Dear Mr Tan,
I intend to write a will and wonder if you could recommend a lawyer to me.
REPLY
I will ask Alan Chiu (achiu@income.com.sg) to help you. He manages a will writing service under NTUC Income. They have lawyers on a panel who charges a low fee for writing a standard will.
REPLY FROM ALAN CHIU
The cost of our simple Will Writing service is $160.50. This is a special price for our policyholders and Big Trumpet members.
If you are keen, kindly provide your contact number and we will ask our lawyer, to contact you directly on the details.
Saturday, May 31, 2008
Transfer of Shares to Family Members
I am visiting SGX to open a share account for my family members. I will transfer some of my shares to them. The cost of transfer is $10 per account per family member. I will transfer some shares initially, and additional shares at a later date.
This will give my family members the experience of owning shares, receiving the annual report and dividend of the investee company. They can also attend the annual general meeting.
Later, they can buy their own shares, from their savings. This gives them a chance to learn about their own investments, instead of investing through a high cost life insurance policy.
I wish to post this suggestion, so that other parents who have shares accumulated during their working life, can consider to transfer some shares to their grown up children.
This will give my family members the experience of owning shares, receiving the annual report and dividend of the investee company. They can also attend the annual general meeting.
Later, they can buy their own shares, from their savings. This gives them a chance to learn about their own investments, instead of investing through a high cost life insurance policy.
I wish to post this suggestion, so that other parents who have shares accumulated during their working life, can consider to transfer some shares to their grown up children.
Uphold the cooperative values
Hi Mr. Tan,
My wife and I have got a living policy each with NTUC Income during your tenure as CEO. I have great admiration for you as a CEO because you have come across to me as the dying breed of CEOs who do not aim for Income to keep breaking new frontiers but rather give more consideration to your clients and members.
The moment I heard you are stepping down, I told my wife our policy returns will suffer as the next CEO will try all means to increase profits. Now I am proven right - the new structure is a change to the policyholders' disfavour. We have to sacrifice one per cent per annum to gamble on promised return scenarios amid greater uncertainties and the present investment experts never disclose how they will ensure the existing policy holders will not be worst off.
I support you strongly to ask for old structure as a choice for existing policy holders - otherwise the investment chief must disclose how the policy holders will not be worst off with the new structure not just for the next few years but for the length of the policy life, stating clearly all assumptions objectively.
The greatest disadvantage is to let so high weightage on the surrender year or the death year to decide all the returns of the policy. This is like a lottery and it is completely unfair to those who do not want to gamble! I am too aware that privatisation will only incur initial few years of savings in the case of clean and efficient government but will eventually become a heavy burden for lower middle income earners and below.
If even a 2.13% return cannot be guaranteed for such a long period of investment horizon, I don't know what are they doing. Very sad that even insurance companies are joining the banks in paying less than peanuts as interest.
The fear that new CEO will take NTUC Income closer to the commercial insurance companies in achieving lesser and lesser returns because of higher expense ratio but less effective investment realisations is taking shape.
I am indeed very sad and disappointed that Mr Lim Boon Heng and Mr Yao who also represent the government support the NTUC Income case. Please do not be disheartened by the less than expected response from the policy holders because many do not understand the implications of the new structure - some even may be unaware of the change. I do not know how many policyholders are affected too.
That day I was trying to give you my signature but as I was not tech savy, I failed. Surely I am not the only one and there are still many uncles and aunties who are not very familiar with internet technology.
Mr Tan, I at one time felt that NTUC Fairprice also would be going down to be another Cold Storage, until the rising economic problems facing the mainstream of Singapore saves it. I sincerely hope you could lead us to prevent NTUC Income to become like just another AIA, Prudential, etc to show that NTUC Income has arrived. NTUC Income should distinguish itself from the rest of the insurers by guaranteeing that there will always be a space for a constant consideration to be given to the policyholders in the temptation of 'commercial pyrotechnics'.
Best Regards,
HT
REPLY
Thank you for your letter. I hope that the new CEO and board will continue to uphold the cooperative values and achieve better results to give better value to the policyholders. Give them some time.
My wife and I have got a living policy each with NTUC Income during your tenure as CEO. I have great admiration for you as a CEO because you have come across to me as the dying breed of CEOs who do not aim for Income to keep breaking new frontiers but rather give more consideration to your clients and members.
The moment I heard you are stepping down, I told my wife our policy returns will suffer as the next CEO will try all means to increase profits. Now I am proven right - the new structure is a change to the policyholders' disfavour. We have to sacrifice one per cent per annum to gamble on promised return scenarios amid greater uncertainties and the present investment experts never disclose how they will ensure the existing policy holders will not be worst off.
I support you strongly to ask for old structure as a choice for existing policy holders - otherwise the investment chief must disclose how the policy holders will not be worst off with the new structure not just for the next few years but for the length of the policy life, stating clearly all assumptions objectively.
