CHAPTER Ⅴ OPERATION OF ASSETS
SECTION 1 Principles for Operation of Assets
Article 104 (Principles for Operation of Assets)
(1) Every insurance company shall work to ensure the safety, liquidity, profitability and public interests, when it operates its assets.
(2) Every insurance company shall operate its assets with the care of a good manager.
Article 105 (Prohibition and Restrictions on Operation of Assets)
(1) Every insurance company shall be prohibited from operating its as- sets in the manner falling under each of the following subparagraphs:
<Amended by Act No. 8863, Feb. 29, 2008>
1. The holding of precious metals, antiques and paintings and writings (excluding the case prescribed by Presidential Decree);
2. The holding of real estate that is not the real estate prescribed by Presidential Decree as being used for business purposes (excluding any real estate that is acquired by the execution of the security right and mortgage);
3. Loans extended for the purpose of speculation in goods and securities;
4. Loans extended for the purpose of purchasing, directly or indirectly.
shares of the relevant insurance company;
5. Loans extended, directly or indirectly, for the purpose of political funds;
6. Loans extended to officers or employees of the relevant insurance company (excluding any loan extended according to insurance clauses or the small amount of loans prescribed by the Financial Services Commission); and
7. The act that is prescribed by Presidential Decree as being feared to greatly undermine the stable operation of assets.
(2) Every insurance company may operate its assets for futures trading provided for in the Futures Trading Act or other trading similar thereto that is each prescribed by Presidential Decree under the conditions as prescribed by Presidential Decree. <Amended by Act No. 8520, Jul. 19, 2007>
Article 106 (Methods and Ratio of Assets Operation)
(1) Every insurance company shall not exceed the ratio falling under each of the following subparagraphs when it operates its assets: <Amended by Act No. 8520, Jul. 19, 2007>
1. The extension of credits to the same individual or the same corpora- tion: 3/100 of the total assets;
2. The aggregate amount of bonds or shares issued by the same corpo- ration: 7/100 of the total assets;
3. The aggregate amount of credits extended to the same borrower or the bonds and shares issued by the same borrower: 12/100 of the total assets;
4. The aggregate amount of large-amount credits extended to the same individual, the same corporation, the same borrower or the same major shareholder (including a specially related person to him; the same shall apply hereafter in this Section) in excess of 1/100 of the total assets: 20/100 of the total assets;
5. Credits extended to large shareholders and subsidiaries prescribed
by Presidential Decree: 40/100 of the equity capital (in the case that an amount equivalent to 40/100 of the equity capital is larger than an amount equivalent to 2/100 of the total assets, 2/100 of the total assets);
6. The aggregate amount of bonds and stocks issued by large share- holders and subsidiaries prescribed by Presidential Decree: 60/100 of the equity capital (in the case that an amount equivalent to 60/100 of the equity capital is larger than an amount equivalent to 3/100 of the total assets, 3/100 of the total assets);
7. Credits extended to the same subsidiary: 10/100 of the equity capi- tal;
8. The holding of real estate: 25/100 of the total assets;
9. The holding of unlisted shares (referring to shares that are not listed or registered on any foreign market similar to the Korea Stock Ex- change and the Korea Securities Dealers Association established pur- suant to the Securities and Exchange Act; hereafter the same shall apply): 10/100 of the total assets;
10. The holding of foreign exchange or foreign real estate under the For- eign Exchange Transactions Act:30/100 of the total assets; and
11. The aggregate amount of consignment guarantee money for trans- actions or overseas futures trading prescribed by Presidential Decree under Article 105 (2): 5/100 of the total assets.
(2) In the case that it is necessary to enhance the sound operation of assets and protect policy holders, each ratio of assets operation provided for in each subparagraph of paragraph (1) may be adjusted downward within the scope of 50/100 of the ratio under the conditions as prescribed by Presidential Decree.
