FSC Chairman Announcement on
Management Improvement Measures toward Insurance Companies
1. Management improvement measures for insurance companies
- The Financial Supervisory Commission (FSC), at an FSC meeting on August 11, 1998 deliberated management improvement measures for insurance companies and business suspension orders toward non-viable companies.
o The Financial Supervisory Commission, with input from evaluation results of the appraisal committee submitted to the Commission on August 10, 1998, deliberated on matters concerning solvency margin ratios of insurance companies and the feasibility of rehabilitation plans of 18 life and 2 non-life insurance companies and announced measures pertaining to management improvement and business suspension.
- Looking into details on management improvement measures of insurance companies,
o 9 companies namely, Hanil Life, Shinhan Life, Hansung Life, Daishin Life, Tongyang Life, SK Life, Kumho Life, Haedong Fire & Marine and Dongbu Fire & Marine, with reasonable rehabilitation plans, are deemed to possess the capability to implement plans with considerable certainty and will be required to submit letters of intent, which are to include quarterly implementation plans, within 1 month,
o 7 life insurance companies namely, Josun Life, Kookmin Life, Pacific Life, Handuk Life, Hankuk Life, Doowon Life, Dongah Life, with moderately reasonable rehabilitation plans, are deemed to possess the capability to implement their rehabilitation plans. However, these companies show somewhat high deficiencies in solvency margins, whereas rehabilitation plans are deemed as likely to be affected by future external conditions and thus these companies will be required to make appropriate adjustments to rehabilitation plans and to submit related implementation plans within 1 month.
o As for 4 companies that are for practical purposes insolvent and are deemed to have unreasonable rehabilitation plans and thus have a minimal chance of implementing them, namely Kukje Life, BYC Life, Taeyang Life and Coryo Life, will be subject to business suspension as of August 11. A resolution scheme concerning these companies will be sought after under in-depth consideration of policyholders' interest and fiscal support measures.
2. Progress to date
- Looking back, problems of the insurance industry were prompted by excessive expenditure and accumulation of non-performing loans as a result of growth-driven strategies pursued in an overcompetitive environment brought about by the establishment of many new life insurance companies domestically, prior to market opening of the Korean life insurance market in 1989.
- The government has pursued the following measures for enhanced financial soundness of the insurance sector
o For the enhancement of management soundness of insurance companies, "Life Insurance Solvency Margin Regulations" was enacted and enforced in June, 1994 and under such regulations non-viable companies were subject to recapitalization recommendations or recapitalization orders. However, to the contrary, actual effect of such measures turned out to be short of expected levels.
o Furthermore, prompt corrective action procedures, which impose management improvement measures on insurance companies that fail to satisfy solvency margin requirements were introduced in June, 1998.
o Management improvement measures announced today by the FSC are based on accounting firms' due diligence of rehabilitation plans of insurance companies showing deficiencies in solvency margins as well as evaluation results of the appraisal committee.
3. Resolution of fidelity/surety insurance companies
- Fidelity/surety insurance companies were excluded from this round of management improvement measures
o Although the appraisal committee upon evaluation of rehabilitation plans agreed that fidelity/surety insurance companies were revealed to not have the capability to resume normal operations, out of concern that with the resolution of fidelity/surety insurance companies and the absence of fidelity/surety function all together, it could have a serious effect on the financial market, resolution of such companies has been put on hold for the time being.
- Resolution scheme of fidelity/surety insurance companies will be determined based on a comprehensive review of the effect on the financial market and also with special consideration of fiscal support level and protection of policyholders' interests, at a point in the future when uncertainties in the financial market calm down.
4. Closing remarks
- As witnessed in the case of bank closures, a degree of distress and inconvenience is expected as a result of business suspension orders imposed on insurance companies
o However, if we were to permit the continuation of operations of insolvent insurance companies, problems in the insurance industry will only worsen and will eventually increase taxpayers' burdens. For these reasons, the resolution of insurance companies whose rehabilitation plans are not deemed feasible are inevitable. Successive round of measures will ultimately contribute toward the protection of policyholders' interest, strengthening of competitive edge of the insurance industry and enhancement of confidence in the Korean market.
- Lastly, I would like to ask for your understanding and cooperation in helping to facilitate the financial normalization process as initiated by today's announcement.
August 11, 1998
Financial Supervisory Commission