Insurers keen on grabbing piece of P1.7-T SDA

MANILA, Philippines - Only a small amount of the P1.4-P1.7-trillion stashed in special deposit accounts (SDAs) of the central bank may convert into life insurance premiums.

Pru Life UK Philippines chief executive officer Antonio Manuel G. de Rosas said banks would find ways to keep the migrating investments from leaving the bank’s vaults.

There are fees and penalties that can be earned from repositioning the money from the SDA to other bank products such as the unit investment trust funds (UITFs). UITFs are funds managed by the bank’s trust department.

The migrating money would also prefer to park at a fixed income fund, which is a low risk investment similar to the SDA.

Fixed income or bond funds, whether managed by a bank’s trust department or fund manager of the mutual fund industry, are considered low risk although characterizing low returns likewise.

The prevailing interest rate for the SDA is two to 2.2 percent. Fixed income funds display interest rates better than three percent but less than 10 percent.

“The logical tendency if you have so much in SDA is to go to bonds. An SDA investor is generally risk adverse,” De Rosas pointed out.

There will be SDA funds that will also find its way to the equity market as it has been performing well among the regional bourse.

But the expectations are that a small percentage will aggressively invest in the equity markets. And an even smaller percentage of the SDA pie seeking to invest in life insurance policies.

That “smaller percent” however has been devouring the variable unit-linked (VUL) insurance/investment products with investment equity funds. VUL is basically investments made in mutual funds with a protection portion amounting to 125 percent of premiums paid.

Pru UK Life officials said that majority of the VUL market reflect a higher state of financial maturity.

Last year, total premium income of the life insurance industry was placed at P120 billion, of which roughly P72 billion were VULs, both single and regular pay. And only 14 life insurers registered VUL sale of the total 32 insurers.

De Rosas said that 2013 might not be any different as VULs continue sell.

In fact, Pru Life UK was the leading producer of variable premiums last year worth P15 billion.

In the first semester of 2013, a whopping P95.5 billion in gross premium income was recorded, for an 81.21-percent growth increase from the P52.7 billion in the same period in 2012.

That is more than the entire gross premium income of P87 billion recorded in 2011. Last year, gross premium income reached P120 billion.

Majority or nearly 80 percent of their sales in the first semester were variable or unit linked (VULs) products. VULs are life insurance products that are laced with an investment instrument, such as mutual funds.