Sale of ABL Life Insurance falls through
By Anna J. Park | The Korea Times | November 5, 2023
ABL Life Insurance has failed to find a new owner after private equity firms (PEFs) that were pursuing the acquisition of the life insurer have all pulled out, resulting in the cancellation of the sale process.
Besides ABL Life, many life and non-life insurance firms, including KDB Life, MG Non-life Insurance and Lotte Non-life Insurance, are also being put up for sale.
According to investment banking (IB) industry sources, Oceanfront Partners, a local private equity fund that was mulling the acquisition of ABL Life, recently withdrew from the deal. The move came after BNK Financial Group, with which the domestic PEF had planned to form a consortium to buy the life insurer, pulled out of the acquisition plan.
Nautic Investment and Fountainhead PE, which participated in the bid to acquire ABL Life in September, also suspended their evaluations. As a result, the sale of the life insurer by the end of this year has become very unlikely, industry watchers say.
ABL Life, whose largest shareholder is China-based Dajia Insurance Group, has assets worth 17 trillion won ($13 billion) and ranks among the mid-sized insurance companies in Korea. If the ABL sale proceeded smoothly, industry watchers say TongYang Life ― another life insurance firm in Korea held by Dajia Insurance Group ― might have also been put up for sale.
Market watchers say the newly-introduced accounting standard, IFRS17, played a significant part in stalling the sales of insurance firms this year.
Earlier this year, insurance companies faced allegations of exaggering their performances by arbitrarily applying the Contractual Service Margin (CSM), a component of the new accounting standard, to estimate future profits.
In response, financial authorities decided to introduce unified guidelines and led insurers to apply them in calculating their earnings. Following the application of the unified standard from the third quarter, life insurance companies’ third quarter earnings nosedived, including KB Life’s net profit falling 38.9 percent, Shinhan Life dropping 34.8 percent, and Hana Life declining 74.4 percent, from the previous quarter.
Some major non-life insurers’ performances during the third quarter are also estimated to be bleak. Samsung Fire & Marine Insurance’s net profit for the third quarter is expected to have fallen 30.3 percent from the previous quarter. DB Insurance is also expected to log a drop of 37.3 percent, and Hyundai Marine & Fire Insurance by 11.9 percent.
The sharp declines in insurance companies’ profits are likely to further stall acquisition deals, as the valuations of the companies that are up for sale will be negatively readjusted due to the poor earnings figures.
“With the revelations of the actual performances of insurance companies and deflated bubbles following the introduction of IFRS 17, the insurers’ corporate valuations are in the process of being readjusted again,” a market insider pointed out, saying that is why financial groups that had previously vowed to strengthen their non-banking subsidiaries have opted to remain on the sidelines to watch insurers’ valuation adjustments before deciding to buy them.