FTC Secures Dividend Cap Pledge from Woongjin in Prepaid Funeral Service Crackdown

The Fair Trade Commission (FTC) has moved to curb the sprawling expansion and private coffers practices in Korea's prepaid funeral service industry ahead of the sector reaching 10 million subscribers.

The FTC has imposed an unprecedented dividend restriction on Woongjin Group, which acquired industry leader FreedLife, effectively blocking asset stripping and pressuring funeral service companies to improve their financial soundness, according to industry observers.

The FTC recently received a "damage prevention commitment letter" from Woongjin pledging to limit its dividend payout ratio to within 100% of net profit, the commission and industry sources said Sunday. The restriction prevents Woongjin from paying dividends exceeding the net profit earned in any given year. The document, stamped with the CEO's official seal, carries de facto legal binding force.

Woongjin also promised to establish an internal transaction review committee to monitor fund transfers between affiliates and strengthen management transparency controls.

"There have been cases where private equity funds or certain companies acquired funeral service firms and then drained assets through excessive dividends. We took measures to prevent this," an FTC official said.

The FTC also pushed through increases in collateral ratios at the two major funeral service mutual aid associations—the Korea Mutual Aid Association and the Funeral Service Guarantee Mutual Aid Association. Specifically, the Funeral Service Guarantee Mutual Aid Association will raise its collateral ratio by 24.3% from current levels by 2029 and increase the premium rate that companies must pay to the association by 110%. The Korea Mutual Aid Association will also raise its collateral ratio by 7.3% and premium rate by 35.3% over the same period.

The FTC's aggressive move against Woongjin stems from concerns about the structure of its FreedLife acquisition. Woongjin acquired a 99.77% stake in FreedLife from private equity firm VIG Partners for 887.9 billion won ($652 million) in June. Woongjin raised approximately 130 billion won of the acquisition price through its own capital and financed most of the remainder through acquisition loans. This raised market concerns that Woongjin would likely drain FreedLife's assets through dividends.

VIG Partners had previously drawn controversy by pursuing a high-dividend policy after acquiring FreedLife in 2020. In another case, executives at Korea Veterans Mutual Aid embezzled 38 billion won during its sale to Boram Sangjo.

"Due to lessons learned from the past, multiple layers of safeguards were essential in Woongjin's acquisition process to fundamentally block the possibility of asset outflow," an FTC official explained. "The significance lies in cutting the link through which the parent company's liquidity risks could transfer to the funeral service subsidiary by fundamentally blocking dividends exceeding FreedLife's operating profit."

Beyond controlling Woongjin, the FTC is also intensifying financial pressure across the funeral service industry. As of the end of March this year, Korea's prepaid funeral service subscribers numbered 9.6 million with advance payments reaching 10.33 trillion won. Subscribers have increased 40% and advance payments have surged by nearly 4 trillion won compared to four years ago, prompting the commission to tighten consumer protection as the market has ballooned.

The FTC summoned the chairmen of the two major mutual aid associations and representatives of major member companies to strongly demand increases in collateral ratios.

These measures are expected to trigger industry restructuring. Small and financially weak operators that cannot meet the strengthened financial standards will inevitably be forced out of the market or consolidated.

"Marginal companies lacking liquidity can no longer engage in robbing Peter to pay Paul with customer funds," an industry official said. "The market will rapidly reorganize around large companies with sound financial health."

The FTC plans to monitor implementation of these measures and continue legislative support efforts to pass amendments to the Installment Transactions Act that would strengthen advance payment management for funeral service companies.

However, some in the industry are pushing back against what they call excessive regulation.

"We are already taking advance payment preservation measures under the Installment Transactions Act. If they impose financial industry-level regulations, business will inevitably contract," a funeral service industry official said. "Small and medium-sized operators will find it difficult to bear the cost burden."