Korean non-life insurance firms have decided to make first their forays into global collateralised debt obligations next year. Officials at the KRW2 trillion (USD1.6 billion) Oriental Marine and Fire Insurance and the USD900 million Shindongah Fire and Marine Insurance, said they aim to get a higher return by diversifying into CDOs because yields from Korean bonds are too low.
Oriental Marine and Fire Insurance will invest about USD5 million in CDOs next year, said Hee Kang, director of investment. It tried to do so this year but did not find a CDO that it liked. "The products either did not guarantee the principal amount or the interest rates are low," he complained. The insurer wants to invest in CDOs that have three-year duration, will give a return of 6-7% and will guarantee the principal sum.
Shindongah Fire and Marine Insurance will invest USD5-10 million in CDOs and hedge funds, said Eung Jun Lee, head of asset management in Seoul. It expects a return of at least 6% from these products, which is higher than the Korean three-year government bond yield of 4.87%. The insurer invests a majority of its assets in Korean bonds and only a small portion overseas, because it does not know the international markets well, he explained. Its only overseas investments are USD10 million in credit-linked notes and AUD1 million (USD720,000) in hedge funds. The insurer is reluctant to invest large amounts of money overseas given the recent allegations of misconduct that have rocked the fund management industry, such as allegations of improper trading against mutual fund firms in the U.S.
