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General Restrictions and Prohibitions on Business Activities

Insurance Companies

Restrictions on Asset Use and Credit Extension

The Insurance Business Act provides for detailed rules for insurance companies' asset management in order to ensure safe and sound asset management to the benefit of policyholders. The general asset management restrictions and requirements for insurance companies are provided below:

  • Real properties may not be acquired for non-operational purposes.
  • Credit extension in the form of a loan is prohibited for speculative securities investment or for the acquisition of the shares of the insurance company extending the credit.
  • Credit extension to an individual or an entity (and any connected parties) may not exceed 3 percent of the insurance company's assets.
  • The aggregate ownership of equity and debt securities issued by an entity (and any connected parties) may not exceed 7 percent of the insurance company's assets.
  • The aggregate amount of credit extended to an individual or an entity and the ownership of equity and debt securities issued by the same individual or entity may not exceed 12 percent of the insurance company's assets.
  • Large credit extensionㅡdefined as any amount in excess of 1 percent of the company’s assetsㅡto an individual (and any connected parties), an entity (and any connected parties), or a large shareholder of the insurance company may not exceed 20 percent in aggregate.
  • Credit extensions to a large shareholder (an entity) and its subsidiaries in aggregate may not exceed 40 percent of the insurance company's capital. If this amount is greater than the amount equivalent to 2 percent of the insurance company's assets, the latter is the maximum permitted.
  • The aggregate amount of equity and debt securities issued by a large shareholder (an entity) and its subsidiaries may not exceed 60 percent of the insurance company's capital. If this amount is greater than the amount equivalent to 3 percent of the insurance company's assets, the latter is the maximum permitted.
  • Credit extension to a subsidiary (and any connected parties) of the insurance company may not exceed 10 percent of the insurance company's capital.

Restrictions on Dealings with Subsidiaries and Large Shareholders

Insurance companies must comply with certain restrictions when acquiring a subsidiary or extending credit to the controlling shareholder. The Insurance Business Act also prohibits insurance companies from engaging in non-arm's length transactions with related parties.

Acquisition of Subsidiary

A company of which an insurance company holds more than 15 percent of the company's outstanding issued shares is deemed a subsidiary of the insurance company. An insurance company that seeks to acquire a subsidiary must obtain approval from the FSC/FSS. The acquisition of consumer credit information providers and others performing support services to the insurance company must be reported to the FSC/SS.

Credit Extension to Large Shareholders

The Insurance Business Act also provides for restrictions on insurance company’s credit extension to its controlling shareholder (an entity) to prevent shareholder abuses. For example, a vote by the board of directors of the insurance company and a public disclosure are required before credit extension in excess of 1/1,000 of the insurance company’s capital or KRW1 billionㅡwhichever is smallerㅡis made. The same is required for the acquisition of equity or debt securities issued by a large shareholder.

Non-Arm's Length Transactions with Related Parties

The Insurance Business Act prohibits insurance companies from engaging in non-arm's length transactions with related individuals or entities to prevent risk transfers from their controlling shareholders or subsidiaries. Such transactions include (but are not limited to):

  • Credit extension to the controlling shareholder or a subsidiary in support of recapitalization in another company;
  • Asset transfers without consideration to the controlling shareholder or a subsidiary;
  • Any non-arm's length transaction and credit extensions unequivocally disadvantageous to the insurance company.

Insurance Solicitation

Solicitation is the act of soliciting, negotiating, or procuring the purchase of an insurance product from consumers. For consumer protection, the Insurance Business Act limits individuals and entities that may engage in insurance solicitation to the following:

  • Insurance company employees (excluding the company's chief executive officer, outside directors, auditor, and members of the board's audit committee);
  • Insurance agents who are registered and employed by an insurance company; an insurance agent for a life insurance company may solicit a buyer for a nonlife insurance company (and vice versa);
  • Independent insurance agents (also called insurance agencies) that sell insurance products from multiple insurance companies; and
  • Insurance brokers who are FSS-registered independent intermediaries for insurance buyers and sellers; insurance brokers may conclude an insurance contract on behalf an insurance company.

Bancassurance

Bancassurance enabling banks, financial investment services providers, and other authorized financial services companies to sell insurance products as independent insurance agents was introduced in May 2003. The authorized bancassurance sellers may solicit insurance buyers from their Internet homepage or face-to-face within designated spaces within their branches.