Article 107 (Exception of Restrictions on Operation of Assets)
In the case that the provisions of Article 106 fall under any of the follow- ing subparagraphs, the provisions shall not be applied: Provided, That in the case that any insurance company exceeds the ratio of assets oper- ation on the grounds of subparagraph 1, the relevant insurance company shall bring such excess into conformity with the provisions of Article 106 within the term of one year from the date on which the excess accrues (in the case that the excess falls under the grounds prescribed by Presi- dential Decree, the Financial Services Commission may extend the term of one year by fixing another term): <Amended by Act No. 8520, Jul. 19, 2007;
Act No. 8572, Aug. 3, 2007; Act No. 8863, Feb. 29, 2008>
1. Where any change in the price of assets of any insurance company accrues and any change in the state of assets accrues on the grounds that are not incurred by the exercise of security right and the will of such insurance company; and
2. The case that falls under any of the following items, for which ap- proval is obtained from the Financial Services Commission:
(a) Where it is necessary for any insurance company to observe the standards for financial soundness in accordance with Article 123;
(b) Where it is necessary for any insurance company to support its corporate restructuring, including its debt-for-equity swap and financial restructuring, etc. under the Corporate Restructuring Promotion Act; or
(c) Where it is inevitable for any insurance company to protect the interests of policy holders.
Article 108 (Setup and Operation of Special Account)
(1) Every insurance company may set up and operate an account (here- inafter referred to as the “special account”) to use part or whole of its assets equivalent to the reserve separately from other assets with re- spect to insurance contracts falling under each of the following sub-paragraphs under the conditions as prescribed by Presidential Decree:
<Amended by Act No. 7379, Jan. 27, 2005; Act No. 8520, Jul. 19, 2007; Act No. 8863, Feb.
29, 2008>
1. Pension savings contract provided for in Article 86-2 of the Restric- tion of Special Taxation Act;
2. Retirement insurance contract provided for in Article 2 (1) of the Addenda of the Guarantee of Workers’ Retirement Benefits Act and insurance contract provided for in Article 16 (2);
3. Amount-variable insurance contract (referring to the insurance con-tract, whose insurance money changes according to the results of as- sets operation); and
4. Other insurance contract that is recognized by the Financial Services Commission as necessary.
(2) Every insurance company shall perform the accounting of assets be-longing to the special account separately from assets bebe-longing to other special account and other assets.
(3) Every insurance company may distribute profits belonging to the spe- cial account to policy holders listed on the same account.
(4) Necessary matters concerning methods of operating assets belonging
to the special account, the ratio of assets, the appraisal of assets, the distribution of profits, the comparison and publication of the records of assets operation, the securing of manpower for the operation of assets, restrictions on the exercise of the voting right and the protection of policy holders, etc. shall be prescribed by Presidential Decree.
Article 109 (Prohibition on Equity Investment in Other Company)
Every insurance company shall be prohibited from holding voting shares issued by other company in excess of 15/100 of the total number of such voting shares (including equity shares): Provided, That the same shall not apply to the shares of any subsidiary, the holding of which is ap- proved (including the case where the holding of such shares are reported in lieu of approved) by the Financial Services Commission in accordance with Article 115. <Amended by Act No. 8863, Feb. 29, 2008>
Article 110 (Prohibited Act in Connection with Financial Support)
(1) Every insurance company shall be prohibited from performing the act falling under each of the following subparagraphs with other finan- cial institution (referring to the financial institution provided for in subparagraph 1 of Article 2 of the Act on the Structural Improvement of the Financial Industry) or other company: <Amended by Act No. 8520, Jul.
19, 2007>
1. The act of swapping its voting shares for the those of other financial institution or other company to hold them for the purpose of avoid- ing the limit on the operation of assets provided for in Articles 106 and 108 or the act of extending credits;
2. The act of swapping its shares for other shares to acquire them for the purpose of avoiding restrictions on the acquisition of its own shares provided for in Article 341 of the Commercial Act and Article 189-2 of the Securities and Exchange Act; and
3. Other act prescribed by Presidential Decree as being feared to greatly undermine the interests of policy holders.
(2) Every insurance company shall be prohibited from exercising its voting right on any share acquired in violation of the provisions of par- agraph (1).
