Financial Industry Structural Improvement Act, and appointed a manager to act on their behalf. The manager consists of three members from the Financial Supervisory Service, one from the KDIC, and one from MG Insurance.

An FSC official stated, "Even if MG Insurance is designated as a financially distressed institution, its operations will not be suspended, and tasks such as premium collection and insurance claim payments will continue normally," adding, "Therefore, policyholders who wish to maintain their existing insurance contracts should continue to pay premiums as usual, and if premiums are unpaid, the insurance contract may be terminated, and insurance claims may not be paid even if an insured event occurs."

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