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In the context of the introduction of the IFRS17 and the K-ICS and the consequential emphasis on sound management of insurance capital, the exploration of co-insurance has emerged as a strategic avenue. Subsequently, around 2020, regulatory foundations for co-insurance transactions were incorporated into insurance supervisory regulations. In March 2023, the financial regulatory authorities further supplemented this framework by formulating comprehensive guidelines for the handling of co-insurance operations.

Distinguished by asset transfer and asset retention models, insurance companies have traditionally favored the simplicity of the 'asset transfer' structure in their co-insurance transactions. However, “S Insurance” has recently engaged Lee & Ko to explore the initiation of co-insurance policies employing a relatively intricate yet less liquidity-burdening 'asset retention' structure, distinguishing itself from prevailing practices with foreign reinsurers.

Lee & Ko played a pivotal role in providing legal counsel, meticulously reviewing transactional conditions, and advising the client in a direction that aligns with the compliance parameters of the fundamental asset retention co-insurance structure and the aforementioned operational guidelines. This signifies a noteworthy contemplation of the less conventional asset retention co-insurance structure within the South Korean landscape.

Despite the pivotal role actuaries play in shaping insurance terms, premiums, and ensuring accounting transparency, there is currently no distinct and independent legal framework governing the actuarial profession in South Korea. Instead, pertinent regulations are integrated into the Insurance Business Act and its subordinate statutes. Notably, a regulatory vacuum exists concerning actuaries associated with public pension institutions and other financial entities beyond insurance companies.

The Insurance and Reinsurance Practice Group at Lee & Ko has collaboratively engaged with the firm's legislative consulting team to amalgamate the collective expertise of accomplished attorneys and professionals in representing the Institute of Actuaries of Korea. The firm conducted an exhaustive analysis of legislative precedents, delving into legislative intentions, aiming to deliver optimal advice tailored to the client's needs throughout the legislative process. Consequently, in November 2023, Ms. Joo Kyung Yoon of the People Power Party, a member of the 21st National Assembly, submitted the draft of the Actuary Law, marking the initiation of the legislative process.

Apprehensions have surfaced within the insurance sector pertaining to the heightened recruitment activities of insurance agents within general agencies, which could potentially disrupt a conducive recruiting environment and, ultimately, result in adverse consequences for end consumers. In response to this industry concern, the Insurance Agency Association has engaged the legal services of Lee & Ko to formulate a voluntary agreement aimed at mitigating these issues. Guided by the directives from the client, Lee & Ko has meticulously crafted the preliminary draft of the standard voluntary agreement for the agency, ensuring strict adherence to prevailing laws and regulations

In recent years, the segregation of product development and sales/marketing of insurance products has become increasingly prominent thereby augmenting the influence exerted by general agencies across the entire insurance market. Consequently, intensified competition among general agencies prompted concerted efforts spearheaded by the Insurance Agency Association to rectify the deleterious effects resulting from excessive competition. Given the elevated stature of the general agencies, it is anticipated that its voluntary agreement will wield a profound impact on the overarching landscape of the insurance industry. From the nascent stages of drafting the initial draft of the voluntary agreement, Lee & Ko’s involvement has been proactive, contributing not only to fulfilling client requirements but also significantly advancing the public objective of establishing order within the insurance sector.

“S Insurance”, in its fiduciary role as the trustee overseeing a certain money market trust, has incorporated securities issued by other financial institutions into the assets of the designated trust. In the process of distributing beneficiary certificates of this money market trust to investors, the Financial Supervisory Service has highlighted that S Insurance may have breached its duty of explanation owed to investors as stipulated by the Financial Investment Securities and Capital Markets Act.

The Insurance and Reinsurance Practice Group at Lee & Ko spearheaded a comprehensive collaboration across the firm, involving the Regulatory Team and the Capital Markets Team. This collaborative effort aimed to deliver thorough legal counsel, encompassing the development of a response strategy with well-found solutions to address concerns raised by the Financial Supervisory Service.