(3) With regard to any insurance company that has acquired shares or extended credits in violation of the provisions of paragraph (1), the Financial Services Commission may order such insurance company to dispose of the relevant shares acquired and retrieve the relevant credits extended and take other necessary measures against such insurance company. <Amended
by Act No. 8863, Feb. 29, 2008>
Article 111 (Prohibition, etc. on Transactions with Large Shareholders)
(1) Every insurance company shall be prohibited from performing di- rectly or indirectly the act falling under each of the following subpara- graphs with any of its large shareholders:
1. The act of extending any credit for the purpose of assisting any large shareholder in his equity investment in other company; and
2. The act of transferring any asset without compensation and performing dealings or exchanges on terms greatly disadvantageous to the rel- evant insurance company in light of the conventional terms of trans- actions.
(2) In the case that any insurance company intends to extend any credit in excess of the amount prescribed by Presidential Decree to any large shareholder or acquire any stock and any bond issued by any large shareholder in excess of the amount prescribed by Presidential Decree, such insurance company shall go through a resolution thereon of the board of directors in advance. In this case, the board of directors shall pass such resolution with the consent of all directors on the register roll.
(3) In the case that any insurance company performs an act falling under any of the following subparagraphs with its large shareholders, such insurance company shall promptly report the fact to the Financial Services Commission and put the fact on Internet homepage, etc.: <Amended by Act No. 8520, Jul. 19, 2007; Act No. 8863, Feb. 29, 2008>
1. The act of extending any credit in excess of the amount prescribed by Presidential Decree;
2. The act of acquiring bonds and stocks issued by its large shareholders in excess of the amount prescribed by Presidential Decree; or
3. The act of exercising voting right of the stocks issued by its large shareholders.
(4) Every insurance company shall report to the Financial Services Commission the matters concerning its extension of any credit to its large shareholders and matters concerning its acquisition of bonds and stocks issued by its large shareholders quarterly and put the fact on Internet homepage, etc. as prescribed by Presidential Decree. <Amended by Act No.
8520, Jul. 19, 2007; Act No. 8863, Feb. 29, 2008>
(5) Every large shareholder of an insurance company shall be prohibited from performing an act falling under any of the following subparagraphs
for his own interest against the interest of such insurance company:
<Amended by Act No. 8520, Jul. 19, 2007>
1. The act of asking the relevant insurance company to provide him with undisclosed material or information for the purpose of exerting unfair influence: Provided, That the same shall not apply to the case falling under the provisions of Article 19 (5) (including the case where the provisions are applied mutatis mutandis under the provisons of Ar- ticle 58);
2. The act of exerting unfair influence on the personnel administration and management of the relevant insurance company in collusion with other shareholders and equity investors on condition that he provides them with economic interests and other benefits;
3. The act of receiving credits from the relevant insurance company in excess of the ratio prescribed in Article 106 (1) 4 and 5;
4. The act of urging the relevant insurance company to hold his bonds and stocks in excess of the ratio prescribed in Article 106 (1) 6; or 5. Other acts prescribed by Presidential Decree as being performed for
the purpose of furthering his own interest as a large shareholder against the interest of the relevant insurance company.
(6) In cases where sound management of an insurance company may be substantially harmed due to the insolvent financial structure, such as the liability of large shareholders (limited to a company) of the insurance company exceeds asset, etc., as prescribed by Presidential Decree, the Financial Services Commission may take measures in the following subparagraphs against the insurance company: <Newly Inserted by Act No.
8520, Jul. 19, 2007; Act No. 8863, Feb. 29, 2008>
1. Prohibition from extending new credits to large shareholders;
2. Prohibition from newly acquiring securities issued by large share-holders; and
3. Other measures prescribed by Presidential Decree, such as restric- tion on transactions, etc. to supply funds for large shareholders.
