Major Korean life and non-life insurance companies have been unable to finalise merger and acquisition deals, as the country’s insurance M&A market continues to stagnate.
Experts have cited an overall slowdown in the insurance sector and a lack of enthusiasm from potential buyers that have hampered deal closures, with buyers overwhelmed by post-deal costs of management normalisation and accounting adjustments. Weeks of due diligence have also uncovered many vulnerabilities, reported the Korea Times.
Six insurers currently up for sale include non-life firms Lotte Insurance and MG Insurance, as well as life insurers Tongyang, ABL, KDB and BNP Paribas Cardif. Only Tongyang and ABL have engaged in meaningful merger talks with Woori Financial Group, the country’s fourth-largest financial services holding company.
A high-profile merger with Lotte Insurance fizzled out in June after Woori backed out of the bid, citing Lotte’s high sale price. Woori has since focused on the acquisition of Tongyang and ABL, both owned by China’s Dajia Insurance Group.
JKL Partners, Lotte Insurance’s biggest shareholder, sought an acquisition price of up to 3 trillion won ($2.1 billion) for its 77% stake in Lotte, with the equity firm saying that the price was justified by Lotte’s market cap of over 1.1 trillion won ($805 million). Woori refused, saying it could go only as high as 2 trillion won ($1.4 billion).
Other insurers face stability concerns, with MG Non-Life requiring up to 1 trillion won to regain financial stability, and KDB Life needing 2 trillion won.
The proposed sale of MG Non-Life was cancelled for the third time in July this year, after it was designated as a distressed financial institution in April 2022. Its estimated acquisition price was at 300 billion won ($219.5 million).
State-owned lender Korea Development Bank has spent more than 1.5 trillion won ($1.10 billion) to sell KDB Life since 2014, with another 299 billion ($219 million) injected into the insurer in June this year to improve its financial structure.
KDB Life, which had six sales attempts since 2014, has had particularly low solvency ratios, with its Korean Insurance Capital Standard (K-ICS) ratio being at 129%. MG Non-Life, too, also has a low K-ICS ratio of 76.9%, one of the lowest in the market and well below the regulatory guideline of 150%, and is at risk of liquidation, reported the Korea Times.
Korea’s stagnating insurance M&A market stands in sharp contrast to the more active M&A environment in other sectors of the country’s economy, with 22.3 trillion won ($16 billion) worth of deals expected to come to market by the end of June across various industries, according to a recent Korea Economic Daily report.
Major players like Hana Financial or Shinhan Financial Group, which are actively seeking to bolster their non-interest income streams, may have the resources and strategic motivation to pursue large insurance acquisitions in the current climate, said the Korea Times.
“The stagnant insurance M&A market will not be able to find a breakthrough, unless led by leading financial groups with ample capital,” an industry official told the Korea Times.
