Shinhan to acquire Lotte Insurance for W693.3b

Shinhan Financial Group is set to acquire Lotte Insurance for 693.3 billion won ($516 million), ending a prolonged sale process and significantly expanding its presence in Korea's non-life insurance market.

Shinhan said Tuesday it signed an agreement to purchase a 77.04 percent stake in Lotte Insurance from private equity firm JKL Partners. Following regulatory approval, the group plans to acquire the remaining shares and merge the insurer with its existing nonlife insurance subsidiary, Shinhan EZ General Insurance.

The deal finalizes a sale process that began in 2023. JKL acquired control of Lotte Insurance from Lotte Group in 2019 but struggled to find a buyer amid valuation disagreements, with earlier expectations reportedly exceeding 2 trillion won.

For Shinhan, the acquisition offers an established customer base and a larger insurance portfolio, but also brings significant financial challenges.

Lotte Insurance is operating under a financial improvement plan conditionally approved by the Financial Services Commission. Its core capital ratio under the Korean Insurance Capital Standard remained negative at minus 5.4 percent at the end of June, reflecting its heavy reliance on subordinated debt and other supplementary capital instruments.

The ratio, however, improved by 16 percentage points in the second quarter. The insurer also returned to profitability, posting operating profit of 3.1 billion won and net income of 1.3 billion won.

Shinhan plans to inject additional capital to strengthen Lotte Insurance's financial position ahead of tighter core capital requirements next year, although it has not disclosed the amount.

The acquisition will also give Shinhan's struggling nonlife insurance business greater scale.

Shinhan EZ, launched in 2022 after the acquisition of BNP Paribas Cardif General Insurance, recorded a net loss of 18.2 billion won in the first half of this year.

Its contractual service margin, a key indicator of future insurance profitability, stood at just 600 million won at the end of June, compared with Lotte Insurance's 2.2 trillion won.

Lotte Insurance also brings approximately 3.34 million customers, providing Shinhan with opportunities to expand insurance sales through its banking network and digital platforms.

Shinhan said existing insurance contracts and customer services would remain unchanged during the integration.

"Lotte Insurance brings decades of insurance experience, an established customer base and sales expertise," a Shinhan official said. "We will build on those strengths with the group's capital and risk management expertise, customer network and digital capabilities to drive growth in our insurance business."