KDB and DGB Saengmyeong Achieve 'Turn to Surplus' but Cannot Smile (Comprehensive)

KDB Life Net Profit 34.4 Billion Last Year
Major Challenge: Sale Process Stalled

DGB Life Net Profit 8.7 Billion
Office Sale, Branch Closures, Voluntary Retirement

KDB Life Headquarters Exterior View

[Asia Economy Reporter Oh Hyung-gil] In the life insurance industry, where even large companies are seeing reduced profits due to low interest rates and sluggish business conditions, KDB Life Insurance and DGB Life Insurance have succeeded in turning a profit. However, the situation is not entirely positive. Both companies are undergoing either a sale process or intensive restructuring.

According to the insurance industry on the 10th, KDB Life Insurance recorded a provisional net profit of 34.423 billion KRW last year, marking a turnaround to profitability. This represents an increase of a staggering 3200% compared to the previous year's net loss of 1 billion KRW.

The company explained that investment gains, including dividend income, improved as loans and alternative investments were increased in a limited manner, and corporate tax income arose due to deferred tax effects from tax loss carryforwards.

A company official said, "As a result of conducting an appraisal of the Gwangju headquarters, its value increased," adding, "The results reflect efforts to streamline the profit structure and business expenses through restructuring."

Despite the improvement in performance, the atmosphere inside and outside KDB Life Insurance is unsettled. This is because the sale process being promoted by the major shareholder, KDB Industrial Bank, has not progressed and is indefinitely delayed.

It is reported that two private equity funds participated in the preliminary bidding conducted by the bank in November last year, but subsequent steps have come to a complete halt. The industry estimates that disagreements over the sale price have not been resolved. After four failed attempts at selling, KDB Life Insurance's valuation has plummeted from around 600 billion KRW to 400 billion KRW. However, finding a buyer remains as difficult as "catching a star in the sky."

Especially with new assets like Prudential Life Insurance appearing, KDB Life Insurance is relatively less attractive in the M&A (mergers and acquisitions) market.

Another issue is legal risk. According to the Financial Holding Companies Act, private equity funds (PEFs) that are not financial holding companies can only control financial firms for up to 10 years. KDB Life Insurance was acquired by the PEF KDB Kansas Value Private Equity Fund in March 2010, and this month will exceed the 10-year limit.

If the Industrial Bank of Korea does not sell KDB Life Insurance or convert it into a holding company within this month, it will violate the Financial Holding Companies Act and face sanctions from financial authorities.

The Industrial Bank of Korea is currently conducting a legal review regarding the possibility of violating the Financial Holding Companies Act with financial authorities. Since there is no precedent, there is analysis that penalties may be postponed or not severe, considering the circumstances that the sale process is ongoing.

An insurance industry official said, "If the burden of penalties is reduced, the Industrial Bank of Korea is expected to continue efforts to find a buyer," adding, "It will not be easy to sell at a low price immediately, so the process may be prolonged."

DGB Life Insurance, which recorded a net loss of 2.8 billion KRW in 2018, also returned to profitability last year with a net profit of 8.736 billion KRW, an increase of 401.8% compared to the previous year. Investment gains also increased due to the sale of securities.

However, the gain from the sale of the Busan headquarters building in March last year added to the profit, which is painful as it reflects the result of intensive restructuring. DGB Life Insurance sold its Busan headquarters building to Hana Investment Trust last year. It also pushed forward with consolidation efforts, closing more than 80% of its existing 38 branches. In October, it also implemented voluntary retirement for employees.

DGB Financial acquired DGB Life Insurance in 2015 to strengthen its non-banking sector, but it is still evaluated that no significant synergy has appeared. Last year, DGB Financial appointed CEO Min Ki-sik, a former vice president of Prudential Life Insurance.

This content was produced with the assistance of AI translation services.