Tuesday, June 07, 2016

NTUC Income reduces its bonus

Dear Mr. Tan
NTUC Income is cutting its bonus. Is it justified?

I received a statement from NTUC Income that showed the performance of the investment fund to be as follows:

Year 2013 2014 2015
Investment Return 1.63% 5.45% 1.79%

The average return for the past 3 years is 2.96%. This is quite low. If NTUC Income were to maintain its current bonus, it needs to earn an investment return close to 5% (my guess). So, if the actual return is below this target rate over a few years, they will have to reduce their bonus.

I suspect that the other life insurance companies face the same problem and will also have to reduce their bonus as well.

However, policyholders may have to look at this issue from another angle.

When an insurance company reduce its bonus due to a difficult investment environment, they should also reduce their operating expenses, especially the top management salaries. It is unfair for the policyholders to suffer a cut in bonus while the top managers continue to enjoy high salaries. 

I do not know if the insurance company is reducing its operating expenses, but I suspect that they are not paying attention to this issue.

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