Insurer Sales Face Capital Hurdles
As major insurers including KDB Life Insurance, Lotte Non-Life Insurance, and Yebyeol Non-Life Insurance come to market in quick succession, the financial sector’s calculus surrounding potential acquisitions is growing increasingly complex. This is because, with core capital Korean Insurance Capital
The financial landscape surrounding major insurer sales in South Korea is becoming increasingly intricate due to upcoming capital regulations. Korea Insurance Capital Standard (K-ICS) ratio requirements, set to enforce a minimum of 50% starting next year, are the primary concern for potential buyers. If the capital needed to meet these regulations exceeds the purchase price, the deal may not proceed.
Hanwha Life Insurance, Heungkuk Life Insurance, and Korea Investment Holdings submitted final acquisition proposals for KDB Life Insurance, but Samsung Life Insurance and Kyobo Life Insurance did not participate in the main bid. This marks the seventh attempt for Korea Development Bank to sell KDB Life Insurance. Lotte Non-Life Insurance's negotiations with its largest shareholder and Shinhan Financial Group also broke down, leading to an open auction.
Yebyeol Non-Life Insurance is working with OK Financial Group, but its acquisition cost will likely be around 500 billion won more than initially estimated.
The core issue is that the capital reinforcement required after an acquisition could surpass the cost of the purchase itself. For example, KDB Life Insurance is valued at 500 billion won to 600 billion won but had a negative core capital of 356.7 billion won as of the first quarter. To meet the new 50% K-ICS ratio, the company would need an additional 1.4155 trillion won, bringing its core capital to approximately 707.7 billion won.
Lotte Non-Life Insurance's situation is similarly dire, with a core capital deficit of 350.9 billion won. Additional capital of around 1.4 trillion won would be needed to satisfy the new capital requirements. When factoring in the cost of the legacy share acquisition, the total financial burden could exceed 2 trillion won.
Yebyeol Non-Life Insurance faces its own challenges, with OK Financial Group proposing to inject 400 billion won over three years. However, at least an additional 500 billion won will be needed to bring the K-ICS ratio above the regulatory threshold of 130%. Despite a nine-year transition period until the end of 2035, the long-term capital burden on acquirers remains significant.
Korea Investment Holdings, which is involved in multiple acquisitions, has a double leverage ratio of 121.96%, nearing the 130% limit set by financial authorities. This means the burden of additional capital investment could become substantial if the company were to acquire an insurer and meet the new capital requirements.
Written by urgent.news from BusinessKorea's reporting — not their text. Machine-written — it may contain errors, so check the original before relying on it.
