이 기사는 2019년 12월 06일 08:00 thebell 에 표출된 기사입니다.

All eyes are on Prudential Life Insurance Company of Korea which has been put up for sale by its parent company Prudential Financial, a deal expected to be worth more than two trillion won ($1.7 billion). Interest is also swirling around what is behind the insurer’s decision.

U.S.-based Prudential Financial has hired Goldman Sachs to handle the sale of its South Korean unit and been sounding out possible bidders, industry sources said Monday. Despite its relatively small size, Prudential Life Insurance is considered attractive due to its strong profitability performance and financial soundness.

Industry watchers say the possibility of the sale was nothing new at all, with Prudential Financial last year having been rumored in talks with global industry players to shed its Korean business. But it is only recently that the insurer began the sale process in earnest.

One of the explanations behind the sale could be a growing regulatory burden. Globally, the International Association of Insurance Supervisors (IAIS) is preparing for the adoption of the Insurance Capital Standard (ICS). Local financial authorities are also on track to keep up with the global standard, aiming to introduce Korean Insurance Capital Standard (K-ICS) in 2022. IFRS 17, a new global accounting standard scheduled to take effect for domestic companies in the same year, is expected to increase the need for capital expansion in the insurance sector, too.

To adjust the new regulatory environment, Prudential Financial will have to raise its subsidiaries’ capital level, which would require a sharp increase in spending.

Meanwhile, some industry experts argue that Prudential Life Insurance’s growth outlook is limited due to its business portfolio biased towards whole life insurance products. A report recently published by Korea Insurance Research Institute has forecasted decrease in demand for whole life insurance plans in the country next year due to a mature market, increase in life expectancy and more one-person households.

However, such issues are not necessarily specific to Prudential Life Insurance, but affect the whole insurance sector. Seen in that light, some market watchers say Prudential Financial’s recent acquisition of Assurance IQ, U.S.-based online insurance startup, for $2.35 billion could possibly influence the insurer’s decision to sell off the Korean unit.

It is too early to assess the likely impact of the acquisition on the company’s growth prospects, as the deal was announced only in September. It also seems uncertain what kind of synergy the combination will create, given the business model of the startup differs from that of traditional insurers. However, rumors that Prudential Financial has faced internal criticism for buying the startup too expensively hint that its decision on the Korean operations could be part of its efforts to restructure the organization.

“The parent company [of Prudential Life Insurance] likely continued to think about how to run its overseas subsidiaries, given uncertain growth prospects in the life insurance sector over the longer term,” said an industry insider. “Prudential Financial recently bought an insurtech startup for the amount worth nearly three trillion won. Such factors as spending related to this acquisition and the relationship with shareholders afterward seem to have played some role in the insurer’s decision of selling its Korean unit.”

Prudential Life Insurance is the 11th largest insurer in South Korea, with 20.19 trillion won ($17 billion) in total assets as of the end of June. But its risk-based capital (RBC) ratio was the highest among 24 insurers in the country at 505.13 percent. It is the sixth largest in equity capital (2.96 trillion won), and posted the fifth largest net income (105 billion won) in the April-June period this year among domestic insurers, behind Samsung Life Insurance, Kyobo Life Insurance, Lina Life Insurance and Orange Life Insurance.

(By reporter Han Hee-yeon)