Article 234: Samsung Life Increases Overseas Assets... Hanwha Life's "100 Trillion" Turns Attention Domestically (Comprehensive)

Diverging Asset Management Strategies of Korea's Top Two Life Insurance Companies

[Asia Economy Reporter Oh Hyung-gil] The mid- to long-term asset investment strategies of Samsung Life Insurance and Hanwha Life Insurance, the first and second largest asset managers in the life insurance industry, have been unveiled. Amid an ultra-low interest rate environment, warning signs have been triggered in managing asset operation yields, and as the burden of negative interest rate margins continues to expand, they are seeking breakthroughs mainly through long-term bonds.

Samsung Life Insurance, managing assets worth 234 trillion won, has turned its attention overseas while increasing ultra-long-term bond investments. In contrast, Hanwha Life Insurance, whose managed assets have exceeded 100 trillion won for the first time, has chosen to readjust its portfolio by increasing domestic long-term bonds. Attention is focused on whether the solutions prepared by these major insurers can become a breakthrough at a time when 'negative' growth is forecast due to sluggish insurance market conditions.

◆ Overseas is the answer... Samsung managing assets outside Korea = Samsung Life Insurance's total managed assets stood at 234 trillion won as of the first half of the year, a 5.4% increase compared to the same period last year. While the bond ratio decreased from 57.9% to 56.8%, investment securities (5.6%) and corporate loans (7.3%) increased by 1.9 percentage points and 0.3 percentage points respectively compared to the same period last year. This indicates a strategy aiming for high returns instead of stable bonds.

Samsung Life Insurance's ultra-long-term bond purchases with maturities over 20 years increased by 62.8% over two years, from 3.5 trillion won in 2017 to 5.7 trillion won last year, but only rose by 200 billion won to 5.9 trillion won in the first half of this year.

This is interpreted as a reduction in ultra-long-term bond investments because the mismatch (gap) between asset and liability durations is being managed.

Overseas assets reached 25 trillion won in the first half, a 54.3% surge compared to 2017

Samsung Life Insurance's asset duration was 8 years and liability duration was 6.8 years in Q2 last year, causing the duration gap to soar to 1.2 years. By Q2 this year, the duration gap was reduced to 0.5 years. Notably, asset duration is longer than liability duration, providing flexibility in asset management. This contrasts with other life insurers who need to expand asset duration by purchasing ultra-long-term bonds due to longer liability durations.

Samsung Life Insurance is accelerating overseas investments. Overseas assets among total managed assets have steadily increased. Overseas assets reached 25 trillion won in the first half, a 54.3% increase from 16.2 trillion won at the end of 2017. The proportion of overseas assets in total assets also rose to double digits, from 7.8% in 2017, 9.2% in 2018, to 10.1% last year, and further to 10.7% in the first half of this year.

Alternative investment assets also grew during the same period, increasing by 29.5% from 16.6 trillion won at the end of 2017 to 21.5 trillion won in the first half of this year.

Samsung Life Insurance has set a policy through its '2030 Vision' to expand global business via equity investments in asset management, and to build a 'multi-boutique' encompassing alternative and traditional assets.

It plans to compose a profit and loss portfolio by 2030 with 32% from asset management, 30% from overseas insurance, and 38% from domestic insurance. The strategy includes entering the asset management business through equity investments in overseas asset management firms related to real estate and infrastructure, and expanding overseas insurance operations.

Yoo Ho-seok, Samsung Life Insurance's Chief Financial Officer (CFO), recently stated during an earnings conference call, "We will actively pursue structural innovation beyond existing frameworks, equity investments, mergers and acquisitions (M&A), and other new growth businesses," adding, "Based on differentiated capital strength that allows for new investments, we will actively invest."

Seungjoo Yeo, President of Hanwha Life Insurance

◆ Hanwha turns eyes to domestic investment = Unlike Samsung Life Insurance, Hanwha Life Insurance is increasing its domestic investment ratio. The proportion of overseas securities in Hanwha Life Insurance's managed assets, which was close to 29% in the first half of last year, dropped to 26% within a year. This narrowly avoided violating the Insurance Business Act regulation that foreign currency assets cannot exceed 30%. The strategy of reducing overseas investments while expanding domestic investments appears to be effective.

Hanwha Life Insurance's managed assets reached 99.57 trillion won in the first half, and it is expected to exceed 100 trillion won for the first time this year. The operating yield increased by 0.13 percentage points from 3.45% at the end of last year to 3.58%, providing some breathing room in asset management.

Hanwha Life Insurance has steadily increased domestic long-term bonds. Bonds accounted for 34.18 trillion won of total managed assets, up 9.0% from the previous quarter, and other securities surged 30.5% to 25.36 trillion won. Meanwhile, foreign currency securities decreased by 5.9% to 25.36 trillion won.

Reduced overseas securities ratio from 29% to 26%, increased domestic long-term bond ratio by 4 percentage points

Looking at the bond portfolio, the domestic long-term bond ratio was 52% in Q2, up 4 percentage points from the previous quarter. Conversely, the overseas long-term bond ratio decreased by 2 percentage points to 36%. Domestic short-term bonds accounted for 8%, and overseas short-term bonds 4%, both down 1 percentage point from the previous quarter.

By increasing the domestic long-term bond ratio, Hanwha Life Insurance focused on reducing the duration gap. The asset-liability duration gap, which had widened to 1.43 years at the end of last year, was successfully reduced to 0.83 years at the end of Q1 this year and further to 0.23 years at the end of Q2.

Under the new International Financial Reporting Standards (IFRS17) scheduled to be implemented in 2023, assets and liabilities will be evaluated at market value, so a larger duration gap could increase financial risk. Hanwha Life Insurance is interpreted to be taking preemptive measures. The company expects to further increase asset duration.

Jin Ki-cheon, head of Hanwha Life Insurance's investment business team, said, "Bond forwards are recognized as duration, which is very helpful," and added, "We initially estimated asset duration could be increased to 9.2 years, but it seems possible to expand it even further."

Bond forwards are transactions where the buyer agrees to purchase bonds at a predetermined price in the future. When an insurer enters into a forward contract with a securities firm to acquire bonds after five years, the insurer can increase asset duration without immediate costs.

Additionally, from next month, the foreign currency asset management limit will be relaxed, providing more flexibility for Hanwha Life Insurance's asset management. Following the amendment to the Insurance Business Act in April, the overseas investment limit for insurers will increase from the current 30% to 50% starting in October.

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