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| Shinhan Financial Group Chairman Cho Yong-byoung and a logo of AXA / Korea Times file |
By Park Jae-hyuk
After Shinhan Financial Group decided not to bid for AXA General Insurance, industry officials are wondering what other plans the country's leading banking group could have in mind.
On Tuesday, Shinhan confirmed that it had not joined in preliminary bidding to acquire the French multinational insurance group's Korean unit.
"We acknowledge AXA as a good company, but we eventually decided not to take part in the bid because its strategic orientation differs from ours," a Shinhan spokesman said, declining to elaborate on the meaning of "strategic orientation."
The decision came as a surprise to many who believed that Shinhan had hired Deloitte Anjin as a financial adviser to participate in a virtual due diligence of AXA General Insurance.
According to sources familiar with the matter, Shinhan made its final decision just before the deadline for the bidding, as its executives had been arguing over the acquisition. However, even before the preliminary bidding started, Shinhan had indicated it would maintain a cautious stance toward additional M&As.
"We decided recently not to acquire Truston Asset Management after conducting due diligence," a high-ranking official on Shinhan's investor relations team said. "Any deal can fail at the last moment, even after a seller selects a preferred bidder."
Shinhan has repeatedly expressed its hope to launch a general insurance subsidiary to fill out its business portfolio.
However, there is skepticism over the profitability of AXA General Insurance.
The mid-size insurer has specialized in car insurance which has been suffering from a deteriorating loss ratio. According to the Korea Insurance Development Institute, loss ratios for car insurance in 2019 rose 5.5 percentage points to 91.4 percent. This led to AXA General Insurance reporting an annual loss of 36.9 billion won ($31 million).
Furthermore, AXA has reportedly priced its Korean unit at 400 billion won, double the estimated market value.
Despite the departure, Shinhan Financial is still drawing attention from market observers as they wonder about the group's approach toward growing its non-life business. They see Hanwha General Insurance as an alternative to AXA as it is less dependent on car insurance.
Earlier this month, Hanwha General Insurance sold its entire stake in Carrot General Insurance to Hanwha Asset Management, citing a need to improve its financial soundness.
Although Hanwha has dismissed rumors about the sale of the non-life insurance unit, the latter's worsening profitability has seen observers consider the latest decision as a move to prepare for the sale of the insurer.
No synergy?
S&P Global Ratings, however, has warned that Shinhan's capitalization could weaken if it pursues additional M&As in the near future.
Emily Yi said in a recent report that Shinhan would not likely pursue large M&As in the foreseeable future, although it has used this route in the past to expand into non-banking businesses, such as life insurance and credit cards.
"We expect Shinhan to continue to have adequate capitalization over the next few years," Yi said. "The company intends to maintain higher regulatory capital ratios after the increase in capital."
There is also the possibility of Shinhan launching a digital insurance unit after taking over with a separate non-life insurer.
The financial group may also consider investing in BNP Paribas Cardif General Insurance, a joint venture between BNP Paribas Cardif and Shinhan Life Insurance, so as to include the non-life insurer in its subsidiaries.
Some observers say Shinhan may seek to buy a non-life insurer at a lower price in a few years, when more are put on the market after the implementation of the new IFRS 17 accounting standards which will require larger equity payments from insurers.
