Do you have any suggestions to improve the public transport in Singapore. Give your views in this website:
http://singaporepublictransport.blogspot.com/
Thursday, July 3, 2008
Use of asset share in Malaysia
From 2005, the regulator in Malaysia made it mandatory for life insurance companies to use asset share to determine the cash value and maturity value of their participating policies. This is to ensure that the policyholders get a fair value on their policies based on the actual experience of the fund.
Previously, it was quite common for the companies to give out cash values that are lower than the asset share of the policy. The companies can use the profit on the terminated policies to pay higher values on maturing policies. This makes the yield on the maturing policies look more attractive, but it is at the expense of the policyholders of terminated policies. This is somewhat like a ponzi scheme.
The terminated policies already suffer from the high expense and mortality charges. They have to suffer another penalty from the low cash values, which is quite unfair. By adopting asset shares, the regulator ensure that these policyholders are not penalised twice.
After the asset share method is implemented, the companies find that the maturity yields on these policies are not attractive. They are not able to sell these participating policies, due to the high charges and low yields. Most companies decided to withdraw the participating policies and to sell the investment-linked policies with lower charges.
I am in favour of a similar regulation to be adopted in Singapore to ensure that policyholders are treated fairly. It will also put pressure on companies to reduce their high expenses and charges, and will be in the interest of consumers.
Previously, it was quite common for the companies to give out cash values that are lower than the asset share of the policy. The companies can use the profit on the terminated policies to pay higher values on maturing policies. This makes the yield on the maturing policies look more attractive, but it is at the expense of the policyholders of terminated policies. This is somewhat like a ponzi scheme.
The terminated policies already suffer from the high expense and mortality charges. They have to suffer another penalty from the low cash values, which is quite unfair. By adopting asset shares, the regulator ensure that these policyholders are not penalised twice.
After the asset share method is implemented, the companies find that the maturity yields on these policies are not attractive. They are not able to sell these participating policies, due to the high charges and low yields. Most companies decided to withdraw the participating policies and to sell the investment-linked policies with lower charges.
I am in favour of a similar regulation to be adopted in Singapore to ensure that policyholders are treated fairly. It will also put pressure on companies to reduce their high expenses and charges, and will be in the interest of consumers.
Wednesday, July 2, 2008
Cooperative credentials
Dear Mr. Tan,
May I be permitted to make an observation. The new management of Income missed a wonderful opportunity to show that they can embrace the true spirit of being a cooperative and win over the loyalty of over 1 million policyholders that you have built up over the past 30 years.
How? The excellent investment yield in 2006 and 2007 gave them the chance to restore back all of the bonus cuts since the Asian financial crisis. Why did I say this? I read that the investment yield over the past 10 years is 7.8% and that is more than the yield of 6% that was used to project the bonus rates during these years.
I am rather sad that they did not take this opportunity to re-establish their credentials. Instead, they appear to be trying to hide the profits from the policyholders, and give less than what the actual experience would really allow. How disappointing. What are your views, Mr. Tan?
JK
REPLY
I agree with your views. Indeed, if they have restored the past bonus cuts, and they have the surplus to do so, they would have placed NTUC Income is a strong marketing position. This is a reputation that is more valuable than the millions of dollars spent on advertising.
They still have the chance to change their strategy and adopt this "restore the bonus cut". I hope that the board will do so.
May I be permitted to make an observation. The new management of Income missed a wonderful opportunity to show that they can embrace the true spirit of being a cooperative and win over the loyalty of over 1 million policyholders that you have built up over the past 30 years.
How? The excellent investment yield in 2006 and 2007 gave them the chance to restore back all of the bonus cuts since the Asian financial crisis. Why did I say this? I read that the investment yield over the past 10 years is 7.8% and that is more than the yield of 6% that was used to project the bonus rates during these years.
I am rather sad that they did not take this opportunity to re-establish their credentials. Instead, they appear to be trying to hide the profits from the policyholders, and give less than what the actual experience would really allow. How disappointing. What are your views, Mr. Tan?
JK
REPLY
I agree with your views. Indeed, if they have restored the past bonus cuts, and they have the surplus to do so, they would have placed NTUC Income is a strong marketing position. This is a reputation that is more valuable than the millions of dollars spent on advertising.
They still have the chance to change their strategy and adopt this "restore the bonus cut". I hope that the board will do so.
Disclose the Asset Share of the Policy
A COMMENT POSTED IN MY BLOG
Hi --
NTUC Income says, "We don't have the money to pay higher bonuses."
Mr. Tan says, "Based on your high stated yield, it sure looks like you do."
How to know for sure?
As Mr. Tan has pointed out before, it is easy. Simply disclose NTUC Income policyholder fund's "asset share" (for each of its policyholders), as required in other countries like Malaysia, Australia, UK and South Africa.
That would give us the answer. At the moment, there is no way for policyholders to know if NTUC Income is holding back on bonus payments or not.
NTUC Income says it is not -- but declines to provide documentation.
Why? Why not reveal each policyholders' asset share? It is easy to do. There is adequate precedent in other countries for doing it. Everyone agrees it would increase transparency of the policyholders' fund.
