Despite the Worst Insurance Market... Why Insurance Company Acquisition Battles Are Heating Up

[Asia Economy Reporter Oh Hyung-gil] A green light has been turned on for the sale of KDB Life Insurance, which had been drifting for over 10 years, accelerating the acquisition battle in the insurance industry. This is the third case this year following The-K Non-Life Insurance and Prudential Life Insurance.

Although the insurance industry is facing the greatest crisis ever due to low interest rates and sluggish business conditions, there is an outpouring of love calls in the merger and acquisition (M&A) market from those wanting to buy insurance companies.

Attention is being paid to the stable profit-generating ability and long-term growth potential of insurance companies, but concerns remain that the outlook is not entirely bright due to burdens such as capital expansion.

According to the insurance industry on the 13th, recently, financial holding companies and private equity funds (PEFs) have been successfully acquiring insurance companies in large numbers. Following Shinhan Financial Group’s acquisition of Orange Life in 2018, last year PEF JKL Partners succeeded in acquiring Lotte Non-Life Insurance.

This year, Hana Financial Group signed a stock purchase agreement with the Teachers’ Pension and The-K Non-Life Insurance, and on the 10th, KB Financial Group confirmed the acquisition of Prudential Life Insurance.

If JC Partners, currently conducting due diligence, is finally selected as the preferred bidder for KDB Life Insurance, there will be five insurance companies welcoming new owners within three years.

The active acquisition of insurance companies by financial holding companies is interpreted as an effort to strengthen their non-bank portfolios. The strategy is to expand the group’s business or make it a new growth engine by replacing the slowing banking sector. In the case of PEFs, it is analyzed that merits such as dividend profits through improved soundness and management efficiency, and capital gains through future resale, are at play.

However, there is a question mark over whether M&A will lead to success in a situation where the insurance industry outlook is at rock bottom. In particular, life insurers are caught in a dire situation as prolonged low interest rates due to the spread of COVID-19 overlap with high-interest negative spreads.

The Korea Institute of Finance recently stated in a report, "This year, the insurance industry will continue to see a decline in premium income due to decreased sales of savings-type insurance and reduced insurance subscription capacity caused by economic slowdown," and predicted, "Profitability will deteriorate due to expanded secondary negative spreads caused by falling interest rates, decreased asset management yields, and increased insurance claim payout ratios."

The Korea Insurance Research Institute also warned, "In the future, insurance companies’ insurance operations as well as fundraising through capital markets may shrink more than before," adding, "Insurance premium sales and insurance claim payments are directly affected by economic recession, and stock price declines, increased credit spread volatility, exchange rate rises, and interest rate cuts may adversely affect asset management."

Capital expansion due to the introduction of the new International Financial Reporting Standards (IFRS 17) and the new solvency regime (K-ICS) in 2023 is also a burden. The market anticipates that small and medium-sized insurers, which find it difficult to raise capital due to IFRS 17 adoption, may appear as additional M&A targets.

An insurance industry official said, "Due to sluggish business conditions, insurance company sell-offs are expected to continue, and this is a situation where supply and demand meet as companies seek to establish a foothold for new business opportunities."

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