KB Financial's Acquisition of Prudential Life: "ROE Will Increase, but Post-M&A Strategy Is Crucial"

NH Investment & Securities Report... KB Expected to Increase ROE and EPS if Acquiring Prudential
Doubts Remain on Maintaining Profitability and Efficiency

[Asia Economy Reporter Ki Ha-young] It is anticipated that if KB Financial Group acquires Prudential Life Insurance, its return on equity (ROE) and earnings per share (EPS) will increase. However, questions have been raised about whether this acquisition can maintain profitability and efficiency in a low-growth, low-interest-rate environment.

On the 22nd, NH Investment & Securities researcher Jo Bo-ram analyzed the merger scenario of the two companies in a report titled "If KB and Prudential Insurance Meet." Jo used the market estimate that the sale price of Prudential Life Insurance, which is up for sale, would be around 2 trillion won including management rights to analyze the merger scenario.

Researcher Jo stated, "If KB Financial Group succeeds in acquiring Prudential Life Insurance, it is expected to fundamentally improve ROE by 40 to 50 basis points and increase EPS by 4 to 5%. Future additional earnings effects and synergy creation will entirely depend on the management’s post-merger strategy."

He added, "Looking at trends such as Prudential Life Insurance’s first-year premium growth rate, contract retention rate, and profitability ratios, it holds a top position among life insurers, but its growth momentum has somewhat weakened compared to the past. Under a contracted business environment accompanied by low growth and low interest rates, a fundamental question arises as to whether profitability and efficiency at the time of acquisition can be maintained going forward."

Researcher Jo analyzed, "Looking at past insurance mergers and acquisitions (M&A) cases, the appropriateness of the acquisition price, the need for additional capital injection after acquisition, and synergy creation with the acquiring entity determine the success or failure of the deal. Except for the ING Life (now Orange Life) case, most cases failed to create synergy due to intensified competition and poor business performance without enjoying special M&A effects."