[비즈한국] MG Non-Life Insurance, currently undergoing a sale process by the Korea Deposit Insurance Corporation (KDIC), has failed to shed its status as an insolvent financial institution. The court ruled in favor of the Financial Services Commission (FSC) in the appellate trial regarding the cancellation of the "insolvent financial institution" designation filed by MG Non-Life Insurance and its major shareholder, JC Partners. With the sale of MG Non-Life Insurance currently proceeding through a private contract, attention is focused on whether this appellate result will impact the deal.
On September 6, the 8-1 Administrative Division of the Seoul High Court dismissed the appeal filed by MG Non-Life Insurance, JC Assurance No. 1 Ltd., and Lee Jong-chul, CEO of JC Partners, against the Financial Services Commission regarding the cancellation of the insolvent financial institution designation. Consequently, JC Partners' attempt to avoid the designation for MG Non-Life Insurance has failed in both the first and second trials.
Private equity firm JC Partners acquired MG Non-Life Insurance and was approved as the major shareholder in April 2020. Shortly thereafter, MG Non-Life Insurance received a comprehensive grade of 4 in the 2020 management evaluation and was issued a management improvement order by the FSC in July 2021. Although MG Non-Life Insurance submitted a management improvement plan a month later, the FSC disapproved it. MG Non-Life Insurance later received conditional approval after resubmitting a plan that included improving its comprehensive grade to level 3.
However, when MG Non-Life Insurance failed to fulfill its promise of capital expansion, including a 10 billion won capital increase, the FSC issued a management improvement order in January 2022. MG Non-Life Insurance submitted a plan containing detailed capital expansion measures in March 2022, but it was not approved, and it was designated as an insolvent financial institution in April of that year. Once designated as an insolvent financial institution, the KDIC initiates resolution processes such as self-normalization, sale, merger and acquisition (M&A), or liquidation, depending on the potential for recovery.
MG Non-Life Insurance was designated as an insolvent financial institution after an inspection by the Financial Supervisory Service revealed that its liabilities exceeded its assets by 113.9 billion won. Furthermore, as the company failed to comply with multiple management improvement orders, the FSC suspended the duties of MG Non-Life Insurance's registered executives and dispatched an administrator.
JC Partners responded to the financial authorities' measures with legal action, filing a lawsuit and an application for a stay of execution immediately after the designation. The stay of execution application went all the way to the Supreme Court, which dismissed JC Partners' re-appeal in December 2022 (dismissal without trial), effectively making MG Non-Life Insurance subject to resolution proceedings.
In the main lawsuit to cancel the insolvent financial institution designation, the Seoul Administrative Court ruled in favor of the FSC in the first trial in August 2023. JC Partners immediately appealed to the Seoul High Court. In the meantime, the KDIC pursued a public sale of MG Non-Life Insurance, but after failing to find a buyer through three rounds of competitive bidding, the process transitioned to a private contract.
Currently, Meritz Fire & Marine Insurance, which appeared during the third bidding round, is considered the leading candidate for the private contract. Additionally, with the KDIC adding the Transfer of Assets and Liabilities (P&A) method to the sale, anxiety is growing within MG Non-Life Insurance that Meritz Fire & Marine, a competitor, might cherry-pick only profitable assets without guaranteeing employment (Related article: MG Non-Life, Tong Yang Life, ABL Life... Why 'Employment Insecurity' is Growing for Insurers Up for Sale).
With this appellate ruling, it has become difficult for MG Non-Life Insurance to shed its status as an insolvent financial institution. Proceeding with a sale while labeled as an insolvent financial institution can make it difficult to fetch a fair price. Since it is seen as a "distressed asset," there are fewer companies willing to bid. However, since the management situation at MG Non-Life Insurance had already deteriorated before the appellate ruling and there were observations that overturning the first-trial verdict would be difficult, the impact on the sale appears to be limited.
Attention is also focused on whether MG Non-Life Insurance can normalize its management after the sale. MG Non-Life Insurance has been in the red since 2020, recording a net loss of 83.7 billion won in 2023. Its solvency margin ratio is also among the lowest in the industry. According to the K-ICS status for insurance companies in the first quarter of this year released by the FSS in July, MG Non-Life Insurance stood at 52.1%. The solvency margin ratio, which numerically indicates whether an insurer can pay insurance claims on time, is typically used as a metric to judge the management status of an insurance company. The minimum threshold is 100%, but financial authorities recommend maintaining it above 150%.
It is expected that JC Partners will not accept this appellate ruling and will proceed with a final appeal to the Supreme Court. An official from MG Non-Life Insurance noted, "Over 200 billion won of JC Partners' capital has been invested, and issues of trust in the PF market are also at stake," adding, "They are likely to seek a Supreme Court ruling regardless of the outcome."