The greatest disadvantage is to let so high weightage on the surrender year or the death year to decide all the returns of the policy. This is like a lottery and it is completely unfair to those who do not want to gamble! I am too aware that privatisation will only incur initial few years of savings in the case of clean and efficient government but will eventually become a heavy burden for lower middle income earners and below.
If even a 2.13% return cannot be guaranteed for such a long period of investment horizon, I don't know what are they doing. Very sad that even insurance companies are joining the banks in paying less than peanuts as interest.
The fear that new CEO will take NTUC Income closer to the commercial insurance companies in achieving lesser and lesser returns because of higher expense ratio but less effective investment realisations is taking shape.
I am indeed very sad and disappointed that Mr Lim Boon Heng and Mr Yao who also represent the government support the NTUC Income case. Please do not be disheartened by the less than expected response from the policy holders because many do not understand the implications of the new structure - some even may be unaware of the change. I do not know how many policyholders are affected too.
That day I was trying to give you my signature but as I was not tech savy, I failed. Surely I am not the only one and there are still many uncles and aunties who are not very familiar with internet technology.
Mr Tan, I at one time felt that NTUC Fairprice also would be going down to be another Cold Storage, until the rising economic problems facing the mainstream of Singapore saves it. I sincerely hope you could lead us to prevent NTUC Income to become like just another AIA, Prudential, etc to show that NTUC Income has arrived. NTUC Income should distinguish itself from the rest of the insurers by guaranteeing that there will always be a space for a constant consideration to be given to the policyholders in the temptation of 'commercial pyrotechnics'.
Best Regards,
HT
REPLY
Thank you for your letter. I hope that the new CEO and board will continue to uphold the cooperative values and achieve better results to give better value to the policyholders. Give them some time.
Higher risk profile of new bonus structure
Dear Mr. Tan
I attend the annual general meeting of Income. I am quite confused with the statments made by several people in the panel. They said that the bonus restructuring will allow Income to give a better return, compared to the old bonus structure. They also said Income can invest more in equity,but it will not increase the risk profile. How is this possible?
I looked at the table of the asset allocation of the life companies shown in your blog. It seems that companies with high capital adequacy ratios, such as AIA, show have low allocation to equities.
REPLY
I am also quite confused with the statements. The new bonus structure allows Income to invest in a higher proportion in equities to earn a higher yield. I am not sure if this is their intention. This will certainly increase the risk profile.
I attend the annual general meeting of Income. I am quite confused with the statments made by several people in the panel. They said that the bonus restructuring will allow Income to give a better return, compared to the old bonus structure. They also said Income can invest more in equity,but it will not increase the risk profile. How is this possible?
I looked at the table of the asset allocation of the life companies shown in your blog. It seems that companies with high capital adequacy ratios, such as AIA, show have low allocation to equities.
REPLY
I am also quite confused with the statements. The new bonus structure allows Income to invest in a higher proportion in equities to earn a higher yield. I am not sure if this is their intention. This will certainly increase the risk profile.
Asset shares
As more insurance companies move towards distributing more bonus as non-guranteed terminal bonus, it is important to use a method that ensures that the bonuses and cash values are fair to policyholders. This cannot be left to the discretion of the appointed actuary and the board, as the payout to the policyholder may be less than fair amount.
Many companies are now using "asset shares" to determine this payouts. I found that life insurance companies in Malaysia have adopted this concept. It is stated in this webpage:
http://www.liam.org.my/cms/layout/Printer.asp?ProductID=237&catid=13
It seems that Malaysia is ahead of Singapore in adopting this good practice, to ensure that policyholders get fair values on surrender, claim and maturity. It seems that the "asset share" method is well adopted in England, Australia and South Africa.
Many companies are now using "asset shares" to determine this payouts. I found that life insurance companies in Malaysia have adopted this concept. It is stated in this webpage:
http://www.liam.org.my/cms/layout/Printer.asp?ProductID=237&catid=13
It seems that Malaysia is ahead of Singapore in adopting this good practice, to ensure that policyholders get fair values on surrender, claim and maturity. It seems that the "asset share" method is well adopted in England, Australia and South Africa.
Management expenses
Dear Mr. Tan,
I want to support your protest against the NTUC bonus cut. The bonus cut is just benefit of the manager only, because the take all the expenses first, spend all first, then only give us back a some small portion.
Thank you for your effort. I don't think you are take credit, like others say. I think you are doing a good thing to us.
I have decided to call off the Collective Protest. I will continue to monitor the developments and make sure that the interest of the policyholders are protected. Let us leave it to the board to monitor the management expenses.
I want to support your protest against the NTUC bonus cut. The bonus cut is just benefit of the manager only, because the take all the expenses first, spend all first, then only give us back a some small portion.
