Restructuring the Life Insurance SectorMar 05, 1999

In a document released on March 5, 1999, the Financial Supervisory Commission laid out the underlying scheme for restructuring the domestic life insurance sector (total assets of 92.3 trillion won as of Dec. 1998). The following summarizes some of the important features.
Progress to date
Initial round of restructuring of the life insurance sector carried out in August, 1998 entailed the following measures ;
- Business suspension and exit (4 cos.) ; Kukje, BYC, Taeyang, Coryo

- Mandatory submission of management improvement implementation plans (7 cos.) ; Josun, Dongah, Kookmin, Hankuk, Handuk, Pacific, Doowon

- Mandatory submission of LOI (7 cos.) ; Hanil, Shinhan, Hansung, Daishin, Tongyang, SK, Kumho
Based on 1998 year-end results, among the 14 life insurance companies that were subject to management submission of management improvement implementation plans and LOIs, 10 companies were found to not have implemented plans as originally scheduled and were asked to promptly come up with ways to complete implementation (Jan 18 - Feb 18, 1999). It was conluded that a large number of these companies were suffering from huge losses and with deterioration in management performance of recent registered significant shortfall in solvency margin.

In February, 1999 due diligence was conducted on 14 companies that were subject to further management improvement and based on these results specific companies to be placed under restructuring schemes were identified.
Future Tasks
Without the resolution of ailing life insurance companies, problems in the sector will only worsen and require increasingly more public funds. Although voluntary M&As within the domestic market along side takeovers by international buyers are seen as the ideal way to approach the problem, as most of the companies are under severe distress the likelihood of any voluntary consolidation is dismal and thus sell-offs to international buyers will be the main vehicle to be used.
The underlying principle for the follow-up stage of restructuring is as follows ;
o The overall process will be carried out in a expedited manner

- Putting off restructuring will only lead to an increase in the level of public funds needed and panic on the part of policyholders.
o The sell-off procedure will be pursued with no interruption to normal business

- As a way to avoid a reduction in the value of the company, any designation as a non-viable financial institution will be postponed until the final buyer has been determined provided that once there are signs of policy cancellations and liquidity shortage, a non-viable financial designation will be imposed after which public funds will be mobilized and an appropriate buyer will be sought
o Companies with a more serious need to be restructured will be given priority attention
International auction will be the main vehicle used for the sell-off of insurance companies identified as targets to be restructured, however where an acquisition can be induced in an expedited manner such will be considered on a case-by-case basis.
For fairness and completeness of the sell-off process a steering committee has been launched to deliberate related matters. Also, financial advisors will be employed to enhance sophistication and effectiveness of the process. The various stages will be carried out under transparent rules following provisions of the Law for the Restructuring of the Financial Industry.

* Please refer to the attached file for details.