AXA, Europe's number two insurer, has secured a foothold in South Korea's US$9 billion (RM31.57 billion) auto insurance market by announcing a deal on March 16 to buy a top domestic online auto insurance unit for an undisclosed sum.

The acquisition of unlisted Kyobo Auto Insurance should provide a springboard for the French insurer to advance into other insurance segments in the world's eighth-largest insurance market, where an ageing population is likely to boost demand for long-term and health-related policies.

Continuing deregulation in the country's insurance sector is expected to broaden insurance companies' coverage, prompting AXA to return to Asia's third-largest economy six years after it withdrew in 2001.

Unlisted Kyobo Life Insurance, South Korea's number two life insurer, is selling its entire 74.7% stake in the online insurance unit to concentrate on life insurance business, it said in a statement.

According to media reports, the value of the sale was worth 90.5 billion won to 100 billion won (RM336 million - RM371 million), well above the stake's book value of 52 billion won at the end of March 2006.

Kyobo Auto accounts for 35% of the country's US$950 million online auto insurance segment, and 4.5% of the total auto insurance market valued at US$9.3 billion in 2006.

The six-year-old company has recently swung to a profit in a sector undermined by deepening competition and rising payout costs for car accidents.

"The auto insurance market shows little sign of a significant improvement, because stiff competition has forced the loss ratio to rise," said Choi Jong-won, Tongyang Investment Securities' analyst.

The loss ratio is the value of insurance payouts on auto claims as a proportion of the total premiums received. Payouts rose to 79.3% of premiums at the end of December from 77% a year earlier.

Auto insurance represents slightly more than one third of the 25 trillion won non-life insurance business in South Korea. Sector leader Samsung Fire and Marine Co controls a quarter of the auto insurance market. The country's four online auto insurers make up 10 percent of the car insurance sector.

Lee Byung-gun, an analyst at Shinyoung Securities, said in a recent research note that AXA's entry in the Internet-based market will spur domestic players to offer more online products.

Premiums on online auto insurance products are on average 10% to 15% cheaper than those of offline products, although they offer similar coverage.

The Internet is becoming a popular outlet for making money transfers and borrowing money in South Korea, which boasts the world's highest broadband penetration.

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