Thursday, March 5, 2009

Insurers’ investment returns to suffer ‘significantly’


By Habhajan Singh
The expected investment returns for most insurance companies will "suffer significantly" this year as the economy takes a beating, Life Insurance Association of Malaysia (LIAM) president Ng Lian Lu said.
"Achieving a good investment return will be one of the major challenges," he told The Malaysian Reserve recently.
Concerns about investment returns are global, a recent international survey of insurers showed.
In the second Insurance Banana Skins survey by The Centre for the Study of Financial Innovation in association with PricewaterhouseCoopers (PWC), investment performance emerged as the number one risk.
"The ability of insurance companies to get through the crisis depends above all on their investment performance, i.e. achieving sufficient returns to protect capital, remain profitable and meet commitments to customers," the report said.
In the previous survey in 2007, investment performance came in at No. 11. The fallout from the credit crunch and its impact on the strength and profitability of the insurance industry propelled investment performance to the top of the list of concerns for insurers worldwide.
Locally, Ng said the indsutry was not surprised that the sale of single premium products, the main purpose of which is for investment, was affected in 2008.
The association, which represents 18 life insurers including Great Eastern Life Assurance (Malaysia) Bhd, MCIS Zurich Insurance Bhd and Prudential Assurance Malaysia Bhd, expects to see a negative growth of 27% in single premium business.
Despite operating in a difficult economic environment, he noted that the annual premium business managed to achieve a 5.4% positive growth rate in 2008 while group insurance business "performed even better in 2008" with an 18% growth over the year before.
"There are two main reasons why people buy insurance, one is for protection and the other for investment. "In the current economic environment, it is very challenging to deliver good investment returns," he said.
In an earlier statement, when commenting on the life insurance performance for 2008, LIAM said based on preliminary data issued by the association for the entire life insurance business in Malaysia, individual traditional business (savings and protection plans) enjoyed a strong double-digit growth of 19.1%, or RM2.5 billion, in 2008.
It said group insurance also chalked up a healthy 18% growth despite the tough business climate.
"The unfavourable investment environment and economic conditions have resulted in a slowdown in the sale of investment-linked products, which recorded a decline of 32.6%," it added.

(This story appeared in The Malaysian Reserve on Mar 6, 2009. The Malaysian Reserve is a daily business/finance newspaper published out of Kuala Lumpur, with a sectoral page on insurance & takaful called UNDERWRITER, edited by Habhajan Singh.)

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