"Management Crisis Due to Prompt Corrective Action"
Financial Services Commission: "Unavoidable Due to Insolvency"
Lotte Insurance is taking a firm stand against the Financial Services Commission's "Prompt Corrective Action," filing for a stay of execution and directly challenging the decision. It is unusual for an insurance company to engage in legal action against financial authorities, who possess regulatory powers and hold a superior position. Lotte Insurance has argued that if the measure is upheld, a massive outflow of retirement pension funds and a collapse in market confidence will be inevitable. However, the Financial Services Commission has maintained that the action was unavoidable due to the company's insolvency. Although the company name includes "Lotte," Lotte Insurance is not an affiliate of the Lotte Group. In 2019, Lotte Group sold its 53.49% stake in Lotte Insurance to the private equity fund JKL Partners.
On December 11, during a hearing (2025A14082) at the Seoul Administrative Court's 14th Administrative Division (Presiding Judge Lee Sangdeok), CEO Lee Eunho and representatives of Lotte Insurance appealed that the company's management was in crisis due to the Financial Services Commission's Prompt Corrective Action. Prompt Corrective Action is a measure imposed by authorities to restore the soundness of financial institutions showing signs of insolvency. There are step-by-step recommendations, requirements, and orders for management improvement. In November 2025, the Financial Services Commission resolved to issue a management improvement recommendation, stating that Lotte Insurance received a grade 4 (vulnerable) in the capital adequacy sector in its management status evaluation.
Lotte Insurance representatives claimed, "If the effectiveness of the Prompt Corrective Action is not suspended, 3 trillion won (approximately 2.3 billion USD) in retirement pension funds will flow out," and added, "We are also unable to pay interest on hybrid capital securities due to the Prompt Corrective Action, and the market is interpreting this as a sign of default." Hybrid capital securities are bonds with a set maturity that can be extended at the issuer's discretion, and are recognized as capital in accounting. If the issuer is designated as an insolvent financial institution, interest payments on these bonds may be suspended.
They further asserted, "The Financial Services Commission took Prompt Corrective Action based on non-quantitative evaluation results, but did not announce any evaluation standards," arguing that this could constitute a violation of the principle of legal reservation. The principle of legal reservation is a principle of public law that requires certain administrative powers to be exercised based on statutory law.
CEO Lee explained the difficulty Lotte Insurance faces in raising capital to restore soundness, stating, "Unlike financial institutions with holding companies, Lotte Insurance must raise funds from the market, which takes considerable time, and now Prompt Corrective Action has been imposed as well." He also noted, "JKL Partners is pursuing a sale of the company." The implication is that it is difficult to carry out a capital increase when the major shareholder is preparing to divest its stake. He added, "If the effectiveness of the Prompt Corrective Action is not suspended, we expect a mass exodus of retirement pension customers at the end of the year," emphasizing that Lotte Insurance is facing a serious crisis.
The Financial Services Commission countered, "For a long time, the authorities have implemented Prompt Corrective Action for financial institutions that received low grades in management status evaluations, and the non-quantitative evaluation items are also publicly available," asserting that there are no legal issues. They further stated, "The cause of customer outflows is not the Prompt Corrective Action itself, but the insolvency," and added, "If Lotte Insurance establishes a management improvement plan, including measures to strengthen capital, obtains approval from the authorities, and announces it, the company can regain market confidence." In other words, suspending the effectiveness of the Prompt Corrective Action will not restore Lotte Insurance's damaged reputation, and establishing countermeasures that the market can understand is the priority.
Representing Lotte Insurance in the lawsuit was attorney Lee Hyoje of Kim & Chang (Judicial Research and Training Institute, 29th class), while attorney Choi Youngno of Barun Law LLC (16th class) represented the Financial Services Commission.
Lee Sangwoo, Law Times Reporter
※This article is based on content supplied by Law Times.
© The Asia Business Daily(www.asiae.co.kr). All rights reserved.
