Major Non-Life Insurers' Quarterly Earnings Party
Life Insurance Sector with Bleak Industry Outlook Remains 'Quiet'
As the first-quarter earnings announcements of major insurance companies conclude, the insurance industry merger and acquisition (M&A) market is receiving renewed attention. While non-life insurers recorded their highest quarterly earnings ever, Lotte Non-Life Insurance, the 'big fish' in this acquisition battle, saw a temporary decline in performance due to a decrease in investment income, separate from its insurance operating profit. This is expected to complicate the calculations for Woori Financial Group, which submitted a letter of intent (LOI) last month. Meanwhile, the already quiet life insurance sale issue shows no signs of reigniting.
According to financial authorities on the 21st, among the 'record-breaking performances' of major non-life insurers in the first quarter of this year, Lotte Non-Life Insurance recorded a double-digit decrease in net profit.
In earnings announcements continuing until last week, the five major non-life insurers posted their highest quarterly earnings ever. Under the accounting standard 'IFRS17,' which entered its second year this year, the contract service margin (CSM) has emerged as a key profit indicator for insurers, and this was achieved by significantly increasing the proportion of protection-type insurance, which is advantageous for securing this indicator.
Samsung Fire & Marine Insurance achieved a consolidated first-quarter net profit of 701 billion KRW, the highest quarterly figure, growing 14.6% year-on-year. DB Insurance's separate first-quarter net profit rose 30.4% year-on-year to 583.4 billion KRW. Meritz Fire & Marine Insurance also saw a sharp 23.8% increase in separate net profit to 490.9 billion KRW, Hyundai Marine & Fire Insurance recorded a 51.4% increase to 477.3 billion KRW, and KB Insurance posted a 15.1% rise to 292.2 billion KRW.
As a result, market attention focused on Lotte Non-Life Insurance, ranked seventh in the non-life insurance industry and the largest insurance company up for sale. However, on the last day of the first-quarter earnings disclosure on the Financial Supervisory Service's electronic disclosure system DART, April 16, Lotte Non-Life Insurance announced a first-quarter net profit of 40.9 billion KRW, down 27.5% year-on-year. This was mainly due to a sharp decline in investment income, but its core insurance operating profit (41.4 billion KRW) grew 86.1% year-on-year, which some analysts view as a factor demonstrating competitiveness.
Woori Financial Group, which submitted the LOI, is considering participating in the main bidding for Lotte Non-Life Insurance next month. However, it has emphasized through various channels that there will be "no overpayment" and that it will not pay an excessive price. As the tug-of-war over the 'appropriate price' continues, attention is focused on how this earnings report will influence the decision.
Besides Lotte Non-Life Insurance, MG Non-Life Insurance, currently undergoing a sale process by the Korea Deposit Insurance Corporation (KDIC), is also in the non-life insurance acquisition race. The largest shareholder of MG Non-Life Insurance is the private equity fund JC Partners, holding 95.5% of shares. However, after the Financial Services Commission designated MG Non-Life as a financially distressed institution in 2022, KDIC took over its management. Interested bidders include the U.S.-based private equity fund JC Flowers and the domestic private equity firm Daily Partners. KDIC provided these companies with due diligence opportunities on MG Non-Life on the 24th of last month. After due diligence, these companies are expected to proceed with the main bidding around next month, though the exact schedule has not been set.
Compared to the lively non-life insurance sale market, the life insurance market remains relatively quiet with no news. The prolonged high-interest-rate environment and the increasingly severe low birthrate and aging society have led to a decline in demand for savings-type and whole life insurance. Moreover, the introduction of new accounting standards caused the first-quarter net profits of the 'big three' life insurers to plummet, continuing the cold wind blowing through the acquisition market.
Currently, four life insurers are considered potential sale candidates in the industry: KDB Life Insurance, BNP Paribas Cardif Life Insurance, ABL Life Insurance, and Dongyang Life Insurance. Except for KDB Life Insurance, all are foreign-owned. A financial industry insider explained, "Considering Korea's interest rate issues and demographic structure, life insurers are not structured to survive in the current insurance market. Foreign capital, seeing that it is unprofitable, is trying to withdraw first, thinking there is no need to operate in Korea."
KDB Life Insurance has already experienced five failed sale attempts, and BNP Paribas Cardif Life Insurance's sale process was initiated as its major shareholder BNP Paribas planned to withdraw from the domestic market. ABL Life Insurance's major shareholder, the Chinese multilateral insurance group, attempted to push for a sale through behind-the-scenes efforts but failed to be selected as the preferred bidder. Dongyang Life Insurance, part of the same group, is also seeking a new owner.
A life insurance industry official stated, "The life insurance sale issue has existed for several years, but unless there is a 'surprise performance' or new growth opportunities, it is unlikely to ignite as much as the current non-life insurance sector."
© The Asia Business Daily(www.asiae.co.kr). All rights reserved.
