A Personal Finance Blog for Malaysian: How life insurance manage the par-fund (participating fund)?

Monday, September 8, 2014

How life insurance manage the par-fund (participating fund)?

In Malaysia investments of life insurance funds by insurance companies are regulated by the main regulatory body, Bank Negara.

Under the Insurance Act 1996, which governs all those doing insurance businesses in the country, there is a schedule that spells out how the funds are to be invested.

No CategoryMin  Max Special term
 1 Low risk asset 20% No  No limit for Cash and Deposits
 2 Share No 30% For each individual investment, max 5% of the investee company's equity 
 3 Immovable properties No  20% 
 4 Equity and Property trusts No 10%  For each individual investment, max 5% of the total issue of the trust fund. 
 5 Policy loan No 20%  Usually charge to borrower (i.e. policyholders) at 7%-8%
 6 Secured and unsecured facilities  No 40% Max 5% for any one borrower or group of borrowers
 7 Zero coupon bonds     No  No 
  • For low-risk assets, the life insurance fund can invest in the aggregate a minimum of 20 per cent with no maximum limit, while for cash and deposits there is no limit.
  • For shares there is a maximum limit of 30 per cent in the aggregate, and for each individual investment there is a maximum limit of five per cent of the investee company’s equity.
  • For immovable properties, the maximum limit in the aggregate is 20 per cent, and for equity and property trusts 10 per cent in aggregate but for individual investment, it is five per cent of the total issue of the trust fund.
  • For policy loans there is a maximum limit of 20 per cent in aggregate, and for secured and unsecured credit facilities, the limit is 40 per cent in aggregate and five per cent for any one borrower or group of borrowers. There is no limit for zero coupon bonds.
The argument that the regulations are too restrictive with regards to how life insurance funds are to be invested is equally as valid as the argument that regulations have to be strictly enforced to ensure  credible investment principles are applied since the money invested come from policyholders.

HLA's Par Fund performance 2012 ~ 2016

(average 5.49% for 5 years from 2012 to 2016)


AIA's Par Fund performance 2011 ~ 2015
(average 4.604% for 5 years from 2011 to 2015)

HLA and AIA do not have same financial year end but result should be comparable for a long period of 5 years. HLA's par fund performed better as compared to AIA by 19%. How about Great Eastern??

Great Eastern's Par Fund performance 2012 ~ 2016
(average 4.97% for 5 years from 2012 to 2016)

HLA still beats GE by 10% for the period of 5 years from 2012 ~ 2016 (although financial year end differ by 6 months but should not be affecting the comparison as we are using 5 years numbers)