Insurers likelier to take asset management risks compared to global counterparts

From left, Samsung Life Insurance Co., and Kyobo Life, and Hanwha Life Insurance Co. [Courtesy of each company]

The introduction of the new International Financial Reporting Standard 17 (IFRS17) in 2023 has significantly changed how insurers manage their financial assets, with interest growing in successful life insurance companies’ asset management strategies.

Based on disclosures from major life insurers Samsung Life Insurance Co., Hanwha Life Insurance Co., and Kyobo Life, often referred to as the Big 3, the trio has actively pursued strategies to enhance their asset management profitability. In contrast, international insurers tended to allocate more than half of their investments to safer assets.

For the first half of 2023, the net profit of the domestic top 3 amounted to 3.8 trillion won ($2.84 billion), a remarkable increase of 1.6 trillion won, or 75 percent, compared to the same period the previous year.

An analysis conducted by Maeil Business Newspaper, using monthly statistics from the Korea Life Insurance Association as of the end of June 2023, revealed Tuesday that among domestic insurers, KB Life Insurance Co. had the highest proportion of safe assets. Safe assets refer to the sum of cash, deposits, and investments in government bonds among the total assets held by insurers.

MetLife had the highest safe assets ratio at 73 percent among global insurers, followed by AIA Group Limited at 67 percent, Chubb Life Insurance Company Ltd at 61 percent, and ABL Life Insurance Co. at 58 percent. BNP Paribas Cardif, ranked fifth, also maintained a significant percentage of safe assets at 52 percent. Foreign insurers typically tend to have a higher proportion of safe assets than their Korean counterparts.

Among domestic insurers, KB Life Insurance had the highest ratio at 70 percent, which is likely due to its merger with Prudential Financial, Inc. in January 2023 as the global insurer had a higher portion of safe assets. Shinhan Life Insurance Co. also held substantial proportions of safe assets at 63 percent, with NH Life Insurance (51%) and DGB Life Insurance (48%) also maintaining significant holdings in cash and government bonds.

The Big 3, Samsung Life (37 percent), Hanwha Life (40 percent), and Kyobo Life (35 percent), adopted a more aggressive investment strategy. Samsung Life in particular increased its allocation to alternative investments to boost asset management returns. Hanwha Life also expanded its portfolio by investing heavily in overseas markets, including the U.S. and Japan, taking advantage of perceived investment opportunities amid increased market volatility.

DB Life Insurance Co had the lowest proportion of safe assets at 16 percent, followed by Fubon Hyundai Life Insurance Corp. at 26 percent.

These variations in the allocation of safe assets among life insurance companies are due to their distinct investment patterns and asset management philosophies.

“Having a large portion of investment assets isn’t necessarily a dangerous approach, nor is having a high proportion of safe assets necessarily a safe strategy,” according to a source from the insurance industry. “Life insurers manage assets entrusted to them over decades, so they don’t focus solely on short-term returns. Each company operates based on clear investment principles and expertise.”

But given the recent volatility in financial markets over the past 2 years, companies with a high proportion of safe assets likely benefited in terms of net income or profit. For example, KB Life Insurance reported a net profit of 234.8 billion won in the first half of the year, a year-on-year increase of 213.1 percent, and its return on assets under management rose by 0.38 percentage points to 3.93 percent during the same period. KB Life Insurance’s lower share of foreign currency securities, which stood at a mere 6 percent compared to the industry average of 13 percent, also played a role in its performance.

Companies with substantial holdings of safe assets are also more likely to make new investments as they rebalance their asset portfolios. “KB Life Insurance will likely utilize the current market situation to secure reserves through bond investments and expand the management of profitable portfolios, including alternative investments, considering the heightened market asset volatility,” an official from the management firm said.