Press Release of August 11, 1998
Management Improvement Measures toward Insurance Companies
- The Financial Supervisory Commission (FSC), at an FSC meeting on August 11, 1998 deliberated management improvement measures for 18 life and 2 non-life insurance companies, accommodating recommendations concerning evaluation results of rehabilitation plans submitted by the appraisal committee.
- For the evaluation of insurance companies' rehabilitation plans, 6 accounting firms conducted assets/liabilities due diligence. Based on these results the appraisal committee consisting of experts from the private sector evaluated the feasibility of rehabilitation plans of the insurance companies and subsequently submitted its recommendation to FSC
- Major features of management improvement measures
o 4 companies that are deemed to have unreasonable rehabilitation plans and thus have minimal chance of implementing them, namely Kukje Life, BYC Life, Taeyang Life and Coryo Life have been identified as non-viable financial institutions and accordingly will be subject to business suspension as of August 11, 1998. Once large life insurance companies interested in acquiring these institutions come forth, business transfer procedures including opinion hearings and acquisition approvals etc. will be carried out in due course.
o 7 life insurance companies (Josun Life, Kookmin Life, Pacific Life, Handuk Life, Hankuk Life, Doowon Life, Dongah Life) with moderately reasonable rehabilitation plans and which thus are deemed to possess the capability to implement their rehabilitation plans but are not surely to satisfy minimum solvency margin requirements by September, 2000 (0%) will be required to make appropriate adjustments to rehabilitation plans and to submit related implementation plans.
o 9 companies (Hanil Life, Shinhan Life, Hansung Life, Daishin Life, Tongyang Life, SK Life, Kumho Life, Haedong Fire & Marine, Dongbu Fire & Marine) with reasonable rehabilitation plans and which are deemed to possess the capability to implement plans with high possibility will be required to submit letter of intents, which are to include quarterly implementation plans
- As without a supplementary scheme, the restructuring of the fidelity/surety insurance sector could cause serious adverse effects on the financial market, it should be determined based on in-depth consideration of the effect on national economy and financial market, fiscal support level, protection of interest of policyholders and other related persons
- Despite of the closure of 4 non-viable companies, policyholders' benefits of existing policies will be protected by the deposit insurance fund in accordance to provisions under the Deposit Insurance Law. Moreover, once business of the non-viable companies are transferred over to financially sound insurance companies, policies will be maintained with no change in contract terms.
- Also even during business suspension
o Companies subject to business suspensions will continue to carry out businesses such as premium collection of existing policies (through bank automatic transfer, Giro, payment at sales office), call back of existing loans, business done on behalf of policyholders.
o Although payments to policyholders including benefit payouts will be suspended for a limited period, upon business transfer payment related businesses will return to normal as well.
- 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.
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 recommendation or recapitalization order but actual results turned out to be short of expected levels.
- In the future special investigations will be conducted for the purposes of identifying and holding concerned persons responsible for unsound management practices through disciplinary measures. Prompt corrective actions procedure will continue to take effect as a way to induce and supervise rehabilitation of the insurance industry.
- The government will exert its utmost effort to minimize policyholder inconveniences throughout the management improvement process and to induce the early normalization of the financial market.
<attachment> Contents of management improvement measures toward insurance companies
Contents of Management Improvement Measures
toward Insurance Companies
¡à Submission of rehabilitation plans (June 20, 1998)
o 22 insurance companies that did not satisfy solvency margin standards and due to deteriorating asset quality were believed to have the potential of recording a deficiency in their net worths were required to submit rehabilitation plans on May 11, 1998
o Life insurance (18 cos.), non-life insurance (4 cos.)