Thank you for your effort. I don't think you are take credit, like others say. I think you are doing a good thing to us.
KM
REPLYI have decided to call off the Collective Protest. I will continue to monitor the developments and make sure that the interest of the policyholders are protected. Let us leave it to the board to monitor the management expenses.
Disappointed at the outcome of Collective Protest
Dear Mr. Tan,
I am disappointed that you have withdrawn the Collective Protest. I still do not like the cut in the annual bonus, and the assurance that you have obtained on the special bonus. I begin to distrust life insurance policy, as the bonus can be changed in this manner.
J
REPLY
I understand your disappointment.
The assurances from the chairman, deputy chairman and the former NTUC secretary general is the best that I can get at this time. There is nothing much that can be achieved by moving the Collective Protest to the next stage. I do not wish to drag the matter and cause damage to the reputation of Income. If you do not accept the assurances, you can write directly to the board of Income.
I agree that life insurance policies are unsatisfactory due to the high cost and lack of transparency. For the past year, I have been advising consumers to buy term insurance for the protection and invest their savings in a low cost fund. You can select a fund that suit your risk profile, i.e. low or high risk.
Read this FAQ:
http://www.tankinlian.com/faq/savings.html
I am disappointed that you have withdrawn the Collective Protest. I still do not like the cut in the annual bonus, and the assurance that you have obtained on the special bonus. I begin to distrust life insurance policy, as the bonus can be changed in this manner.
J
REPLY
I understand your disappointment.
The assurances from the chairman, deputy chairman and the former NTUC secretary general is the best that I can get at this time. There is nothing much that can be achieved by moving the Collective Protest to the next stage. I do not wish to drag the matter and cause damage to the reputation of Income. If you do not accept the assurances, you can write directly to the board of Income.
I agree that life insurance policies are unsatisfactory due to the high cost and lack of transparency. For the past year, I have been advising consumers to buy term insurance for the protection and invest their savings in a low cost fund. You can select a fund that suit your risk profile, i.e. low or high risk.
Read this FAQ:
http://www.tankinlian.com/faq/savings.html
Bonus for annuitants
At the annual general meeting of Income, I asked a question about the bonus declared on life annuities. I observed that the bonus were declared to reflect an investment yield of about 5.5%. The actual investment yield earned by the life fund was 7.8% during the past 10 years. It seems to be justified for a higher bonus to be given to the annuitants.
I asked the board to consider this matter for the future, as they have already decided on the bonus declared for the current year.
I asked the board to consider this matter for the future, as they have already decided on the bonus declared for the current year.
Debate with Nick Dumbreck about Terminal Bonus
Hi Mr Tan,
I recently read an article by Nick Dumbreck (an independent actuarial consultant engaged by NTUC Income) about terminal bonus. I wish to send the following comments for posting in your blog.
Yew Ming
Nick Dumbreck (ND): "Limiting the build-up of guarantees enables with-profits assets to be invested more freely, with a significant proportion generally being allocated to equities - and in some cases property. These are expected to generate better returns than bonds in the long run. So a higher guarantee may result in a lower payout as compared to a policy with a lower guarantee and greater investment flexibility."
Yew Ming (YM): Let's look at the facts in the public domain. Here are the figures for the par fund in 2006 :
Note that MAS requires 120% minimum capital ratio. At best, this gives significant amounts of sleep for senior management and their actuarial consultants.
Also, renowned economist Robert Shiller (Irrational Exuberance) has this to say : "The evidence that stocks will always outperform bonds over long time intervals simply does not exist. Moreover, even if history supported this view, we should recognise that the future will not necessarily be like the past"
And lower payouts from reversionary bonus payers (i.e. Income) compared to terminal bonus payers (i.e every other company)? I really doubt this. Income policyholders who have collected his/her policy payouts will know better.
ND: "My experience is that given the choice between a higher expected payout and a lower guaranteed minimum sum on the one hand, and a lower expected payout but a higher guaranteed minimum on the other, most policyholders would opt for the former. Indeed the basic idea behind the with-profits proposition is that guarantees are limited but policyholders participate in any profits which arise."
YM: This is an assumption made by ND about what the customers prefer. I think companies should never assume what customers want.. Simply ask, and you will know the answer.
ND: "Unfortunately it is not practical to accommodate the different aims of individual policyholders. It is for the board to decide, in the interests of policyholders collectively."
YM: How impractical is it to send a letter to the policyholder to ask him/her which bonus structure he/she prefers?
ND: "As yields on long-dated government bonds fell from over 10 per cent per annum at the beginning of the decade to less than 4.5 per cent at the end of 1998, many companies were slow to cut annual bonus rates despite having high exposure to equities in their participating funds. This led to reduced free assets, and several mutual firms were forced to demutualise to restore a satisfactory solvency position."
