Sunday 11th March, 2007


Save for the rainy days

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According to the most recent statistics on insurance and pensions released by the Central Bank, total premiums in the sector had totalled some $6.05 billion for 2004, contributing to eight per cent of GDP. This represents the dollar amount of risks transferred by business and individuals to insurers in that year.

One company alone had sold more than half of that in long term business alone, with a total net premium income in excess of $3.3 billion. Its major competitor had written net premium income for that year totalling $0.52 billion.

Risk transfer and long term savings in insurance companies are governed by a statutory fund, which under the law, safeguards the policy holders.

The total amount of statutory funds maintained by life insurance companies in 2004 was in excess of 16 billion dollars. Of course this figure represents more than the liability for 2004 alone.

The sector had shown a growth of some nine per cent, within which the individual annuity portion had itself grown by some 12 per cent.

Thus we have a factoid that more money was being put into individual savings for the long term, in life insurance companies.

Specifically such savings under the annuity laws will be paid out to those investors in the form of a pension.

Former United States Federal Reserve Chairman Alan Greenspan warned for the third time last week, that the US economy was heading for a recession, by the year’s end.

US economic growth for 2006 was recorded as 3.5 per cent (for June 2006), while their inflation statistic by September 2006 was a mere two per cent.

Our growth was seen as some 12 per cent, with food price inflation at 27 per cent. This figure pushed headline inflation to nine per cent.

So what does US statistics have to do with us? What they do and what happens to their economy ripples downward to reach us several months later.

This is obvious from an important question. From where do we buy our food?

The second question is what is import cover? Simply put import cover is a measurement of the amount of gross financial reserves we have as a country to import the goods that we need to import.

The official statistic is that we have enough money to carry us for nine months.

Comparatively, that is not a bad position. But what happens when the goods we import experience spiralling price increases?

Will the effect be that of pushing the price of food, the dominant import, even higher, and driving inflation into the clouds?

The simple answer is you need to second guess the experts, but cover your water barrel with good cloth.

For the time being, growth in long term savings by 12 per cent may prove inadequate to the task and the easy answer is to trigger another anomalous year in savings up to 50 per cent.

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