Korean insurers’ overseas investment to continue to rise

Written by Adam Cadle

28/02/2020

Overseas investment by Korean insurers is likely to continue to rise in the search for higher investment returns and longer asset duration to match the asset-liability gap, although hedging costs could remain a burden, Fitch Ratings has said in a new report.

The report said overseas investment is currently focused on bonds among Korean insurers. The 10-year Korean government bond yield has been lower than the US 10-year over the last few years.

Moreover, Fitch Ratings said the competition for long-term domestic investment assets is getting hotter and the domestic supply of longer-maturing bonds is limited. The credit quality of overseas bonds also remains high with more than 90% in international rating categories of ‘A’ and above, based on aggregated Fitch-rated insurers’ investment portfolio.

The report stated that even though most insurers seek to maintain a 100% hedge ratio to avoid exposure to such risk, they may still be exposed to residual rollover risk, especially in short tenors.

“The companies need to bear hedging costs – currently about 100bp – which could pressure their profitability.”

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