[RFP] Korea Post seeks to invest about $90 mn in offshore insurance-linked securities

Korea Post’s savings unit has decided to commit about 100 billion won ($87 mn) to investment firms managing or marketing offshore insurance-linked securities (ILS), and will receive proposals for the investment by March 17, said a Korea Post source on March 7.

The state-run agency is inviting applicants for two separate strategies – diversified and opportunistic. The expected annual returns for the two strategies are 4 to 5% and 6 to 7%, respectively, according to the source.

It plans to select managers around the end of April, which would make it the second South Korean institution investing in the insurance-linked securities including cat bonds, after the Public Officials Benefit Association.

The request for proposals was posted on the website of Korea Post.korea-post_ils_170307

In screening proposals, Korea Post will put top priority on performance and risk management of their previous investments.

“Even though ILS funds hardly make losses on a yearly basis, some management companies reported losses (of ILS funds) on a monthly basis,” said the Korea Post source. “We will examine how they reacted and made up for them, when they incurred losses.”

ILS funds, in which Korea Post is to invest, should exclude life insurance products. The Korea Post source noted that life insurance policies, which generate more profits if policyholders live shorter than expected, do not fit into its investment philosophy.

ILS are structured to cover part of natural disasters or other uncontrollable events. They pay a fixed coupon, if a covered disaster does not occur.

By Donghun Lee

leedh@hankyung.com