Korean insurance companies, thirsty for high returns in the low-interest-rate environment, have increased investments in alternative assets.
The allocation of Korean life insurers’ in alternative assets was 35.5% of their portfolio as of the end of 2019 – 0.9 percentage points higher than 34.6% in 2018 – while allocation in safe-haven assets decreased by 1.5% points from 55.7% to 54.2%, according to the Financial Risk Review released by Korea Deposit Insurance Corporation (KDIC) on July 4.
Non-life insurers also increased alternative investments. Both large and small and medium-sized insurers raised alternative investments to 22.7% and 37.5% of their portfolio respectively during the same period.
Alternative investments – one of the major ‘risky asset classes’ – remain attractive to Korean insurers in this constantly low-interest-rate environment, but they could constrain the bottom-line earnings of Korean insurers if they become increasingly sensitive and vulnerable to unexpected external market shock, global ratings company Fitch warned recently. (Reporting by Hyewon Chang)