Cardif Life Insurance Korea is considering investing in foreign assets for the first time and is mulling whether to change its mandate so it can buy lower-rated bonds, both with a view to boosting returns.
The Seoul-based firm, part of the BNP Paribas group, intends to make its first forays into property, via funds or real estate investment trusts. These will be invested in domestic assets, says head of investments Jung Ho-Kyoon, who oversees the W1.6 trillion ($1.4 billion) general-account fund and W1.1 trillion in unit-linked assets.
The insurer is also considering buying bonds issued by infrastructure companies. At present such assets are not available in Korea so it will need to look offshore, notes Jung, but Korea-based asset managers are working on launching infrastructure debt funds.
He's not aware of any Korean investor allocating to this asset class yet, but expects to see the first moves this year or early next. Jung wants to make such an allocation “as soon as possible”, but is unlikely to do so before 2013.
This is the kind of long-term play that matches insurance companies’ risk profile and liabilities. Infrastructure debt also attracts a significantly lower capital charge than direct infrastructure investment.
Cardif Life Korea invests purely through external managers and has been “very conservative” in its investment approach up to now, says Jung. It has 80-90% of its portfolio in high-grade fixed income, but is planning to move into foreign bonds later this year or early next, and change its mandate so it can buy lower-rated bonds.
"We are considering going as low as local A rating, as a first step," he says. "Under the current economic environment it is very difficult to go further, but I still believe that real added value is embedded in local credit ratings of BBB or BBB+."
Initially the firm will buy US dollar-denominated issues and hedge them back into Korean won, but may look later at bonds in other currencies. “We’ve been considering this for more than a year,” says Jung, “but still need to study it further to consider the risk of the accounting impact from FX investment, as it will impact our P&L."
The firm is not alone among its peers in seeking more foreign exposure. Far bigger players such as Korea Life and Samsung Life have added portfolio managers this year with the aim of allocating more to foreign assets such as infrastructure and real estate, among other things.
Insurance firms in certain Asian countries are suffering in the current low-interest-rate, low-yield environment even more than most investors, since many are having to match assets to policies guaranteed when interest rates were a lot higher.
See the forthcoming (September) issue of AsianInvestor for more on Asian insurers’ asset allocation.