Express (August 29, 2011)
Life insurers have sought the government's policy support to their plan to invest Tk 100 billion fund in state-initiated infrastructure projects under the Public Private Partnership (PPP) concept.
The country's 17 private life insurance companies have accumulated the fund over past decades, but most part of the same have been invested in fixed deposit receipts (FDRs) in the banking system.
But shrinking returns from the banks and a double-digit inflation in recent years have prompted the insurers to look for more lucrative and solid areas of investment such as infrastructure projects.
"We have urged the finance minister to take steps so that we can invest the Life Fund in PPP projects. It will benefit both the firms and the government," said Bangladesh Insurance Association (BIA) president Sheikh Kabir Hossain.
Hossain told the FE the size of the Life Fund built up by the private insurers crossed Tk 100 billion in 2010 and is set to double in the next five years thanks to an average 20 per cent annual growth in the life insurance industry.
"The fund is growing every year. It can be a big source of capital for large-scale development projects. The government can cut borrowing from global lenders if they decide to judiciously use our fund," he said.
In India and most of the developed nations where interest payments from banks is very low, insurers invest Life Fund extensively in large bridge, road and hydroelectricity projects and power plants to secure better returns.
Mr Hossain said the secretary of the Bank and Financial Institutions Division assured the insurers of taking necessary steps. The division is seeking Securities and Exchange Commission (SEC)'s opinion in this regard.
The country's 43 private non-life and 17 life insurance companies earned Tk 14 billion and Tk60 billion as premium last year. The BIA said the insurers have invested over Tk100 billion in the country's economy.
Sources said several life insurers have diverted some of their funds from banks to stock market in 2009 and 2010 when the equities were enjoying a record breaking bull runs.
It is not clear whether the share market crash in December-January has gutted any of these companies. But it has created panic and forced several insurers to flee the market at the last moment, they said.
Life Fund is a liability of an insurance company, which sets aside the money from annual premium income for payments of future claims. Any drain in the fund can wreck havoc in an insurer's ability to honour claims.
In a memo submitted to the ministry of finance (MoF), the BIA has urged the minister to instruct the banks to open accounts of their small clients so that they can pay premiums through the banking channels.
The BIA has also asked the government to take measures for introduction of crop insurance in line with the national budget for fiscal year 2011-12. They also demanded introduction of health insurance for poor people.
Its officials also called for abolishing mandatory provision for deducting tax at source from the income of insurance agents as their income is very small and below the ceiling of minimum income tax threshold.
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