Tan Kin Lian's Blog: Free surplus in the Life Fund

Saturday, July 05, 2008

Free surplus in the Life Fund

I raise the issue about why the yield on the Growth policy was below the "actual experience of the Life Fund".

In his reply, Mr. Ken Ng from Income said,

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.

I asked Mr. Ken Ng for the following information:

1. How much was the free surplus in the Life Fund at the end of 2007 (that was not distributed to policyholders)
2 How much of this free surplus has since been reversed?

There was no reply and no acknowledgement to my question for about one week.

6 comments:

Everlearning said...: It is obvious that NTUC Income has put an end to the dispute of the change of bonus structure. Many bloggers advocated to shun NTUC Income totally and not to buy participating products from any insurers. I have the same sentiments. It is better to stop the pain than to prolong it.; July 05, 2008 2:43 PM
siewkhim said...: give him time to refer to his actuarial notes. Poor fella he just took over only in early 2007.; July 05, 2008 6:38 PM
zhummmeng said...: don't be like that, can or not. wonder what is the latest practice?
asset share? What is it? No, lah, we are talking about Singapore industry practice.Malaysia is another jurisdiction,not counted. don't talk so far.; July 05, 2008 10:52 PM
Raymond T said...: Poor bloke... he must be sweating. It is always very tough to lock horns with an ex-insider, and a very strong one at that (non other than the previous CEO) ;); July 05, 2008 11:34 PM
Khiat Han Hwee Adrian said...: I am not actuarial trained nor I'm in the position to tell NTUC Income what is fair and what is not.

Perhaps, we can see if any other insurance company is actually paying better returns compared to NTUC Income for some of their plans? If there are, we can find out the reason like better participating fund returns or better management. We can guage if they are indeed out of market practice.

Its not fair to tell NTUC Income to pay a bonus based on 7.8% returns just because they acheive this returns over 5 years on average.

NTUC Income is also a profit oriented company which has to be prudent with Policyholder's fund, they are social in purpose but should not come to a point of being a charity.

Moreover, at this point when the economy is bracing for a possible long term recession, they have to be more prudent.; July 08, 2008 2:27 PM
siewkhim said...: Dear Adrian,

I think you missed the points of our grievances.

(a) First NTUC cut the annual bonus and replaces it with terminal bonus. The point if the yield on investment of participating fund is good, the annual bonus should be maintained as previous's year or increase accordingly. This is what they called "policyholders' reasonable expectations".

Note that the terminal bonus is not guaranteed and hence no provisions would be made. So when there is no provision, the participting policyholders will be at the mercy of the market. What I am trying to say is that relying on terminal bonus is like passing the investment risk of the insurer to the policyholders.

Under an annual bonus system, the bonus once declared is guaranteed and the insurer must make appropriate provision for it. In this way the "policyholders' reasonable expectations" is likely to realize.

(b)Secondly, policy values at termination and maturity should be computed on asset share basis taking into account actual experience of the participating fund. This is equitable and fair to different generation of policyholders. This was not done. To give you an example, my policy which I bought 15 year ago from NTUC earned less than 1% yield on termination.

So dear Adrian, we are not requesting unreasonable things. We are just asking for a fair and equitable return to our hard earned premium dollars.; July 10, 2008 2:50 PM