KB gears up to retake leading financial group status

KB Financial Group Chairman Yoon Jong-kyoo, left, and Shinhan Financial Group Chairman Cho Yong-byoung / Courtesy of each company

By Park Jae-hyuk

KB Financial Group's acquisition of Prudential Life Insurance Company of Korea will cause upheavals in the entire financial industry, not only in the life insurance sector, according to market analysts, Sunday.

The group said Friday it signed a contract to buy a 100 percent stake in the U.S. life insurance giant's Korean unit for 2.26 trillion won ($1.86 billion), beating out its competitors including Taiwan's Fubon Financial and three local private equity firms ― MBK Partners, Hahn & Company and IMM Private Equity.

Having been able to diversify its business portfolio with the new non-banking subsidiary, KB is expected to threaten Shinhan Financial Group's leading banking group status, which it lost last year, analysts said.

“Through the Prudential takeover, KB is expected to improve its status in the life insurance market, and to diversify its business portfolio, showing a rising profit in its non-banking sector,” Korea Investors Service analyst Yeoh Yun-ki said in a recent report.

According to the domestic credit rating agency, the sum of net incomes of KB and Prudential Korea last year reached 3.452 trillion won, exceeding Shinhan's 3.403 trillion won net income in 2019.

Because KB is supposed to take over the entire stake in Prudential Korea, the life insurer's net income will be added completely to the financial group's net income, when the acquisition procedure is over.

Nevertheless, it is too early to say if KB will retake the leading financial group title from Shinhan this year, according to analysts, because the defending champion will likely see a growing net profit thanks to Orange Life Insurance that has been Shinhan's fully owned subsidiary since January.

In addition, Shinhan plans to integrate its two life insurance units in July 2021 with an aim of creating the nation's third-largest life insurer in terms of net income.

Against this backdrop, analysts expect the two banking groups will engage in a fierce competition throughout this year for the leading financial group title.

“Shinhan Life and Orange Life are expected to achieve economies of scale when they are integrated in July next year, because they have undergone enough post-merger integration process,” Hana Financial Investment analyst Choi Jung-wook said. “KB will take some time to secure its competitiveness on the contrary, as it just started proceeding with the M&A.”

Shocks to life insurers

It is more predictable that KB's Prudential takeover will reshuffle the nation's life insurance industry that has been dominated by the big three players ― Samsung, Hanwha and Kyobo.

If KB Life Insurance is merged with Prudential Korea holding 21 trillion won in assets, the nation's 17th-largest life insurer in terms of assets can become the eighth-largest.

In terms of net income, KB's life insurance unit could become the fifth-largest in the local market.

Considering that Shinhan's integrated life insurance unit will likely become the fourth-largest in terms of assets and the third-largest in terms of net income, industry officials expect mid-tier life insurance arms of financial holding firms will come to the fore in the near future, achieving economies of scale.

Risks still exist

Analysts, however, said KB's Prudential takeover may not benefit its shareholders.

“We think KB's Prudential takeover will not help enhance its shareholder value, because it could increase risks,” DB Financial Investment analyst Lee Byung-gun said, citing low interest rates and uncertainties in the financial market.

Samsung Securities analyst Kim Jae-woo also said market participants will consider KB's Prudential takeover negative in the short run.

“There have been huge concerns about the life insurance industry itself,” he said. “Due to the deteriorating valuation of life insurers, shareholders may think KB overpaid for Prudential.”