Saturday, May 16, 2009

Survey - social benefits and taxation

Do you prefer the state (i.e. Government) to provide less social benefits and reduce taxes, or to provide more social benefits (to be funded by higher taxes). Give your views in this survey.

Here are the survey results.

Running a business on sound principles

Lessons to be learned about operating a business on sound principles. Read this article.

SCMP:Authority suspected banks of mis-selling

The Monetary Authority suspected three banks of mis-selling credit-linked products before Lehman Brothers collapsed but did not check more banks or alert the public to its findings, its chief executive, Joseph Yam Chi-kwong, told a legislative inquiry yesterday.

There was "not sufficient information to show it was an industry-wide problem", he said.

Credit-linked derivatives, most of them minibonds issued or guaranteed by Lehman, lost much or all of their value after it collapsed last year amid the global financial crisis. Some 48,000 Hongkongers had invested HK$20 billion in such products.

Mr Yam said the authority set out to investigate 11 banks selling such products - including Lehman-linked ones - in February last year because of their high risks. But only four banks were investigated and that process was disrupted when Lehman Brothers collapsed.

Of the four, three were suspected of mis-selling, Mr Yam said. One has since been found guilty of misconduct in connection with the sale of credit-linked products; the other two are still under investigation.

Mr Yam said the inquiry last year identified problems with the way these banks' frontline staff explained to clients the nature of the products and their main risks, staff understanding of the products and staff management systems; and found sales documents were faulty and did not give detailed risk assessments for the products.

Lawmakers criticised the authority for not widening the investigation or alerting the public in time.

"There were about 20 banks selling Lehman products. Why did you not investigate all other banks immediately when you found three out of four problematic?" Ronny Tong Ka-wah of the Civic Party asked.

Independent Regina Ip Lau Suk-yee said: "What you identified in the probe were critical problems. If you had called a halt to such malpractice across the industry in time, and informed the public about that, you'd have saved many people."

Mr Yam said the authority did not have enough information at the time to show there was industry-wide malpractice. He also said the authority was investigating four complaints from bank staff about "oppressive" managements who based incentives solely on sales volume, regardless of any malpractice.

The authority considered having investigators pose as customers to check banks' sales practices, but did not do so since the Securities and Futures Commission did not use the practice and "we have to conform with their standards", Mr Yam said.

Second Lehman-backed catastrophe bond defaults

LONDON (Reuters) - A second Lehman Brothers-backed catastrophe bond is in default after issuer Ajax Re Ltd failed to repay principal in full at maturity, according to credit rating agencies.

The $100 million bond, issued in April 2007 to give Bermuda-based Aspen Insurance Holdings Ltd cover against losses from earthquakes in California, had been expected to default following the collapse of Lehman, its effective guarantor.

Credit rating agency Standard & Poor's said in a May 11 statement that it had lowered its rating on the bond to D, signifying default, and withdrawn the rating.

It said Ajax Re had paid all the interest due on the bond, "but the ultimate payment of principal was not made in full on May 8, 2008 due to a shortfall in the realizable value of the collateral assets under the TRS (total return swap)."

S&P had said a default was likely despite a timely payment of interest on March 16.

The deal is among four catastrophe bonds that used a unit of Lehman Brothers as TRS counterparty, contracted to ensure the collateral backing the bonds was sufficient to meet interest and principal repayments, and to make up any shortfall.

When the U.S. investment bank filed for bankruptcy on September 15, investors were left with direct exposure to market losses on the collateral assets, and the bonds were downgraded.

Another of the bonds, issued by Willow Re with Allstate Corp as ceding insurer, was already in default after Willow failed to make in full a February 2 interest payment.

Another rating agency, insurance specialist A.M. Best, also said it had downgraded the Ajax Re notes to "d" following the failure to fully repay the principal at redemption.

Insurers have used catastrophe bonds since the 1990s to manage their exposure to natural disasters such as hurricanes and earthquakes by transferring potential losses to investment funds. Investors receive a high rate of interest but risk losing part or all of their principal if a catastrophe occurs.

(Reporting by Catherine Evans; Editing by Simon Jessop)

Friday, May 15, 2009

British Columbia, Canada

In the province of British Columbia, Canada, there is a Vancouver City, Vancouver Island, Victoria City and Victoria Island. Here are some interesting facts:

> Vancouver City is not on Vancouver Island
> Victoria City is not on Victoria Island.