Those are rather good reasons for disclosure.
Perhaps NTUC Income can state its reasons for non-disclosure.
Sincerely,
Larry Haverkamp
Hi --
NTUC Income says, "We don't have the money to pay higher bonuses."
Mr. Tan says, "Based on your high stated yield, it sure looks like you do."
How to know for sure?
As Mr. Tan has pointed out before, it is easy. Simply disclose NTUC Income policyholder fund's "asset share" (for each of its policyholders), as required in other countries like Malaysia, Australia, UK and South Africa.
That would give us the answer. At the moment, there is no way for policyholders to know if NTUC Income is holding back on bonus payments or not.
NTUC Income says it is not -- but declines to provide documentation.
Why? Why not reveal each policyholders' asset share? It is easy to do. There is adequate precedent in other countries for doing it. Everyone agrees it would increase transparency of the policyholders' fund.
Those are rather good reasons for disclosure.
Perhaps NTUC Income can state its reasons for non-disclosure.
Sincerely,
Larry Haverkamp
Tuesday, July 1, 2008
A Gracious Society
Read my article in The Online Citizen:
http://theonlinecitizen.com/2008/07/important-to-build-a-gracious-society/#comments
http://theonlinecitizen.com/2008/07/important-to-build-a-gracious-society/#comments
Public Transport in Singapore
I have created a new blog to share views about improving the public transport system in Singapore.
www.singaporepublictransport.blogspot.com
www.singaporepublictransport.blogspot.com
Low yield on maturing Growth policy
Dear Mr Tan,
I compared the yield for the equivalent policies maturing in 2006 and 2007, as well as the yield in the original benefit illustration. This is not out of line with the maturity yield in 2008, considering that in 2006 and 2007, the long term yields were also quite good. The maturity yield in 2008 of 3.06% p.a. is also higher than the yield shown in the original benefit illustration. I set these out below:
2006 maturity 3.01% p.a.
2007 maturity 2.76% p.a.
2008 maturity 3.06% p.a.
Yield in original benefit illustration 1.65% p.a.
In 2008, we focused on the maintaining yields whilst changing the mix of annual and special bonus going forward. Under the old bonus structure it is an impossible strain on the fund to increase the yield by the extent indicated. To increase the yield by 2% p.a. to the policyholder requires an annual bonus of roughly 10% which will cost $400m when applied uniformly to all Growth policies. This is the more than the cost of bonus for the entire fund of $293m. As a result, the old bonus structure would have delivered the same yields in 2008 by default. A flexible special bonus is the way to go.
The new bonus structure is the first stage of the change. Following this with more flexible special bonus will allow maturity values to reflect asset shares more closely in subsequent bonus declarations. Indeed the Board has made the assurance on fairness of payouts and more work will need to be done to support this assurance. This will be tackled in 2009 as the second phase of the change.
I would like to highlight an additional consideration in 2008. Markets were very turbulent because of the sub-prime crisis at the time the bonus declaration was made. Much of the capital appreciation enjoyed in the 2007 has been reversed. They are still are very turbulent. It would not have been prudent to make an significant increase in bonuses and raise expectations at such a time of uncertainty.
Regards,
Ken Ng
Chief Actuary
NTUC Income
REPLY
Dear Ken Ng,When the policy was issued in 2003, the investment yield was very low and the bonus rate had been drastically reduced due to the previous crisis year. The benefit illustration were made based on the reduced bonus at that time.
In subsequent years, the investment yield had been significantly higher than projected. Under such circumstances, it would be appropriate for the bonus to be increased to reflect "the actual experience", as promised by your chairman in his speech at the recent annual general meeting.
I believe that the yield of 3.06% is far short of the actual experience over the past five years. The actual investment yields during 2006 and 2007 had been exceptionally high.
During 2006, there was a modest adjustment in the bonus rates, but it has does not reflect fully a fair rate of return. I would expect the good performance for 2007 to have justified a further significant increase in bonus (including a once-off bonus), but instead it was virtually kept unchanged.
As I have pointed out in my earlier letter, the actual yield of 3.06% is far short of the average yield of 7.8% earned by the Life Fund over the past 10 years, and far short of the actual yield earned during the last five years (from 2003 to 2007), which is possibly higher than 7.8%. For a maturing policy, you should give a fair return of return to reflect the "actual experience", instead of keeping a large part of the surplus in the Life Fund. The retention of the excess surplus in the Life Fund does not benefit the maturing policyholder and cannot be justified on the grounds of fairness.
I calculate that the difference in payout based on the amount that you are paying out, and the amount that is "fair and consistent with the actual experience", is more than $10,000 in this case. This is not an insignificant amount of money and cannot be just ignored. If you disagree with my calculation, I suggest that you refer this matter to an independent actuary to make the calculation.
I wish also to convey this message on behalf of many other policyholders, especially for policies that have or will be maturing this year and the next few years, who have not been given a fair payout based on the "actual experience".
I hope that you will agree to review this matter. Perhaps this matter can be referred to an impartial, independent party to arbitrate.
Tan Kin Lian
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