Samsung Life Insurance, a Seoul-headquartered life insurance company, is in the process of selling some real estate assets in the UK as well as in South Korea according to Sang-chul Jeong, the firm’s head of the asset management.
The combined gains from these asset disposals in South Korea and the UK is expected to be in the range of 50 billion won ($44.3 million; €77.6 million) to 100 billion won, Jeong said during the firm’s earnings call last week.
Samsung Life Insurance has been exiting some of its holdings in an attempt to de-risk its investment portfolio and lengthen its capital adequacy ratio in preparation of the new insurance capital standards (K-ICS) set to be implemented in 2021.
Under the new standards, insurance firms will be required to measure their liabilities not at face value but at current fulfilment value, to comply with the new global accounting rule called IFRS 17, according to the latest draft for K-ICS adoption published by the Korean financial regulator Financial Supervisory Service in April.
At the start of this year, Samsung Life Insurance had set a target to exit real estate assets at 1 trillion won in total, according to Jeong. It is not clear as to how many assets have been exited to date.
According to a report in Business Korea, the firm is in the process of putting on the market six commercial buildings located within South Korea, with a total value of between 300 billion won to 400 billion won.
Tae-seon Kim, a senior officer at Samsung Life’s business support team, said the firm will proceed with sales regardless of the overall impact of the Brexit on its operating profits. In his view, real estate prices in UK have reached a peak and will be on a downward trend going forward.
Along with real estate, the insurance firm has also been selling other non-interest earning investment assets in its portfolio to generate liquidity to match its asset liability duration gap.
Margins gained from dividend income and asset disposal gains have increased significantly this quarter. Samsung Life Insurance’s asset disposal gains grew by 1.2 trillion won from 22 billion won, year-on-year, according to its latest earnings published last week. This included the sale of 1.1 trillion won worth of Samsung Electronics shares on a pre-tax basis during the second quarter of 2018.
Samsung Life plans to reallocate 800 billion won out of the investment margin into investment products with long-term maturities.
“This freed-up capital will be used to buy ultra-long bonds and loans,” Jeong said.
Indeed, Samsung Life has been increasing its allocation to ultra-long investment products with over 20 years of maturities, As previously reported by PDI in February. The firm is now also looking to utilise reinsurance products to free-up further capital to minimise any negative impact of the K-ICS, according to the earnings call.
Samsung Life Insurance managed 206 trillion won ($181.8 billion; €159.7 billion) in invested assets on a non-consolidated basis as of end-June, Notably, its corporate loan portfolio grew by 23.5 percentage points year-on-year. The firm’s total loan asset portfolio accounted for 22 percent of its total invested assets in the second quarter of 2018.