DB Insurance's buying of Fortegra seen as catalyst for long-term growth: analysts

DB Insurance headquarters in Seoul / Courtesy of DB Insurance

DB Insurance's acquisition of Fortegra Group, a U.S. insurer, is expected to serve as a long-term growth catalyst, given the limited expansion potential of the domestic market and the recent intensification of competition, analysts said Monday.

"DB Insurance plans to operate Fortegra as an independent subsidiary even after the acquisition is completed, but it is expected to secure a stable profit base in the U.S. market," said Hong Ye-ran, an analyst at Korea Investment & Securities. "Given the high penetration of the domestic insurance market, expanding overseas is a rational choice."

On Friday, DB Insurance announced that it has signed an agreement to acquire 100 percent of the issued shares of Fortegra Group for $1.65 billion. This marks the largest-ever deal by a Korean insurer and the first time a Korean insurer has acquired a U.S. insurer.

The acquisition is expected to be completed in the first half of next year.

Established in 1978, Fortegra Group specializes in niche insurance as well as credit and surety insurance. Last year, it recorded approximately 4.4 trillion won ($3.1 billion) in annual premiums and 200 billion won in net profit. The company operates across the U.S. as well as in the U.K., Italy and eight other European countries.

Jung Jun-sup, an analyst at NH Investment & Securities, noted that while the acquisition may create a short-term financial burden, it is expected to generate long-term positive effects, citing an increase of more than 200 billion won in annual consolidated profit.

"In the long run, shareholder returns could expand in line with higher consolidated earnings," Jung said.

DB Insurance has been steadily expanding its overseas operations with a focus on the U.S., China and Southeast Asia. Last year, it also acquired stakes in Vietnam National Aviation Insurance and Saigon-Hanoi Insurance.

"Through this acquisition, we are making a full-fledged entry into the world’s largest nonlife insurance markets in the U.S. and Europe, thus securing a platform for global expansion," a DB Insurance official said. "We expect to strengthen profitability by entering the stable global surety insurance market and improving earnings stability."