Proposed insurance rules may force Samsung Life to unload Samsung Electronics shares

The push by some lawmakers to revise the Insurance Business Act is weighing down on the nation’s largest life insurance firm, Samsung Life Insurance, as the insurer would have to offload a large part of its Samsung Electronics stake, now worth nearly 30 trillion won ($25.3 billion).

The move recently caused Samsung Life stock prices to fluctuate heavily, partly on speculative buying in anticipation that Samsung Life’s valuation will grow higher in the long run as a result of the selloff.

On Friday, Samsung Life stocks fell 9.2 percent, after jumping 46 percent from Monday to Thursday. On Thursday, Samsung Life stock hit a 52-week high at 76,800 won per share.

The lawmakers behind the revision plan say their main goals are to level the playing field for South Korean investors and to protect financial consumers. They said the current law unduly favors insurance companies.

Under the current rule, financial firms -- including commercial banks, savings banks and pension funds -- are subject to various restrictions on the degree of maximum stock holdings out of their total assets in the accounting practice.

Insurance firms have been largely under looser restrictions, as their stock holdings in affiliates were calculated by book value, instead of market value.

However, under changes proposed separately in June by ruling party Rep. Park Yong-jin and Rep. Lee Yong-woo, insurance firms would be no exception. Both proposals are currently in the early stage.

The change in the asset valuation method in accounting would greatly affect Samsung Life, as the value of its Samsung Electronics stock holdings far exceeds the upper threshold of 9.5 trillion won, or 3 percent of Samsung Life’s total assets as of end-June.

Samsung Life has so far bought a combined 8.51 percent of Samsung Electronics common shares for 569 billion won, meeting the current requirement.

If the valuation method changes, Samsung Life will have to put part of its stake up for sale as they were worth 26.8 trillion won as of end-June. Any surplus of the shares -- valued roughly over 17 trillion won -- must be trimmed potentially over the course of at least five years once the revision passes.

This gap in the assets’ purchase price and market value has not only undermined market fairness but also run the risk of the investor’s failure to protect financial consumers, wrote Rep. Lee, former co-CEO of Kakao Bank and CIO of Korea Investment Management, in the legislative proposal.

If either of the revisions pass, Samsung Life’s shareholders will benefit, given that stake sales could lead to a higher intrinsic value of Samsung Life shares, analysts said.

Shinhan Investment analyst Lim Hee-yeon wrote Friday that the sales proceeds could be used as a capital buffer for Samsung Life and partly as a dividend to Samsung Life shareholders.

“Regardless of whether the revision passes or not, it is good news that Samsung Life’s ownership of Samsung Electronics is under the spotlight,” Lim wrote.

The same is true for Samsung Fire & Marine Insurance, another insurer arm of Korea’s largest conglomerate. Samsung Fire holds 1.49 percent of Samsung Electronics valued at 5.2 trillion won on Friday. The damage insurer’s upper bar was set at 2.6 trillion won as of end-June. Samsung Fire shares soared 14.9 percent in the past week.

By Son Ji-hyoung (consnow@heraldcorp.com)