[Why&Next] MG Sonbo Back on the Market... Is Resale Possible?

Korea Investment Financial Group and IBK Mentioned, but Chances Remain Slim
Union Still Strongly Opposes 'P&A' Acquisition Without Employment Succession
Contract Repurchase Unlikely... Liquidation or Bankruptcy Most Probable

With Meritz Fire & Marine Insurance giving up on the acquisition, MG Insurance has re-entered the merger and acquisition (M&A) market. Financial authorities seem eager for another buyer to emerge quickly to protect consumer contracts. However, due to the prolonged sale process and the rapidly deteriorating soundness of MG Insurance, there do not appear to be many companies interested in acquiring it. Depending on the situation, plans to liquidate or transfer contracts to another insurer are expected to be pursued.

MG Insurance Back on the Market... Potential Buyers

According to financial circles on the 17th, Meritz Fire & Marine Insurance gave up on acquiring MG Insurance on the 13th. This came about three months after being selected as the preferred bidder for MG Insurance in December last year. Due to opposition from the MG Insurance labor union, even due diligence could not be conducted. The union strongly opposed the asset and liability transfer (P&A) acquisition method, which does not require employment succession obligations, and refused to submit documents.

Since 2023, five failed sale attempts have left MG Insurance once again waiting for a buyer. Currently, Korea Investment Financial Group is mentioned as a somewhat viable buyer candidate in the financial sector. This is because it is almost the only financial holding company without an insurance portfolio. Korea Investment Financial Group currently owns subsidiaries including securities, savings banks, capital, and real estate trust companies.

However, Korea Investment Financial Group seems to prefer life insurance companies over non-life insurers. In 2023, it signaled its entry into the insurance industry by investing 100 billion KRW in Hanwha Life Financial Services, a corporate insurance agency subsidiary of Hanwha Life. In the same year, it also received investment memorandums (IMs) when KDB Life and ABL Life were put up for sale, as well as during the acquisition battles for Dongyang Life and ABL Life last year.

IBK Industrial Bank is also a strong potential buyer. The possibility of IBK acquiring MG Insurance has been discussed since last year's National Assembly audit. During the National Assembly's Financial Services Committee audit last year, Assemblyman Shin Jang-sik of the Innovation Party asked Kim Hyung-il, former executive director of IBK, whether the bank was willing to acquire MG Insurance through investment or joint capital participation. At the time, Kim responded, "If IBK can play a role in stabilizing the financial market through the resolution of insolvent financial institutions, I will consult with the bank president and coordinate with financial institutions." However, IBK later stated that "there is currently nothing under review," showing no active moves.

The Union Still Demands 'Employment Succession' Acquisition... Is Liquidation or Bankruptcy Inevitable?

As of the third quarter of last year, MG Insurance's total capital stood at -18.4 billion KRW, indicating a state of complete capital erosion. During the same period, its solvency ratio (K-ICS) was 43.37%, less than half of the legal requirement of 100%. Even if MG Insurance is acquired, a massive capital injection will inevitably be required during the normalization process.

Despite this burden, the acquisition interest lies in MG Insurance's Contractual Service Margin (CSM). CSM is the present value of unrealized profits that an insurer expects to earn in the future from insurance contracts. With the introduction of International Financial Reporting Standard 17 (IFRS17), CSM has become a key performance indicator for insurers. As of the end of 2023, MG Insurance's CSM stood at 677.4 billion KRW. Meritz Fire & Marine Insurance's attempt to acquire MG Insurance was driven by the goal of securing MG Insurance's CSM to leap to the second position in the industry. However, now that Meritz Fire & Marine Insurance has withdrawn, there are few non-life insurers expected to achieve meaningful market share gains by acquiring MG Insurance. Shinhan Financial Group and Hana Financial Group, which already own non-life insurers, have long been considered strong candidates in the non-life insurance acquisition market but showed little movement in the MG Insurance acquisition battle for this reason.

The MG Insurance labor union still demands an M&A with guaranteed employment succession rather than a P&A method, making the sale difficult. They plan to issue a statement urging the resale of MG Insurance in front of the Korea Deposit Insurance Corporation this morning. A representative of the National Union of Office and Financial Workers explained, "We plan to propose the establishment of a special committee for the normal sale of MG Insurance, where financial authorities and the union can discuss all agendas," adding, "We will cooperate so that potential buyers can fully evaluate and make judgments about the company."

If the acquisition of MG Insurance is not reinitiated soon, the only options left are liquidation, bankruptcy, or repurchase of insurance contracts. If liquidation or bankruptcy proceeds, the 1.24 million insurance contracts will be forcibly terminated. Among these, contracts exceeding 50 million KRW, which are not protected by deposit insurance, will inevitably incur losses. The estimated damage is about 170 billion KRW. Contract repurchase involves multiple insurers dividing and purchasing MG Insurance's contracts, but the likelihood is low. An industry insider explained, "There are not many insurers willing to take on old insurance contracts, such as first-generation indemnity health insurance, which have a high possibility of losses." A Korea Deposit Insurance Corporation official said, "We plan to decide on the resolution plan for MG Insurance after discussions with financial authorities." A financial authority official stated, "As the sale process has been delayed, MG Insurance's soundness indicators and management environment have continuously deteriorated. Although various possibilities are being considered, there are not many options."