Insurance industry prefers $-denominated instruments

The investment climate has remained sluggish that the country’s insurance industry, often times outdoing other institutions, has had to content with a mere P2 billion in peso-denominated instruments in the first semester of 2003.

However, the dollar-denominated investment market was so attractive that insurers gobbled up all possible investment opportunities.

Medium to long-term investments are critical for life insurers to ensure the presence of funds for various maturies of its policy base.

Majority of the investments are made with fixed-income, low risk instruments like government securities (GS) in both peso-denominated as well as dollar- and euro-denominated instruments. Smaller portions of the investments are made with higher yielding albeit higher risk instruments.

After six months into 2003, insurers invested P2.033 billion in various instruments such as the ROP dollar-link peso note and other ROP bonds. They likewise made investments in the Robinson Land Corp. and Ayala Land Inc. bonds.

However, that was lower than the P2.9-billion total investments made in the same period last year.

Insurers have been investing heavily however with foreign currency denominated instruments since last year. In fact, it has actually outpaced the peso-denominated investment instruments.

Last year, investments reached $47 million or roughly P2.4 billion. This year, investments reached an estimated peso-equivalent of P3.5 billion.

From May and June alone, investments in foreign currency reached P1.7 billion against the P1.8 billion in the first four months of the year.

The most aggressive was Insular Life Assurance Co. Ltd. with a $22.5-million investment in the ROP Eurobonds, which are due to mature in February 2013.

Other insurers were the Philippine American Life and General Insurance Corp. (Philamlife), Malayan Insurance Co. Inc., Prulife Insurance Corp. of UK, Zurich General Insurance Philippines Inc., Berkley International Life Insurance, Perla Compania de Seguros Inc., and First Nationwide Assurance Corp.

In the first four months, Insular Life bought P500 million in fixed and floating rate notes issued by port operator Asian Terminals Inc. (ATI). For the same issuer, Sun Life of Canada (Philippines) Inc. acquired P300 -million worth of both fixed and floating notes.

Manufacturers Life Insurance Co. Inc. (Manulife Phils.) invested P200 million in fixed rate sovereign notes of the Republic of the Philippines (ROP), and Zurich General Insurance Philippines Inc. bought P75 million.

Still in the first month of the year, insurers aggressively gobbled up dollar-denominated investments instruments to fund their dollar-denominated life policies, which has been attracting more and more investors seeking both financial and life protection.

New York Life Insurance (Philippines) Inc. also placed their bets on dollar-denominated instruments amounting to $5 million although this was spread out on three ROP issues with varying maturity periods and interest rate earnings level.

And for the first time, insurers are buying euro-denominated investment instruments to the tune of 2.2 million euros last February. One euro is equivalent to P63.42.

Three insurers – First Nationwide Assurance Corp., Malayan Reinsurance Corp., and Malayan Zurich Insurance Co. Inc.– invested similar 750,000 euros and all three were for the ROP bonds with maturities on September 2004 and December 2006.

Yuchengco-led Great Pacific Life Assurance Corp. (Grepalife) was one of the few insurers able to invest their US dollars with private sector initiatives. It placed $310,344 on a dollar-denominated bond issued by Subic Power Corp., and another $200,000 with a dollar-denominated bond issue AC International Finance Ltd.