Seoul-based insurer Kyobo Life Insurance is considering increasing its investments in hybrid notes as a way to increase the yield on its USD1 billion domestic fixed-income portfolio. Kuk Junho, associate portfolio manager, said, "It's hard to find as good of a yield," explaining that as a hybrid note contains both credit and interest rate exposure it offers a higher yield than traditional credit-linked notes.
The insurer purchased its first hybrid note earlier this summer and is considering investing in up to four additional notes in the coming months. He declined to elaborate on the size of investments. Typical structures Kyobo is studying include interest rate caps along with an embedded credit-default swap linked to either a domestic corporate or Korea.
Kuk continued that the portfolio is primarily made up of Korean eurobonds converted into won, along with credit-linked notes. The insurer has a minimum counterparty rating requirement of single A.