Lotte Insurance has increased alternative investments in the first half of this year to maximize net profit. The company posted a 4.0% return as of the end of the first half of 2020, only 0.1% point lower than the first half of 2019.
Financial industry sources said that Lotte Insurance’s alternative investment assets have increased to 2.828 trillion won ($2.38 billion) as of the end of the first half of 2020, accounting for 37.2% of its total operating assets. The company invested 2.645 trillion won in alternatives in the first quarter. Investment to fixed income had decreased to 2.425 trillion won from the first quarter’s 2.578 trillion won.
Lotte Insurance has invested in alternative assets, especially aircraft finance, unlike most insurance companies. Most insurance companies’ investment portfolios are largely dominated by fixed-income investments, which are considered safe assets. However, Lotte Insurance has concentrated on airline finance, with high risks and high returns. The company has not suffered from minus rate of returns until now but industry watchers said that the company should pay attention because the overall return on alternative investment has decreased to 5% in the second quarter from 7.4% in the first quarter.
“There is a risk on the airline finance as Covid-19 is deteriorating the performance of airlines and decrease in aviation demand is prolonged,” an officer from Korea Investors Service Ratings said. (Reporting by Hyewon Chang)