South Korea’s insurance market is getting busy. The imminent adoption of International Financial Reporting Standard (IFRS) 17 at the start of 2023, and ensuing capital requirements, has triggered a spate of M&A and capital-raising among small to mid-sized insurance firms.
Activities including equity/hybrid issuance and idle asset sales are being accelerated ahead of the new year, while some companies are moving fast to refinance.
The advent of IFRS 17 for insurance contracts has been a hot topic across the Asia-Pacific region in recent years. The global directive, which changes liability appraisal accounting, requires a higher capital base for insurers, as well as stricter financial reporting and compliance rules.
China, the world’s second-largest insurance market following the US, is planning to take up IFRS 17 in two stages over the next three years. Listed insurers are required to make the change on 1 January 2023, while all other Chinese insurers will employ it from 2026, per a Deloitte report.
In APAC in the year to date (YTD), China (USD 1.99bn spent across seven deals) leads the way in terms of insurance M&A value, followed by India (USD 879m; 13 deals), South Korea (USD 808.6m; eight deals), Japan (USD 654m; 19 deals), and New Zealand (USD 632m; one deal), according to Dealogic data. India continues to weigh switching to IFRS 17, adoption is voluntary in Japan, while New Zealand invoked the standard on 1 January 2021.
Capital ideas
Stiff competition in volatile markets, combined with rising interest rates, is also driving South Korean insurance firms to secure buffer capital. MG Non-Life insurance, which failed to meet a minimum capital base, has been put up for sale.
Heungkuk Life Insurance said last month that it is seeking to raise KRW 400bn via a third-party placement to improve its risk-based capital (RBC) ratio of 157.8% ahead of the introduction of IFRS 17.
Korea’s industry regulator recommends maintaining an RBC ratio of 150%, with a minimum requirement of 100%. However, most insurance firms are at around 200%, while the top player, Samsung Life Insurance [KRX:032830] had an RBC of 236% as of 3Q22.
Growing gains
South Korea’s bigger insurance players are joining the M&A rush in order to extend their geographical outreach, and diversify product and asset management portfolios.
They are up against 23 life insurers, including eight foreign firms, competing in the country, with the top three players – Samsung Life, Hanwha Life Insurance [KRX:088350], and Kyobo Life Insurance – accounting for 49% of all insurance premiums as of 1H22, according to Korea’s Life Insurance Association. By contrast, the non-life insurance segment has 30 domestic and foreign operators.
Activity is not confined by borders, with seven outbound deals between 2018 to 2022 YTD, as Korean firms targeted acquisitions in Vietnam (by Hyundai Marine & Fire Insurance [KRX:001450]), the UK (Samsung Life/Fire & Marine Insurance), Indonesia (Hanwha Life), the US (DB Insurance), and Italy (Meritz Financial Group [KRX: 138040]), per Dealogic data.
Hanwha this year acquired local general agency Peoplelife to boost its sales network, says a sector executive, adding that large insurance firms are likely to further scale up operations. Samsung last year bought a 25% stake in UK-based Savills to boost its portfolio expansion.
Lead or leave?
Korea’s insurance universe underwent significant consolidation in the early 2010s following the exit of a number of foreign firms. In the current rapidly changing market and regulatory environment, large financial institutions’ increasing dominance is likely to manifest in another wave of consolidation, says a sector advisor. Private-equity exits from insurance portfolios are also expected to provide a healthy deal pipeline in the coming years, he adds.
A sale of KDB Life Insurance by financial investors is ongoing, while Lotte Non-Life Insurance [KRX:000400], owned by local JKL Partners, is expected to hit the market as early as next year, says the sector advisor. This news service also reported in October that China-based Dajia Life Insurance is considering selling off its Korean arm, ABL Life Insurance.
