Worst Performance Yet...Foreign Insurance Companies Taking Dividends

MetLife, LINA Increase Dividends
Suspicions of Korean Market Exit Scandal

[Asia Economy Reporter Oh Hyung-gil] Foreign insurance companies operating in Korea have been found to continue receiving substantial dividends despite posting the worst performance ever. While most domestic insurers are refraining from paying dividends, these foreign insurers have increased dividends even as profitability declines, leading to speculation that this may be a preliminary step toward exiting the Korean market.

According to the insurance industry on the 17th, MetLife Life Insurance reported a net profit of 103.3 billion KRW last year, a 20.1% decrease from 129.3 billion KRW the previous year. During the same period, premium income slightly increased to 1.341 trillion KRW from 1.2916 trillion KRW the previous year, but operating expenses (405.9 billion KRW) rose and losses were incurred due to derivative product losses (177.8 billion KRW), among others.

However, dividends were actually increased. The interim dividend, which was 12 billion KRW the previous year, was expanded to 16 billion KRW. MetLife, the Korean branch of the U.S.-based financial group MetLife, is currently owned 85.36% by Metropolitan Global Management and 14.64% by MetLife Mexico, so all dividends are collected by these entities.

Lina Life Insurance also saw its net profit decrease by 5.4% to 350.9 billion KRW last year. Insurance claims paid increased by 11.1%, from 1.1354 trillion KRW the previous year to 1.2619 trillion KRW, raising costs.

Although dividends decreased by nearly half from 350 billion KRW the previous year to 150 billion KRW, the dividend payout ratio reached 42.7%. This exceeds the average dividend payout ratio of the four major financial holding companies last year (26.19%). Cigna Chestnut Holdings, which owns 100% of the shares, received the dividends.

Prudential Life Insurance, recently sold to KB Financial for 2.3 trillion KRW, also saw its net profit shrink by 14.4% to 140.7 billion KRW last year from 164.4 billion KRW the previous year. However, dividends remained at 70 billion KRW, the same level as the previous year. The dividend payout ratio actually rose from 42.6% to 49.7%. Prudential International Insurance Holdings (100% ownership) in the U.S. received the final dividend.

AIA Life Insurance, whose net profit increased by 26.6% from 67.5 billion KRW to 85.5 billion KRW, paid dividends totaling 56 billion KRW last year, including an interim dividend of 27.5 billion KRW and a year-end dividend of 28.5 billion KRW, unlike in 2018 when no dividends were paid.

Small and medium-sized foreign insurers also recorded losses. AXA General Insurance posted a net loss of 36.9 billion KRW last year, turning to a deficit, and BNP Paribas Cardif Life Insurance also recorded a loss of 5.7 billion KRW. Chubb Life Insurance recorded a net loss of 6.3 billion KRW last year, continuing its losses since 2004. Chubb Life has struggled to recover profitability amid frequent changes in major shareholders and company name.

Concerns have been raised that foreign insurers maintaining such a high dividend policy could threaten asset soundness. As dividends increase, retained earnings that could be used for reserves or equity capital decrease, potentially worsening financial soundness. A foreign insurer official said, "The dividend amount is determined according to company policy," adding, "We maintain an appropriate level of solvency (RBC) ratio even after dividends."

Some view this as a preliminary step toward withdrawing from the Korean market. Ahead of the introduction of the new international insurance accounting standard IFRS17 in 2022, European insurers such as ING Group (Korea ING Life Insurance, sold to MBK Partners in December 2013) and Allianz Group (Allianz Life Korea, sold to China Anbang Insurance in April 2016) have already exited the Korean life insurance market.