YM: There is NOTHING wrong with annual/reversionary bonus. The root cause of insolvencies was "companies were SLOW TO CUT annual bonus rates". Maybe because the industry wanted to illustrate high bonuses to compete for new business and targets high growth rates to impress shareholders.
ND: "Onerous benefit guarantees were a big factor behind the closure of Equitable Life, Europe's oldest mutual life company in December 2000. These examples show the importance of addressing the balance between guarantees and providing attractive returns in the long term."
YM: The real reasons for Equitable's failure are found in http://news.bbc.co.uk/2/hi/business/3547441.stm
Quoting the report - "Dubious practices, used by ALL life insurers to varying degrees was to STOP ALLOCATING BONUSES in the form of REVERSIONARY bonuses. These were guaranteed and had to be counted on the life insurer's accounts as a liability. Instead, an increasing LARGE CHUNK of the bonuses allocated to policyholders took the shaper of TERMINAL bonuses. These could be added or cut with impunity and without affecting the company's solvency - even if they did affect the value the customer EXPECTED". Unquote.
I think, the British Courts finally ruled that these terminal bonuses have to be paid, thus critically damaging the Equitable.
Reversionary bonus (after declaration) are guaranteed and thus needs to be actuarially reserved. This imposes discipline on the financial management of the insurance funds. Terminal bonus on the other hand, is an "actuarial sleight of hand". It breeds complacency and gives the senior management a false sense of security.
ND: "Switching to a lower annual bonus and higher final bonus will align to industry best practice, improve investment freedom and make it easier for the insurer to deliver yields to customers. It will also improve the resilience of the participating fund."
YM: The funny thing about "industry best practices" is the industry is often behaving like lemmings.
Quoting Warren Buffet - "the behaviour of peer companies, whether they are expanding, acquiring, setting executive compensation or whatever, will be mindlessly imitated".
And, we don't need to look far for evidence of lemming-like industry "best practices" e.g. subprime mortgage debacle, tech bubble, the recent global property bubbles, LTCM/Enron blow-up.
I used to view Income's management as standing independent from the sheeples (hybrid of sheeps and people).
Take for example Warren Buffet's description about one of his senior managers at Geico, Louis Simpson : "He derives no pleasure from operating with or against the crowd. He is comfortable following his own reason.".
ND: "In short, both policyholders and the insurer stand to gain from this new bonus structure. The lessons learnt from the UK market serve as a painful reminder of the potential consequences of resisting change in favour of the status quo."
YM: In short, Nick Dumbreck's misleads the uninformed public with THEORY. And we all know, theorectically the recent credit crisis is a 25-sigma event ie happening once every GOOGOLIAN years (1 with 100 zeros behind).
Lastly i wonder what percentage of Singaporean life actuaries invest/save in With-profits-Terminal bonus life insurance? I suggest that the local actuarial institute conduct a survey of this very telling statistic.
I recently read an article by Nick Dumbreck (an independent actuarial consultant engaged by NTUC Income) about terminal bonus. I wish to send the following comments for posting in your blog.
Yew Ming
Nick Dumbreck (ND): "Limiting the build-up of guarantees enables with-profits assets to be invested more freely, with a significant proportion generally being allocated to equities - and in some cases property. These are expected to generate better returns than bonds in the long run. So a higher guarantee may result in a lower payout as compared to a policy with a lower guarantee and greater investment flexibility."
Yew Ming (YM): Let's look at the facts in the public domain. Here are the figures for the par fund in 2006 :
Company Equity Capital
Allocation Adequacy
AIA 15% 420%
Aviva 20% 320%
GE 26% 190%
Prudential 40% 280%
Income 31% 170%
Note that MAS requires 120% minimum capital ratio. At best, this gives significant amounts of sleep for senior management and their actuarial consultants.
Also, renowned economist Robert Shiller (Irrational Exuberance) has this to say : "The evidence that stocks will always outperform bonds over long time intervals simply does not exist. Moreover, even if history supported this view, we should recognise that the future will not necessarily be like the past"
And lower payouts from reversionary bonus payers (i.e. Income) compared to terminal bonus payers (i.e every other company)? I really doubt this. Income policyholders who have collected his/her policy payouts will know better.
ND: "My experience is that given the choice between a higher expected payout and a lower guaranteed minimum sum on the one hand, and a lower expected payout but a higher guaranteed minimum on the other, most policyholders would opt for the former. Indeed the basic idea behind the with-profits proposition is that guarantees are limited but policyholders participate in any profits which arise."
YM: This is an assumption made by ND about what the customers prefer. I think companies should never assume what customers want.. Simply ask, and you will know the answer.
ND: "Unfortunately it is not practical to accommodate the different aims of individual policyholders. It is for the board to decide, in the interests of policyholders collectively."
YM: How impractical is it to send a letter to the policyholder to ask him/her which bonus structure he/she prefers?
