Infrastructure funds draw Advance Life

Insurer keen on alternative investment that gives high IRR to policyholders

Advance Life Assurance expects insurers to cash in on the government's plan to launch more infrastructure funds to support the country's development projects.

The Securities and Exchange Commission has also allowed insurers to invest in infrastructure funds in a bid to promote the funds as an alternative investment, Chaowphan Phanthong, managing director of A-Life, said yesterday.

The company has budgeted Bt100 million to Bt200 million to add infrastructure funds to its investment portfolio this year, with the focus on state funds rather than those launched by the private sector.

A-Life expects the return from infrastructure funds will be 7-8 per cent, the same as property funds.

Government bonds and debentures still make up the lion's share of the portfolio at about 85 per cent.

A-Life has increased its investment budget to Bt3.7 billion from Bt2.2 billion last year.

The portfolio weighting of stocks will be lowered to 4 per cent from 10 per cent in 2011 because the Stock Exchange of Thailand is "too risky" and its price-to-earnings ratio is "too high", Chaowphan said.

A-Life's return on investment is expected to drop to 6 per cent this year from 7.12 per cent last year.

The company is more cautious with investments because it wants to continue to be the insurer that gives a high internal return of return (IRR) to policyholders.

A-Life projects an IRR of 4.5 per cent this year, lower than 5 per cent last year, because it forecasts the central bank's policy rate to be cut to 2.25 per cent and kept there throughout this year.

"We will design products with the pricing cost in order to maintain the yield gap at 1.5 per cent between the IRR and our investment," he said.

A-Life's sales staff are not on commission, so it can offer a high return to policyholders.

The expected low interest rate will benefit the insurance industry because savers will seek investments that give higher returns than bank deposits.

About 900,000 bank accounts in Bangkok have balances of more than Bt1 million. Those are the main target of A-Life. It aims to add 5,000 customers this year to its current base of 30,000.

New business is projected at Bt1.8 billion and gross premiums at Bt2.5 billion this year compared with Bt805 million and Bt1.24 billion last year.

However, net profit in 2013 will remain flat at Bt50 million before jumping to Bt200 million in 2014 because of margin improvement.

"We project to clear our retained losses of Bt700 million to Bt800 million over three to five years because insurance firms will meet the break-even point within seven or eight years," Chaowphan said.

"By 2014, A-Life might need to increase capital from Bt1.15 billion now if premiums are still skyrocketing," he added.