[The Crisis of Korean Finance] Insurance Premiums '0% Growth' Dark Clouds, Assets Also Not Selling

Over 10 Years, Ownership Changes and Mergers of 10 Insurance Companies

Cold Wave in Insurance M&A... Obstacles in KDB Saengmyeong Acquisition Battle

Ultra-Low Interest Rates and IFRS17 Burden... "Concerns Over Bankruptcy and Domino M&A"

The financial industry in 2020 stands at a crossroads of significant change. After several years of unprecedented prosperity, it now faces a critical test directly linked to survival. The spread of the novel coronavirus infection (COVID-19) has brought about a crisis not only in the domestic market but also in global finance. It is predicted that the survival of domestic financial companies will be determined by how they overcome this challenge. Additionally, with big tech companies like Naver and Kakao entering the financial industry backed by advanced technology, existing financial firms are expected to face unprecedented crises and moments of challenge. Asia Economy diagnoses the problems of the Korean financial industry as perceived by domestic financial company CEOs and explores solutions to overcome sector-specific crises over five installments.

[Asia Economy Reporter Oh Hyung-gil] Over the past decade, ten domestic insurance companies have disappeared into history. Among life insurance companies, Allianz Life (now ABL Life), Woori Aviva Life (now DGB Life), New York Life (now Chubb Life), Kumho Life (now KDB Life), ING Life (now Orange Life), and Green Cross Life (now Fubon Hyundai Life) have changed ownership. PCA Life was merged into Mirae Asset Life.

Among non-life insurance companies, Green Non-Life Insurance (now MG Non-Life Insurance) and LIG Non-Life Insurance (now KB Non-Life Insurance) have changed their names, and Ergo Daum Direct was acquired by AXA Non-Life Insurance.

Due to ultra-low interest rates and low growth, there are forecasts that insurance companies will soon flood the merger and acquisition (M&A) market as items for sale. There is even a sense of crisis that the current situation is more severe than during the global financial crisis. Concerns about prolonged sales contraction and profit decline due to industry downturn and investment sluggishness caused by economic slowdown have led to pessimistic views that M&As will continue like dominoes.

◆ No appeal even if items come up for sale = Currently, KDB Life is the only insurance company on the market. Earlier this year, The-K Non-Life Insurance (now Hana Non-Life Insurance) was acquired by Hana Financial Group, and Prudential Life was acquired by KB Financial Group.

The KDB Life acquisition process has been delayed due to the unexpected COVID-19 situation. KDB Industrial Bank, which announced the sale in September last year, selected a preferred negotiation partner at the end of last year and aimed to complete the sale early this year, but encountered unforeseen obstacles.

Recently, concerns have arisen that the sale process might be disrupted as Baek In-gyun, Senior Vice President of KDB Life who has been leading the sale, was appointed as the new CEO of Korea Trust, a real estate trust company. It is reported that JC Partners, a private equity fund identified as a strong candidate, is feeling burdened by the need for additional capital expansion beyond the bid price during the selection process of the preferred negotiation partner.

Besides insurance companies officially undergoing M&A procedures, some foreign insurance companies are also considered potential items for sale. Currently, the domestic insurance industry includes American companies such as MetLife, LINA Life, and Chubb Life; French company BNP Paribas Cardif Life; Hong Kong-based AIA Life; and Chinese companies Dongyang Life and ABL Life.

They deny any imminent withdrawal from the Korean market, but the management policies of their headquarters could change at any time due to the global economic slowdown.

In particular, China’s Dazhong Insurance Group, the major shareholder of Dongyang and ABL Life, has been conducting analysis work since early this year to liquidate overseas assets. It is widely expected that Lotte Non-Life Insurance, acquired last year by the private equity fund JKL Partners, will also become a potential item for sale within the next two to three years. This is because it is expected to undergo restructuring to improve its condition before being resold.

◆ One crisis ends, another begins = While low growth is becoming entrenched in the insurance industry, the burden on financial soundness is increasing due to the introduction of the new international accounting standard IFRS17.

The Korea Insurance Research Institute forecasted that the total insurance premiums in the insurance industry will show '0% growth' this year. In particular, life insurance premium income is expected to experience negative growth for four consecutive years since 2017.

Last year, the insurance industry's net profit was 5.3367 trillion won, a sharp decline of 26.8% (1.9496 trillion won) compared to the previous year (7.2863 trillion won). The profit structure of insurance companies is worsening. In the first quarter, life and non-life insurance companies recorded insurance operating losses approaching 10 trillion won. Although investment sectors have somewhat offset losses, there are concerns that profits will decrease as low interest rates continue.

The introduction of IFRS17 was postponed by one year to 2023 earlier this year, but uncertainties remain unresolved.

With IFRS17 implementation, insurance liabilities must be calculated at market value at the evaluation point rather than at cost. As liabilities increase due to low interest rates, capital expansion is urgent. Insurance companies reducing their workforce and selling assets such as office buildings are desperate measures to prepare for IFRS17.

The emergence of new competitors in the insurance industry is also a burden. Large IT companies like Kakao and Naver, as well as fintech firms such as Bank Salad and Toss, are eyeing opportunities to enter the insurance market. Kakao, whose joint venture with Samsung Fire & Marine Insurance was canceled, plans to launch a digital insurance company independently as early as the second half of this year. Naver is also considering entering the insurance business. Toss recently expanded its business division by publicly recruiting 100 insurance managers.

An insurance industry insider said, "Due to variables such as the base interest rate cut and the introduction of IFRS17, survival is becoming difficult not only for small and medium-sized insurance companies but also for large companies, which may lead to bankruptcies or active M&As. We have no choice but to strengthen soundness and endure according to environmental changes."

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