Samsung Life Insurance and Samsung Fire & Marine Insurance have decided to sell their equity in Samsung Electronics. Samsung Electronics recently revealed a plan to cancel $16 trillion won worth of its own shares in the first half, and canceling treasury shares would push the two insurers above the current legal cap of 10% on the maximum equity in Samsung Electronics they can hold. Even if Samsung Life Insurance sells its equity in Samsung Electronics, the loss from participating (with-dividends) policies is larger than the gains from the sale, so dividends for participating policyholders are not expected.
According to the insurance industry on the 20th, Samsung Life Insurance and Samsung Fire & Marine Insurance said in disclosures the day before that they would sell 6.24 million shares (0.11%) and 1.09 million shares (0.02%), respectively, of Samsung Electronics.
Samsung Life Insurance and Samsung Fire & Marine Insurance have held 8.51% and 1.49% equity in Samsung Electronics, respectively, keeping a combined 10%. At a shareholders' meeting on the 18th, Samsung Electronics approved a plan to cancel 87 million treasury shares in the first half. When treasury shares are canceled, the number of shares in circulation falls and existing shareholders' ownership ratios rise. As a result, the insurers' equity in Samsung Electronics would increase. The current Act on the Structural Improvement of the Financial Industry (the Gold-San Act) limits financial affiliates to holding only up to 10% equity in nonfinancial affiliates, meaning the combined stake would exceed the cap by 0.13 percentage point.
To comply with the Gold-San Act, Samsung Life Insurance and Samsung Fire & Marine Insurance moved to preemptively sell the amount of the equity increase before Samsung Electronics disposes of its treasury shares.
For Samsung Life Insurance, selling equity in Samsung Electronics is directly tied to the issue of dividends for participating policyholders. In the 1980s, Samsung Life Insurance sold participating insurance products and bought equity in Samsung Electronics and Samsung Fire & Marine Insurance with funds from subscribers. Because of this, Samsung Life Insurance has regarded part of the valuation gains on the equity in Samsung Electronics and Samsung Fire & Marine Insurance as belonging to participating policyholders and has set it aside in a separate liability account called "policyholder equity adjustment."
However, Samsung Life Insurance is unlikely to share the proceeds from the equity sale with participating policyholders. In its business report disclosed on the 11th, Samsung Life Insurance said the negative spread on participating insurance continues, making it difficult to secure resources for future policyholder dividends. Since 1986, Samsung Life Insurance has paid policyholder dividends 31 times totaling 3.9 trillion won. In contrast, during the same period it used 11.3 trillion won from retained earnings, which belong to shareholders, to cover deficits arising in the participating account.
The size of the equity Samsung Life Insurance and Samsung Fire & Marine Insurance are selling is 1.5295 trillion won (0.13%). Given the deficit in Samsung Life Insurance's participating account, it would be difficult to share proceeds with policyholders. A Samsung Life Insurance official said, "We took preemptive measures to ensure there are no issues related to the Gold-San Act."