Insurance Companies' Overseas Investment Limit Eased by 50%... "Industry Breathes Easier"

Amendment to the Insurance Business Act
Passed the National Assembly Plenary Session on the 29th

[Image source=Yonhap News]

[Asia Economy Reporter Ki Ha-young] The long-awaited deregulation of overseas investment in the insurance industry has passed the National Assembly hurdle. It is expected to provide relief to the insurance sector, which has been struggling with asset management due to prolonged low interest rates.

According to the National Assembly and the insurance industry on the 30th, the amendment to the Insurance Business Act, which expands the overseas investment limit from the existing 30% to 50%, passed the plenary session of the National Assembly the day before. To increase the autonomy of insurance companies' asset management, the overseas investment limits for both general accounts and special accounts were relaxed to up to 50%.

Under the current Insurance Business Act, the foreign currency asset investment limit for insurance companies has been restricted to within 30% for general accounts and 20% for special accounts. This prior regulation on foreign currency asset investment limits acted as a constraint on insurance companies' asset management.

Accordingly, the insurance industry has long demanded the relaxation of overseas investment limits due to difficulties in asset management caused by prolonged low interest rates. In fact, the operating asset yield of life insurance companies, which was 5.6% in 2010, fell to 3.9% in 2016 and dropped further to 3.5% last year.

Moreover, with the implementation of the new International Financial Reporting Standard (IFRS17), insurance companies needed to expand overseas investments to secure long-term assets. This is because the domestic market lacks ultra-long-term bonds and safe assets cannot meet demand.

Some insurance companies have already reached near the overseas investment limit. The ratio of foreign currency securities to Hanwha Life's general account operating assets is 28.9%, nearly reaching the overseas investment limit. Fubon Hyundai Life and Chubb Life Insurance are recording 25.9% and 25.3%, respectively. Tongyang Life (23.7%), Kyobo Life (23.6%), and NH Nonghyup Life (21.4%) also showed overseas investment ratios above 20%.

Among domestic financial sectors, only the insurance industry still had regulations on overseas asset investment limits. Japan abolished overseas investment limit regulations for insurance companies in 2012 after low interest rates became entrenched.

Meanwhile, with the passage of the amendment to the Insurance Business Act in the plenary session, in addition to the relaxation of overseas investment regulations, the scope of understanding assessments was expanded. Until now, consumer understanding assessments were conducted only on insurance contracts, but the amendment now includes insurance information materials (product brochures) in the scope of understanding assessments. Also, when insurance companies fail to notify the right to request an interest rate reduction, the subject of fines was changed from executives to the insurance company itself to ensure consistency across financial sectors.

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