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)