KDB Life Insurance to bolster capital worth $177 mn to facilitate sale

KDB Life Insurance Co. headquarters in Seoul. [Courtesy of KDB Life Insurance]

South Korea’s KDB Life Insurance Co. will raise capital by issuing new shares worth about 140 billion won ($177 million) as part of an effort to improve its risk-based capital ratio that has been an obstacle to its sale.

According to the financial circle on Thursday, KDB Life Insurance decided to increase capital by a total of 142.5 billion won. If existing shareholders participate in the capital increase through an equity rights offering, there will be no change in the stake.

The capital increase is expected to improve KDB Life Insurance’s risk-based capital ratio under the new capital adequacy framework Korean Insurance Capital Standard (K-ICS).

The ratio is calculated by dividing available capital, the amount of capital that can cover losses from various risks, by required capital, the amount of losses when risks materialize.

The K-ICS ratio stood at 101.7 percent as of end of March, well below the 150 percent level recommended by the authorities.

According to the Financial Supervisory Service in July, only KDB Life Insurance and Fubon Hyundai Life Insurance Co. were below the recommended level.

When a company’s capital is raised through a capital increase, the available capital, the numerator of the K-ICS ratio, increases, improving the ratio. KDB Life Insurance also issued 90 billion won in subordinated bonds at the end of June to improve the K-ICS ratio based on the same principle.

Korea Development Bank, which holds a stake of about 90 percent in KDB Life Insurance, is attempting to sell the company after selecting Hana Financial Group as the preferred bidder on July 12. It is the fifth attempt since 2014.

In 2020, the company signed a share purchase agreement, but the deal was canceled due to issues related to the majority shareholder requirement of the buyer JC Partners LLC.

Currently, Hana Financial Group’s due diligence on KDB Life Insurance is underway, and some analysts say that Hana Financial Group will reject the acquisition due to the low K-ICS ratio.

The due diligence process is known to focus on how much capital will need to be injected to bring the K-ICS ratio to an acceptable level.