By Yoon Ja-young
Staff Reporter
The biggest issue regarding the stock market this week was the revealing of Samsung Life Insurance's plan to get listed on the Seoul bourse next year. It is the biggest insurance company in the country, and also the biggest non-listed company. Once it gets listed, it will immediately rise as one of the top 10 firms, with market cap surpassing 14 trillion won.
Samsung is not the only life insurance firm that is interested in the stock market. Tong Yang Life Insurance joined last month, becoming the first life insurer ever on the bourse. Korea Life Insurance, one of the top three players in the industry, and Mirae Asset Life Insurance also made it clear that they plan to enter the bourse.
Behind the move is local life insurers' need to move into overseas markets, as the local market is nearing saturation.
"We determined that the listing is crucial for securing a future growth engine and global competitiveness. Samsung Life Insurance aims to be among the global top 15 by 2015. Bolstering capital is essential," a spokesperson at Samsung Life Insurance said.
The country's life insurance market is the world's seventh biggest in terms of income from insurance premiums. But as a maturing market, it isn't likely to see explosive growth anymore.
"Korean life insurance firms, even those at the top, lag far behind global players in terms of profitability, growth, or soundness. This is especially so in terms of profitability. The local market is already saturated," said Jung Seung-hee, a researcher at Hana Institute of Finance.
According to the financial regulator, global life insurers had an average return on equity (ROE) rate of 17.7 percent as of 2006, while the figure for local life insurers was a mere 9.7 percent.
While global insurance giant ING does over 70 percent of its business in overseas markets ― actively seeking new opportunities in emerging markets ― Korean players have had almost no significance abroad. The biggest players, including Samsung, have been losing the local market to those from abroad, who now represent over 20 percent of the industry here.
"Listing will definitely help local players compete in the global market," Jung said.
To begin competing overseas, a lot of initial investment is required. But Korean firms have been lagging behind global players in productivity, capital, and brand power.
Local insurers can begin to enter the global arena by listing their shares. There were 27 life insurers among the world's top 500 businesses named by Fortune magazine in 2008. Among the top 27 life insurance firms, Samsung Life was the only non-listed corporation.
For Samsung, there are two more reasons for its move to seek listing.
In part, the move aims at paying off the debt of Samsung Motors. In 1999, Samsung Group agreed to contribute 3.53 million unlisted shares held by Samsung chairman Lee Kun-hee to the automaker's creditors to compensate them for their losses.
Samsung sought to have the creditors recover their losses through listing its insurance arm on the main exchange by the end of 2000. But this measure was indefinitely pushed back, as the insurers and civic groups disagreed on how capital gains from the listing should be distributed to subscribers.
The creditors filed a lawsuit against Lee and Samsung subsidiaries to pay 4.7 trillion won in 2005. The court ordered Samsung to pay 2.3 trillion won by selling stocks in the insurer. Samsung Group appealed, and the trial is pending.
"The listing of Samsung Life Insurance would create ways to pay back debt related to Samsung Motors. And it would give momentum for the handover of managerial control from father to son," Jun Yong-ki, an analyst at Meritz Securities, said.
"The listing would also boost the corporate value of Samsung Everland, which holds the life insurer's shares. In that case, it would become easier for Samsung Card to sell its shares of Samsung Everland. The possibility of Samsung Everland listing on the bourse has, therefore, also increased," he said.
Local life insurers are likely to get upgraded to the global stage when their shares begin trading on the bourse.
Most of all, this could enhance transparency and improve effectiveness in management. With listing comes the obligation to submit disclosures that become immediately available to investors and shareholders.
Therefore, the firms will have to be prudent in risk management, as shareholders will be watching how they manage assets.
"Better financial health and transparency in management will benefit our policyholders and shareholders as well," the Samsung spokesperson said. "Listing thus enhances corporate credit, and consequently corporate value. It can boost sales and brand awareness as well, since we will be effectively communicating with the market through disclosure and IR," he added.
Korea Life Insurance is seeking to get listed for similar reasons. "We have felt the need for listing from early on. It is crucial for us to hone our competitiveness and enhance corporate value," a spokesperson for the company said.
The listing of life insurance companies is likely to change the landscape of the financial industry. Insurers will become strong enough to compete with banks. If the regulator allows insurance companies to provide payment and settlement services, they will become even more competitive.
Samsung Life Insurance, for example, has tremendous marketing channels and over 30,000 financial consultants. Banks have been fiercely opposing a government move to give insurers more power.
There would also be more M&As in the financial market. "Non-bank holding companies, especially insurance holding companies, will actively engage themselves in M&As," Hana Institute of Finance's Jung said.
The first step for Samsung will be to pick a lead manager for listing. Then it must pass preliminary screening by the Korea Exchange, the country's stock market operator. "We will select a lead manager in early December. If all things continue smoothly, we could get listed on the bourse in as early as the first half of the next year," Samsung spokesperson said.
There had been speculation that Korea Life Insurance would delay its plan in order to avoid Samsung's process, in an effort to ensure proper evaluation.
Korea Life Insurance, however, said it will push for listing as originally planned. "We already selected a lead manager. We will submit for preliminary screening in January, and get listed in the second quarter," a Korea Life Insurance spokesperson said.
If Samsung and Korea Life Insurance go for the bourse, Kyobo, another in the top three, won't be able to sit idly by. Kyobo Life Insurance has previously said that listing is necessary. However, it is likely to observe market conditions first.
Mirae Asset Life Insurance is another strong candidate to make the move, as it has selected Samsung Securities and Citigroup Global Market Securities as lead managers already, as part of its plan to get listed next year.