Heungkuk Life Insurance plans to pay cash dividends to Taekwang Industrial affiliates this year. As its capacity to pay dividends weakened due to the surrender value reserve system that began in 2023, it plans to secure cash by changing its financial structure.
According to the insurance industry on the 12th, Heungkuk Life Insurance will hold an extraordinary shareholders meeting at its headquarters in Jongno-gu, Seoul, on the 26th to approve an agenda item to transfer part of its capital surplus to retained earnings. The point is to move capital surplus, which is used only to cover deficits, to retained earnings used for dividends to increase dividend capacity.
Heungkuk Life Insurance plans to pay dividends to TCS and Tcast, affiliates of Taekwang Group that hold convertible preferred shares. TCS holds 2,122,242 shares of Heungkuk Life Insurance convertible preferred stock, and Tcast holds 318,337 shares.
Previously, to bolster capital, Heungkuk Life Insurance issued convertible preferred shares to TCS and Tcast and carried out a paid-in capital increase in Dec. 2022, receiving 230 billion won. At the time, Heungkuk Life Insurance said it would not exercise the call option to redeem its hybrid capital securities early, but after criticism, it changed course and decided to exercise the call option. The paid-in capital increase was intended to strengthen capital due to the call option.
Under the Commercial Act, only when the combined total of capital surplus and legal reserve exceeds 1.5 times the capital stock can the excess be transferred to retained earnings. As of the end of September, Heungkuk Life Insurance's share premium, one of its capital surpluses, was 298.2 billion won, and its legal reserve was 6.9 billion won. Given that its capital stock is 80.1 billion won, about 185 billion won can be transferred to retained earnings. However, the transfer size has not been set.
Heungkuk Life Insurance is said to have promised dividends as a condition for issuing convertible preferred shares. In fact, in 2023, the year after the paid-in capital increase, Heungkuk Life Insurance paid 7,50 won per share in dividends on its convertible preferred shares, totaling 10.188 billion won. However, as the surrender value reserve system took effect the same year and reduced its capacity to pay dividends, it could not continue the dividends.
If an insurer's insurance liabilities are less than the surrender value, it must set aside the shortfall as a surrender value reserve. This reserve is a negative factor when calculating distributable profit, and as the industry's surrender value reserves surged to 44 trillion won at the end of June, constraints on dividends emerged.
A Heungkuk Life Insurance official, regarding the financial structure change, said it was "a preemptive measure to prepare dividend funds," adding, "It is uncertain whether the surrender value reserve system will be improved, so whether dividends will actually be paid remains unclear."