'Worst Crisis Ever' in the Insurance Industry... Insurance Company Listings Sell Quickly (Comprehensive)

[Asia Economy Reporter Oh Hyung-gil] With a green light turned on for the sale of KDB Life Insurance, which had been drifting for over 10 years, the acquisition battle in the insurance industry is gaining momentum. 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, love calls to buy insurance companies are pouring in the M&A market.

Attention is focused on 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 Association 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, the number of insurance companies welcoming new owners within three years will reach five.

In particular, JC Partners is expanding its entry into the insurance sector by successfully raising 200 billion KRW through a paid-in capital increase for MG Non-Life Insurance this month and being selected as the general partner (GP) for entrusted management.

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 establish new growth engines to replace 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 acting as incentives.

Insurance companies have a conservative nature in that they must use the premiums paid by customers as assets to generate investment income, pay insurance claims with that income, and make profits. This is highlighted as a stable attraction during low-growth periods.

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

The Korea Institute of Finance recently reported, "This year, the insurance industry is expected to continue a decline in earned premiums due to a decrease in savings-type insurance sales and a contraction in insurance subscription capacity caused by economic slowdown," adding, "Profitability will deteriorate due to an expansion of secondary negative spreads caused by falling interest rates, a decline in asset management yields, and an increase in insurance claim payment 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," and "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."

The capital expansion burden due to the introduction of new international accounting standards (IFRS17) and the new solvency regime (K-ICS) in 2023 is also a concern. The market anticipates that small and medium-sized insurers, which find it difficult to raise capital due to IFRS17 adoption, may appear as additional sellers in the M&A market.

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

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