Meritz Fire & Marine Insurance (Meritz Fire) has entered the competition to acquire MG Non-Life Insurance (MG Insurance), intensifying an ongoing bidding process that has attracted three participants.
Local reports confirmed that Meritz Fire, along with private equity firms Dayli Partners and JC Flowers, submitted letters of intent for the fourth preliminary bidding round, marking another chapter in the drawn-out effort to sell the financially troubled insurer.
According to The Korea Herald, Meritz Fire – part of Meritz Financial Group – confirmed its participation in the bidding process last week.
An official from Meritz Fire said the company is still reviewing all potential deals and has conducted a thorough analysis of all available data.
“For this one, we participated at our optimal condition through thorough analysis of all available data,” the official said, as reported by The Korea Herald.
This move marks the first acquisition attempt by Meritz Financial Group in nearly a decade, with its last being the takeover of I’M Investment & Securities in 2015.
The acquisition of MG Insurance has proven challenging, with previous attempts to sell the company faltering due to a lack of final bids.
According to Maeil Business Newspaper, the latest auction in July failed when neither Dayli Partners nor JC Flowers followed through with bids after the preliminary stages. The primary hurdle has been the substantial capital required to stabilise MG Insurance, which is estimated at around 1 trillion won (US$733.8 million).
The Korea Deposit Insurance Corporation (KDIC), which has been tasked with overseeing the sale of MG Insurance by the Financial Services Commission, will evaluate the bids and assess the financial viability of the participants.
The winning bidder will have the option to proceed with a traditional merger and acquisition (M&A) or a purchase and assumption (P&A) transaction. The latter option involves the acquisition of assets and assumption of liabilities, with the goal of easing the financial burden on the new owner. KDIC is also expected to offer financial support totalling several hundred billion won to assist with the transaction.
MG Insurance’s sale price is estimated to be between 200 billion and 300 billion won, but the actual cost of stabilising the insurer post-acquisition could significantly exceed this range. The insurer’s financial health is a major concern, as indicated by its K-Insurance Capital Standard (K-ICS) ratio of just 42.71% in the first quarter of this year.
The K-ICS ratio, which measures an insurer’s capital adequacy, is recommended to be at least 150% by regulatory authorities, suggesting that MG Insurance would require a significant capital infusion.
The MG Insurance sale talks continue as Korean insurance companies are expected to maintain stable earnings in the near term, supported by their focus on protection-type long-term insurance products.
According to a report by Fitch Ratings, the implementation of IFRS 17 and IFRS 9 is anticipated to increase volatility in investment returns, underscoring the need for robust investment risk management within the industry.
Despite these challenges, the ongoing release of Contractual Service Margin (CSM) is expected to enhance revenue recognition for insurers, providing a buffer against market fluctuations.
