Insurance companies turn away from bank deposits

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)