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| Lotte Insurance headquarters in Seoul / Yonhap |
By Park Jae-hyuk
JKL Partners failed to get Lotte Insurance to turn a profit again last year, although the local private equity firm (PEF) sent 400 of the insurer's employees home and closed 40 offices out of 140 since its takeover in October 2019.
Due to the unsatisfactory result, JKL is expected to face more difficulties over the next few years in its attempt to recoup its investment by reselling the insurance firm.
According to a recent regulatory filing by Lotte Insurance, the company posted an operating loss of 20.8 billion won ($18 million) last year. This followed its 70.9 billion won operating loss in 2019.
After Lotte Group sold its controlling stake in the insurer to the PEF in 2019 to avoid violating antitrust regulations, Lotte Insurance's new CEO Choi Won-jin, who came from JKL, said the company would post an operating profit of 113.5 billion won in 2020.
Until late last month, Lotte Insurance was expected to achieve the goal because it had posted an operating profit of 97.8 billion won during the first three quarters of last year.
However, the company suddenly turned to a loss in the fourth quarter, after it accounted for its accumulated 159 billion won loss from previous investments in aircraft, overseas real estate projects and social overhead capital.
The insurer especially suffered a huge loss from investing in aircraft because the COVID-19 pandemic has reduced air travel as well as the amount of money airlines pay to lease their planes.
Credit ratings agencies have continued to warn Lotte Insurance of possible losses from its investments in aircraft.
"We cannot rule out the possibility of larger-than-expected losses from its aircraft investments, so we should continue to monitor the valuation of its assets, audit results and the recovery of air travel demand," Korea Investors Service analyst Yoon So-jung said in a report.
Lotte Insurance, however, attributed the loss to its previous owner.
"After our largest shareholder was changed in October 2019, we have continued to strengthen our ability to manage risks in asset management," an official said, adding the company will post a 147.9 billion won operating profit for this year and 161.8 billion won for next year.
