Top 3 Life Insurance Companies Chose Domestic Investment Over Overseas Last Year

Considering Low Interest Rates and Exchange Rate Hedging
Hanwha Life Reduces Foreign Currency Marketable Securities by 7 Trillion Won

[Image source=Yonhap News]

[Asia Economy Reporter Oh Hyung-gil] Life insurance companies significantly reduced their overseas investment proportions last year. Due to prolonged low interest rates following COVID-19 and foreign exchange hedging costs caused by exchange rate fluctuations, they shifted their focus from overseas to domestic markets. This change was particularly noticeable at Hanwha Life among the top three life insurers by asset size.

In contrast, Samsung Life adopted a strategy of expanding domestic stock holdings along with foreign currency securities. Kyobo Life saw little change in its portfolio. This year, investment strategies of the big three life insurers are expected to become more diverse due to variables such as COVID-19 and the inauguration of the Biden administration in the U.S.

According to the Life Insurance Association as of the end of November last year, the total amount of foreign currency securities held by 24 life insurers was 102.0054 trillion KRW, a decrease of 1.1064 trillion KRW compared to the previous month. The proportion of foreign currency securities in total managed assets fell by 0.3 percentage points from 17.6% the previous month.

The scale of foreign currency securities holdings declined throughout the year, from 112.5698 trillion KRW at the end of January last year to 109.4496 trillion KRW at the end of the first half, and further down to 107.9333 trillion KRW at the end of the third quarter. The proportion of foreign currency securities, which was 19.2% at the beginning of last year, has also continued to decrease.

The biggest reason for the reduction in foreign currency securities holdings lies with Hanwha Life. Hanwha Life's foreign currency securities holdings sharply dropped by 7.4958 trillion KRW, from 28.1217 trillion KRW at the end of January to 20.6259 trillion KRW at the end of November. Conversely, during the same period, government and public bonds holdings increased by 4.9226 trillion KRW, from 26.5153 trillion KRW to 31.4379 trillion KRW, and corporate bonds and stocks also rose by 500 billion KRW and 400 billion KRW respectively.

A Hanwha Life official explained, "Last year, considering overseas interest rates and foreign exchange hedging costs, the attractiveness of overseas bond investments declined, so we focused on domestic bonds and extended duration."

Samsung Life pursued an investment strategy completely opposite to Hanwha Life. Samsung Life's foreign currency securities holdings slightly increased from 17.3082 trillion KRW in January to 18.1832 trillion KRW in November. Notably, stock holdings grew by 5 trillion KRW, from 35.5322 trillion KRW to 40.5433 trillion KRW.

Kyobo Life also reduced foreign currency securities from 20.3104 trillion KRW to 19.4659 trillion KRW, while expanding government and public bonds from 27.7428 trillion KRW to 28.5302 trillion KRW. However, unlike Samsung and Hanwha, Kyobo Life made only minor adjustments across its portfolio.

This year, with overseas market interest rates rising sharply from the beginning of the year, insurance companies have more investment opportunities. With the start of COVID-19 vaccinations and the inauguration of the Biden administration, interest rate hikes are anticipated, and market interest rates are already rising. The U.S. 10-year Treasury yield, which fell to 0.5% during COVID-19, recently surpassed 1%, and expected inflation is also above 2%.

Accordingly, insurance companies are expected to increase their proportion of overseas bond investments. An industry insider said, "Whether to choose overseas or domestic investments depends on each company's strategy," adding, "It is positive that there are more options than last year."

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