ND: "As yields on long-dated government bonds fell from over 10 per cent per annum at the beginning of the decade to less than 4.5 per cent at the end of 1998, many companies were slow to cut annual bonus rates despite having high exposure to equities in their participating funds. This led to reduced free assets, and several mutual firms were forced to demutualise to restore a satisfactory solvency position."
YM: There is NOTHING wrong with annual/reversionary bonus. The root cause of insolvencies was "companies were SLOW TO CUT annual bonus rates". Maybe because the industry wanted to illustrate high bonuses to compete for new business and targets high growth rates to impress shareholders.
ND: "Onerous benefit guarantees were a big factor behind the closure of Equitable Life, Europe's oldest mutual life company in December 2000. These examples show the importance of addressing the balance between guarantees and providing attractive returns in the long term."
YM: The real reasons for Equitable's failure are found in http://news.bbc.co.uk/2/hi/business/3547441.stm
Quoting the report - "Dubious practices, used by ALL life insurers to varying degrees was to STOP ALLOCATING BONUSES in the form of REVERSIONARY bonuses. These were guaranteed and had to be counted on the life insurer's accounts as a liability. Instead, an increasing LARGE CHUNK of the bonuses allocated to policyholders took the shaper of TERMINAL bonuses. These could be added or cut with impunity and without affecting the company's solvency - even if they did affect the value the customer EXPECTED". Unquote.
I think, the British Courts finally ruled that these terminal bonuses have to be paid, thus critically damaging the Equitable.
Reversionary bonus (after declaration) are guaranteed and thus needs to be actuarially reserved. This imposes discipline on the financial management of the insurance funds. Terminal bonus on the other hand, is an "actuarial sleight of hand". It breeds complacency and gives the senior management a false sense of security.
ND: "Switching to a lower annual bonus and higher final bonus will align to industry best practice, improve investment freedom and make it easier for the insurer to deliver yields to customers. It will also improve the resilience of the participating fund."
YM: The funny thing about "industry best practices" is the industry is often behaving like lemmings.
Quoting Warren Buffet - "the behaviour of peer companies, whether they are expanding, acquiring, setting executive compensation or whatever, will be mindlessly imitated".
And, we don't need to look far for evidence of lemming-like industry "best practices" e.g. subprime mortgage debacle, tech bubble, the recent global property bubbles, LTCM/Enron blow-up.
I used to view Income's management as standing independent from the sheeples (hybrid of sheeps and people).
Take for example Warren Buffet's description about one of his senior managers at Geico, Louis Simpson : "He derives no pleasure from operating with or against the crowd. He is comfortable following his own reason.".
ND: "In short, both policyholders and the insurer stand to gain from this new bonus structure. The lessons learnt from the UK market serve as a painful reminder of the potential consequences of resisting change in favour of the status quo."
YM: In short, Nick Dumbreck's misleads the uninformed public with THEORY. And we all know, theorectically the recent credit crisis is a 25-sigma event ie happening once every GOOGOLIAN years (1 with 100 zeros behind).
Lastly i wonder what percentage of Singaporean life actuaries invest/save in With-profits-Terminal bonus life insurance? I suggest that the local actuarial institute conduct a survey of this very telling statistic.
Restructuring of bonus
At the annual general meeting of Income, I pointed out that there are three groups of participating policies:
Series EV - introduced in 2007, 2008
Series LP - introduced in 1993
Other series - introduced before 1993
Only the LP series and 1 product under the EV series are subject to the restructuring. Two products under the new EV series are not being restructured.
Income has said earlier that they are not restructuring the other series, because these policies have been issued long ago. I asked the board to review the decision on the two new EV products. Why are they not subject to restructuring?
It is important that policyholders feel that they are being treated fairly and consistently.
Series EV - introduced in 2007, 2008
Series LP - introduced in 1993
Other series - introduced before 1993
Only the LP series and 1 product under the EV series are subject to the restructuring. Two products under the new EV series are not being restructured.
Income has said earlier that they are not restructuring the other series, because these policies have been issued long ago. I asked the board to review the decision on the two new EV products. Why are they not subject to restructuring?
It is important that policyholders feel that they are being treated fairly and consistently.
NTUC Income - implementing the two objectives
Dear Mr. Tan,
Thank you very much for your effort in organising and representing us in this collective issue. I support your decision. However, would there be any safeguards to ensure that NTUC Income will implement the two objectives.
On another point, as a result of this collective action initiated by yourself, you have a strong following of supporters. May I request that all of us supporters stay together with Mr Tan as our spokesman as an informal group. Perhaps we can be known as the 'NTUC Income Watch Group".
Leon Khor
REPLY
Mr. Lim Boon Heng told me that this Social Enterprise Development Committee will continue to ensure that Income follows it social purpose. I will use this channel to present views on the future implementation of these two objectives.
