How post-crisis improvements revitalised Hanwha Life
AsianInvestor’s second annual Institutional Excellence Awards were introduced to highlight best practice, with awards handed out in 16 institutions collectively managing $3.5 trillion.
Within the markets category, for Korea our judges selected Hanwha Life Insurance for institutional excellence. This was down to structural improvements it has made in areas such as risk management and governance that have enabled it to reach back into global markets after suffering losses on certain overseas assets during the 2008 global financial crisis.
The winners were announced on October 30 and received their awards at an exclusive ceremony and dinner on December 2 at The South Beach hotel in Singapore.
We thank all those who contributed their thoughts to these awards. The full list of write-ups appears in the December issue of AsianInvestor magazine, and more details of our decision-making process can be found here.
Markets category
Korea
Hanwha Life Insurance
An environment of historically low domestic interest rates has dumped difficulty on the doorsteps of liability-driven investors in South Korea, as elsewhere.
What has stood out about Hanwha Life over the past few years is the way it has responded, making structural improvements in areas such as risk management, compliance and governance, and therein laying the groundwork for a measured diversification into global securities and re-entry into alternative assets.
Hanwha Life has devised its own asset allocation process, constructing a sustainable portfolio centred on income-orientated investment to dampen the impact of market volatility.
Since 2012 it has slashed its cash exposure to minimise idle money and maximise efficiency, reducing its allocation to Korean treasuries and overweighting quasi-government bonds to capture relatively low-risk credit spreads.
It has increased its allocation to corporate debt and bond funds and tripled its global fixed income exposure to add longer-duration yield (with active hedging).
Within equities it has dynamically tilted its exposures towards dividend-paying stocks and increased focus on corporate earnings.
In terms of country weighting, Hanwha Life is heavily exposed to the US and UK, although it does employ broad diversification. It also uses a range of vehicles to invest overseas, including exchange-traded funds, separate accounts, funds and direct investments, and employs a guided programme to select external managers for each asset class.
After suffering losses in the global hedge fund market post-2008, Hanwha Life effectively shut down its alternative investment business for three years and dismantled its overseas investment team.
But it has since tightened up its compliance process to follow stringent guidelines, with a separate team looking solely at investments and ethics, and installed a new in-house investment monitoring and risk-assessment system. Its board also includes five external directors to maximise shareholder value.
With this structure in place, the insurer has since re-entered the alternatives market, prioritising stable, cash-flow-generating assets such as real estate and infrastructure, having established a consortium to invest in buildings in London, Paris and New York. It also invests in private equity.
Further, Hanwha Life has improved its internal competency as it has expanded into global securities, providing education and training programmes to encourage continuity of talent.
The insurer’s improvements since 2008 and subsequent diversification to overcome today’s low-yield environment offers a sound model for peers to emulate.
2015 winners already unveiled:
Institutional category
Reserves manager: Monetary Authority of Singapore
Insurance company (general account): Ping An Life
Public pension fund: Bureau of Labor Funds
Private pension fund 2015: Jardine Matheson
Endowment: National University of Singapore
Markets category
Australia/New Zealand: the Future Fund
Mainland China: China Life Insurance