It’s a dispute about policyholders’ right to a share of profits from listing.It is clear that local life insurers are legally corporations but some said the companies have been operated as if they were mutual companies.
Today, let’s look at the issue of life insurers listing on the Seoul stock markets, which has been at the center of controversy recently.
In mid-July, an organization named the Advisory Commission for Listing of Life Insurers held a public hearing at the Korea Exchange in Yeouido, Seoul, to discuss a basic plan for listing of insurance companies. Some civic groups, including the People’s Solidarity for Participatory Democracy, protested against the plan, which was unveiled before the public hearing.
What do the terms “life insurers” and “listing” mean? These may be unfamiliar words to you. Let’s look at each term. Life insurers are companies that sell total life insurance, illness insurance, accident insurance and pension policies, one or two of which your parents might hold. A holder of a policy pays the company a certain amount regularly, called a premium. Listing means putting a company’s shares on the stock market so that anybody could sell or buy the shares through the Korea Exchange. Thus, this is also called a “public offering.”
In Korea, 12 local life insurers, including Samsung Life Insurance, Kyobo Life Insurance and Korea Life Insurance, and 10 foreign life insurers, such as AIG, Allianz Life Insurance and Prudential Life Insurance, are in business. Among the local life insurers, none is listed on the Seoul stock markets. Most of the foreign life insurers, including AIG, are listed.
The listing of local life insurers has been discussed often over the last 17 years but none has yet been listed?
In the early 1990s, when the possibility of listing life insurers was discussed for the first time, the Finance Ministry came close to writing a law providing for listing of the companies. But as conditions at Seoul’s stock markets had deteriorated at the time, the ministry decided to delay such listings. The ministry was afraid that listing of many new shares on the market would cause general stock prices to fall further.
In 1999, Samsung Group Chairman Lee Kun-hee offered 3.5 million shares of Samsung Life Insurance to the creditors of Samsung Motor Inc. in exchange for waiving the automaker’s debts of $2.4 billion. Because of this, the listing of Samsung Life and other life insurers once again emerged as a hot issue. An advisory commission for the listing of life insurers was organized and a public hearing was held, just like this year. But due to differences between civic groups and life insurers on how to distribute profits expected from listing the shares, the government decided in December 2000 to delay such listings.
So, why do local life insurers want to list their shares? It is mainly because they want more money to grow their businesses. If a company sells a lot of shares on the stock market, it can raise cash to spend on expanding its business and to make new investments. Since the late 1980s, many large foreign life insurers have begun operations in Korea, so local insurers need more money to compete with them. Even the civic groups that oppose the Advisory Commission’s listing plan recognize the necessity of listing local life insurers.
The major reason these civic groups are protesting against the listing plan is that they have different views from the life insurers. The life insurers said that they would not distribute shares to insurance policyholders, even if they list their shares on the stock markets. The civic groups argue that the life insurers should distribute the profits from listing in the form of shares to their policyholders. Unlike ordinary companies that manufacture goods or provide services, life insurers do business on premiums paid by policyholders so the policyholders have the right to get part of the profits from listing, the civic groups say.
Before last month’s hearing, the Advisory Commission expressed a view favoring the life insurers. The commission said that life insurers are “corporations” rather than “mutual companies.” A corporation is a business organized by shareholders, each of whom is a limited owner of the business, with limited rights and liabilities. A mutual company is a business whose customers are also its owners.
It is clear that local life insurers are legally corporations but some said the companies have been operated as if they were mutual companies. Until the early 1990s, local life insurers sold “insurance policies with dividends.” The holders of such policies not only could get insurance payouts but also dividends. In other words, when the company performed well and made a lot of money, it distributed part of the profits to its policyholders in the form of dividends. This shows that the companies treated policyholders as if they were shareholders ― in other words, owners ― so local life insurers should be regarded as mutual companies, the civic groups asserted.
The civic groups said that the insurance premiums paid by policyholders have become capital for the life insurers so local life insurers are virtually mutual companies. As policyholders are the owners in mutual companies, the policyholders have a right to take part of the profits from listing in the form of shares, just as shareholders do, the civic groups added.
Why then did the Advisory Commission, consisting of the nation's top insurance experts, support the life insurers?
“It is difficult to deny the character of local life insurers as corporations not only in the aspect of their formality but also in the aspect of their actual operations,” the Advisory Commission said in a statement. It was a very roundabout statement, but meant that local life insurers are corporations so don’t have to distribute shares to policyholders when they list.
Representatives from civic groups, who had been scheduled to attend the public hearing, boycotted the meeting and refused to talk with Advisory Commission members. The People’s Solidarity for Participatory Democracy said in a statement, “The commission’s basic plan reflected only the standpoint of the life insurers so we will refuse to meet with the commission members. In 1999, an advisory commission for listing of life insurers recommended that 30 percent of profits from listing should be distributed to policyholders, but this commission made a contrary conclusion. The commission should unveil its reasons clearly.”
In response, the commission said in another statement, “We reached a different conclusion from that of 1999 as a result of more advanced analysis and a review of more cases.” That explanation seems unsatisfactory to the suspicious civic groups. A commission member explained that the commission meant that the past recommendation was not based on objective research and analysis but simply out of consideration for policyholders. He also suggested that the civic groups were boycotting the public hearing because they were not confident they could prove the commission wrong.
by Choi Joon-ho