'First Disclosure of Participating Insurance' Samsung Life: "Negative Margin Deepens... Dividend Unlikely Due to Deficit Coverage"

Structure and Profit-and-Loss of Participating Contracts Disclosed for the First Time
3.9 Trillion Won Paid in Dividends, 11.3 Trillion Won Used to Cover Deficits... Ongoing Negative Margin Structure
"Difficult to Generate Surplus for Dividends Even

Approximately 17.6 trillion won of Samsung Life Insurance's participating insurance assets have been classified as attributable to policyholders, amounting to about 27% of the company's total equity capital. Controversy has arisen over whether it is appropriate to classify the gains from Samsung Electronics shares purchased with a portion of these insurance premiums as equity capital. However, the company maintains that this was an unavoidable accounting treatment following the Financial Supervisory Service’s order to cease accounting irregularities, and that it is unlikely for policyholder dividends to be generated even if gains are realized from the sale of Samsung Electronics shares, given the ongoing negative margin structure of participating insurance.

Samsung Life Insurance Headquarters.

According to the Financial Supervisory Service’s electronic disclosure system on March 12, Samsung Life Insurance disclosed the structure and profit/loss status of its participating insurance contracts in its business report announced the previous day. This is the first time Samsung Life Insurance has provided a detailed explanation of the participating contract structure in a business report. Participating insurance is a product in which the insurer invests the premiums and distributes a portion of the profits to policyholders.

This is also the first time the scale of policyholder-attributable participating insurance has been made public. Samsung Life Insurance sold participating insurance products in the 1980s and 1990s, using the premiums collected from policyholders to acquire an 8.51% stake in Samsung Electronics. Of these assets, the portion attributable to participating policyholders had been managed under a separate liability account labeled "policyholder equity adjustment."

However, following the end of irregular accounting practices, Samsung Life Insurance reclassified the participating policyholder portion, which had been managed under "policyholder equity adjustment," as equity capital. Due to this adjustment, as well as the rise in Samsung Electronics’ share price, Samsung Life Insurance’s consolidated equity capital at the end of last year reached approximately 64.8353 trillion won, about double the 32.7379 trillion won recorded at the end of 2024.

This has continued the debate over how much of the Samsung Electronics stake held by Samsung Life Insurance should be considered attributable to insurance policyholders. According to the report, the amount Samsung Life Insurance classified as policyholder-attributable participating insurance under equity capital was about 17.5957 trillion won. This figure reflects the policyholder share of participating insurance assets on an accounting basis and does not mean that all 17 trillion won represents the value of Samsung Electronics shares; bonds and other investment assets are also included.

The company explained that despite gains from the sale of Samsung Electronics shares, no policyholder dividends have been generated because the entire participating insurance segment continues to operate at a loss. Even if the amount allocated to participating contracts from share sale gains is taken into account, the profit and loss of these contracts remains negative. Previously, Samsung Life Insurance sold a portion of its Samsung Electronics shares in compliance with the Financial Industry Restructuring Act after Samsung Electronics retired some of its treasury shares last year.

Some argue that, since a considerable valuation gain has been generated from the Samsung Electronics shares purchased with policyholder premiums under past participating contracts, there should be a share for policyholders. In response, Samsung Life Insurance maintains that, due to the negative margin status of the entire participating insurance portfolio, it is difficult to use investment profits alone as a source for policyholder dividends.

As of the end of last year, Samsung Life Insurance held 1.48 million participating insurance contracts. Over the past 40 years, since 1986, Samsung Life Insurance has paid out a total of 3.9 trillion won in policyholder dividends across 31 distributions. By the end of last year, losses in participating contracts offset by retained earnings had reached 11.3 trillion won. In other words, the company has been using its own surplus funds to cover the deficits of its participating insurance business.

This deficit structure is expected to be difficult to resolve for the time being. According to the report, Samsung Life Insurance’s asset management yield is around 4%, while the average interest rate it must pay on fixed-rate participating insurance contracts is about 7%. This structure has led to ongoing losses in the participating insurance segment and makes it unlikely for excess profits to be generated. Samsung Life Insurance stated, "If the asset management yield exceeds the guaranteed yield, or if profits attributable to participating contracts from the sale of investment assets surpass the existing deficit, then a source for policyholder dividends may arise."

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