I intend to write a paper on the use of asset shares as a measure of equitable bonus distribution. This will ensure that the bonus and cash values follow the asset shares. I hope that some actuaries within this group can help me to write this paper.
According to this concept, the insurance company has to calculate the asset share for each policy based on the premiums paid, investment income earned and deducting the expenses and mortality charges. The actual experience is used in the calculation. The insurance company can use the asset share to calculate the annual and terminal bonus payable on the policy. It should pay cash values that are quite close to the asset share of the policy, less a certain margin for its profits.
The chairman of Income has said at the annual general meeting that the board will look after the best interest of the policyholders. We can let him have a benchmark on what is the best interest of policyholders, in terms of sustainable bonuses and cash values.
Thank you very much for your effort in organising and representing us in this collective issue. I support your decision. However, would there be any safeguards to ensure that NTUC Income will implement the two objectives.
On another point, as a result of this collective action initiated by yourself, you have a strong following of supporters. May I request that all of us supporters stay together with Mr Tan as our spokesman as an informal group. Perhaps we can be known as the 'NTUC Income Watch Group".
Leon Khor
REPLY
Mr. Lim Boon Heng told me that this Social Enterprise Development Committee will continue to ensure that Income follows it social purpose. I will use this channel to present views on the future implementation of these two objectives.
I intend to write a paper on the use of asset shares as a measure of equitable bonus distribution. This will ensure that the bonus and cash values follow the asset shares. I hope that some actuaries within this group can help me to write this paper.
According to this concept, the insurance company has to calculate the asset share for each policy based on the premiums paid, investment income earned and deducting the expenses and mortality charges. The actual experience is used in the calculation. The insurance company can use the asset share to calculate the annual and terminal bonus payable on the policy. It should pay cash values that are quite close to the asset share of the policy, less a certain margin for its profits.
The chairman of Income has said at the annual general meeting that the board will look after the best interest of the policyholders. We can let him have a benchmark on what is the best interest of policyholders, in terms of sustainable bonuses and cash values.
Friday, May 30, 2008
Collective Protest - Settlement
I met with Mr. Lim Boon Heng and Mr. Matthias Yao today. Mr. Lim is the former secretary general of NTUC and the current chairman of the NTUC Social Enterprise Development Committee. Mr. Yao is the deputy chairman of the board of Income.
Mr. Lim assured me that Income will continue to observe its social purpose and cooperative principles and that his committee will ensure that Income continues to give good value to its policyholders.
I briefed them about the two concerns on the bonus restructure, namely:
1. To have adequate assurance on the payment of the special bonus (as it is not guaranteed)
2. To ensure that policyholders get bonuses and cash values that closely reflect the contribution to the life fund by each policy, based on the actual experience.
Both of them shared the general sentiment. They said that Income will look into ways of implementing these two objectives. This will require some time to be implemented fully.
I asked that Income give an option to the policyholder. Mr. Yao said that this has been considered, and the board has decided against it.
At the annual general meeting of Income, chairman Ng Kee Choe reaffirmed that Income will continue to look after the best interest of its policyholders. He announced three measures to deal with the concerns expressed by policyholders on the restructure of the bonus. His speech will be posted in Income's website.
I believe that these assurances are the best that can be achieved at this stage. We will not be able to achieve more by taking this collective protest to the next stage.
Hence, I have decided to withdraw the Collective Protest and will continue to monitor the developments to ensure that the policyholders interests are protected. I hope that the policyholders who submitted signatures to me will support my decision.
If any policyholder still does not accept these assurances, they can lodge the protest directly with Income.
Mr. Lim assured me that Income will continue to observe its social purpose and cooperative principles and that his committee will ensure that Income continues to give good value to its policyholders.
I briefed them about the two concerns on the bonus restructure, namely:
1. To have adequate assurance on the payment of the special bonus (as it is not guaranteed)
2. To ensure that policyholders get bonuses and cash values that closely reflect the contribution to the life fund by each policy, based on the actual experience.
Both of them shared the general sentiment. They said that Income will look into ways of implementing these two objectives. This will require some time to be implemented fully.
I asked that Income give an option to the policyholder. Mr. Yao said that this has been considered, and the board has decided against it.
At the annual general meeting of Income, chairman Ng Kee Choe reaffirmed that Income will continue to look after the best interest of its policyholders. He announced three measures to deal with the concerns expressed by policyholders on the restructure of the bonus. His speech will be posted in Income's website.
I believe that these assurances are the best that can be achieved at this stage. We will not be able to achieve more by taking this collective protest to the next stage.
Hence, I have decided to withdraw the Collective Protest and will continue to monitor the developments to ensure that the policyholders interests are protected. I hope that the policyholders who submitted signatures to me will support my decision.
If any policyholder still does not accept these assurances, they can lodge the protest directly with Income.
