JAKARTA. Insurance industry opts to direct investment funds to government securities (SBN) following the expectation of global interest rate decline in the next couple of months.

Wianto Chen, President Director and CEO of PT MSIG Life Insurance Indonesia Tbk (LIFE), confirmed the trend of reference rate from central bank that is projected to slid down. It is said to enhance the appeal of investing in SBN and bond. “The expectation of global interest rate decline will benefit bond assets,” he added today (29/2).

The increasing trend of insurance companies’ investment in bonds is further driven by the increased sales of traditional insurance products, such as term life insurance, whole life insurance, and endowment insurance. Chen said that traditional products require solid underlying assets. “The increase of traditional product sales calls for back-up assets with high quality, namely state bonds,” he further explained.

In total, life insurance industry recorded total investment assets placed in SBN of IDR 182.23 trillion, which are equal to 33.67% of total assets of insurance industry included in Indonesian Life Insurance Association (AAJI). The second most extensive placement of investment of life insurance companies is stock investment, amounting to IDR 150.36 trillion, which actually shrank from 2022 stock investment assets worth IDR 158.39 trillion.

The third one is mutual fund, with total invested assets of IDR 78.2 trillion. This number reported a sharp downturn within the past 3 years. In 2021, investment in mutual funds reached IDR 165.37 trillion, down to IDR 105.35 trillion in 2022, before dropping even further in 2023.

Then, by the order of the amount, life insurance companies were seen placing investment funds in corporate sukuk (IDR 44.08 trillion), deposits (IDR 40.05 trillion), direct investment (IDR 24.98 trillion), land and building (IDR 15.71 trillion), and others (IDR 4.56 trillion).

On another occasion, Chairman of Indonesian General Insurance Association (AAUI), Budi Herawan, mentioned that SBN becomes the main alternative for association members as deposit yields are relatively below their targets. “The investment proceeds [of general insurance] experience an increase due to [increased investment] in short-term bonds,” he explained.

AAUI data shows that general insurance companies recorded investment funds in 2023 of total IDR 113.94 trillion. Out of those investment assets, IDR 35.77 trillion or 31.4% were placed in SBN. This placement post reported an increase from 2022, in which SBN investment was only recorded at IDR 27.64 trillion out of total assets of IDR 92.88 trillion, equal to 29.8%.

Then, the second highest placement of investment funds of general insurance companies is deposit, amounting to IDR 25.94 trillion or 22.8% of total investment. Following behind is mutual fund investment of IDR 22.47 trillion, up from 2022 numbers of IDR 16.21 trillion. “The portion of deposit shrinks as the interest rate is below expectation,” said Herawan. (PP/ZH)