Long-term investment funds held by life insurance companies in Indonesia have increased significantly, but their investment income has dropped due to falling interest rates, prompting many of them to shift their investments to mutual funds, an executive says.

Angger Yuwono, chairman of the Indonesian Life Insurance Association (AAJI), said on Wednesday that despite sluggish economic growth last year, insurance companies saw expansions and received more revenue as well as managed more investment funds.

He predicted that life insurance firms would continue to enjoy robust growth in terms of revenue and investment money due to the largely untapped market.

Total revenue of the country's 49 life insurance firms last year increased to Rp 12.5 trillion from Rp 9.5 trillion in 2001.

Investment money managed by Term life insurance companies soared by 22 percent last year to Rp 20.24 trillion from Rp 16.7 trillion the previous year.

Investment revenue, however, dropped by 24 percent from Rp 1.34 trillion to Rp 1.02 trillion due to falling interest rates. 

Most of the investment money was put in fixed income time deposits and securities.

Of the total investment money last year, 37 percent or Rp 7.46 trillion was put in time deposits, 38 percent or Rp 7.53 trillion was in fixed income securities, 8 percent or Rp 1.6 trillion in venture capital, 3 percent or Rp 550 million in Bank Indonesia promissory notes (SBI) and 5 percent or Rp 1.07 percent in property.

However, the steady decline of time deposit rates, which currently averages 12 percent, prompted many life insurance companies to shift their investment portfolio to mutual funds from time deposits.

Timoer Soesanto, commissioner of Wana Artha Life, predicted that investment in time deposits would be down to 25 percent this year from 37 percent last year.

He predicated that many more firms would move to mutual funds, which currently offer an annual return of about 13 percent to 14 percent, and this income, unlike income from bank deposits, was not subject to tax.

Time deposits have been a favorite long-term investment option for the insurance industry. While time deposit interest rates decrease, interest earned is still subject to 20 percent tax.

Elsewhere, Angger predicted that with market expansion, local life insurance firms would continue to grow at least by 25 percent in terms of revenue.

The total revenue includes revenue from premium collection and investment yields.

"Life insurance companies have been aggressively penetrating the market over the past five years. In addition, the market is still very much open to expansion," he said.

The total premium revenue from the 49 life insurance companies last year rose 42 percent to Rp 11.2 million from Rp 7.9 million in 2001. The figures consist of Rp 5.7 trillion from new business and Rp 5.46 trillion from renewals.