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Life insurers see steep decline in investment yield in first half this year
The decline is mostly driven by unit-linked products that insurers placed in stock and mutual fund instruments.
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The office of the Indonesian Life Insurance Association (AAJI) in Jakarta is shown in this undated photo. (Courtesy of AAJI)
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ife insurance firms saw their investment yield drop by 30 percent year-on-year (yoy) to Rp 11.46 trillion (US$713.6 million) in the first six months of this year, mostly driven by unit-linked products that insurers placed in stock and mutual fund instruments.
According to the Financial Services Authority (OJK), stocks and mutual fund contributed around 26 and 14 percent, respectively, in insurer’s investment portfolio. The rest is government bonds.
Unit-linked insurance plans combine insurance with an investment portfolio.
The decline in investment return is in line with the declining performance of the IDX Composite, a benchmark for the country's stock exchange, in first half of this year, which the OJK attributed to investors’ perception of the country’s economic growth.
The OJK urged insurers to ensure they maintained ample liquidity, especially to pay benefits to policyholders in the future. The authority expects that insurance firms would change their investment allocations.
“In order to anticipate the drop in investment yield in stock and mutual fund instruments, life insurance firms need to reevaluate their investment strategy and shift to instruments that could provide a better return,” OJK head of insurance, guarantee and pension funds Ogi Prastomiyono said in a statement on Tuesday.
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