In March 2020, during the construction of the double track as part of the Busan-Masan Double Track Private Investment Project, the segment of the underground tunnel that passes underneath a river was damaged, which led to the leakage of underground water and soil into the tunnel.  Since the occurrence of this accident, repairs are being undertaken to date, which are expected to result in repair/recovery costs amounting approximately to USD300 million and loss of profit up to USD100 million due to the delay of construction (KRW400 billion)

With respect to the construction, client has subscribed to Construction All Risk (“CAR”) Insurance, and presently there is a dispute regarding insurance proceeds payment between the client and the co-insurers relating to the accident, which is likely to develop into a legal dispute.  The legal issues that may be addressed in the prospective lawsuit are the subject of the insured interest, cause of the accident and whether the accident falls under a covered risk, obligation to explain the policy and whether the exclusions may apply to the accident due to the defective design and/or construction.  Especially, the lawsuit will require interpretations of the exclusions under the special conditions that reflect the special characteristics of the linear construction, e.g., warranty concerning sections clause and special conditions concerning the construction of tunnels, galleries, subsurface structures or installations under CAR policy.

Considering the lack of relevant of precedents relating to construction insurance in Korea, our team is providing comprehensive strategic advice regarding insurance claims to be made in the future, as well as advice on interpretation of the policies which include a wide jurisdictional research.  This case will be an important precedent and is expected to involve legal disputes in various insurance topics over the next several years.

Despite the actuaries’ significant role in designing and pricing insurance policies, premiums and pension plans and assessing accounting transparency, currently there is no statutory regulatory framework regulating actuaries, unlike other professionals such as attorneys, accountants or patent attorneys. As actuaries are widely employed in insurance companies, public pension agencies and other financial institutions, adopting a comprehensive regime regulating actuaries is nothing short of necessary.

Lee & Ko’s insurance practice group has a deep roster of insurance professionals who have long participated in the legislation and revision processes for the Insurance Business Act over the past few decades. The group also has capabilities to deploy various attorneys, former civil servants and former national assemblymen with experience in the executive/legislative agencies, the Regulation Reform Committee and the national assembly to offer the clients solutions-driven advice and obtain optimal results on their behalf.

Advising clients on the enactment of a new law is a much more challenging task than advising on the revision of an existing law. Lee & Ko’s unmatched competence and vast experience in the field has received a wide recognition in the field, leading to the appointment to advise on the legislation process for a potential law regulating actuaries. Lee & Ko’s Insurance and Reinsurance Practice Group worked intimately with the firm’s legislative consulting team, harnessing a collective expertise of leading attorneys and experienced professionals to meet the client’s needs.

LG Energy Solution Co., Ltd. (“LGES”) manufactured battery cells for installation in EVs (e.g., Hyundai Kona, Loniq and Elec City Bus) assembled by Hyundai. In this connection, since 2019, a series of fire incidents of EVs were reported in several jurisdictions, and thereafter, Hyundai made safety recall announcements on October 2020 and February 2021. Following the recall announcements, Hyundai decided to replace all the batteries installed in the EVs contained battery cells manufactured from September 2017 to July 2019, and analysis on the cause of the fire has been conducted by the Korean government, LGES (insured), insurers, and reinsurers.

The main issue in this recall cost has been focused on whether there is any defect(s) in the battery cells produced by LGES which have actually caused or would possibly cause a fire in the EVs that contain such defect. There are different views between related parties on whether the recall costs will be covered under the Automative Product Recall Policy. 

Lee & Ko was requested to analyze the cause of the incident (being supported by experts in material engineering) and provide legal assistance for the client (insurer). If the case is escalated to formal disputes (potential amount in dispute being USD35,000,000 in approximate), we will act on behalf of the client.
 

With respect to H plans to sell reinsurance products with Korean insurers as the ceding companies, Lee & Ko was asked to advise on the applicable restrictions on solicitation. In principle, face-to-face business and marketing activities are prohibited in the context of a foreign insurer’s sale of reinsurance products. Under such circumstance, there have been attempts from foreign insurers to sell insurance products directly to local residents in an effort to expand business opportunities.

Lee & Ko conducted a rigorous analysis on the applicable laws and assessed the regulatory trends with the assistance of leading experts with first-hand experience in working for financial authorities, and provided concrete, precise advice on the regulations applicable to the client’s domestic activities.