Will Hana Financial Holding's Acquisition of The-K Non-Life Insurance Become a 'Storm in a Teacup'? (Comprehensive)

After Deal Completion, Challenges Arise for Performance Improvement and Portfolio Restructuring

[Asia Economy Reporter Oh Hyung-gil] Hana Financial Group has officially announced its entry into the non-life insurance sector by acquiring The-K Non-Life Insurance, but there are predictions that this will amount to nothing more than a "storm in a teacup." With the worsening industry conditions causing most major companies to see declining performance, there are numerous challenges that need to be addressed.

According to the insurance industry on the 22nd, the Korea Teachers' Credit Union is expected to finalize negotiations to sell its stake in The-K Non-Life Insurance to Hana Financial Group by early next month at the latest.

The-K Non-Life Insurance is a company wholly owned by the Korea Teachers' Credit Union. It started as a specialized automobile insurance company and was upgraded to a comprehensive non-life insurer in 2014.

On the 20th, Hana Financial held a board meeting and resolved to acquire a 70% stake in The-K Non-Life Insurance for approximately 100 billion KRW. It is reported that there are various opinions within the Credit Union regarding the price. A Hana Financial official stated, "We are currently waiting for a response from the Credit Union side," adding, "We have not yet reached a final agreement."

Within The-K Non-Life Insurance, concerns about job security 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 company 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 posted losses for two consecutive years up to last year. In just the first to third quarters of last year, it recorded a net loss of 11.1 billion KRW. Profitability indicators are also declining. Last year's 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%) came from automobile insurance. The fact that a significant portion of policyholders are teachers also makes further growth difficult.

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

Within the insurance industry, the dominant view is that Hana Financial's acquisition of The-K Non-Life Insurance is more of a long-term strategic move to secure a comprehensive non-life insurance license rather than to generate immediate synergy. Kim Jung-tae, Chairman of Hana Financial Group, has announced plans to expand the non-banking sector's share to 30% of the group's total revenue by 2025.

An official from a non-life insurer said, "At this point, non-life insurance is somewhat more competitive than life insurance," adding, "They likely considered the fact that they can sell not only automobile insurance but also indemnity insurance and various other types of insurance."

There are also views 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 market share did not change significantly before and after the acquisition.

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