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HONG KONG - APRIL 22, 2016 09:25 AM (EDT)
Foreign-owned life insurers, particularly ones in China and private equity firms, have increasingly tapped into Korea’s life insurance market, as adverse financial market conditions have put immense pressure on profitability and capitalization and led a number of Korea’s life insurers to consider potential deals, according to a new A.M. Best special report.
The Best’s Special Report, titled, “Shifts in Business Environments Lead To Active Merger & Acquisition Deals in Korean Life Insurance Market,” states that annual percentage rate of premium growth in Korea’s life insurance market slowed down to the low single digits, with weak new sales growth. In particular, growth of high margin protection-type products slowed despite the insurers’ efforts to boost sales. The prolonged low interest rate environment also has caused investment returns to shrink, pressurizing profitability.
The financial crisis in 2008 led to a significant change in market dynamics, and in particular, variable life insurance products, which several foreign life insurers sold actively during the period, weighed on balance sheets because of problematic embedded guarantees. According to media sources, a number of life insurance companies in South Korea are potential acquisition targets. The market share of these companies ranges from 0.4% to 4.4%, which is translated into a combined market share of 10.3% in the 11 months ended in November 2015, which is equivalent to the market share of the third-largest Korean life insurer, Kyobo Life Insurance Company.
Unlike in the early 2000s following the Asian financial crisis of the late 1990s, when the new entrants, mainly foreign life insurers, brought new products, distribution channels and innovative strategies, the current entrants are more focused on improvement in efficiency with wider access of the market by increasing scale.
Although the current estimated multiples on the deals do not require an excessive return on investment, the change in ownership could bring material changes in overall management of the acquired companies, which could lead to intensifying competition in the market.
To access a copy of this special report, please visit http://www3.ambest.com/bestweek/purchase.asp?record_code=248412 .
A.M. Best is the world’s oldest and most authoritative insurance rating and information source.