Competition in Insurance Business
Financial holding companies’ competition in the non-bank sector is likely to heat up with Prudential Life Insurance successfully acquired by KB Financial Group.
At present, Shinhan Financial Group’s life insurance arms Shinhan Life Insurance and Orange Life are planning to complete their merger in July next year and Woori Bank’s equity investment in MG Non-life Insurance is scheduled to be completed this week. In addition, Hana Financial Group is planning to become a leading player in the digital insurance market of South Korea based on Hana Life Insurance, The-K Non-life Insurance it acquired early this year and fintech firm Bomapp it invested in last year.
Once KB’s acquisition of Prudential is completed, the contribution of the financial group’s insurance business unit to the net profit of the entire group will rise from 7.3 percent to 11.3 percent. Then, KB can get the upper hand in the non-bank competition given that the contribution was 8 percent and 1 percent last year when it comes to Shinhan and Hana, respectively.
KB and Shinhan are less vulnerable to new life insurance regulations such as IFRS 17 and K-ICS in that the RBCs of Prudential and Orange are the highest in the industry. Market value-based valuation of liabilities is scheduled to become effective in 2023 and the RBCs of most local life insurers are likely to fall below the 100 percent standard with their liabilities increased amid low interest rates. However, the RBCs of Prudential and Orange as of the end of last year are 424.3 percent and 393.9 percent, highest and second-highest in the industry, respectively. This means KB and Shinhan can create new business opportunities while the others have to collect more cash for recapitalization and the two can pose a threat to existing life insurers such as Kyobo and Hanwha.
Hana Financial Group is also trying to increase its share in the local insurance market. The combined market share of The-K Non-life Insurance and Hana Life Insurance currently stands at 0.7 percent or so, and the group is likely to focus on digital insurance to make the most of its small size.
Woori Financial Group, which has no subsidiary in the insurance industry now, is expected to initiate M&A targeting a life insurer in the near future. The potential targets include MetLife, Kyobo and Tongyang.