[Korean Money Going Abroad] Korea insurers up overseas investments, eyeing foreign asset managers

South Korean insurance companies have been raising investments in overseas investments by more than 50% since the start of this year and also considering buying foreign asset managers, as they are struggling with shrinking or reverse margins on insurance products they had sold decades ago.

The outstanding investment value in overseas securities such as stocks and bonds at South Korean insurance firms soared by 51.1% to $49.4 billion in the first quarter of this year, compared with a year-earlier period, data from the Bank of Korea shows.

The Bank of Korea’s cut in the base rate to a record-low 1.25% earlier this month is expected to accelerate overseas investments ranging from structured bonds to power plant by domestic insurers.

More than 90% of fixed-rate insurance policies the country’s 25 life insurance companies had sold between the mid-1990s and the early 2000s, worth about 187 trillion won ($162 billion) in outstanding value, guaranteed an annual rate of 4% or above, according to the regulatory Financial Supervisory Service.

“The returns on domestic stocks and bonds were 2.78% and 4.19%, respectively, last year,” said a source of Kyobo Life Insurance. “By comparison, overseas stocks and bonds yielded 17.51% and 4.72% of returns, respectively.”

In an effort to expand global investments, Samsung Life Insurance and Hanwha Life Insurance are considering buying foreign asset management firms, respectively, said sources of the two companies. Details on their M&A targets are not immediately available.

Last January, Mirae Asset Financial Group Chairman Hyeon-joo Park, told reporters in a news conference that the group was in negotiations to buy an investment firm in the U.S. No progress has been reported yet on the announced acquisition plan.

Separately, Hanwha Life plans to raise the proportion of overseas investments to over 15% by the year’s end from last year’s 12% of its total assets. Kyobo Life Insurance is also set to lift the ratio of foreign investments from 13.9% at the end of last year.

ING Life Insurance in South Korea, owned by domestic private equity firm MBK Partners, is planning to boost overseas investments to 5% of total assets from the current 3% over the next three years. Prudential Life Insurance will also nudge up the proportion of foreign investments to 2% by next year from less than 1%.

Illustrating local insurance firms’ efforts to broaden investment targets, KDB Life Insurance signed an agreement on June 14 to buy 58.6 billion won worth of 30-year structured bonds issued by the European Bank for Reconstruction and Development (EBRD).

Also, domestic insurance companies including KB Life Insurance and Dongbu Insurance made a joint investment of 460 billion won in the Newark Energy Center in New Jersey, a commercial power plant, through a fund, last May. The investment is expected to yield an annual return of 5.5% for the duration of seven years.

Other financial services companies in South Korea had also pushed their overseas securities purchases to a record in the first three months of this year. Domestic asset management firms saw the outstanding value in their overseas securities investments climbing by 15.0% to a combined $63.8 billion in the January-March quarter of 2016 from a year ago. In aggregate, the balance of foreign securities investments at local asset managers, brokerage companies and banks swelled by 33.6% to $101.6 billion during the same period.

By Dowon Im and Jihoon Lee

van7691@hankyung.com