Financial authorities are reviewing insurance company asset management regulations for the first time in 13 years. Although insurance companies are major investors with managed assets exceeding 10 quadrillion won, they remain unable to escape low returns comparable to those of government bonds. Despite a recent buildup of financial firm listings on the M&A market, investment limits prevent insurance companies from actively participating. Critics argue that the fundamental reason Samsung Electronics could not finalize its share buyback timing despite announcing a 110 trillion won shareholder return policy is due to pre-emptive asset management regulations applied to its controlling insurance group.
According to financial authorities and the insurance industry on the 2nd, the Financial Services Commission and the Financial Supervisory Service have received improvement proposals from insurance companies and launched efforts to rationalize asset management regulations aimed at boosting insurance company asset management returns and strengthening industry competitiveness. Priority areas for regulatory review include restrictions on subsidiary stock and bond investments under Article 106 of the Insurance Business Act and private bond issuance restrictions under Article 15 of the same law, it was reported.
The investment limit for insurance companies' subsidiaries was introduced in 2003 during a comprehensive revision of the Insurance Business Act with the aim of protecting policyholders. It requires that bonds or stocks issued by subsidiaries holding more than 15% equity be held up to the smaller of 60% of own capital or 3% of total assets. The problem is that while insurance companies' own capital has increased by over 40% in the past 13 years, their total assets have grown by only around 16%. With stagnation in premium income growth causing total assets to remain flat, most insurance companies are now subject to limits based on total assets rather than own capital.
Consequently, insurance companies are urging financial authorities to either exempt investment limits when acquiring financial firms including other insurance companies or raise the "3% of total assets" threshold. In practice, investments in wholly-owned subsidiaries or overseas insurance subsidiaries are already excluded from investment limits. Critics argue this creates "reverse discrimination," as exceptions are recognized abroad but applied domestically.
Insurance companies find themselves unable to actively pursue equity investments, M&A, or the establishment of joint ventures despite having sufficient "ammunition" (capital). In fact, last year, insurance companies that entered the bidding war for Aegis Asset Management failed due to low offers caused by investment limit issues. Properties such as Yebyeol Insurance, KDB Life Insurance, and Lotte Insurance, which have been on the market for years, are now being acquired by non-insurance financial firms or are being discussed as potential targets for other strong bidders.
Discussions are also underway to improve regulations on insurance companies' issuance of private bonds. Insurance companies can only issue bonds for two purposes: capital reinforcement and refinancing existing bond maturities. The issuance limit is also capped within their own capital. In contrast, banks, financial holding companies, and credit card companies can issue bonds without usage restrictions up to 2 to 20 times their own capital.
Insurance companies further point out that capital regulations should be relaxed when investing in government or public institutional investor-backed policy programs, venture infrastructure, other forms of risk capital, or long-term equity holdings. Although managed assets have surpassed 10 quadrillion won, investment returns remain stuck at the low single-digit range of around 3%, comparable to government bonds, due to restrictions imposed by the K-ICS (Korean Insurance Capital Standard) solvency regulation.
There is also a need to shift asset management regulations from pre-approval to post-approval frameworks. Not only does the Insurance Business Act impose limits on subsidiary investments, but the Financial Industry Act (Act on Structural Improvement of the Financial Industry) also represents a typical post-approval system, yet Samsung Life and Samsung Fire & Marine Insurance have been hit directly. Samsung Electronics recently announced a shareholder return plan worth 110 trillion won but could not finalize its share buyback plan. Many analyses suggest this is because the stake held by the insurance group exceeds the 10th% limit imposed by the Financial Services and Securities Act.
A financial industry official stated, "Although enhanced capital regulations such as K-ICS (Korean Insurance Capital Standard) were introduced three years ago, pre-emptively restricting investments entirely is excessive compared to cases in Europe or the US. It is time to shift from a pre-approval framework to a post-approval one."
