Hana Financial Group preferred bidder for KDB Life Insurance

Hana Financial Group headquarters in Seoul [Courtesy of Hana Financial Group]

Hana Financial Group Inc. has been selected as the preferred negotiating partner to acquire KDB Life Insurance Co.

KDB Industrial Bank announced on Thursday that KDB Consus Value PEF (KCV PEF), a private equity fund under the bank, has selected Hana Financial Group as the preferred bidder based on its eligibility, the likelihood of closing the deal, and KDB Life Insurance’ mid- to long-term growth potential.

“There are detailed due diligence procedures remaining on the part of Hana Financial Group, including changes to insurance industry accounting and supervision systems,” the Korea Development Bank said. “We will do our best to close the deal successfully by closely cooperating with Hana Financial Group.”

If the deal is finalized, Hana Financial Group will merge KDB Life Insurance and Hana Life Insurance Co. to become the ninth-largest life insurance company in the industry with assets totaling 26 trillion won ($20.53 billion).

Currently, KDB Life Insurance ranks 11th with assets of 17 trillion won, but the industry estimates the company’s assets to be around 20 trillion won. Hana Life Insurance has assets of 6 trillion won. When combined with non-life insurer Hana Insurance Co. which has assets of 1.5 trillion won, Hana Financial Group believes that the company will become a significant competitor in the industry.

The investment banking (IB) industry sees that Hana Financial Group will need 700 billion won for the acquisition in the near term. The appropriate sale price for KDB Life Insurance is estimated to be around 200 billion won.

In addition, it is necessary to raise capital that has been postponed due to the deal. KDB Life Insurance’s average risk-based capital adequacy (K-ICS or Korea Insurance Capital Standard) ratio is 101.7 percent, which is below the 150 percent recommended by financial authorities. To increase the K-ICS ratio, Hana Financial Group needs a capital increase of over 500 billion won.

Industry insiders show mixed views on Hana Financial Group’s move to acquire KDB Life Insurance as the company’s non-bank competitiveness is considered relatively weak compared with other financial holding companies. The earnings contribution of Hana Financial Group’s non-banking segment was 16.8 percent in the first quarter of this year, which falls far short of Shinhan Financial Group Co.’s 37 percent and KB Financial Group Inc.’s 40.9 percent. In particular, net profit of all its non-banking affiliates except Hana Bank declined in the first quarter.

This is also the reason Hana Financial Group has been mentioned as one of the strong candidates for acquisition since the early stages of the sale as the acquisition can provide an opportunity for the company to raise competitiveness of its non-banking segment.

However, the company did not express any intention to participate in the preliminary bidding, and then made a surprise appearance in the main bidding to become the preferred partner.