US insurer Cigna to put Korean life insurance arm up for sale

The US life insurance group Cigna has recently decided to put its South Korean insurance unit on the market and hired Goldman Sachs as the sale manager, according to investment banking sources.

Cigna holds 100% of LINA Life Insurance Co., a medium-sized life insurer in South Korea, which is estimated to fetch at least 3 trillion won ($2.5 billion).

The estimated value is above the 2.3 trillion won that the US-based Prudential Financial Inc. took by selling its Korean life insurance arm to KB Financial Group in April this year. LINA Life’s earnings and profit margins far surpassed those of Prudential Life Insurance Co. of Korea, although its net asset value is about half.

Details about how to proceed with the sale have yet to be determined. But it is highly likely to go through a competitive bidding process like the previous auction for Prudential Life, the sources said on July 23. Goldman handled the sale of Prudential Life, as well.

Cigna had officially denied market talk of selling the Korean arm, and LINA Life said on July 23 that it had no idea about the sale plan. But the US insurance group has been preparing for the sale since the beginning of the year, the sources added.

The sale plan gained momentum after Prudential Life brought more than the earlier projection between 1.5 trillion won and 2 trillion won.

If Cigna proceeds with the sale, it is likely to become the fifth foreign insurance company exiting from the South Korean market after the US-based Prudential, ING Group, Allianz Group and Prudential PCA of the UK.

HEALTHY FINANCIAL CONDITIONS

LINA Life, founded in 1985, was the first foreign-owned life insurer in the country. It boasts of solid financial conditions, with a risk-based capital ratio of 305.14% at the end of last year, above the industry average.

With a net asset value of 1.7 trillion won, it posted 494.6 billion won in operating profits and 350.9 billion won in net profits in 2019.

Its operating profit margin, or operating profits against revenues, was 17.8%, even higher than domestic rivals’.

LINA Life sells insurance policies via home shopping channels and telemarketing. Its insurance products for the elderly and dental insurance policies, the first of such kinds in South Korea, have gained popularity.

Compared to homegrown insurers focusing on saving-type products, LINA Life is seen as less vulnerable to protracted low interest rates and the impact of the 2023 adoption of the stricter accounting system.

Given the size of LINA Life’s asset, potential buyers might be big financial services companies and private equity firms.

After two of the country’s top three banking groups – KB Financial and Shinahn Financial - have acquired domestic life insurers from Prudential and MBK Partners, respectively, the strongest candidate to buy LINA Lifer could be Hana Financial Group.

Among private equity firms, Seoul-based MBK Partners and Hahn & Company had lost to KB Financial Group in the auction for Prudential Life.

MBK Partners participated in the competition after it sold Orange Life Insurance Co. Ltd., formerly known as ING Life, to Shinhan Financial Group for 2.3 trillion won in 2018.

On August 6, LINA Life said that its parent group's possible exit from Korea was being talked about by some investment banks but Cigna has not made a decision to sell the South Korean arm, nor selected a sale manager.

Write to Sang Eun Lucia Lee at selee@hankyung.com


(Updated on August 6, 2020 to add LINA Life's comment in the last paragraph)