Insurance firms in Indonesia should be allowed to provide unit-linked products that invest 100% in offshore sharia-compliant funds, said Elin Waty, president director of Sun Life Indonesia.

Fund houses in the country have, since November, been allowed to launch sharia-compliant products that allocate 100% of their assets offshore, up from the previous limit of 15%. At least five asset managers have launched offshore sharia-compliant mutual funds in Indonesia, including Aberdeen, BNP Paribas, Mandiri Investasi, Manulife and Schroders. 

However, this option is not open to insurers, said Waty. “We do expect that hopefully the rule will be available to the unit-linked products [ULPs] that we sell to customers.”  

ULPs accounted for 42% of Sun Life Indonesia’s Rp6.57 trillion ($498 million) in assets under management as of end-July, and they are mostly invested domestically. As for AUM not derived from ULP premiums, the firm has no plans to invest offshore.

Sun Life’s business in Indonesia allocates 80% of its AUM to government and quasi-government bonds and 20% across equities, corporate bonds and money markets.  

It has no investments offshore, with Waty noting that domestic bond yields are higher than those overseas. Indonesia 10-year government debt was yielding 6.91% on September 26, down from 7.12% on August 29, according to Trading Economics. 

Eyeing more corporate bonds

Of course, like its peers globally, the insurer is worried about finding better yield in the current low-interest environment, which it believes is set to continue for a year or two. Waty said: “Indonesian interest rates are going down fast and pose a challenge for us to reinvest our coupons.”

She aims to find longer-duration bonds and gradually raise its 10% allocation to corporate credit, without indicating a target level. The insurer increased its equity exposure slightly a few months ago to take advantage of the rise in Indonesian stocks, noted Waty. As of yesterday, the Jakarta Composite Index had gained 9% since July 1 and 20% since the start of the year.

One challenge that Sun Life Indonesia doesn’t yet face is the looming prospect of stricter risk-based capital rules, which players in markets such as the Philippines, Singapore and Thailand are having to prepare for. But it may only be a matter of time.