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Shinhan Life Insurance is on track to weaken its years-long ties with BNP Paribas Cardif General Insurance amid the latter’s worsening profitability.
BNP Paribas, a French financial group, established the non-life insurer as a joint venture with Shinhan in 2014, with a view to expanding its footsteps into Korea’s general insurance market.
But with the company failing to reap enough profits and expanding losses each year, Shinhan is moving to cut down its stake in BNP Paribas General Insurance.
As of the end of 2019, BNP Paribas Cardiff obtained a 91.29 percent stake in the general insurer, with Shinhan Life holding the rest.
But with the French firm’s non-life affiliate showing little sign of rebound here, Shinhan Life has cut the ratio to its current 7.46 percent. Late last month, BNP Paribas Cardif General Insurance carried out a capital increase by issuing new shares worth 26 billion won.
Shinhan Life is known to have declined to invest in the plan, and only BNP Paribas Cardif, the largest shareholder of the joint venture, took part in the capital increase. This ended up lowering Shinhan’s stock ownership ratio.
Chances remain slim for Shinhan to increase the ratio at a time when the French firm has been suffering years of deficit here.
To tackle the crisis, BNP Paribas Cardif General Insurance has engaged in massive manpower reduction for the past few years. The firm’s total workforce came in at 77 staff as of the end of September 2020, the lowest among insurers operating business in Korea. This is a decline of more than 70 percent.
Hit hard by the worsening sales performance, BNP Paribas Cardif General Insurance’s risk-based capital (RBC) ratio dropped by 44 percent in the first quarter from the previous quarter, the highest decline here. The RBC ratio is a barometer to calculate insurers’ financial stability, indicating their capability to hedge against unexpected risks.
Given the insurance industry’s dismal outlook for a near-term rebound, it appears highly unlikely that the company will be able to normalize its profitability in a short period of time.
BNP Paribas is a strategic investor of Shinhan Life’s parent company, Shinhan Financial Group. Starting early this year, both sides have engaged in a series of partnerships by establishing joint ventures ― such as the non-life insurer and Shinhan BNP Paribas Asset Management.
In October, rumors said that Shinhan Financial was considering purchasing BNP Paribas’ 35 percent stake in the asset management firm to turn the joint venture into a 100 percent Shinhan subsidiary.
Unlike BNP Paribas Cardif General Insurance, the asset management company has been reporting decent earnings growth for the past few quarters. Shinhan BNP Paribas Asset Management posted a net profit of 4.7 billion won in the first quarter of 2020, but it went on a stable track for growth by reporting 7.3 billion won during the third quarter.
“BNP Paribas Cardif General Insurance has little presence in the Korean market,” an industry source said. “It appears unlikely that the small insurer will be able to achieve a meaningful rebound in the market where big players are also facing growing uncertainties.”