Since last year, large insurance company listings have appeared one after another in the domestic M&A market, yet they remained "pie in the sky" for insurance companies. This is due to investment limits on subsidiaries established 13 years ago. While exceptions are allowed when acquiring overseas financial firms, insurance companies have been unable to boldly enter bidding wars for domestic insurance companies that have lacked owners for years, sparking controversy over "reverse discrimination."
According to the financial industry on the 2nd, the investment limit under the Insurance Business Act, which requires acquiring subsidiary stocks or bonds up to the smaller of 3% of total assets or 60% of own capital, has become an obstacle for insurance companies' M&A activities. In December last year, Hanwha Life and Heungkuk Life entered the bidding war for Aegis Asset Management, a domestic real estate Jeon Mun (CEO) management company, but ultimately failed to secure the deal.
Global private fund manager Hillhouse Capital was selected as the exclusive negotiator and offered an acquisition price of 1.1 trillion won. In contrast, Hanwha Life, whose subsidiary investment limit was only around 800 billion won at the time, could not make an aggressive "bet." Heungkuk Life, with an asset management limit of 400 billion won, barely entered the bidding through complex methods such as project funds (PEF) and acquisition financing (loans), but failed to be selected as the exclusive negotiator. A financial industry official said, "Due to strict investment limits based on total assets, insurance companies must form consortia rather than bid alone. It is difficult to offer competitive prices, so good listings eventually go to foreign private funds."
A "big market" has emerged with a flood of insurance company listings including Lotte Insurance, Yebyeol Insurance, and KDB Life Insurance, yet insurance companies themselves were ignored. OK Financial Group was selected as the exclusive negotiator for Yebyeol Insurance, while Korea Investment Holdings became the exclusive negotiator for KDB Life Insurance. Although Samsung Life, Kyobo Life, and Heungkuk Fire & Marine participated in these bidding wars, they were unable to offer competitive prices due to the burden of investment limits.
Kyobo Life's subsidiary investment limit is only around 400 billion won, making it difficult to absorb large listings exceeding 1 trillion won. Although the company has shown interest in major and minor listings ahead of its transition to a holding company structure, it has already exhausted its 900 billion won investment limit following the acquisition of SBI Savings Bank.
Hanwha Life increased its investment limit to 1.32 trillion won by fully integrating Hanwha Life Financial Services, in which it held a 90% stake, into a wholly-owned subsidiary (100%) at the end of last year. Wholly-owned subsidiaries are exempt from investment limits. However, during the recent acquisition of Accuon Capital for 1 trillion won, a consortium was formed, and industry analysts suggest that investment limit regulations were one contributing factor.
Samsung Fire & Marine Insurance and DB Insurance have relatively ample investment limits. Their commonality is that they have invested in overseas insurance companies in countries such as the United States, the United Kingdom, or Southeast Asia rather than domestically. Financial authorities apply exceptions to foreign financial firm investments when calculating subsidiary investment limits. While this is a policy decision aimed at encouraging insurance companies' overseas expansion, critics also argue it constitutes "reverse discrimination regulations" that block domestic investments.
Asset management limit regulations are virtually unique to Korea. In the United States, subsidiaries engaged in the insurance business are excluded from limit regulations, and Japan grants separate approvals for those engaged in financial services. The UK and Germany, known for stringent prudential regulations, have completely abolished such pre-approval regulations, deeming it sufficient to evaluate solvency ratios post-facto.
Moreover, insurance companies face reverse discrimination in raising acquisition funds due to restrictions on the purposes and limits of private bond issuance. Private bonds can only be issued within own capital limits for two purposes: capital reinforcement (prudence) to improve K-ICS (Korean Insurance Capital Standard), or resolving asset-liability maturity mismatches (liquidity). In contrast, banks, financial holding companies, and credit card companies can raise acquisition funds or operating capital through unrestricted private bond issuance up to 2 to 10 times their own capital.
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