Headquarters of Lotte Insurance in Seoul / Courtesy of Lotte Insurance
While major insurance firms are queued up for sale, financial holding companies are exercising caution in proceeding with acquisition deals. This contrasts with earlier market expectations that they would actively pursue acquisitions to expand their non-banking business portfolios.
According to sources in the industry, Woori Financial Group Chairman Yim Jong-yong stated at an event last month that he has no plans to acquire insurance companies while he will continue his efforts to acquire a securities firm.
Echoing Yim's sentiment, Shinhan Financial Group Chairman Jin Ok-dong told reporters during an investor relations event in the U.K. last week that "there are no suitable non-life insurance companies for sale."
Woori is the only financial holding company without an insurance subsidiary. Meanwhile, Shinhan's property insurance subsidiary is perceived to lack competitiveness in the market. Due to these circumstances, the insurance industry expected fierce competition for the acquisition of insurers, spearheaded by these two financial holdings.
Currently, Lotte Insurance, MG Non-Life Insurance and ABL Life Insurance are on the market for sale. KDB Life Insurance is in the middle of an acquisition process, having chosen Hana Financial Group as the preferred negotiating partner.
The cautious stance by financial firms on acquisitions stems from concerns that the surprisingly robust earnings of insurance companies might be influenced by the new accounting standard, IFRS17.
"The price of the insurance company currently up for sale is too high," Jin told reporters. "As the profits (of insurance companies) are rising due to changes in their accounting systems, it's hard to admit it as it is. We will take time; wait and see," he added.
Under this system, anticipated future profits from new insurance contracts are initially categorized as liabilities. Yet, if these contracts continue, the liability reduces according to market valuations. Consequently, when there's a larger sales proportion of long-duration insurance contracts, profits see a notable increase.
For instance, Lotte Insurance reported a net profit of 6.5 billion won ($4.8 million) for the first half of 2022. This figure dramatically rose to 113 billion in the first half of 2023. Given that there were not any distinct favorable factors that could have contributed to such a marked improvement in the firm, the spike could be attributed to the adjustments in accounting standards.
Market insiders view Lotte Insurance's anticipated sale price to be from 2.7 trillion won to 3 trillion won. In 2019, a private equity (PE) firm JKL Partners, the largest shareholder of the firm, acquired the firm at 370 billion won.
"From a PE standpoint, while they would naturally seek the highest sale price, there is a likelihood that transactions could occur at a more reduced rate to seal the deal," said a market insider. "The more competitive the price, the more interest it might draw from financial holding groups and other entities in the financial sector."
![[INTERVIEW] Ecolab helps Korean partners profit from ESG management](https://img.koreatimes.co.kr/upload/thumbnailV2/7a924189dbb7426ab12275ba98702309.jpg/dims/resize/178/optimize)
![[ANALYSIS] Has N. Korean leader's daughter been confirmed as heir apparent?](https://img.koreatimes.co.kr/upload/thumbnailV2/e65868a1b5834cc3aef853378637d1fd.jpg/dims/resize/178/optimize)
![[INTERVIEW] 'Lifeline for migrant workers in Korea' - Rev. Kim fights for foreign employees' rights](https://img.koreatimes.co.kr/upload/thumbnailV2/8fb4b5d381da49df90276394550f2889.jpg/dims/resize/178/optimize)
![[INTERVIEW] Korea to work with US, Japan to fight climate change](https://img.koreatimes.co.kr/upload/thumbnailV2/800d9054a14b4a0f9cc576366cc1b914.jpg/dims/resize/178/optimize)
![[INTERVIEW] Hip-hop group Uptown returns after 13 years with new lineup](https://img.koreatimes.co.kr/upload/thumbnailV2/0eae35da5e9c40c38cf439e550a2eb3e.jpg/dims/resize/178/optimize)
