Time is ticking for KDB to sell life insurance arm

Shareholders of Seoul-based KDB Life Insurance are under intensifying pressure to find a new owner, potentially facing a host of new complex regulations next month when a 10-year grace period expires.

State-run policy lender Korea Development Bank has yet to find a preferred bidder for the life insurance unit, although Chairman Lee Dong-gull anticipated finding one through an open tender by end-2019.

The uncertainty casts doubt on the bank’s sell-off by February, which would otherwise result in the regulatory complexity.

The shareholders -- KDB-Consus Value private equity fund and its subsidiary special purpose company -- will be subject to the expiry of a 10-year grace period to be regulated as an insurance holding company in February, as stipulated in the Capital Markets Act. On the other hand, the fund, jointly created by KDB and local investment house Consus Asset Management, is set to mature by February.

A media representative of KDB said it is undergoing a legal review regarding its ownership.

“Depending on the circumstances, (KDB) may propose to extend the maturity of the PEF,” the spokesperson added.

KDB-Consus Value and its subsidiary hold a combined 92.73 percent of the common shares, which KDB expects to sell for roughly 600 billion won ($518 million).

Regardless of the pricing, KDB intends to sell the insurance arm, despite an infusion of over 1.2 trillion won in public funds. KDB has yet to wrap up its preliminary bidding round.

KDB and Consus Asset set up the fund to buy a controlling stake in what was formerly known as Kumho Life Insurance for 650 billion won in March 2010. In 2014 and 2016, its three previous attempts at a sale did not bear fruit.

Despite a turnaround -- logging 6.4 billion won in net profit in 2018 after losses for two consecutive years -- KDB Life appears to be losing appeal to investors due to its subpar capital adequacy and low market share -- 2.6 percent as of end-June -- coupled with the new accounting standards Korea is expected to embrace in 2021.

Korea is about to adopt International Financial Reporting Standards 17, which is expected to toughen regulatory capital requirements at a majority of domestic insurance firms. KDB Life is no exception, as its risk-based capital ratio stood at 225.5 percent as of end-September. The figure is lower than the average of Korean life insurance firms at 301.2 percent.

Other industry contenders here are similarly putting themselves up for sale, turning potential buyers away from KDB Life.

These include a proposed $2 billion deal for Prudential Life Insurance of Korea, which logged 311.3 billion won in net profit in 2018 and has a 515 percent risk-based capital ratio. Bid manager Goldman Sachs, aims to hold a preliminary bidding round on Jan. 20.

Also up for sale is The-K Non-Life Insurance, where Hana Financial Group is engaged in due diligence. Seoul-based Tongyang Life Insurance and ABL Life Insurance are likely targets, as major stakeholder Dajia Insurance Group looks to offload foreign assets owned by what was formerly known as Anbang in China’s state-led restructuring effort.

By Son Ji-hyoung (consnow@heraldcorp.com)