Park Jae-hyuk is a seasoned journalist who has provided comprehensive coverage of South Korea's corporate dynamics, economic policies, industry challenges and the global positioning of Korean companies. Based on the articles he has written since joining The Korea Times in 2016, his investigative approach has helped readers understand corporate governance, economic trends and business strategies shaping South Korea’s economy.
Moody's warns insurers of risks from overseas investments
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By Park Jae-hyuk
By Park Jae-hyuk
Moody's Investors Service said in its recent report that easing regulatory limits on Korean insurers' overseas investments is credit negative.
The remarks came as the National Assembly passed an amendment of the Insurance Business Act, April 29, to ease limits on Korean insurers' overseas investments.
The revision, which will be effective by the end of the year, will allow insurers to invest up to 50 percent of their assets in both their general and separate accounts abroad.
They have been subject to the current regulatory caps of 30 percent of their general account assets and 20 percent of their separate account assets.
The life insurance industry has welcomed the passage of revisions, because they have faced falling profits amid the prolonged low-interest-rate environment here.
The global credit rating agency, however, warned that increased overseas investments will raise Korean insurers' foreign-exchange and liquidity risks to credit negative.
“Disruption caused by the coronavirus and lower-for-longer interest rates will encourage insurers to invest in higher-risk assets that offer higher expected returns, which are less liquid and more prone to mark-to-market valuations,” Moody's analyst Kim Young said in the report.
“Although most insurers maintain fully hedged positions on their foreign investments with limited foreign-exchange risk, an increased investment cap will likely promote a higher uptake of high-risk assets, in particular overseas non-traditional assets, thereby increasing liquidity risk.”
Yet the company added that increased overseas investment will also allow insurers to buy longer-dated assets, which are relatively scarce in Korea, and better manage asset-liability duration matching to prepare for the shift to tighter regulatory regimes, including the international financial reporting standard (IFRS 17) and the Korean insurance capital standards (K-ICS) in 2022.