China’s Anbang Insurance Group’s proposed acquisition of the Korean life insurance unit of Germany’s Allianz Group at a “bargain” price of US$3 million has stunned the local insurance industry. The figure is 1% of the reported KRW300-billion ($262 million) price which the industry had expected. The purchase price was for a 100% stake in Allianz Life Insurance Korea.
“It’s a shockingly low price. An apartment unit in (Seoul’s) Gangnam easily surpasses $3 million,” reported the Korea Herald citing an industry insider, commenting on the deal which was announced in early April.
An analyst at a stock brokerage said that the price should take into account the value of the firm’s licence because the government has suspended handing out life insurance business licences.
Allianz Korea is currently the country’s 11th largest insurer. The company’s assets rose by 4.3% last year to KRW16.65 trillion, according to a 2015 business report unveiled last month. But of the assets, liabilities accounted for nearly 94%, or KRW15.65 trillion. “Liabilities expanded last year as we found the company needs to place more money in reserves for insurance payouts,” the company said.
The life insurer also posted net losses in eight of the 17 years since its acquisition by Allianz Group in 1999, reported the JoongAng Daily.
Industry insiders say that Allianz must have decided on a cheap sell-off, as its products with long-term contracts and high interest rates of between 7% and 8% – that it sold the past few decades – have continued to affect margins.
Allianz Life Korea CEO Joos Louwerier explained the selling price was reflective of the additional capital burden that the group would face under a new rule in Europe, if it chooses to retain Korean operations.
“Since Allianz is based in Europe, it is subject to Solvency II, which would increase capital requirements on life insurers operating in a prolonged low interest rate environment like in Korea,” he wrote in an email to staff. Insiders speculated that meeting the new requirement could cost Allianz Korea an additional KRW1 trillion.
Influx of Chinese capital?
Meanwhile, while some Korean insurance industry players are wary that the Anbang deal would be a harbinger of an influx of Chinese capital into the local market, others sound a positive tune.
An executive at a life insurance company said: “The influx of China’s massive capital could help bring the insurance market out of its current slump.”
“It seems like Chinese financial companies are going to be the ones doing the acquiring at a time when (Korean) insurance companies are looking very likely to go on the market as they feel pressure acquiring capital ahead of the introduction of Phase Two of the International Financial Reporting Standards,” the source added.