이 기사는 2020년 02월 14일 08:00 thebell 에 표출된 기사입니다.

South Korea’s KB Insurance plans to increase its investment in alternative assets this year in a bid to improve its profitability.

Koo Bon-wook, chief financial officer (CFO) of KB Insurance, said in a conference call on February 6 that the firm will increase its allocations towards alternative investments this year. The firm plans to diversify its investment channels amid unfavorable business environment to aim at quantitative growth. The insurer also has upped its asset management ratio (amount of asset under management against total assets) target.

KB Insurance has shifted its attention to alternative investments lately as subdued earnings are expected to continue this year. KB Insurance has decided to hike its car insurance premium by 3.5 percent this year. Moreover, indemnity insurance premium is expected to rise by nine percent amid rising risk loss ratio.

The insurer has suffered from deteriorating earnings. KB Insurance’s net profit recorded 234.3 billion won last year, down 10.7 percent from a year earlier (264.2 billion won). This was because of a drop in operating profit from 359 billion won in 2018 to 300.6 billion won last year, due to a rise in car insurance and long-term insurance loss ratio and an increase in business expenses related to new contracts. The insurer’s return on equity (ROE), which recorded 14.6 percent in 2017 dropped to 7.87 percent in 2018 and 6.23 percent in 2019. Accordingly, KB Insurance has set its net profit target for 2020 somewhat conservatively at 250 billion won.

Amid the prolonged low interest rate environment, liabilities are likely to increase under International Financial Reporting Standards 17] (IFRS17) and K-Insurance Capital Standard (K-ICS). As it gets more difficult to deliver higher returns only from domestic bonds and stocks, KB Insurance seemingly aims to earn extra returns by investing in securities in developed countries like the U.S. and Europe, and alternative investments.

Since it became KB Financial Group’s wholly owned subsidiary in 2017, KB Insurance has maintained its stance to expand its exposure to alternative assets. As alternative investments require professional knowledge, the insurer has been collaborating via commercial investment bank (CIB) organization in the group and enhancing its partnership with external institutions.

The insurer especially created a system which enables affiliates to share the firm’s view on risks, including global macro environment and rate movement. For risk management, KB Insurance could enhance its financial soundness and improve profitability compared to risks by using major affiliate like bank’s know-hows on credit review.

KB Insurance has kept its allocation to foreign bonds at a certain level to carry out asset liability management (ALM) and diversified investment. As of the end of 2019, KB Insurance held around 2.29 trillion won worth foreign currency-denominated securities and around 4.23 trillion won worth debt securities.

KB Insurance plans to reform structure of its products this year in addition to asset portfolio rebalancing. The firm will toughen its assessment to prevent the abuse of medical care and enhance its underwriting capability for car insurance.

(By reporter Sohn Hyun-ji)