In the meantime, the insurance industry has been rapidly expanding overseas alternative investment in response to low interest rates and monetary easing policies. It is from the diagnosis that it can grow.
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According to the Financial Supervisory Service on the 22nd, the amount of overseas alternative investment by insurance companies as of September last year was 70 trillion won, which is 6.5% of total assets. It has mainly invested in indirect ways, such as buying funds, not direct investment.
By type, real estate-related investments were 24 trillion won (34.2%), social overhead capital (SOC) 20 trillion won (28.4%), and corporate acquisition and restructuring-related investments were 9.3 trillion won (13.2%).
The resulting interest and dividend income was KRW 2 trillion, and the profit was realized until September last year. However, as the value of funds invested in overseas real estate and aviation sectors declined due to the impact of Corona 19, a total of 199.4 billion won was incurred in some assets, and the loss could continue to expand, the FSS explained.
Although there has not been any investment loss so far, assets with signs of insolvent such as bankruptcy of borrowers and delays or suspension of construction amount to KRW 272.1 billion (0.4% of overseas alternative investment).
Assets whose profitability deteriorated compared to the original expected return due to adjustment of investment conditions such as interest rate cut, maturity extension, and rental fee reduction was estimated at KRW 1 trillion (1.4% of overseas alternative investment). The adjustment of investment conditions mainly occurred in real estate-related investments such as offices, shopping malls, hotels, etc., which are affected by Corona 19.
As of the end of September 2020, insurance companies’ foreign alternative investments are insolvent and profitability is deteriorating.Accordingly, the Financial Supervisory Service decided to reinforce its soundness management by establishing’Best Standards for Risk Management for Insurance Companies’ Alternative Investments, which focus on overseas alternative investments.
Based on the best practices identified as a result of the insurance company’s self-inspection, it was decided to increase the practical use of risk management by establishing best practices for risk management during the first half of this year and by specifying guidelines for deliberation procedures such as local due diligence and high-risk alternative investment.
The soundness evaluation and inspection of alternative investments will also be strengthened.
It will examine the soundness classification of each insurance company for the same investment and differences in recognition of losses, and guide the soundness evaluation of securities in consideration of signs of insolvent.
In addition, when an external auditor audited the settlement of accounts, it was decided to request reinforcement of inspections such as strict fair value evaluation, loss recognition, and adequate provisioning for alternative investment assets.
Insurance companies with a high proportion of alternative investments and weak internal controls are entering into intensive management. For all alternative investment cases, the status of soundness and insolvency are managed monthly, and the work report is being revised for more detailed analysis.
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