M&A market for insurance companies to expand in H2
By Anna J. Park | The Korea Times | August 7, 2023
Aiming to expand their non-banking business portfolios, major financial firms, including local financial groups, are closely examining whether to add new insurance subsidiaries, as two insurers ― KDB Life Insurance and ABL Life ― are currently looking for new owners.
Lotte Insurance and Tongyang Life Insurance are also deemed as candidates that are likely to be put up for sale within the next several months, attracting the interest of potential buyers.
According to industry sources on Monday, many financial companies, including Kyobo Life, Industrial Bank of Korea (IBK), Mirae Asset, Korea Investment Holdings, as well as Hana Financial Group, are mulling the acquisition of the insurance companies.
Hana Financial Group is one of the most active potential buyers, showing clear interest in acquiring KDB Life Insurance. Since the major financial group was tapped as the preferred bidder of the insurance firm in mid-July, the company is currently conducting due diligence for the deal.
“The financial group is planning to acquire a non-banking unit to maximize the group’s strength, while complementing its business portfolio,” Yang Jae-hyuk, CSO of Hana Financial Group, said during a conference call for its first half earnings on July 27.
Woori Financial Group is also seen as a strong potential buyer of an insurer in the near future, as it has long aimed at adding non-banking subsidiaries to diversify its portfolio. Although the group has been placing priority on acquiring a brokerage, the group is expected to add an insurer at some point in the future.
Both Kyobo Life and the National Federation of Fisheries Cooperatives (NFFC) aspire to transform into a financial holding company, which requires the acquisition of various non-banking subsidiaries. Mirae Asset Group and IBK are also said to be seeking a non-life insurance subsidiary to expand their business scopes.
While there exists a legion of potential buyers for insurance companies, a high level of uncertainty remains in the M&A market for the insurance firms. Market insiders say the adoption of IFRS 17, new global accounting standards that require companies to apply differentiated criteria in terms of profits and timelines, made it difficult for the potential buyers to assess the corporate values of insurance companies.
As the accurate evaluation of insurance companies put up on the M&A market is the most significant step towards a potential acquisition, the increased uncertainty at the assessment phase has confounded potential buyers and made them balk at the actual acquisition.
“As for now, the biggest challenge for deciding whether to acquire an insurance firm is the accurate assessment of cash flows by insurers. As the process remains an uncertainty due to the new accounting standards, it has become difficult to come to terms of a putative corporate value of a potential insurer,” a market insider said.