Insurers shift to time deposits

Insurers shift to time deposits

The Jakarta Post, Jakarta

Time deposits have now become increasingly more attractive to
invest in, with commercial banks revising upward their saving and
deposit rates to adjust to the central bank's hiking of its key
reference rate, according to insurers.

In addition to the higher rates, time deposits -- which span a
maximum of one year -- also offer faster yields that those of
mutual funds and government bonds, which carry a longer maturity
profile than deposits.

"Previously, insurance companies invested their money in
government bonds or mutual funds. But now, they prefer to invest
their money in time deposits, which some banks are now offering
up to 10 percent," president director of a reinsurance firm PT
Reindo Hendrisman Rahim recently told The Jakarta Post.

Currently, there are about Rp 150 trillion (some US$15.1
billion) in funds circulating in the insurance industry, which
includes social security firms and pension funds.

Echoing Hendrisman was Angger P. Yuwono, a senior advisor at
Watson Wyatt Insurance Consulting, who added that many insurers
were now shifting their investments to time deposits to help
reduce a negative spread in their cash flows.

"They are avoiding mismatching. Right now many companies are
probably facing it because, at present, their dollar-dominated
claims burden them now that the rupiah is weakening.

"Investing in time deposits, even though only for the short
term, will help them to prevent more losses," Angger told the
Post.

The two were commenting on a recent move by the central bank
to raise its reference rate, which now stands at 10 percent,
which led to many banks to adjust upward their saving and time
deposit interest rates as well.

The move was intended to help defend the rupiah which has been
under heavy pressure against the resurgent greenback, as it makes
the rupiah, and other rupiah-dominated investments, more
attractive.

However, unlike Angger and Hendrisman, CEO of life insurer PT
Bumi Putera, a leading local insurer in the country, Maryoso
Sumaryono said that now was actually the perfect time to invest
in government bonds and mutual funds.

"I think, it's time to buy, because the bonds and mutual funds
are much cheaper now," he said. He was quick to add though that
to keep the company's investment portfolios in check,
diversifying investments would also be helpful.

Hendrisman, Maryoso and Angger asserted that the recent
economic situation, exacerbated by the soaring oil prices and
weakening of the local currency, would not prevent their
companies from growing.

Angger said the insurance industry would keep growing,
probably by more than 20 percent this year, in line with the
increasing awareness among Indonesians that their life and assets
were always prone to risks. (006)