Article 112 (Request to Large Shareholders, etc. for Material)
In the case that any insurance company and any large shareholder are suspected of violating the provisions of Articles 106 and 111, the Financial Services Commission may ask the relevant insurance company and the relevant large shareholder to submit necessary material. <Amended by Act No. 8863, Feb. 29, 2008>
Article 113 (Prohibition on Debt Guarantee for Other Persons)
Every insurance company shall be prohibited from offering its asserts as security or as debt guarantee for any other person: Provided, That the same shall not apply to the case where any debt guarantee is allowed under this Act.
Article 114 (Methods of Appraising Assets, etc.)
Necessary matters concerning methods of appraising assets to be ac- quired or disposed of by any insurance company and restrictions, etc.
on the issuance of bonds or borrowing of funds shall be prescribed by Presidential Decree.
SECTION 2 Subsidiaries
Article 115 (Holding of Subsidiaries)
(1) Every insurance company may hold any company that runs the busi- ness falling under each of the following subparagraphs as its subsidiary after obtaining approval from the Financial Services Commission: Provided, that with respect to any company that runs the business having a close relation with the insurance business and prescribed by Presidential Decree, an insurance company may hold such company as its subsidiary just after reporting thereon to the Financial Services Commission: <Amended by Act No. 8520, Jul. 19, 2007; Act No. 8863, Feb. 29, 2008>
1. The financial business run by financial institutions in accordance with the provisions of subparagraph 1 of Article 2 of the Act on the Structural Improvement of the Financial Industry;
2. The credit information business provided for in the Use and Protec- tion of Credit Information Act (excluding the credit evaluation busi- ness provided for in subparagraph 11 of Article 2 of the same Act);
3. The business of administering the maintenance, rescission, change and restoration, etc. of insurance contracts; and
4. Other business that does not undermine the soundness of the insur- ance business, which is prescribed by Presidential Decree.
(2) Notwithstanding the provisions of paragraph (1) 1, in the case that any large shareholder of any insurance company is a key non-financial player provided for in Article 16-2 (1) of the Banking Act, the relevant insurance company shall not be allowed to hold any financial institution established pursuant to the Banking Act as its subsidiary. <Amended by Act No. 8520, Jul. 19, 2007>
Article 116 (Act Prohibited from being Performed with Subsidiaries)
Every insurance company shall be prohibited from performing the act falling under any of the following subparagraphs with any of its subsid- iaries: <Amended by Act No. 8863, Feb. 29, 2008>
1. The act of transferring any asset without compensation, performing dealings or exchanges and extending credits on terms greatly dis-advantageous to the relevant insurance company in light of the con-ventional terms of transactions;
2. The act of extending credits using shares held by any subsidiary as security or extending credits in support of equity investment in other company of any subsidiary; and
3. The act of extending loans to officers or employees of any subsidiary (excluding loans extended in accordance with contract clauses and small loans prescribed by the Financial Services Commission).
Article 117 (Obligation of Report on Subsidiaries)
(1) In the case that any insurance company holds a subsidiary, such insurance company shall submit the articles of incorporation of such sub-sidiary and documents prescribed by Presidential Decree to the Financial Services Commission within seven days from the date on which it holds the subsidiary. <Amended by Act No. 8863, Feb. 29, 2008>
(2) Every insurance company shall submit the balance sheets of its sub-sidiaries and documents prescribed by Presidential Decree within 3 months from the date on which the business year of such subsidiaries ends to the Financial Services Commission. <Amended by Act No. 8863, Feb. 29, 2008>
(3) In the case that the subsidiaries of any insurance company are pre- scribed by Presidential Decree, part of the documents referred to in par- agraphs (1) and (2) may not be submitted under the conditions as pre- scribed by the Presidential Decree.