Insurers cheer exit of funds from SDAs with BSP

P1.4T expected to be withdrawn from high-yield account

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The estimated P1.4 trillion that could be flushed out of special deposit accounts (SDAs) with the central bank is getting financial market players excited over the likely spike in demand for alternative investment instruments.

According to top insurer Philam Life, the enormous liquidity that will become available as a result of newly implemented restrictions on SDAs is one good reason to innovate financial instruments and offer more products to fund owners.

“This is exciting news for us. The money that will be going out of SDAs could go to other instruments, such as investment-linked [insurance] products,” said Jessica Abaya, senior vice president and marketing head for Philam Life.

Last month, the Bangko Sentral ng Pilipinas issued a directive disallowing retail funds from being invested in SDAs.

The BSP gave banks until the end of November to withdraw all the prohibited funds from the high-yield SDA facility.

Monetary officials said one objective of the move is to make available to the market more funds for lending and capital market development.

Anticipating a rise in demand for other financial instruments as a result of the SDA restriction, Philam Life has launched two new investment-linked insurance products—Family Provider and Family Secure.

Jonathan Ravelas, market strategies of Banco de Oro, said the significant amount of cash that will leave the SDA facility is forcing banks and financial institutions to think of ways to accommodate the liquidity and take advantage of the potential income opportunity from it.

“There is interest to create more products as a result of this [money exiting SDAs]. But the challenge for industry members is to create products that are really tailor made for average Filipino fund owners,” Ravelas said.

He said typical Filipino fund owners want products that could give returns higher than the inflation rate but at the same time do  not put too much risk on their capital.

Meantime, Abaya said that besides liquidity in the financial system, prospects of sustained robust economic growth and rising incomes in the country also make it wise for financial services firms like Philam Life to invest in the creation and marketing of more products.

Philam Life has hired 2,700 additional insurance agents so far this year, bringing the total to about 7,000. Abaya said the company intends to hire 2,300 more by the end of the year.

“We want to boost distribution of our products … The Philippines has received investment grades. Soon, people will have higher incomes and this will prompt them to become more financially savvy,” she said.

Like any other investment-linked insurance instrument, Philam Life “Family Secure” and “Family Provider” offer both life insurance coverage and investment opportunities to policyholders.

Their difference with the other instruments, Abaya said, is that they do not require lifetime payment of premiums and that they offer customers choices of payment plans, such as 3, 5, 7, and 10 years.

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  • Roland_F

    The SDA fancy was fueled by the inflow of international hot money in anticipation of (1) rising Peso to US$ exchange rate and (2) high interest rates (originally 3.5%) guaranteed by the BSP.
    Now foreign hot money is flowing out, and I doubt that short time hot money from international investors are looking for low yielding overpriced Pinoy insurance products, where the first 3 years potential interest earning is already consumed from admin fees and commissions for agents.

    And banks don’t have to “”to think of ways to accommodate the liquidity”” they just continue as currently to offer 0.5 – 1% interest for time deposits for new investments — which means considering a 2-4% inflation rate : a quite negative real interest rate … e.g loosing lots of money by investing funds.

  • JIMBOYPALABOY

    Insurance? ilang insurance company na ba sa pinas ang nagsara pagkatapos maningil ng maningil sa mga tao. mas mabuti pa time deposit mo na lang. mas sigurado ka .

    • http://www.lifeinsuranceph.com/ Life Insurance Philippines

      Time deposit earns you less than the inflation rate. Sigurado ka talaga na malulugi ka.

      As for “insurance” companies that closed down, maybe you are referring to pre-need companies like College Assurance Plan which are not insurance companies at all. Insurance companies have been around for a long-time and they are one of the most resilient businesses in the world. In fact, banks secure there savings through the Philippine Deposit INSURANCE Corporation or PDIC.

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