MG and KDB Life struggle to stay afloat

By Jhoo Dong-chan

The nation's two small insurers ― MG Non-Life and KDB Life Insurance ― are struggling to stay afloat due to worsening business performance over the past few years.

Market watchers doubt the troubled insurers will normalize their operations this year, citing poor management and lack of capital. Some are raising concerns that if the current situation endures, they may face liquidation next year.

MG Non-Life CEO Kim Dong-ju

In 2013, Jabez LLC, a local private equity unit of Jabez Partners, acquired a 94 percent stake in MG Non-Life. The remaining 6 percent was taken over by the Korea Federation of Community Credit Cooperatives (KFCC).

The KFCC has since taken the de facto owner of the insurer as it also acquired a 93.3 percent stake of Jabez LLC from Jabez Partners then. However, the KFCC has only played a financial investor's role.

“The only reason the KFCC took over MG Non-Life was because of the insurer's business license,” said a major non-life insurer official who demanded not to be named.

“The KFCC was going to get MG Non-Life back on track by selling insurance policies at its nationwide branches, but it failed to get a license for the bancassurance business from financial authorities. The insurer has since left untreated.”

KDB Life CEO Chung Jae-wook

KDB Life Insurance has been also in a state of total neglect from its largest shareholder the Korea Development Bank (KDB). KDB Chairman Lee Dong-geol said during a National Assembly audit in October that the state-run bank “shouldn't have acquired the insurer from the very beginning.”

KDB Life had suffered long from mounting debts before the KDB took over the firm. The net asset value of the then Kumho Life was only minus 152 won (-$0.13) per share when the state-run bank took over the firm in 2009.

However, the KDB acquired the insurer at price of 5,000 won per share at that time. Suspected of irregularities in the takeover process, the then KDB Chairman Min Yoo-seong was summoned for questioning.

KDB Chairman Lee said KDB Life posted nearly 750 billion won net losses for three years before the bank acquired it.

Rumors say both firms may be liquidated if the current situation continues next year.

MG Non-Life was supposed to carry out capital increase in September only to fail because of its deteriorating RBC ratio. Its RBC ratio has fallen below the 100 percent level, falling short of the government's minimum recommendation of 150 percent.

Although MG Non-Life posted a 4 billion won ($3.53 million) net profit in the first half of this year, the insurer's risk-based capital (RBC) ratio was 89.3 percent.

The RBC requirement refers to a rule that establishes minimum regulatory capital for financial institutions.

KDB Life is also required to secure necessary capital to meet the IFR17, a new set of accounting standards that are expected to be introduced in 2022.

It managed to meet the government's recommendation of the 150-percent RBC ratio, but has still failed to pay off its debts where the KDB has so far injected nearly 1 trillion won for the last 10 years to revive the company.

KBD Life posted a net profit of 37.3 billion won in the first half of this year but it suffered a decrease in sales due to shrinking sales workforce.

“I believe the liquidation is the only answer,” said Lee during a recent media conference. “We aim to sell KDB Life as soon as possible.”