Life Insurers Investment Returns Plummet

Investment returns for local life insurance companies plummet as a result of a recent sharp downturn in the Indonesian Stock Exchange (IDX) Composite index. Life insurers recorded returns of 1.6 trillion rupiah (US$96.6mil) in January, down 56% year-on-year (y-o-y), dragging their overall revenue down by 16.5% to 13.97 trillion rupiah.

2024 Result - Last year, investment returns of life insurers dropped 29% to 22.2 trillion rupiah as the IDX Composite index slid 2.65%. The main gauge of the Jakarta bourse has lost almost 13% of its value since the start of this year.

On Monday, it briefly dropped below 6,000 points, marking the lowest level this year, before recovering part of the day’s losses. On March 18, market turbulence triggered a 30-minute trading halt for the first since the coronavirus pandemic, after the index had lost over 5%.

Stocks are the second-largest asset class within life insurers’ investment portfolios, after government bonds. The companies have reduced the share of equities from 27% of their total investments in January 2024 to 24% this year, according to data from the Financial Services Authority.

At the same time, their allocation to government bonds increased from 34% to 38.5%.

The general insurance sector - meanwhile, with a preference for government bonds and mutual funds, has slashed its stock market exposure from 10.6% in January 2024 to just 4.1% in January this year.

This more conservative approach paid off at a time when Indonesia’s stock market index lagged behind many others, with general insurers’ investment returns rising 3.8% y-o-y to 682.5 billion rupiah.

Indonesian Life Insurance Association, said that life insurers followed a risk-managed long-term investment strategy, meaning short-term stock market fluctuations should not significantly disrupt overall performance.

However, the recent downturn served as a warning for insurers to strengthen risk management measures and adjust their portfolios, as a prolonged slump in the IDX Composite index could further erode returns from stocks and corporate bonds.

Analysts have noted that the downturn in the local stock market reflected a less optimistic outlook from global investment banks. In a March 7 report, Goldman Sachs downgraded its rating for Indonesia’s stock market from “overweight” to “market weight”, citing weaker corporate earnings and tighter banking system liquidity as key concerns.