Insurers’ returns likely to weaken

The Star, Wednesday, October 1, 2008, PETALING JAYA: The current financial market condition will have a bearing on insurance companies as their investment returns are likely to weaken while some may even incur losses.

Financial markets like equities, money and derivatives in Malaysia as well as those around the world have been hit by the crisis in the US, which stemmed from the fallout of subprime mortgage loans.

Both life and general insurers have investment portfolios.

Nonetheless, as economic downturn is part of a cycle that will recover in time and policies are usually held 10 to 30 years, investment returns will still be positive over the longer period.

Moreover, insurance companies do not put all their eggs in one basket and, therefore, will still be able to generate some returns from other types of investments, for example, interest payment from fixed-income assets.

Bank Negara also has a strict ruling on insurers with a stringent solvency margin ratio to adhere to. Insurers ended 2007 with a ratio of 120.6%, which was well above the regulatory minimum.

Manulife Insurance Bhd president and chief executive officer Peter Robertson said the company was satisfied with its performance in comparison with the Malaysian market indices.

“We can do nothing to alter the current global or local market conditions. Manulife maintains very strict credit criteria for evaluating fixed-income investments and it is in times like this that the benefits of such conservatism comes to the fore,” he told StarBiz via e-mail.

In such market conditions, people tend to save more and spend less. In that sense, insurance will be a viable option for Malaysians to save for their retirement and protect the interests of their families.

“Insurance is often seen as a counter-cyclical business and one reason for that is if people cut back discretionary spending then they tend to save more,” Robertson added.

Source from: The Star Online, 1 October 2008
URL:
http://biz.thestar.com.my/news/story.asp?file=/2008/10/1/business/2162104&sec=business