이 기사는 2022년 01월 26일 08:03 thebell 에 표출된 기사입니다.

A corporate value report that was used as the basis for calculating the sale price of KDB Life Insurance has been embroiled in controversy over its fairness.

Milliman Korea, the South Korean unit of global actuarial and consulting firm Milliman, valued the life insurer at about 900 billion won ($750 million) around the time the sale process started. But six months later, it lowered the valuation to some 160 billion won.

Milliman Korea valued KDB Life Insurance at 163.5 billion won in its report released in June 2020, according to industry sources. It only took six months for the actuarial and consulting firm to slash the value of 100% of the life insurer from 850 billion-950 billion won in November 2019.

Both reports were commissioned by Korea Development Bank (KDB). The first report was written in 2019 to give potential buyers the corporate value of the life insurer while the second report was created in 2020 to provide the real value just before the selection of the preferred bidder. There is a controversy that the actuarial firm’s valuation standard lacks objectivity and was presented to cater to the seller KDB, given that that the life insurer’s valuation plummeted by more than 80% in just six months.

Such suspicion is based on the sale price of KDB Life Insurance. KDB have tried to offload its life insurance unit several times, but failed to garner interest from potential buyers due to the high sale price of over 600 billion won. This time, the state-run bank has significantly lowered the sale price to make the deal completed.

The lender has refuted the suspicions on the report, saying that the value calculated in 2019 was the theoretical value while the one calculated in 2020 was the actual value, which should be lower than the former.

According to KDB, the Milliman’s report in November 2019 used standard assumptions for insurance companies - discount rate of 7.5-9.5%, risk-based capital ratio of 150%, and return on investment of 3.1% - to provide potential buyers the standard to calculate a bid price.

The report in June 2020 was written to calculate the lowest bid price that is actually acceptable to the seller. For this reason, the 2020 report used realistic assumptions - discount rate of 12%, RBC ratio of 250%, and return on investment of 2.85% - in consideration of inherent risks of KDB Life Insurance and tighter regulations due to the implementation of the new accounting standard IFRS 17.

Industry sources said the report still lacks sufficient evidence. Interest rates and return on investment can be adjusted based on circumstances of the target company. Yet, it is hard to understand why the two reports applied two different standards when evaluating a RBC ratio, they said.

Milliman applied a RBC ratio of 150% in the previous report and 250% in the subsequent report, saying the change was made due to introduction of new systems such as IFRS 17. However, companies have already had enough time to prepare for the change, with financial authorities making amendments to alleviate challenges raised about implementing the standard, said industry sources.

This is leading to market interpretations that Milliman chose to use a different methodology for each report depending on a purpose. Even a small change in a RBC ratio affects hundreds of billions of won in capital requirements.

Milliman Korea, founded in 2002, is Seattle-based actuarial firm Milliman’s South Korean unit. The firm has been involved in most of deals involving domestic insurance companies, including sales of Tongyang Life Insurance, DGB Life Insurance, and Orange Life Insurance and initial public offerings of Hanwha Life Insurance and Mirae Asset Life Insurance amid scarcity of actuarial consulting firms in the country.

Milliman performed due diligence when KDB made its fourth attempt to offload its stkae in the insurance company. The actuarial consulting firm had reportedly involved in marketing campaigns during the process, while working on the value calculations. (Reporting by Eun-sol Lee)