The sale of Ye별손해보험 (formerly MG손해보험), a bridge insurer established to manage the fallout from the collapse of MG손해보험, is gaining momentum with the selection of three preliminary bidders: Hana Financial Group, Korea Investment & Securities, and U.S. Private equity firm JC Flowers. While the participation of Hana Financial and Korea Investment was unexpected, given their existing insurance holdings and recent activity in the sector, the move signals a renewed interest in consolidating South Korea’s insurance landscape.
The 예금보험공사 (Deposit Insurance Corporation), which established Ye별손해보험 in after five previous attempts to sell MG손해보험 failed, is hoping this time will be different. The previous failures led to a crisis point, prompting the Financial Services Commission to transfer MG손해보험’s assets and liabilities to the newly formed bridge insurer. Ye별손해보험 was designed to temporarily maintain MG손해보험’s insurance contracts while a buyer was sought.
The current bidding process differs from previous attempts due to significant restructuring undertaken by the 예금보험공사. The workforce has been reduced by approximately 46%, with employment contracts limited to one year and salaries adjusted to 90-95% of previous levels. This addresses a key concern raised during previous bids – the risk associated with a strong labor union, which has now been dissolved. This restructuring is seen as making the acquisition more attractive to potential buyers.
Hana Financial Group’s interest is particularly noteworthy. Despite already owning Hana Life Insurance and Hana Son해보험, both of which have faced financial challenges – Hana Life reported a ₩7 billion loss in before rebounding with a ₩15.2 billion profit – the group appears determined to strengthen its insurance portfolio. Hana Son해보험 has consistently operated at a loss since its acquisition. The group’s overall non-banking contribution stood at just 12.1% in , the lowest among the four major financial groups, highlighting the need for diversification.
Hana Financial Group Chairman Ham Young-joo has repeatedly emphasized the need for improvement, stating in a New Year’s address that the non-banking sector’s performance remains a concern. He further indicated during a recent earnings conference call that improving the non-banking segment could boost the group’s return on equity (ROE) to as high as 11-12%. Hana Financial stated it will evaluate the potential benefits through due diligence.
Korea Investment & Securities, part of Korea Investment Financial Group, is also pursuing a broader diversification strategy. The company has previously expressed interest in acquiring an insurance company to move beyond its core securities business. Kim Nam-gu, Chairman of Korea Investment Financial Group, stated in that the group was “carefully reviewing various alternatives” for insurance acquisition. The group previously conducted due diligence on BNP Paribas Cardif Life Insurance and Lotte Son해보험, but did not proceed with a purchase. However, industry observers suggest that acquiring multiple insurers simultaneously may prove challenging given the substantial capital requirements.
The key to a successful sale hinges on the level of financial support offered by the authorities. Ye별손해보험 currently has a negative K-ICS (Korean Insurance Capital Standard) ratio of -23.0%, significantly below the regulatory recommendation of 130%. Achieving the required 130% K-ICS ratio is estimated to require approximately ₩1.3 trillion in capital. The 예금보험공사 is expected to provide financial support through its deposit insurance fund, potentially contributing ₩700-800 billion. However, further capital injections will likely be necessary to ensure the long-term financial health of the acquired entity.
Industry analysts caution that the final bid price and the extent of due diligence findings will be critical. The performance of Ye별손해보험’s existing products, particularly the loss ratio and the proportion of long-term insurance contracts, will be closely scrutinized. Any unexpected liabilities or a higher-than-anticipated need for capital could deter potential bidders. A financial services sector representative noted that a thorough assessment of loss ratios and long-term contract obligations is essential, and that a larger-than-expected capital injection could lead to some companies withdrawing from the bidding process.
The 예금보험공사 plans to select final bidders by the end of and proceed with a final bidding round. The outcome of this sale will not only determine the future of Ye별손해보험 but also provide insights into the strategic direction of South Korea’s major financial groups and the evolving dynamics of the insurance market.
