Shinhan Financial Group is acquiring Lotte Non-Life Insurance in a push to close the gap with KB Financial Group. The deal gives Shinhan a non-life insurer's customer base and sales network, shoring up a weak spot in its non-banking operations as it competes to become the country's top financial group. For a company that has long prioritized capital efficiency, the acquisition marks a rare move toward growth through a large merger and acquisition.
Shinhan Financial Group said on the 13th that it had signed a share purchase agreement to buy the 77.04% stake in Lotte Non-Life Insurance held by private equity firm JKL Partners for 693.3 billion won ($484 million), according to financial industry sources on the 14th.
Shinhan plans to acquire the remaining 22.96% stake, turn Lotte Non-Life Insurance into a wholly owned subsidiary and merge it with Shinhan EZ General Insurance. At the same per-share price as the current deal, the total cost of acquiring the entire stake is estimated at about 900 billion won. The actual outlay could differ depending on the terms for the remaining shares and the scale of any capital injection after the acquisition.
JKL bought Lotte Non-Life Insurance in 2019 and began a sale process in 2023 to recoup its investment. In the earlier rounds, the firm was reported to be seeking about 2.5 trillion won. Woori Financial Group did not take part in the main bidding in 2024, and talks with Shinhan broke down in July this year over price, with the figure then discussed at around 1 trillion won. JKL was preparing an open sale when negotiations with Shinhan resumed and led to the agreement.
Inside and outside Shinhan, the cautious approach taken by Chairman Jin Ok-dong is credited with securing the company at a reasonable price. "As with relationships between men and women, it only works out when both sides are a match," Jin said, telling executives there was no need to rush. With Lotte Non-Life Insurance under regulatory orders to improve its management and pressure mounting on JKL, Shinhan held to its price discipline through the talks, according to that assessment.
Shinhan expanded into non-banking businesses in 2019 by acquiring Orange Life and Asia Trust, and this time it is building out its non-life insurance operations. Where the 2022 purchase of Cardif General Insurance was a way into the non-life market, this deal secures a mid-sized insurer with an existing book of policies and a sales organization, broadening the group's earnings base.
In the race for the top spot, Shinhan has not been able to carry its banking advantage through to the group level. In the first half of this year, Shinhan Bank earned 2.4585 trillion won, 233.1 billion won more than Kookmin Bank. At the group level, however, KB Financial Group posted net profit of 3.8846 trillion won against Shinhan's 3.4427 trillion won, putting KB ahead by 441.9 billion won. Last year the gap was 871.4 billion won, with KB at 5.843 trillion won and Shinhan at 4.9716 trillion won.
The divide is widest in non-life insurance. KB Insurance posted net profit of 478.8 billion won in the first half, while Shinhan EZ General Insurance recorded a loss of 18.2 billion won. Last year KB Insurance earned 778.2 billion won, against a net loss of 32.3 billion won at Shinhan EZ General Insurance. KB has built non-life insurance into a core earnings source outside banking; Shinhan's non-life business has yet to contribute to profit.
Acquiring Lotte Non-Life Insurance's customers and sales network shortens the time Shinhan needs to scale up the business. Lotte Non-Life Insurance has 3.34 million customers, and its contractual service margin stood at about 2.2 trillion won at the end of the first half. The contractual service margin represents profit to be recognized from policies already in force. Shinhan can also channel banking and card customers into insurance sales and add Shinhan EZ General Insurance's digital capabilities to improve product development and policy administration.
The acquisition is unlikely to lift group net profit immediately. Lotte Non-Life Insurance earned 51.3 billion won last year but swung to a net loss of 18.5 billion won in the first half of this year. Analysts say the deal will pay off only once the insurer's profitability recovers and the integration is complete.
After receiving regulatory approval, Shinhan plans to inject about 300 billion won into Lotte Non-Life Insurance. It will redirect funds earmarked for a capital increase at Shinhan EZ General Insurance, strengthening capital without raising outside money and limiting any additional burden on the group. Shinhan will pair a capital reduction without compensation with the share issue to lift the ratio of basic capital to required capital by about 30 percentage points, while maintaining its existing shareholder return policy. "By combining the group's capital and risk management with our customer and digital capabilities, we will secure a new growth engine for the insurance business," a Shinhan Financial Group official said.
