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Half a dozen local life- and non-life insurers remain unable to seal mergers and acquisitions (M&A) deals, hamstrung by an industry-wide slowdown and a lack of buyout market enthusiasm from capital-abundant financial groups, market watchers said Wednesday.
Many prospective buyers back out at the last-minute, overwhelmed by the post-deal costs of management normalization and accounting adjustments. Weeks of due diligence uncover many vulnerabilities.
Further deterring them are increasing needs to strengthen their pool of skilled brokerage general agents (GAs), tied closely to the firm's revenue. Buyers consider investing in talent acquisition for the agents a more effective strategy to generate substantial and sustainable returns, since merely finalizing the merger does not ensure immediate profit.
KDB Life headquarters in Seoul / Korea Times file
According to market sources, six insurers are up for sale. Two are non-life insurers -- Lotte and MG. The remaining four are life insurers -- Tongyang, ABL, KDB and BNP Paribas Cardif.
Only Tongyang and ABL are engaged in meaningful merger talks with Woori Financial Group.
Woori spent months pursuing the acquisition of Lotte, only to drop the deal to focus on Tongyang and ABL in late June.
JKL Partners, the biggest shareholder of Lotte with a 77 percent stake, sought an acquisition price of up to 3 trillion won (approximately $2.1 billion).
The private equity firm said the asking price is justified by Lotte's market cap of over 1.1 trillion won, an idea Woori found unreasonable. Woori said it could go only as high as 2 trillion won.
The sales of MG and KDB continue to falter. MG requires about 1 trillion won to regain financial stability, and KDB needs 2 trillion won.
This is why many buyers withdrew midway from the acquisition attempts over the past decade. Three sales attempts were made for MG thus far and six for KDB.
The acquisition price of MG is 300 billion won and 400 billion won for KDB.
Their financial stability is severely compromised, as evidenced by their Korea Insurance Capital Standard (K-ICS) ratios: 76.9 percent for MG and 129 percent for KDB, both from last year. These were among the lowest in the market.
The measure of insurers' insolvency is designed to enhance risk management within the industry, as outlined in 2023 to ensure that companies maintain healthy and robust capital reserves.
Worse yet, MG is at risk of liquidation. KDB continues to face heated criticism over wasting taxpayers' money. KDB Life's largest shareholder, Korea Development Bank, spent about 1.5 trillion won to sellthe life insurer, a firm KDB head Kang Seog-hoon characterized as the "greatest source of pain" for the state-owned lender.
"The stagnant insurance M&A market will not be able to find a breakthrough, unless led by leading financial groups with ample capital," an industry official said.
Hana Financial and Shinhan Financial are in the process of acquiring an insurance arm, as part of a group-wide initiative to fortify non-interest income revenue.
