Samsung Life allocates $5.4bn to offshore loan assets

South Korea’s largest life insurer has made debt commitments to real assets to achieve higher yields.

Samsung Life Insurance, a Seoul-headquartered life insurance company with 228.7 trillion won ($212.7 billion; €172.3 billion) in invested assets, has allocated 5.9 trillion won to offshore loan assets with a focus on infrastructure projects, according to Sang-chul Jeong, head of the asset management team at Samsung Life.

In an effort to increase its book yield, Samsung Life allocated 5.9 trillion won to offshore loan assets, with the majority going into infrastructure project financing loans during the fiscal year 2017, according to its latest earnings release.

“The move comes as we plan to achieve higher yields than those of conventional fixed income instruments by allocating to infrastructure loans,” Jeong said during the latest earnings call held last Thursday.

Samsung Life increased its allocation to global loan assets by 5.1 trillion won to 44 trillion won year-on-year as of December 31. This included allocations to commercial mortgage loans, project financing loans, and infrastructure debt investments, according to the earnings results.

The increasing allocation to loans and offshore alternative investments is likely to continue in 2018 and beyond as the firm plans to increase its absolute returns from its investment activities.

DURATION MANAGEMENT

Among various approaches that Samsung Life has taken in order to lengthen its asset durations and reduce the duration gap, the firm has been also increased its allocation to ultra-long bonds with over 20 years of maturities.

“We have made a 5 to 6 trillion won purchase of 20-year domestic bonds on a yearly basis since 2015, but as the number of bonds is limited in the Korean market, we have started buying offshore ultra-long bonds since 2016,” he added.

Samsung Life bought 2 trillion won worth of offshore bonds in 2016, 3.5 trillion won in 2017 and plans to allocate 3.7 trillion won further to offshore long-term bonds during 2018, according to Jeong.

The overhaul of long-term bond purchases comes as the firm plans to lengthen its asset duration prior to the full adoption of a new accounting rule scheduled in 2021.

“A key goal of Samsung Life’s asset management would be two-fold,” he said, “first, to secure higher-yielding assets and then ahead of a regulatory change such as IFRS 17, we have to lengthen our asset duration in order to mitigate the duration gap.”

As bond instruments can be helpful in lengthening asset duration, Samsung Life plans to increase durations of marketable securities and assets further up to the end of 2018, according to Jeong.

“As of December 31, the duration gap between our assets and liabilities was 6.6 years,” he noted, adding that the firm plans to cut the current duration gap down to 4.5 years by 2020.

Going forward, the life insurer is likely to further increase its exposure to corporate loan assets and offshore alternative investments, including loans to infrastructure projects and commercial mortgage loans as the insurer views them as a major tool to achieve higher yields from its investment activities.

The firm records its fixed-income assets under ‘held-to-maturity’ accounts, for which the firm does not need to track fluctuations in net present value.