Insurance Business Act
A controversial new bill is expected to be enacted to limit insurers’ holding of excessive shares in their subsidiaries. This is to respond to the criticism that the loopholes of the current legal framework have allowed major insurers to own too many shares in their affiliated companies.
In fact, the target of the bill is Samsung Life Insurance and the ownership of the Samsung Group as a whole. As such, discussion of the bill is likely to result in a significant backlash down the road. In particular, some industry insiders and lawmakers are expressing concerns that the bill would lead to another set of regulations, which is counter to the Park Geun-hye government’s drive for deregulation.
The amendment to the Insurance Business Act is scheduled to be tabled in the National Assembly next week. According to the current law, an insurer cannot invest 3 percent or more of its total assets in its subsidiaries’ shares, but the price of the shares is based on not the market price but the acquisition price. The amendment is to use the acquisition price, instead of the market price, in calculating the reference value of the ownership ceiling.
It is Samsung Life Insurance that is likely to take a direct hit when the bill passes through the National Assembly. According to the Solidarity for Economic Reform, the company’s investment in the shares issued by the major shareholders or the like cannot exceed four trillion won as of the end of 2012. However, the subsidiary shares owned by Samsung Life Insurance amount to approximately 17.5 trillion won on a market price basis. When the acquisition price-based calculation method is adopted, the ceiling goes down to 2.2 trillion won, which means the company is required to dispose of 13 trillion won of shares upon the implementation of the new law.
In response, insurers are stressing that civil society and lawmakers are trying to add more regulations without allowing for the reality in which financial institutions manage their customers’ assets in various ways.
The financial authorities’ official stance, in the meantime, is that the matter should be considered with prudence, although the intention is righteous enough. It is emphasizing the importance of equality with the other sectors, legal details, and restrictions on violators.