KDB Life to Become a Subsidiary of KDB… Controversy Over the Survival

KDB Life Insurance is set to be incorporated as a subsidiary of KDB Bank, but the move is sparking significant controversy. KDB Bank lacks experience in managing an insurance business, and without additional capital injection, normalization of KDB Life Insurance seems unfeasible. As a result, critics argue that making KDB Life a subsidiary is merely a temporary fix rather than a real solution.

Is KDB Bank Fit to Operate an Insurance Company?

KDB Bank is a state-run policy bank primarily responsible for corporate finance and industrial restructuring. However, by taking KDB Life Insurance under its wing, it will have to assume direct management responsibility for an insurance company. The problem is that KDB Bank has no prior experience in running a life insurance business. Even though it has expertise in the broader financial sector, the insurance industry requires specialized knowledge in risk management and asset management.

Moreover, without additional financial support, it will be difficult to improve KDB Life Insurance’s financial stability. As of June 2024, the company's risk-based capital ratio (K-ICS) stands at 55.8% before regulatory relief measures and 155.4% after, barely meeting the financial authorities’ recommended threshold of 150%. To ensure stable operations, industry experts estimate that at least an additional 1 trillion KRW is needed.

Controversy Over Keeping a Troubled Financial Institution Alive… Additional Funding Inevitable

KDB Bank has already injected approximately 1.5 trillion KRW into KDB Life Insurance, yet the company remains financially weak. If KDB Life is absorbed without further financial support, it is likely to remain a burden on KDB Bank’s balance sheet. The industry widely believes that "without additional capital expansion, selling KDB Life would be impossible, leaving KDB Bank with no choice but to inject more funds."

However, should KDB Bank provide additional funding, it may spark public backlash over the use of taxpayer money to stabilize a private insurance company. The situation closely resembles past cases during the Asian financial crisis when public funds were used to bail out failing financial institutions, which could fuel negative public sentiment.

Is a Resale of KDB Life Possible?

KDB Life has attempted to sell itself six times since 2014, but all attempts failed due to its poor financial health. In 2023, Hana Financial Group was selected as the preferred bidder, but after conducting due diligence, it withdrew from the acquisition, concluding that “trillions of won in additional investment would be required.”

Given this history, it seems nearly impossible for KDB Bank to resell KDB Life without further capital injections. This suggests that making KDB Life a subsidiary is not a step toward a sale but rather a move that could lead to long-term ownership by KDB Bank.

Are There Any Alternatives?

Experts advise that KDB Bank should not retain sole ownership of KDB Life but instead consider a joint equity structure with a financial institution or private equity fund (PEF). Another alternative would be to transfer partial management rights to the private sector in the short term and gradually pursue privatization.

Ultimately, critics argue that incorporating KDB Life Insurance as a subsidiary is merely a stopgap measure that fails to address the underlying issues. As time passes, the financial burden may only grow larger. The key issues now are whether KDB Bank will inject additional funds after making KDB Life a subsidiary and how it will formulate a future divestment strategy.

Seoul Tribune (c)

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