Insurance companies turn away from bank deposits

JAKARTA (JP): The majority of life insurance companies in Indonesia increasingly are turning away from time deposits because of sharply falling returns, an industry executive said on Tuesday.

More and more of their money is now being invested in longer term instruments, particularly stocks and bonds, Tridjoko Santoso, spokesman of the Life Sector of the Insurance Council of Indonesia, said.

The council's 52 members reported last year a 78 percent plunge in returns on its investments to Rp 868 billion, from Rp 4.03 trillion in 1998. The drop was largely the result of the drastic fall in deposit rates during the year, according to the council.

This fall in returns came in spite of a 21 percent rise in the amount invested by the members, from Rp 8.15 trillion to Rp 9.87 trillion.

Tridjoko presented on Tuesday the council's audited 1999 report. The council has 59 members -- comprising 38 local companies and 21 foreign joint ventures -- but four companies failed to file their reports on time and three others were not included because they provide social insurance.

The trend away from time deposits began last year and is continuing this year, Tridjoko said.

"To avoid further losses, we switched our investments to other products," he said.

Deposit rates declined to between 9 percent and 12 percent in 1999, compared to over 60 percent throughout most of 1998 at the peak of the economic crisis.

According to the council, time deposits accounted for 51.07 percent of the total investment of the life insurance companies in 1999. In the first quarter of 2000, that ratio fell to 44.20 percent.

Stocks and bonds are now the next most popular investment instruments, accounting for 21.19 percent of total investment in the first quarter of 2000, up from 12.20 percent in 1999.

Mutual funds are also gaining in popularity, accounting for 4.28 percent of investment in the first quarter, up from a 1.40 percent in 1999.

Bank Indonesia promissory notes accounted for 18.50 percent of investment, up from 14.86 percent. Investment in real estate declined to 5.39 percent from 7.29 percent.

Tridjoko said despite the loss of potential earnings, the low interest rates were a blessing in disguise as it forced companies to review their investment strategy.

"Insurance products are intended for the long term, but we have been investing mostly in time deposits which are short term in nature," he said.

According to the report, 22.76 million people in Indonesia were covered by life insurance last year, with the majority of them, or 86.63 percent, insured under collective schemes. (02)