[비즈한국] The conflict between Lotte Insurance000400 and financial authorities is drawing market attention. Following a management status assessment, the Financial Services Commission (FSC) issued a management improvement recommendation to Lotte Insurance in November 2025. Lotte Insurance challenged this with a lawsuit, but the court recently dismissed the company's request for a stay of execution to halt the corrective measures. As Lotte Insurance, currently for sale in the M&A market, enters the management improvement process, eyes are on whether this will impact the sale.
Lotte Insurance announced on January 2nd that it had submitted a management improvement plan to the financial authorities. The plan, aimed at enhancing capital adequacy, includes detailed implementation measures such as cutting business expenses, disposing of distressed assets, and improving human resources and organizational management. The FSC is expected to decide whether to approve the plan within one month.
This submission follows the management improvement recommendation imposed by the FSC on November 5, 2025. After regular inspections by the Financial Supervisory Service (FSS) between November and December 2024 and follow-up inspections in February and March 2025, Lotte Insurance received an overall grade of 3 and a grade of 4 in capital adequacy, making it subject to prompt corrective actions (management improvement recommendation, request, or order).
The management status assessment, which verifies the financial soundness of insurers, grades companies across seven categories including management, insurance/investment/interest rate/liquidity risk, capital adequacy, and profitability. If deemed subject to a management improvement recommendation, the company must prepare and submit a plan to the FSS within two months. Once the FSC approves it, the company implements improvement measures according to the plan for one year.
Lotte Insurance contested the authorities' action through legal channels. On November 11, 2025, the board of directors decided to file a stay of execution and a lawsuit to cancel the disposition. However, after the court dismissed the stay of execution on December 31, Lotte Insurance submitted its improvement plan by the deadline of January 2. The court stated as the reason for dismissal that "based on the records and interrogation results, there is a risk that suspending the execution of the disposition could significantly affect public welfare."
With the court denying the stay of execution, the suspension of interest payments on hybrid capital securities (recognized as capital in accounting) issued by Lotte Insurance continues. Provisions related to interest payments on such securities issued by insurers state that interest payments are suspended if the entity is designated as an insolvent financial institution or is subject to prompt corrective action. Interest payments are halted until the causes specified in the agreement are resolved. Lotte Insurance has suspended interest payments since last December for two types of securities worth 46 billion won.
The industry is closely watching the standoff. Lotte Insurance argues that there were flaws in the assessment process. It claims that capital adequacy is based on 60% quantitative and 40% qualitative assessment, and that it received a low score in the qualitative category due to a delay in adopting the 'Own Risk and Solvency Assessment (ORSA),' which led to a lower overall grade. The company maintains that allowing qualitative factors to trigger corrective actions lacks fairness.
On the other hand, the financial authorities maintain that they comprehensively assessed capital adequacy, including the basic capital solvency ratio and the proportion of alternative investments. Authorities noted that Lotte Insurance received a grade 4 in management status assessment at the end of 2020 and was granted a one-time deferral of management improvement requests in September 2021, implying that the company has struggled to resolve underlying risks.
In particular, the authorities emphasized that the company has not been proactive in capital expansion. According to the minutes of the 19th regular meeting of the FSC released on January 2, one commissioner pointed out, "It is a matter that could have been resolved with a certain level of capital increase, yet they failed to supplement it despite being given over three months."
The commissioner added, "We held the subcommittee meeting three times and gave Lotte Insurance ample opportunity to state their position. Nevertheless, we had no choice but to issue the recommendation. While the company argued that the measure would cause management problems, the spirit of the law requires appropriate action for a company with such issues, so we reached a conclusion after careful deliberation."
Lotte Insurance argues that capital increase is realistically difficult. An official stated, "There were structural difficulties in pursuing a capital increase while the company sale process is underway. We sufficiently explained these circumstances during the three subcommittee meetings."
As Lotte Insurance proceeds with the management improvement plan following the dismissal of its stay of execution, attention is shifting to the success of the sale. The largest shareholder is Bigtury (77.04%), a special purpose entity established by private equity firm JKL Partners. JKL Partners has been pursuing the sale of Lotte Insurance since 2023. With Korea Investment Holdings and others mentioned as potential buyers, capital soundness has emerged as a new variable in the sale.
Another concern is the time it will take to receive a final ruling in the legal battle with financial authorities. For instance, in the case of MG Insurance, which filed a lawsuit against the FSC in April 2022 to cancel its designation as an insolvent financial institution, it took 1 year and 4 months to receive a first-instance ruling.
Meanwhile, the first hearing for the lawsuit filed by Lotte Insurance to cancel the FSC's management improvement recommendation is scheduled for May 14.