FSC in Support of Revising Insurance Business Act
The ruling Democratic Party of Korea has tabled an amendment to the Insurance Business Act to compel Samsung Group’s insurance subsidiaries to sell their shares in Samsung Electronics. The Financial Services Commission (FSC) made an official announcement in favor of the amendment on July 30, causing a stir.
According to the current Insurance Business Act, an insurance company’s shareholding in a major shareholder or a subsidiary for loss and risk prevention is limited to 3 percent of its total assets and the stock price in this case is calculated on an acquisition cost instead of market value basis. The amendment, tabled last month, is to calculate the price on a market value basis.
At present, Samsung Life Insurance’s and Samsung Fire & Marine Insurance’s shareholdings in Samsung Electronics are estimated at 500 billion won and 100 billion won on an acquisition cost basis, respectively. Those are equivalent to approximately 0.1 percent of the respective total assets of the companies. On a market value basis, however, the figures jump to 29,436.8 billion won (9.5 percent) and 5,239.3 billion won (6.2 percent), respectively. Once the law is revised, they must sell 23 trillion won of Samsung Electronics shares within a grace period of five years.
The bill is likely to be passed within this year with both the majority ruling party and the government in favor of it. “Regulations regarding an insurer’s investment in a subsidiary in the same business group are in effect only in South Korea and Japan and the regulations in Japan are based on acquisition costs,” said an industry source, adding, “The amendment is likely to cause many side effects with few positive effects.”