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Shinhan Financial Group has agreed to acquire a controlling stake in Lotte Non-Life Insurance for ₩693.3 bn (approximately $517.3 mn), strengthening its position in South Korea’s non-life insurance market through the purchase of the country’s seventh-largest general insurer.
The financial holding company’s board approved a stock purchase agreement on the 13th to acquire a 77.04% interest in Lotte Non-Life from Bigtura, an investment vehicle established by private equity firm JKL Partners.
- Lotte Non-Life, South Korea’s seventh-largest non-life insurer, has approximately 3.34 mn customers and a contractual service margin of ₩2.2 tn ($1.6 bn).
- Korea Ratings placed the insurer’s credit ratings under review for an upgrade, citing reduced ownership uncertainty and potential financial support from Shinhan Financial.
Completion of the transaction remains subject to approval from South Korea’s Financial Services Commission (FSC) for the change in the insurer’s largest shareholder.
The acquisition would substantially expand Shinhan Financial’s non-life insurance operations, which have ranked near the bottom of the domestic industry.
Lotte Non-Life serves approximately 3.34 mn customers and reported a contractual service margin (CSM) of roughly ₩2.2 tn (approximately $1.6 bn) at the end of the first half of the year.
Following completion, Shinhan Financial plans to acquire the remaining 22.96% stake and pursue a merger with its existing subsidiary, Shinhan EZ General Insurance.
“Lotte Non-Life Insurance is a company with long-accumulated insurance business experience, a strong customer base, and sales capabilities,” a Shinhan Financial official said.
The group had prepared additional capital ahead of the transaction, raising ₩800 bn (approximately $596.9 mn) through two issuances of hybrid capital securities. It issued ₩400 bn (approximately $298.4 mn) in March and an equivalent amount in September.
“Shinhan Financial will combine these strengths with the group’s capital and risk management capabilities, as well as customer and digital expertise, to create new growth engines for the insurance business and drive the group’s sustained growth.”
JKL Partners exits after seven years of ownership
The agreement provides JKL Partners with an exit from an investment that began in 2019, when the private equity firm acquired a controlling stake in Lotte Non-Life for ₩373.4 bn (approximately $278.6 mn).
The original transaction followed Lotte Group’s transition to a holding company structure, which required the conglomerate to divest financial affiliates under South Korea’s regulations separating banking and commercial ownership.
JKL subsequently invested an additional ₩360 bn (approximately $268.6 mn) through a rights offering, bringing its total investment in the insurer to ₩730 bn (approximately $544.7 mn).
The prolonged divestment process created additional financial pressure for the investor.
JKL appointed JPMorgan as lead manager for a proposed sale in 2023, but that attempt failed. The firm subsequently replaced JPMorgan with Samjong KPMG during the latest sale process.
Negotiations with Shinhan Financial were complicated by differences in valuation expectations.
JKL reportedly sought a purchase price in the trillions of won, whereas Shinhan Financial offered between ₩800 bn and ₩900 bn (approximately $596.9 mn to $671.5 mn).
Exclusive negotiations continued through July before initially collapsing. JKL then prepared to conduct a public auction but struggled to attract suitable bidders.
The lack of alternative buyers eventually brought the parties back to negotiations, resulting in the agreement at ₩693.3 bn for the controlling stake.
Lotte Non-Life faces capital adequacy and profitability pressures
The transaction comes after a period of deteriorating financial conditions at Lotte Non-Life.
In March, the Financial Services Commission issued the insurer a management improvement order, corresponding to the second stage of South Korea’s prompt corrective action framework.
The regulator granted conditional approval in May, and the company has been implementing a management improvement plan covering an 18-month period.
Lotte Non-Life reported a net loss of ₩18.5 bn (approximately $13.8 mn) for the first half of the year. Its solvency ratio under the Korean Insurance Capital Standard (K-ICS) stood at 129.7% at the end of June. The ratio increased to 161.9% when transitional measures were included.
The planned acquisition introduces the prospect of stronger financial support from Shinhan Financial, whose capital resources and risk management capabilities could help address the insurer’s financial position.
Any improvement will depend on completion of the transaction and subsequent measures taken by the new controlling shareholder.
Korea Ratings places Lotte Non-Life under review for upgrade
Korea Ratings responded to the acquisition agreement by revising its assessment of Lotte Non-Life’s credit outlook.
On the 13th, the rating agency maintained the insurer’s subordinated bond rating at BBB+ and its hybrid capital securities rating at BBB.
It changed the outlook from “Negative” to “Under Review for Upgrade,” citing the substantial reduction in uncertainty surrounding the ownership sale.
Chae Young-seo, a senior analyst at Korea Ratings, said the acquisition could create opportunities to strengthen Lotte Non-Life’s capital adequacy and earnings performance.
If the acquisition process proceeds smoothly and the largest shareholder changes to Shinhan Financial Group, capital adequacy and profitability could improve through the new parent’s capital injections and adjustments to product sales strategies leveraging sales channels and the customer base.
Chae Young-seo, a senior analyst at Korea Ratings
A further consideration in any rating upgrade will be whether Korea Ratings incorporates the potential for financial support from Shinhan Financial.
Lotte Non-Life’s existing credit ratings do not reflect possible assistance from affiliated companies during periods of financial distress. That assessment could change once the insurer becomes a Shinhan Financial subsidiary.
Korea Ratings indicated that potential parental support could be recognised after considering the relative creditworthiness and size of the two organisations, reputational risks to the financial holding company and expected business relationships between them.
The proposed ownership change therefore offers a possible route to improving Lotte Non-Life’s credit profile, although the outcome remains conditional on regulatory approval and the financial and operational measures implemented after completion.
