[News Terms] Will Samsung Electronics' Shareholding Structure Change? ... What Is the Samsung Life Insurance Act?

Samsung Life Insurance Headquarters

The so-called 'Samsung Life Insurance Act' currently under discussion in the National Assembly is a proposed amendment concerning stocks of affiliates owned by insurance companies. If the bill passes, Samsung Life Insurance will have to sell tens of trillions of won worth of Samsung Group affiliate stocks, drawing significant attention from the business and financial sectors.

Change in Valuation Basis of Stocks Held by Insurance Companies from 'Acquisition Cost' to 'Market Price'

The partial amendment to the Insurance Business Act, known as the Samsung Life Insurance Act, was jointly proposed in June 2020 by Park Yong-jin and Lee Yong-woo, members of the Democratic Party of Korea. The main content of this bill is to change the valuation basis of stocks and bonds owned by insurance companies from 'acquisition cost' to 'market price' and to require the sale of affiliate shares exceeding 3% of the company's total assets.

If the bill passes, the companies most affected will be Samsung Life Insurance and Samsung Fire & Marine Insurance. Currently, Samsung Life Insurance holds 8.51% (581.5 million shares) of Samsung Electronics, an affiliate of Samsung Group. The acquisition cost at the time (1980) was 1,072 won per share, totaling 544.4 billion won. This amount is far below 8 trillion won, which is 3% of Samsung Life Insurance's total assets (281 trillion won).

However, the current stock price of Samsung Electronics is in the 60,000 won range. In other words, if valued at market price, it exceeds 30 trillion won. Therefore, if the Samsung Life Insurance Act is implemented, Samsung Life Insurance will have to sell about 25 trillion won worth of Samsung Group affiliate stocks, excluding approximately 8 trillion won.

Immediate Impact on Samsung's Governance Structure... Burden of Trillions in Corporate Tax Collection

Under current laws such as the Banking Act and Capital Markets Act, the ownership amount of stocks and bonds of other companies is evaluated at market price. Accordingly, banks, savings banks, and investment firms hold stocks and bonds at market price. However, only insurance companies have been evaluating stock ownership amounts based on acquisition cost, leading to criticism of unfairness.

Park Yong-jin, a member of the Democratic Party of Korea, is giving a greeting at the "7 Million Samsung Shareholders Protection Act! Samsung Life Insurance Act (Amendment to the Insurance Business Act) Forum" held on the morning of the 23rd at the National Assembly Members' Office Building in Yeouido, Seoul. / Photo by Yonhap News

The sale of Samsung Life Insurance's stocks could also shake Samsung Group's governance structure. Although Samsung Electronics Chairman Lee Jae-yong's direct stake is only 1.63%, he has been able to exercise control through Samsung Life Insurance (8.51%), Samsung C&T Corporation (5.01%), and Samsung Fire & Marine Insurance (1.49%), which hold Samsung Electronics shares. However, with the changed regulations, if Samsung insurance companies sell their stocks, there is concern that Chairman Lee's control could weaken.

Park, who proposed the Samsung Life Insurance Act, also emphasized the need to weaken the control of chaebols through legal amendments. At a National Assembly audit session of the Political Affairs Committee on the 6th of last month, he stated, "Samsung Life Insurance's holding of Samsung Electronics shares is not for the shareholders and policyholders of Samsung Life Insurance," and claimed, "It is only for the Lee Jae-yong family."

The taxes Samsung Life Insurance must pay by selling stocks also pose an issue. Under current law, when a corporation sells stocks it holds, 22% of the capital gains are collected as corporate tax. This means that at least 13,000 won per share will be paid as tax.

Proposed Since the 19th National Assembly but Frequently Discarded

However, it is uncertain whether discussions on the Samsung Life Insurance Act will gain momentum. Since the 19th National Assembly, amendments to the Insurance Business Act have been proposed several times but were discarded due to concerns that they could destabilize the market, often expiring with the term.

The most recent Samsung Life Insurance Act was proposed in 2020 but was not discussed for two years and was only submitted to the Political Affairs Committee's bill review subcommittee agenda on the 22nd. Considering that the bill subcommittee is only the first gateway before the Legislative and Judiciary Committee, plenary session submission, and National Assembly vote, there is still a long way to go.

There is also a significant difference in opinions between the ruling and opposition parties. The Political Affairs Committee planned to hold a bill subcommittee on the 29th to start discussions on the Samsung Life Insurance Act, but it was canceled due to the ruling party's absence.

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