Union Opposition and Regulatory Risks... Insurance Company M&A Hits Snags [Why&Next]

Meritz Fire & Marine Insurance Faces Challenges in Acquiring MG Insurance... Union Opposition
Woori Financial Group's Acquisitions of Dongyang and ABL Life Also Face Regulatory Scrutiny
KDB Life and Others in Stalemate... Only Listings Accumulate

Since the second half of last year, mergers and acquisitions (M&A) of insurance companies, which had attracted attention, have been faltering. With the M&A market sentiment dampened by economic recession, high exchange rates, and political instability, the acquisition process itself is not smooth, increasing the likelihood that more insurance companies will be put up for sale this year.

According to the insurance industry on the 9th, Meritz Fire & Marine Insurance has not even begun due diligence for a month since being selected as the preferred bidder for MG Insurance by the Korea Deposit Insurance Corporation on the 9th of last month. Meritz Fire requested data on held contracts, insurance liabilities, and domestic and overseas investment assets, but MG Insurance has refused to provide the data.

MG Insurance’s uncooperative stance is due to strong opposition from the labor union. Currently, the MG Insurance union opposes Meritz Fire acquiring the company through a portfolio and assumption (P&A) method rather than an M&A. P&A is a method where the acquirer selectively acquires desired assets without an obligation to continue employment. The MG Insurance union argues that if acquired through the P&A method, most of the approximately 600 employees will lose their jobs, and they have been protesting near the Meritz Fire and Korea Deposit Insurance Corporation offices.

If the conflict between the two sides prolongs, Meritz Fire may abandon the acquisition of MG Insurance. Kim Yong-beom, Vice Chairman of Meritz Financial Group, said during the Q3 earnings conference call last November, "If it aligns with shareholder interests, we will complete the acquisition of MG Insurance; otherwise, we will stop." As of the end of Q3 last year, MG Insurance’s capital was -18.4 billion KRW, indicating a state of complete capital erosion. If Meritz Fire halts the acquisition, MG Insurance is likely to undergo liquidation. In this case, insurance contracts with MG Insurance customers would be transferred to other insurers, potentially causing consumer harm during the process. A Korea Deposit Insurance Corporation official said, "We will strive to ensure smooth negotiations," adding, "Minimizing damage to insurance policyholders is our top priority."

Woori Financial Group’s acquisition of Dongyang Life and ABL Life is also facing procedural delays. In August last year, Woori Financial Group signed a contract to acquire a 75.34% stake in Dongyang Life (12.84 trillion KRW) and 100% of ABL Life (2.654 trillion KRW) from the Multilateral Insurance Group. However, allegations of improper loans involving former Woori Financial Group Chairman Sohn Tae-seung’s relatives have drawn sharp scrutiny from financial authorities, and Woori is currently undergoing a high-intensity regular inspection by the Financial Supervisory Service (FSS). If Woori Financial Group receives a rating below grade 3 in the upcoming management evaluation, the acquisition of Dongyang and ABL Life could be canceled. The management evaluation, conducted every 2-3 years, assesses the risk of management failure in financial institutions, and financial holding companies must receive at least a grade 2 to incorporate financial firms as subsidiaries. Since FSS Governor Lee Bok-hyun has stated that he will thoroughly review whether Woori Financial Group’s insurance acquisitions were appropriate, the outcome is not necessarily optimistic. The FSS initially planned to announce the results of Woori’s regular inspection this month but postponed it to February.

The sale of KDB Life by the Korea Development Bank (KDB) is also at a standstill. Over the past decade, six attempts to sell the company have all failed. In 2023, Hana Financial Group was selected as the preferred bidder, and the acquisition seemed likely, but it fell through. Last year, no potential buyers appeared at all. This year’s situation is even more difficult. The private equity fund established by KDB and Kansas Asset Management in 2010 to facilitate the sale of KDB Life is scheduled to be liquidated this year. KDB is considering first making KDB Life a subsidiary and then improving its financial structure before selling it. This process is expected to impose a financial burden of up to 1 trillion KRW on KDB.

Lotte Insurance emerged as a major M&A target last year, but the mood cooled after Woori Financial Group, which participated in the preliminary bidding, did not join the final bidding. The largest shareholder, JKL Partners, has shifted Lotte Insurance to a continuous sale system. So far, no buyers have appeared. In the case of BNP Paribas Cardif Life, BNK Financial Group pursued acquisition last year but withdrew. An insurance industry insider said, "Although the conditions of insurance companies on the market are not good, potential buyers see this as an opportunity to lower prices," adding, "Insurance remains an attractive portfolio in the financial sector."