Thursday, November 03, 2005

Investing the annuity pool

Dear Mr. Tan,

I think it is great that you make such an effort to communicate with your customers and potential customers. I have just been reading your blog...

I understand that the money for a particular annuity series is put into an insurance pool, which is then invested. What I'd like to do is to understand the nature of the investments.


1. Do you buy and hold bonds in your investment pool? What kinds? If so, what is the duration of the portfolio generally (i.e. just to get an idea of how
often the bonds turnover)?

Reply: we invest about 65% in bond and fixed income investment, and 35% in equity and property investments. The duration of the bond is between 3 to 7 years. We like to have longer duration. We tend to keep the bond for the longer term, and avoid active trading.

2. If there is a general shift in interest rates, how long before this
rise shows up in returns (bonuses) to policy holders?

Reply: If there is a shift in interest rate, we expect to see a higher yield on the reinvestment of our bonds. If there is an increase in interest rate, we expect the yield to increase gradually over the next few years.

3. I understand that there may be an upfront load/fee. What are the recurring ones? i.e. your cut of the returns from the investments.

Reply: Our expense of investment is about 0.5%. This is a reduction from the gross yield.

4. How often do you start a new series on average?

Reply: We introduced a new series due to the severe drop in interest rate. Our current series of annuity is priced at 2.5% per annum.We expect to keep this series for several years. If we earn a higher return, we will pay a higher bonus.

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