Where Equitable Life Went Wrong
I invite readers to read this report:
http://news.bbc.co.uk/2/hi/business/3547441.stm
Dubious Practices
One device - used by all life insurers to varying degrees - was to stop allocating bonuses to customers policies in the form of "reversionary bonuses".
These were guaranteed and had to be counted on the life insurers' accounts as a liability.
Instead, an increasingly large chunk of the bonuses allocated to policyholders took the shape of "terminal" or "final" bonuses. These could be added or cut with impunity and without affecting the company's solvency - even if they did affect the value the customer expected.
Equitable never even counted part of these final bonuses as a liability.
It seems that Equitable Life declared high terminal bonuses, but did not count them as a liability. This is one cause of its collapse. The old bonus system adopted by NTUC Income is better. As each year's bonus is declared, it has to be reserved for the policyholders.
http://news.bbc.co.uk/2/hi/business/3547441.stm
Dubious Practices
One device - used by all life insurers to varying degrees - was to stop allocating bonuses to customers policies in the form of "reversionary bonuses".
These were guaranteed and had to be counted on the life insurers' accounts as a liability.
Instead, an increasingly large chunk of the bonuses allocated to policyholders took the shape of "terminal" or "final" bonuses. These could be added or cut with impunity and without affecting the company's solvency - even if they did affect the value the customer expected.
Equitable never even counted part of these final bonuses as a liability.
It seems that Equitable Life declared high terminal bonuses, but did not count them as a liability. This is one cause of its collapse. The old bonus system adopted by NTUC Income is better. As each year's bonus is declared, it has to be reserved for the policyholders.
NTUC Income is not like Equitable Life
Mr. Tan,
I believe that the 'expert witness", Mr. Nick Dumbrack, engaged by NTUC to give credence to the restructuring bonus has been misled to think that NTUC 's existing bonus structure was "onerous" like the Equitable Life and he claimed that onerous bonus led to the collapse of Equitable life.
Equitable Life's collapse was NOT due to the onerous annual but due to "no annual bonus" and dubious manipulation of the final or special bonus which was 'onerous". This shows Nick Dumbrack's purpose of the ST. article was to mislead the public that NTUC could be in danger of collapse if the bonus structure is not reshaped like all others in the industry. This is half truth.
The appointed actuary, NICK Rhodes, of NTUC between 2002 to 2007 had a different view. Nick Rhodes is a British, I believe, and I am sure he is aware of the Equitable Life 's collapse. He would have warned NTUC if there was danger but then the NTUC's situation was never any where near what was practised by Equitable Life.
His testimony is that NTUC finance was stable and the special bonus was stable and because of this it was different from the rest and could deliver superior products than the other companies. If the structure is changed there will be uncertainty and policyholders will have no inkling of their cash value at any point in time.The special bonus may not be declared even because it forms part of the risky component of the life fund.
The best solution is to allow the options of opting in or out. This is the most equitable path to take.
zhummmeng
I believe that the 'expert witness", Mr. Nick Dumbrack, engaged by NTUC to give credence to the restructuring bonus has been misled to think that NTUC 's existing bonus structure was "onerous" like the Equitable Life and he claimed that onerous bonus led to the collapse of Equitable life.
Equitable Life's collapse was NOT due to the onerous annual but due to "no annual bonus" and dubious manipulation of the final or special bonus which was 'onerous". This shows Nick Dumbrack's purpose of the ST. article was to mislead the public that NTUC could be in danger of collapse if the bonus structure is not reshaped like all others in the industry. This is half truth.
The appointed actuary, NICK Rhodes, of NTUC between 2002 to 2007 had a different view. Nick Rhodes is a British, I believe, and I am sure he is aware of the Equitable Life 's collapse. He would have warned NTUC if there was danger but then the NTUC's situation was never any where near what was practised by Equitable Life.
His testimony is that NTUC finance was stable and the special bonus was stable and because of this it was different from the rest and could deliver superior products than the other companies. If the structure is changed there will be uncertainty and policyholders will have no inkling of their cash value at any point in time.The special bonus may not be declared even because it forms part of the risky component of the life fund.
The best solution is to allow the options of opting in or out. This is the most equitable path to take.
zhummmeng
Thursday, May 29, 2008
My replies to Straits Times and Today
The Straits Times and Today reported on 27 May about the discussion between me and Tan Suee Chieh to seek an amicable solution to the bonus restructure.
These reports were unfair and put me in a bad light, driven mainly by two remarks issued by Tan Suee Chieh:
1. That "my change of tone" was probably due to a better appreciation of issues behind the bonus structure. (This is not the case - and I had told Tan Suee Chieh about it earlier.)
2. That the bonus rates declared in the past years were unsustainable.
This prompted me to write the replies to the Straits times and Today, to correct the unfair and wrong impression. If the reports had been more fair to me and Tan Suee Chieh had not made the unnecessary remarks, I would not have written the replies. I would have preferred a more friendly atmosphere to resolve the issue.
