The foreign currency investment trap

There were no euro or dollar-denominated unit-linked investment funds managed by insurance companies that produced better ROL-denominated yields than the yields offered by a simple ROL-denominated banking deposit, according to analysis published in Ziarul Financiar’s Asigurari 2005 (ZF Insurance 2005) supplement that comes out today.

Moreover, half of these funds did not even cover inflation between January 2003 and January 2005. The reason for this was the strengthening of the ROL against the euro and the dollar, combined with the relatively weak yields on foreign financial markets during this period.

With unit-linked investment programmes, the investment risk is carried by the customers.

On the other hand, they have the right to buy or sell fund units at any time, as happens with some units in mutual funds.

Unit-linked policies, namely life insurance policies linked to investments, which are a relatively new and complicated instrument for the Romanian market, have been heavily promoted by insurance companies as means of long-term investment.

Given the lack of private pension funds, insurers imposed life insurance products on the market that are modified such that they function almost like some private pension products, after which they are named accordingly.

Insurance companies explain the weaker evolution of funds as compared to banking deposits by the shorter reporting period. These investments are recommended for longer periods – three, five or seven years – depending on the financial instruments invested in, companies say. sorin.pislaru@zf.ro