¡à Assets/Liabilities due diligence and review of rehabilitation plans (June 20 - July 10)
o Big 6 accounting firms conducted assets/liabilities due diligence and feasibility study of rehabilitation plans
¡à Formation and evaluation of appraisal committee (Aug. 6 - Aug.10, 1998)
o Formed an appraisal committee to evaluate assets/liabilities due diligence results and the reasonability and feasibility of rehabilitation plans
o Appraisal committee members (12) : certified accountants (6), professors (3), lawyers (2), researcher from government research institute (1)
¡à Submission of evaluation report of rehabilitation plans (Aug. 10, 1998)
¡à FSC announcement of Management Improvement Measures (Aug. 11, 1998)
2. Evaluation results of rehabilitation plans by appraisal committee
¡à Companies whose rehabilitation plans are not reasonable and thus are not deemed to be feasible and which at the same time are not believed to have the capability of resuming normal operations (4 companies)
- Life insurance : Kukje Life, BYC Life, Taeyang Life and Coryo Life
¡à Companies with moderately reasonable rehabilitation plans and which thus are believed to possess the capability to resume normal management by the end of September, 2000, but depending on future economic conditions and changes in the insurance market are not deemed to surely to have the capability to completely overcome deficiencies in solvency margins (7 companies)
- Life insurance : Josun Life, Kookmin Life, Pacific Life, Handuk Life, Hankuk Life, Doowon Life, Dongah Life
¡à Companies with reasonable rehabilitation plans and believed to have a strong possibility of completely overcoming deficiencies in solvency margins (9 companies)
- Life insurance : Hanil Life, Shinhan Life, Hansung Life, Daishin Life, Tongyang Life, SK Life, Kumho Life
- Non-life insurance : Haedong Fire & Marine, Dongbu Fire & Marine
3. Management Improvement Measures of the Financial Supervisory Commission
¡à Identification of non-viable companies, business suspensions, suspension of authoritative duties of principal officers and nomination of administrators : Kukje Life, BYC Life, Taeyang Life and Coryo Life (4 companies)
o Identification of non-viable companies : those companies of which liabilities exceeds assets to a significant degree (based on evaluation of assets and liabilities utilizing financial data as of end March, 1998)
o Business suspension measures : companies in which liabilities considerably exceed assets and thus immediate measures are needed for the protection of policyholders
¡¤ period of business suspension : Aug. 11, 1998 - Nov. 10, 1998 (3 mos)
¡Ø companies subject to business suspensions will be able to carry out businesses specified by the FSC as follows
- Insurance business
o Premium payment collection of existing policies (however, not to be collected through solicitors' visits)
o Filing of benefit payment claims
o Confirmation of contract terms of existing policies and issuance of certificates etc.
- Assets management
o Receipt of interest and dividend payments of securities
o Call back of principal payment of loans (through Giro or automatic transfer)
o Preservation of credits (administration of overdue loans etc.)
o Execution of ordinary expenditure for assets management
o Asset disposal approved by the Governor of the Insurance Supervisory Board to resolve liquidity shortage
o Execution of expenditure for policy maintenance and ordinary administrative duties will be allowed to a limited extent upon approval by the administrator
o Suspension of authoritative duties of principal officers and nomination of administrator
¡¤ There is concern of a moral hazard problem if existing principal officers continue to remain in their recent capacities and as a way to minimize policyholders' losses and to fill in the gap of vacancies in management administrators will be nominated.
¡à Submission of implementation plans : Josun Life, Kookmin Life, Pacific Life, Handuk Life, Hankuk Life, Doowon Life, Dongah Life (7 cos.)
o Companies with somewhat serious deficiencies in solvency margins but which submitted moderately reasonable rehabilitation plans and thus are believed to possess the capability to implement their rehabilitation plans by end September, 2000,
o however, on the other hand, depending on future economic conditions and changes in the insurance market are not deemed to have the capability to completely overcome deficiencies in solvency margins are required to prepare and submit implementation plans of rehabilitation plans by September 10, 1998
¡Ø Solvency margin ratio targets
Solvency Margin Ratio
end Mar., 1999
to reduce deficiency in solvency margin to less than 10%
end Mar., 2000
to reduce deficiency in solvency margin to less than 5%
end Sept., 2000
to satisfy solvency margin requirement
¡à Submission of letters of intent : Hanil Life, Shinhan Life, Hansung Life, Daishin Life, Tongyang Life, SK Life, Kumho Life, Haedong Fire & Marine, Dongbu Fire & Marine (9 cos.)
o Companies with moderately low deficiencies in solvency margins and which have reasonable rehabilitation plans and thus possess the capability to completely overcome deficiencies in solvency margins will be required to prepare and submit letters of intent, which are to include among others quarterly implementation plans by September 10, 1998
4. Policyholder protection
¡à Insurance policies held with the non-viable companies will be protected in accordance to provisions under the Depositor Protection Law
5. Future plans
¡à Transfer of non-viable companies' businesses will be pursued in an expedited manner by financially sound insurance companies that seek to take on businesses of non-viable companies upon their approval
¡à Resolution of fidelity/surety insurance companies
o As the resolution of fidelity/surety insurance companies is expected to have a wide-ranging effect on individuals and small and medium sized enterprises etc. as well as overall financial market,
o it should 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