Life insurance firms shift investment to mutual funds
Life insurance firms shift investment to mutual funds
Fitri Wulandari, The Jakarta Post, Jakarta
Long-term investment funds held by life insurance companies in
Indonesia have increased significantly, but their investment
income has dropped due to falling interest rates, prompting many
of them to shift their investments to mutual funds, an executive
says.
Angger Yuwono, chairman of the Indonesian Life Insurance
Association (AAJI), said on Wednesday that despite sluggish
economic growth last year, insurance companies saw expansions and
received more revenue as well as managed more investment funds.
He predicted that life insurance firms would continue to enjoy
robust growth in terms of revenue and investment money due to the
largely untapped market.
Total revenue of the country's 49 life insurance firms last
year increased to Rp 12.5 trillion from Rp 9.5 trillion in 2001.
Investment money managed by life insurance companies soared by
22 percent last year to Rp 20.24 trillion from Rp 16.7 trillion
the previous year.
Investment revenue, however, dropped by 24 percent from Rp
1.34 trillion to Rp 1.02 trillion due to falling interest rates.
Most of the investment money was put in fixed income time
deposits and securities.
Of the total investment money last year, 37 percent or Rp 7.46
trillion was put in time deposits, 38 percent or Rp 7.53 trillion
was in fixed income securities, 8 percent or Rp 1.6 trillion in
venture capital, 3 percent or Rp 550 million in Bank Indonesia
promissory notes (SBI) and 5 percent or Rp 1.07 percent in
property.
However, the steady decline of time deposit rates, which
currently averages 12 percent, prompted many life insurance
companies to shift their investment portfolio to mutual funds
from time deposits.
Timoer Soesanto, commissioner of Wana Artha Life, predicted
that investment in time deposits would be down to 25 percent this
year from 37 percent last year.
He predicated that many more firms would move to mutual funds,
which currently offer an annual return of about 13 percent to 14
percent, and this income, unlike income from bank deposits, was
not subject to tax.
Time deposits have been a favorite long-term investment option
for the insurance industry. While time deposit interest rates
decrease, interest earned is still subject to 20 percent tax.
Elsewhere, Angger predicted that with market expansion, local
life insurance firms would continue to grow at least by 25
percent in terms of revenue.
The total revenue includes revenue from premium collection and
investment yields.
"Life insurance companies have been aggressively penetrating
the market over the past five years. In addition, the market is
still very much open to expansion," he said.
The total premium revenue from the 49 life insurance companies
last year rose 42 percent to Rp 11.2 million from Rp 7.9 million
in 2001. The figures consist of Rp 5.7 trillion from new business
and Rp 5.46 trillion from renewals.