Korea's Lotte Insurance put on market for around $1.5 bn

Lotte Group’s non-life insurance affiliate Lotte Insurance Co., has been put up for sale at around 2 trillion won ($1.5 billion), according to banking sources said on Tuesday.

Seoul-based private fund manager JKL Partners is set to sell a 77% stake in the South Korean insurer to a strategic investor such as a local financial holding company planning to expand its non-life insurance business or a global insurance firm looking to enter the Korean market, sources said.

JKL has tapped J.P. Morgan as the lead manager for the sale and will hold bidding as early as June to complete the deal by the end of this year, according to sources.

The PE manager bought a 53% stake in Lotte Insurance for 373.4 billion won in 2019 and increased its ownership to 77% through the insurer’s rights offering in the same year. 

The insurer garners potential buyers’ attention as it swung to the black last year, posting 397.3 billion won in operating profit and 301.6 billion won in net profit.

QUESTIONS RAISED ON VALUE

Market insiders are questioning the enterprise value of the insurer, saying that 2 trillion won is relatively expensive given the firm's market cap of 1.15 trillion won.

JKL sees the firm’s value as equal to its net assets plus contractual service margin (CSM), which is calculated based on Korean insurers’ financial reporting standard IFRS17.

CSM represents the profits an insurer expects to earn based on the existing insurance contracts. JKL led the increase in Lotte Insurance's CSM by ramping up its long-term insurance plan sales since its acquisition. 

Lotte Insurance posted 1.28 trillion won in net assets and a CSM of 2.40 trillion won last year. JKL has estimated the sale price of the controlling stake as around 2 trillion won, considering the 77% ownership, control premium and discount.

But the CSM could fluctuate depending on the insurer’s future cash flow and cut the enterprise value this year, according to market insiders.


Write to Seok-Cheol Choi at dolsoi@hankyung.com

Jihyun Kim edited this article.