By Jhoo Dong-chan
History teaches us that excessive bureaucratic control over the private sector ends up backfiring.
In many cases, if the government has too much say in the management of a company, it is highly likely that it could eventually generate unwanted consequences, such as the erosion of corporate value.
KDB Life Insurance is a case in point.
The life insurer, under the management of an equity fund set up by the state-run Korea Development Bank (KDB), has been suffering from ballooning losses. As a result, the KDB has failed in all of its three attempts to sell off the firm.
This is in stark contrast to Orange Life, formerly ING Life Insurance Korea, which was recently sold to Shinhan Financial Group at a decent price, after MBK Partners, a major local private equity firm, successfully restructured it.
Shinhan, the nation's second-largest financial group, has agreed to acquire a 59.15 percent stake in Orange from MBK Partners for 2.3 trillion won ($2.04 billion). MBK acquired the then ING Life Korea from ING Group in 2013 for 1.8 trillion won.
For the past five years, MBK Partners has enjoyed 600 billion won worth of dividends thanks to the successful earnings of ING Group's Korean life insurance arm. It also sold the firm's shares to earn another 1.1 trillion won when the life insurer went public last year.
In a stark contrast to Orange's stable growth in value, KDB Life has display a streak of disappointing earnings since the KDB equity fund acquired it in 2009.
The insurer is said to be in survival mode, and has yet to overcome worsening earnings although the state-run bank has poured in 600 billion won worth of bailout money.
It posted a 65.3 billion won net profit in 2014, but has since registered losses every year.
Comparing the two firms' cases, market observers said state intervention rather jeopardized KDB Life's corporate value under the lender's lax management.
The KDB parachuted two CEOs in to manage the ailing life insurer _ Choi Ik-jong and Ahn Yang-soo _ after the bank acquired it. The two have no experience in the insurance industry.
The state-run bank also appointed a number of its officials as the insurers' executives, but they too have no experience in the industry.
“It is regrettable to see taxpayer money spent under lousy management,” said a brokerage worker who asked not to be named.
“The bank should leave the company to experts who are up to date with the industry and capable enough to revive it. Such posts are not for those who need to spend an extra one or two years before retirement.”
Due to its huge losses, KDB Life downsized the number of branches to 99, nearly half of its 2010 figure of 162. The number of its life planners was more than 4,800 in 2010, but declined to 2,408 as of end of June.
KDB Life's risk-based capital (RBC) ratio is also 109 percent, falling short of the government's recommendation of 150 percent. The RBS requirement refers to a rule that establishes minimum regulatory capital for financial institutions.
Orange Life's RBC ratio is 455 percent.