Korea Life Insurance, Korea's oldest life insurer with assets totaling over KRW29.2 trillion (USD24.9 billion), plans to purchase credit-linked notes on domestic names. The insurer is looking at making an initial investment of some USD10-30 million, according to Myung Chool Kim, deputy general manager in the financial planning department in Seoul.
Kim explained that the insurer widened its mandate earlier this year to invest in overseas products, but has not been able to achieve its target yield of over 5% per annum in the bond market and is looking into other areas, such as structured products. The insurer is not considering credit default-swaps and synthetic collateralized debt obligations because it would have to obtain regulatory approval for such transactions.
Korea Life, however, is not the only insurer to turn its attention to credit derivatives. LG Insurance (DW, 7/6) and Daehan Fire & Marine Insurance (DW, 4/6) have been eyeing the products. "Given the low interest rate environment, insurance companies are going crazy for these types of notes," said Gin Lee, treasurer at Crédit Agricole Indosuez in Seoul. He explained that insurers are particularly interested because they have medium to long-term assets.
For credit products, Kim said the firm is speaking with several international houses including Deutsche Bank and Merrill Lynch. KLI will select deals on the basis of price and structure. Prakash Krishnan, spokesman at Deutsche Bank, and Mark Tsang, spokesman at Merrill, both declined comment.
KLI recently purchased a USD20 million equity-linked note referenced to the KOSPI 200 index, its first foray into derivative products. "We're focusing on products that will offer high yields," he added.
