Prudential seeks to sell Korean insurance arm in estimated $2 bn deal

  • 2019-12-03

Prudential Financial Inc. has put its South Korean life insurance arm on the market, as the US insurance giant is seeking to shed part of overseas assets ahead of the 2022 implementation of US life insurance accounting reforms.

The prospective sale is expected to fetch around 2 trillion won ($1.7 billion), based on the net asset value of 3 trillion won of the country’s fourth-largest life insurer, according to investment banking and life industry sources last week.

If the sale goes through, Prudential will leave the South Korean market in 30 years and become the fourth foreign insurance firm pulling out of the Asian country after ING Group, Allianz Group and Prudential PCA of the UK.

“Now that the tightened US accounting standard for insurance companies raises their capital requirements, Prudential is trying to sell some overseas operations, including the South Korean unit,” an insurance industry source told the Korean Investors.

Under the new US accounting standard effective from 2022, accounting and disclosures for long-duration insurance contracts will be significantly changed.

The new guidance could push publicly traded life insurers to de-emphasize, or sell units that produce annuities and long-term care insurance, ratings agency S&P said in a recent report.

Goldman Sachs, the lead manager of the sale, is tapping Korean financial groups and private equity firms, including KB Financial Group and Woori Financial Group which are seeking to bolster life insurance business, the sources added.

VALUATION, PROFIT

Prudential Life Insurance Co. of Korea could be valued at 3.3 trillion won, or 1.1 times its book value, if the same multiple is applied as in the transaction of third-ranked Orange Life Insurance Ltd. Seoul-based MBK Partners sold a majority of the former ING Life to Korea’s Shinhan Financial Group for 2.3 trillion won last year.

Based on sector leader Samsung Life’s PBR of 0.44, the unlisted life insurance unit may be worth 1.3 trillion won. Including a premium for management rights, its valuation is estimated at around 2 trillion won.

With an operating profit of 144.8 billion won in 2018, it is one of the nine life insurers that made a profit last year, of the 24 companies operating in South Korea.

Its risk-based capital ratio at 505% is the highest in the sector, far ahead of Samsung Life’s 357% and the industry average of 296%.

The US insurance arm may take the spotlight off the potential sale of smaller rivals, with insurance firms grappling with low profitability in the saturated market, ahead of the 2022 introduction of the IFRS 17 accounting standards.

Tongyang Life Insurance Co. Ltd. and ABL Life Insurance Co. Ltd., both of which are controlled by China’s Anbang Insurance Co. Ltd., are expected to come on the market.

Since the Chinese government took over Anbang Insurance in 2017 when its chairman was detained for fraud and embezzlement allegations, it has been selling overseas assets.

KDB Life Insurance Co. Ltd. has been on the market for several years, but failed to attract financial holding companies in its fourth attempt to find a new buyer in November.

Twenty-four life insurance companies in South Korea reported a combined operating profit of 475.1 billion won last year, down 11% from a year earlier, and 15 of them posted losses.

By Chaeyon Kim and Hugh YH Jeong

hugh@hankyung.com

<Edited by Yeonhee Kim>

(Photo: Getty Images Bank)