Victoria City (capital of British Columbia province) is on Vancouver Island and Vancouver City is on the mainland Canada. Victoria Island is not in British Columbia but is near the North Pole (quite far away).

Victoria Island is the largest island in North America and is bigger than Taiwan.

Tuesday, May 12, 2009

Photos from the Canadian Rockies

At a high point in Banff, overlooking the mountains of the Canadian Rockies.

You need a vehicle like this to travel in the glacier. The tourists uses a Snowmobile (like a bus with big wheels).

It is cold and windy at a glacier. 

Monday, May 11, 2009

Questions for the AGM of NTUC Income, 29 May 2009

I have submitted the following questions for the annual general meeting of NTUC Income on 29 May 2009. They summarised the questions sent to me from policyholders during the past year.

If you are a policyholder and wish to attend the annual general meeting, you can send your request to the cooperative secretary at this address ( You can also send in your own questions.

Questions for the Annual General Meeting of NTUC Income, 29 May 2009
I wish to ask a few questions on behalf of many policyholders who bought life insurance from NTUC Income on the understanding that it is a cooperative working in the interest of its policyholders.

NTUC Income reduced its bonus rates for several series of policies last year, in spite of excellent investment results. At the annual general meeting, the chairman gave the following assurances to the policyholders:

a) While special bonuses are not guaranteed, they are designed to ensure that the reduction in annual bonus is compensated. As I have indicated earlier, the new bonus structure is aimed at improving, the total payout to policyholders.

b) Should the special bonus in future reduce due to adverse financial conditions, we are committed to restoring it when conditions improve.

c) I have stated that this Board will look after the policyholders’ interests. Towards this end, the Board will ensure that the bonus allocated to policyholders result in payouts is fair and consistent with the experience of the Life Fund. 

There is an announcement that the bonus cut will be extended to all other series of policies this year.

My questions are:

1. What is the total amount of bonus that were reduced in 2007 and 2008 compared to the bonuses that would have been declared if the bonuses had been maintained at the same rates declared in 2006. Please provide the actuarial value of the bonuses that have been reduced, in millions of dollars, for the policies that were affected.

2. What is the amount of management and selling expenses incurred for the life insurance business for 2006, 2007 and 2008. Are steps being taken to reduce these expenses in line with the reduction in bonuses suffered by the policyholders?

3. Please explain how the reduction in bonus can achieve a better payout to policyholders? With the reduction in the bonus last year, was the cooperative able to invest the undistributed surplus to earn a higher return for policyholders?

4. Will the cooperative be able to maintain the special bonus payable on maturity and surrender, which was adjusted to compensate for the reduction in the annual bonuses? Is there any likelihood that the special bonus will have to be reduced, due to the global financial crisis?

5. For policies which have matured since the last AGM, was the cooperative able to meet the promise that the payout will be fair and based on the actual experience of the fund? Where the actual payouts were short of what is due to them, does the cooperative intend to make the appropriate adjustment for these policyholders?

6. Based on renewals made in recent months, what is the average rate of increase in motor insurance premium paid by policyholders who did not make any claim during the past year? Does the cooperative intend to control its expenses and claims to allow it to reduce the premium rates for its policyholders? What steps are being taken to achieve this goal?

Tan Kin Lian

Sunday, May 10, 2009

Differential pricing for petrol

My friend pointed out to me the price of 1 litre of petrol, as displayed in a prominent sign at the petrol stations. The price was around CAD 1.05 in the morning and reduces in stages to CAD 0.95 at around midnight. The next morning, the price went back to CAD 1.05.

The petrol station used differential pricing to encourage some drivers to fill up the tank during the night hours. This helps to reduce the crowd at the petrol station during the working hours.  It is an interesting way to spread out the queue.  

Perhaps petrol stations in Singapore can consider a similar strategy? It seems to work quite well in Canada.

Wearing masks

I took a flight from Singapore to Vancouver. The only people in the plane wearing masks are  the flight crew and a few Singaporeans. The other passengers did not consider it necessary to wear masks. Were they irresponsible or unaware of the risk? 

I do not think so. I think that they know the risk and have decided that it is the risk is too small to take these precautions. Singaporeans tend to over-react.

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