Will KakaoPay consider AXA acquisition?

KakaoPay CEO Ryu Young-joon / Courtesy of KakaoPay

By Kim Bo-eun

The delay in KakaoPay getting approval to launch a non-life insurance unit is raising questions over whether the fintech platform will consider acquisition of AXA Korea, which is being put up for sale, as its “Plan B.”

KakaoPay stated it would establish a digital insurance unit as it broadens its line of businesses. The financial services platform acquired an insurtech firm and has been selling products of other insurers but is now seeking to develop policies of its own by setting up an insurance unit. KakaoPay had planned to apply for a license from financial authorities by July.

However, the fintech firm has yet to submit required documents to the Financial Services Commission (FSC), according to KakaoPay, Monday.

KakaoPay did not provide details on what was causing the delay. "KakaoPay is in talks with financial authorities," an official said. "Approval to establish the unit is being delayed, but we plan on launching the entity as soon as possible."

Reports have attributed the lack of progress to KakaoPay struggling to meet the conditions of financial authorities. The FSC is known to take a conservative stance on issuing new licenses for non-life insurers, amid fierce competition in the sector.

Meeting the requirements can be tough for KakaoPay as a fintech entity that lacks expertise in insurance.

Considering KakaoPay is hoping to set up an insurance unit soon, it could review acquiring the non-life insurer AXA Korea an alternative plan.

The KakaoPay official said the company currently does not have plans to acquire AXA Korea. However, the possibility that KakaoPay may take this into consideration cannot be ruled out.

AXA's French headquarters is known to be reaching out to potential buyers here.

Taking over AXA Korea could be an easier way to set foot into the non-life insurance business. KakaoPay earlier sought to set up a joint insurance entity with Samsung Fire & Marine Insurance, which was seen as a tactic through which it could refer to the insurance company for expertise. The plan, however, fell through, because Samsung's non-life insurer did not want the new unit to offer car insurance.

As KakaoPay wants its envisioned insurance unit to offer car insurance, AXA Korea could be a good acquisition, as it has focused on the direct motor insurance business here. Acquiring AXA Korea could also save KakaoPay the efforts to establish infrastructure and systems and obtain the necessary human resources.

The downsides are the acquisition costs and addressing AXA's poor profitability. AXA's acquisition price is estimated at 200 billion won excluding a premium in management.

Regarding the latest financial sheets, AXA Korea posted a net profit of 16.42 billion won in 2018 but reported a net loss of 36.91 billion won last year. The loss ratio of its car insurance exceeded 80 percent in the second quarter of this year.

Moreover, insurers are bracing for the introduction of the International Financial Reporting Standards (IFRS) 17, which requires them to hold a larger amount of capital to meet financial health standards. This will be a burden KakaoPay will have to take on if it decides to acquire AXA Korea.

Financial groups currently without non-life insurance units ― Shinhan and Woori ― have been cited as possible buyers of AXA Korea.

But there appears to be little competition to acquire the French insurer's unit here.

"AXA is not a good buy if you consider profitability," an official of one of the groups said. “Financial groups are not going to be interested in acquiring an entity just because this is absent in their portfolio.”