Insurance Companies Focused on Overseas Real Estate Investment Suffer 194.4 Billion Won Loss Due to COVID-19

Among Overseas Alternative Investments, Real Estate Investment Accounts for the Highest Proportion at 24.1%
Due to COVID-19, Asset Profitability Declined by 1 Trillion Won from Rent Reductions and Investment Condition Adjustments
However, 68.3% of Investment Balance Is Long-Term Over 10 Years, Limiting Short-Term Economic Fluctuation Impact

[Asia Economy Reporter Won Dara] It has been revealed that domestic insurance companies incurred losses of 194.4 billion KRW in overseas alternative investment projects last year due to COVID-19. The main loss-making investment sector was overseas real estate, with profitability deteriorating for assets worth approximately 1 trillion KRW.

The Financial Supervisory Service (FSS) announced on the 22nd that 36 domestic insurance companies experienced losses of 194.4 billion KRW in overseas alternative investment projects last year due to the impact of COVID-19 (based on data collected in September last year). The main loss sectors were overseas real estate and aircraft investments.

▲Domestic Insurance Companies' Overseas Alternative Investment Proportion (=Financial Supervisory Service)

Assets whose profitability worsened compared to initially expected returns due to adjustments in investment conditions such as interest rate cuts, maturity extensions, and rent reductions amounted to 1 trillion KRW (1.4% of total overseas alternative investment funds). These investment condition adjustments mainly occurred in real estate-related investments such as offices, commercial buildings, and hotels, which were heavily affected by COVID-19.

Assets showing signs of distress such as borrower defaults, construction delays, or stoppages also amounted to 272.1 billion KRW (0.4% of total overseas alternative investment funds). Overseas alternative investments maturing this year total 4.4 trillion KRW, of which 2 trillion KRW are real estate-related investments, raising concerns about profitability deterioration if rental or sales conditions worsen.

However, 68.3% (48.1 trillion KRW) of the investment balance matures after 2030, indicating that these are long-term investments of over 10 years, and thus the impact of short-term economic fluctuations is relatively limited.

The FSS stated, "It is necessary to strengthen supervision and management regarding losses in overseas alternative investment assets due to prolonged economic recession and the resulting impact on the soundness of insurance companies," adding, "We will specify review procedures for high-risk alternative investments such as local on-site inspections and high loan-to-value (LTV) ratios."

Meanwhile, insurance companies realized profits with interest and dividend income reaching 2 trillion KRW from January to September last year. During this period, the total scale of overseas alternative investments was 70.4 trillion KRW, accounting for 6.5% of total assets (1087 trillion KRW). New investments have been shrinking since 15.5 trillion KRW in 2018, significantly dropping to 6.6 trillion KRW last year due to COVID-19.

▲Status of Overseas Alternative Investments by Domestic Insurance Companies (=Financial Supervisory Service)

The types of overseas alternative investments were led by real estate-related investments at 24.1 trillion KRW (34.2%), followed by social overhead capital (SOC) at 20 trillion KRW (28.4%), and corporate acquisitions and restructuring-related investments at 9.3 trillion KRW (13.2%). By investment target, offices accounted for 10.9 trillion KRW (15.5%), power generation and energy 8.5 trillion KRW (12.1%), aircraft and ships 4.9 trillion KRW (7%), and private equity funds (PEF) and acquisition financing 4.9 trillion KRW (7%).

Investment regions included the United States at 26.8 trillion KRW (38.1%), the United Kingdom at 6.5 trillion KRW (9.2%), France at 2.7 trillion KRW (3.8%), and other European countries at 6.8 trillion KRW (9.7%). Of the overseas real estate investments (24.1 trillion KRW) in offices, hotels, and mixed-use facilities, 63.4% (15.3 trillion KRW) were concentrated in the United States.

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