S&P Comments on Korean Insurance Industry Transparency Plan

August 18, 2005

Standard & Poor’s Ratings Services has given a definite maybe to a newly unveiled reform plan for Korea’s insurers. The rating agency called the plan “a good start towards enhancing the industry’s transparency,” but indicated: “the plan could better achieve its goal of strengthening the insurance sector if it enforced more comprehensive disclosure, which would boost confidence among policyholders, investors, and market participants.”

The insurance road map, devised by Korea’s Financial Supervisory Service (FSS), sets out guidelines on major issues affecting the industry. S&P also said, “the road map could do more to help solve the dispute between policyholders and shareholders over the distribution of proceeds from stock market listings.”

“Korean insurers currently face a drastically changing business environment,” S&P continued, “with fiercer competition, market saturation, liberalization of financial services, and falling interest rates. In response, Korea’s Financial Supervisory Service (FSS) unveiled its mid- to long-term ‘road map’ for insurance on June 21, 2005, and a month later it unveiled another plan to revise premium calculation.

“The road map suggests relatively comprehensive guidelines on major issues in the industry; and if implemented effectively, its recommendations will likely enhance the transparency of domestic insurers.” According to S&P regulators and insurance companies still face the challenge of devising and implementing “specific measures to carry out the intent of the plan.”

S&P said it “believes that disclosure and corporate governance are key areas in which the regulator and insurance companies can focus on increasing the road map’s effectiveness. Additionally, if stakeholders can resolve the dispute on how life insurers’ surpluses are divided between policyholders and shareholders, it could broaden the capital-raising options available to insurers, giving the industry greater stability.

“Some life insurance companies may fall into financial difficulty if the road map measures and risk-based capital requirements reveal their fundamental weaknesses. However, if concern for these weaker companies compromises the content or implementation of road map reforms, it would erode policyholder rights, weaken market confidence, and hamper industry restructuring.”

The report, titled “Korea Charts Course For Insurance Industry, But Road Map Hazy On Stricter Disclosure,” is available on RatingsDirect, Standard & Poor’s Web-based credit research and analysis system. The report can also be found on Standard & Poor’s public Web site at www.standardandpoors.com; under Credit Ratings in the left navigation bar select News & Analysis.

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