Financial Services Commission Suspends New Business for MG Non-Life Insurance
Bridge Insurance Company to Be Established for Contract Transfers
100% Guarantee for Existing Policyholders' Contracts
MG Non-Life Insurance is effectively entering the process of liquidation. In order to minimize losses for existing policyholders, a bridge insurance company will be established, after which contracts will be transferred to five major non-life insurance companies without any changes to the terms and conditions.
On May 14, the Financial Services Commission announced at a regular meeting held at the Government Complex Seoul that it had imposed a partial business suspension on MG Non-Life Insurance, prohibiting the company from entering into new insurance contracts.
The scope of the suspension includes the signing of new insurance contracts (excluding re-enrollment contracts and automatic renewal contracts) and changes to existing insurance contracts (limited to increases in insured amounts, changes in insurance types, extensions of insurance periods, and additions of coverage). The business suspension will last for six months, until November 14.
Although new business has been suspended, MG Non-Life Insurance will continue to perform all tasks necessary for the maintenance and management of existing insurance contracts, such as receiving premiums and paying insurance claims, as before. The status of existing MG Non-Life Insurance policyholders will also remain unchanged.
Kwon Daeyoung, Secretary General of the Financial Services Commission, stated, "There is absolutely no need to worry, as policyholders' contracts are 100% safe and will not suffer any disadvantages or losses," and added, "There will be no changes to the terms and conditions or increases in premiums." He further emphasized, "There will be no changes to contract terms either when contracts are transferred from MG Non-Life Insurance to the bridge insurance company, or when they are subsequently transferred from the bridge insurance company to the five major non-life insurers."
MG Non-Life Insurance first received a management improvement recommendation in 2018, followed by further recommendations, demands, and orders for management improvement up until 2022. However, the company failed to comply with these measures and was designated as a troubled financial institution in April 2022. After several unsuccessful public sale attempts, the company is now effectively undergoing liquidation procedures.
The government and related agencies reportedly agreed that delaying the resolution of MG Non-Life Insurance, which is already in a state of negative net assets, would only result in the accumulation of insolvency, increased anxiety among policyholders, and higher resolution costs.
The resolution of MG Non-Life Insurance will be carried out by transferring the insurance contracts held by MG Non-Life Insurance to five major non-life insurance companies (DB Insurance, Meritz Fire & Marine Insurance, Samsung Fire & Marine Insurance, KB Insurance, and Hyundai Marine & Fire Insurance). However, as it is necessary to maintain and manage existing insurance contracts until preparations for the contract transfer are complete, the Korea Deposit Insurance Corporation will establish a bridge insurance company and temporarily transfer the insurance contracts to the bridge insurance company for management.
This is in contrast to the 2002 Regent Fire & Marine Insurance case, where contract transfers were implemented immediately. In the case of MG Non-Life Insurance, the Financial Services Commission explained that establishing a bridge insurance company is the most reasonable approach, as there are a large number of policyholders and the contract terms are highly diverse.
Kwon noted, "At the time, Regent Fire & Marine Insurance had about 70% of its portfolio in automobile insurance, which consists of short-term, standardized contracts, making contract transfers relatively easy. In the case of MG Non-Life Insurance, however, there are 1.51 million contracts across various types such as indemnity insurance, accident insurance, automobile insurance, and children's insurance, making the situation much more complex."
He added, "(After the contracts are transferred to the five major insurers,) for products that individual insurers do not handle, and to ensure there are no inconveniences in providing services or paying insurance claims, it was decided to first establish a bridge insurance company and build the necessary IT systems for contract transfers."
The contract transfer process using a bridge insurance company will involve the Korea Deposit Insurance Corporation establishing the bridge insurance company and transferring MG Non-Life Insurance's contracts to it (MG Non-Life Insurance → bridge insurance company). While the bridge insurance company is responsible for maintaining and managing the contracts, the final acquiring non-life insurers will prepare their IT systems and other necessary arrangements. Once preparations are complete, the final transfer of contracts (bridge insurance company → major non-life insurers) will take place. After the contracts have been transferred to the bridge insurance company, liquidation proceedings for the MG Non-Life Insurance corporation will begin.
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