Insurers, regulator to clash over dividends
By Kim Tae-jong
Financial authorities and insurance firms are expected to clash over dividend payout ratios. The former insists insurers should refrain from paying excessive dividends to shareholders due to the heightened uncertainty in the global economy, while the latter argue they should be allowed freedom in deciding the level of payments.
The anticipated dispute comes as Samsung Life Insurance recently announced it will pay a similar dividend as last year, ahead of a general meeting of shareholders in June.
Samsung Life said the dividend payout ratio was about 42 percent at 2,000 won per share, and other insurance firms are expected to make similar announcements, following the market leader.
In response, the financial authorities said it will launch an investigation to see whether the firms are paying excessive dividends to shareholders and their parent companies against its “advice.” The move can be seen as a warning to insurers, pressuring them to lower the level of dividends.
“It’s not right for insurers to spend their profits simply because their business is now prosperous,” an official from the Financial Supervisory Service (FSS) said. “They should see things from a long-term perspective.”
The financial watchdog believe that it will be also problematic that insurance firms’ big dividends will lead policyholders to ask them to reduce subscription rates, which could put them in financial trouble in a downturn, he said.
“We will review whether there are problems in deciding the level of dividends and whether insurers take risk factors into consideration, as well as checking their financial health.”
According to the FSS, the dividend payout ratio reached 42 percent for Korea Life Insurance last year, followed by LIG Insurance at 36 percent and Hyundai Insurance, 35 percent.
It is expected that most insurance firms will pay dividends at a level similar to last year, given their performance.
But the move by the FSS to curb excessive payouts may face strong opposition from insurance firms and shareholders. They are also concerned about possible stock prices falling due to regulations on dividends.
“Given our financial stability, we believe the payout ratio is not that high,” said an official from an insurance firm, who declined to be named. “And basically, it is up to each insurer to decide the level of dividends, considering demands from shareholders and financial stability.”
Another market insider also said he is skeptical of the definition of “excessive” dividends.
“First of all, I don’t get what level should be considered excessive,” an analyst at a security firm said. “Such vague regulations seem to cause confusion or opposition from insurance firms, I guess, because the level of dividends here is not that high compared to other countries.”