Will Hana Financial Holding's Acquisition of The-K Non-Life Insurance Be a 'Tempest in a Teacup'?

After Deal Closure, Performance Improvement and Portfolio Restructuring Challenges Emerge

[Asia Economy Reporter Oh Hyung-gil] Hana Financial Group has officially announced its entry into the non-life insurance industry by acquiring The-K Non-Life Insurance, but there are views that this will remain a "storm in a teacup." With most major companies experiencing declining performance due to worsening industry conditions, there are numerous challenges that need to be addressed.

According to the insurance industry on the 22nd, the Teachers' Credit Union is expected to finalize negotiations to acquire shares of The-K Non-Life Insurance from Hana Financial Group by early next month at the latest.

Hana Financial held a board meeting on the 20th and resolved to acquire 70% of The-K Non-Life Insurance’s shares for approximately 100 billion KRW. It is reported that various opinions regarding the price are emerging within the Credit Union. A Hana Financial official said, "We are waiting for a response from the Credit Union side," adding, "We have not yet reached the stage of final agreement."

Within The-K Non-Life Insurance, concerns about potential threats to employment are growing. Since December last year, when rumors of the sale first surfaced, the nationwide Office and Financial Services Labor Union branch at The-K Non-Life Insurance has requested discussions on employment stability agreements with management, but the management has not responded.

Even if the acquisition process is smoothly completed, many challenges remain. Immediate improvement in performance is urgent. The-K Non-Life Insurance is expected to have recorded losses for two consecutive years up to last year. In the first to third quarters of last year alone, it posted a net loss of 11.1 billion KRW. Profitability indicators are also declining. Last year, the loss ratio reached 92.7%, and net operating expenses increased from 48.5 billion KRW in the third quarter of 2018 to 59.1 billion KRW in the third quarter of last year.

The portfolio, which is heavily concentrated in automobile insurance, also needs restructuring. As of September last year, out of 369.7 billion KRW in gross written premiums, 233.1 billion KRW (63%) was earned from automobile insurance. The fact that a significant portion of policyholders are teachers is another factor hindering additional growth.

To reduce dependence on automobile insurance, long-term insurance sales must be increased, which also entails the burden of expanding asset size. The total assets of The-K Non-Life Insurance stood at 895.3 billion KRW as of the third quarter of last year, ranking 14th among 17 non-life insurers. From Hana Financial’s perspective, this means additional capital support will be required immediately after acquisition.

Within the insurance industry, the dominant view is that Hana Financial’s acquisition of The-K Non-Life Insurance is a long-term strategic move to secure a comprehensive non-life insurance license rather than to generate immediate synergy. An insurance company official said, "At this point, non-life insurance is somewhat more competitive than life insurance," adding, "They likely considered the ability to sell not only automobile insurance but also indemnity insurance and various other insurance products."

There are also expectations that the synergy between the financial holding company and the non-life insurer will not be significant. When LIG Non-Life Insurance (now KB Non-Life Insurance) was acquired by KB Financial Group in 2015, there were expectations of aggressive sales, but the market share did not change significantly before and after the acquisition.

An industry insider said, "The loss ratios of core non-life insurance sectors such as automobile and indemnity insurance are worsening, so the possibility of a rebound for The-K Non-Life Insurance in the short term is slim," adding, "It should be interpreted as a move to expand the non-bank business within the holding company from a mid- to long-term perspective."