Overseas Investment Rule Relaxation Fails... Insurance Companies Say "High Expectations but Disappointed"

The National Assembly Plenary Session Opens Today but Physical Bill Processing Impossible
Expected Disposal Procedure Even if Passed in General Meeting... Red Light for Insurers' Long-term Asset Acquisition

[Asia Economy Reporter Oh Hyung-gil] The long-standing wish of the insurance industry to ease overseas investment regulations has effectively been dashed in this National Assembly session. Insurance companies, which had hoped that relaxing the overseas investment limit would ease asset management constraints, are left in a state of shock. The prolonged low-interest-rate environment has already made it difficult for insurers to secure asset management returns, and now a red light has been lit for their long-term asset acquisition as well.

On the 5th, the National Assembly's Political Affairs Committee planned to hold its second plenary session in the afternoon to review the amendment to the Insurance Business Act, which includes easing asset management limits on foreign currency assets. However, even if it passes the plenary session, the amendment is expected to be discarded. According to the legislative process, which proceeds through the Political Affairs Committee plenary session, the Legislation and Judiciary Committee review, and the plenary session of the National Assembly, the Legislation and Judiciary Committee was held on the 4th, and the plenary session is scheduled for the same day, making it physically impossible to process the bill. With only about two weeks left before the 21st National Assembly elections on the 15th of next month, and the election campaign intensifying thereafter, the prevailing view is that the bill's passage is out of reach.

Insurers are clearly disappointed. After passing the Political Affairs Committee's bill review subcommittee on the 21st of last month, the plenary session was scheduled for the 27th, raising expectations for the bill's approval. However, the plenary session was canceled due to the rapid spread of COVID-19. They can only hope for a one-point plenary session to handle livelihood bills, but even that remains uncertain. Since bills not passed within this session will all be discarded, the bill will have to be reintroduced in the new 21st National Assembly.

The amendment mainly aims to raise the limits on insurance companies' investments in foreign currency assets such as foreign exchange and foreign real estate. Currently, general accounts are restricted to 30% of total assets, and special accounts to 20% of each special account's assets; the amendment proposes raising both limits to 50%.

With the implementation of the new International Financial Reporting Standard (IFRS17) in 2022, insurance liabilities and assets will be marked to market, making the securing of long-term assets increasingly important. However, the domestic market suffers from a severe shortage of ultra-long-term bonds, and safe assets cannot meet demand, necessitating an increase in foreign currency assets.

Some insurers already have overseas investment ratios approaching 30%. Six insurers have foreign currency securities exceeding 20% of their general account managed assets.

Hanwha Life's ratio of foreign currency securities to managed assets has risen to 29.3%, just below the 30% limit. Fubon Hyundai Life (26.2%), Chubb Life Insurance (24.9%), Kyobo Life (22.8%), Tongyang Life (22.4%), and NongHyup Life (21.4%) also record significant proportions.

An insurance industry official said, "As the U.S. lowers its benchmark interest rate and the low-interest-rate era prolongs, easing overseas investment regulations is urgent to improve asset management returns," adding, "Even if the bill is discarded and reintroduced in the next National Assembly, the damage insurers must endure in the meantime will be considerable."

This content was produced with the assistance of AI translation services.