A matter of negotiation
Climbing interest rates have been a key driver for long-term investment businesses like asset-management companies and life insurers to either merge or acquire one another.
With a similar business nature, mutual fund and life insurance companies used to be arch-rivals when it came to competing for customers.Both industries are in the long-term investment business and therefore took the earlier low interest rate in the market as a selling point to attract customers. But while mutual funds can attract customers with a tax-free guaranteed return investment in fixed-income funds, life insurers enjoy matching their assets and liabilities by investing in bonds. It seemed like a smooth ride until the interest hike cut into both the asset management and life insurance businesses. Five years ago, a regular life insurance policy promised to pay policyholders up to a 6-per-cent return when their policies matured. But since the rise of the interest rate, some insurers have only been able to afford to offer as little as 3 to 4 per cent, outperformed by the interest rate the banks currently offer. Mutual funds may have more alternatives. They can invest in equities, offer mixed investments or invest aboard. However, most Thais prefer to save their money in banks or put it in safe fixed-income funds. Amid rising interest rates, asset-management companies, especially small- to medium-sized ones, are seeking more money to manage as well as more customers, while life insurers are seeking fund-managing experts to increase the upcoming investment-linked type of insurance product. American International Assurance made the debut in the industry by launching a universal life (UL) product last year. The company uses its in-house financial management team to manage this portfolio. It plans to launch a second product but has yet to reveal details. Muang Thai Life Assurance followed suit earlier this year with Kasikorn Asset Management, the largest asset-management firm in the country in terms of market share, which manages the investment portfolio for the insurer's UL customers. Currently, other life insurers are negotiating with asset-management outfits. A source close to the mutual fund business said that a life insurer was in talks with various asset-management companies. "It could go either way. One insurer commits to business with one asset-management company, or one insurer can partner up with many asset-management companies. It's all in the process of negotiation," said the source. Piyarat Setthasiriphaiboon The Nation
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