These reports were unfair and put me in a bad light, driven mainly by two remarks issued by Tan Suee Chieh:
1. That "my change of tone" was probably due to a better appreciation of issues behind the bonus structure. (This is not the case - and I had told Tan Suee Chieh about it earlier.)
2. That the bonus rates declared in the past years were unsustainable.
This prompted me to write the replies to the Straits times and Today, to correct the unfair and wrong impression. If the reports had been more fair to me and Tan Suee Chieh had not made the unnecessary remarks, I would not have written the replies. I would have preferred a more friendly atmosphere to resolve the issue.
Terminal Bonus cut to nil
Hi Mr. Tan,
You should quote to the press about Z cutting of terminal bonus to 0% somewhere in the early 2000. Sometimes the press is not totally transparent especially when advertising revenue is at stake. Even one of the journalist can be quoted on Z advertisement for a product.
I am surprised that the newspapers did not use Zs cancelling of terminal of bonus as a real example of what can happen and had happened to warn the public about the change of bonus structure.
I was an agent with Z then, I felt that that was downright disgusting, unethical and leaning towards abusive misrepresentation and fraud. I was surprised that MAS actually allowed Z to do that.
I hope you can use this experience to warn policyholder of how vunerable it can be especially when there is no guarantee since the press is reluctant to bring it for fear of losing advertising revenue. I apologise that I cannot identify myself as I still have my friends in Z.
Wishing you the best and thank you for the effort in warning about the repercussions of the change of bonus structure.
Inspire88
You should quote to the press about Z cutting of terminal bonus to 0% somewhere in the early 2000. Sometimes the press is not totally transparent especially when advertising revenue is at stake. Even one of the journalist can be quoted on Z advertisement for a product.
I am surprised that the newspapers did not use Zs cancelling of terminal of bonus as a real example of what can happen and had happened to warn the public about the change of bonus structure.
I was an agent with Z then, I felt that that was downright disgusting, unethical and leaning towards abusive misrepresentation and fraud. I was surprised that MAS actually allowed Z to do that.
I hope you can use this experience to warn policyholder of how vunerable it can be especially when there is no guarantee since the press is reluctant to bring it for fear of losing advertising revenue. I apologise that I cannot identify myself as I still have my friends in Z.
Wishing you the best and thank you for the effort in warning about the repercussions of the change of bonus structure.
Inspire88
My approach towards life insurance
My savings in life insurance policies were made during the past 30 years. I keep these policies, if they continue to give a reasonable yield. I shall be discontinuing the policies that earn less than 3% p.a.
I will not be putting any new investments in a life insurance policy, as the return is poor. I do not like policies that have high terminal bonus, as a large part of the future yield is uncertain, non-transparent and beyond my control.
I am now 60 years old and my children have grown up. I do not need more any life insurance protection. I have a private Shield plan B. This is sufficient for my needs.
I will not be putting any new investments in a life insurance policy, as the return is poor. I do not like policies that have high terminal bonus, as a large part of the future yield is uncertain, non-transparent and beyond my control.
I am now 60 years old and my children have grown up. I do not need more any life insurance protection. I have a private Shield plan B. This is sufficient for my needs.
Poor return on maturity
Dear Mr. Tan,
May I ask if the non-guaranteed reversionary bonuses are determined by individual insurance company? Are these bonuses declarations subject to MAS regulatory control or are they depend on the “mood” of the insurance company?
I have similar situations with company Y. To our disappointment, the payouts of non guaranteed reversionary bonus for the matured policies (belonging to my wife and me) are grossly reduced to a mere 0.12% of the sum assured, instead of the 0.45% as per point of sales illustration. More unbelieving was the fact that the company declared their overall total assets investment return for 2007 was 5.7% p.a. with fixed income return of 4.9% p.a. and a strong equity portfolio investment return of 8.6%.
We feel that we are not given the fair share of the illustrated payouts of the reversionary bonus during last few years, with the strong performance of the economy and the insurance company in particular. Now, we learnt that the illustrated numbers at the point of sales are no more than a set of empty promised number.
I see no other alternatives, besides writing to the insurance company for clarifications and going to FiDREC to seek redress. Do want to learn from you on how can the interest of the policyholders be protected from the giant insurance company from either “misrepresenting” or “under declaring” their payouts to earn more from us, the commoners.
REPLY
You should write to MAS and ask them to find out the reason from company Y on your behalf. It is the duty of MAS to ensure that the insurance companies treat their policyholders fairly in respect of the declared bonuses for these type of approved products.
MAS now requires the bonus distribution to be decided by the board of directors, on the recommendation of the appointed actuary, and that the process be governed by an "internal governance policy" as set out in MAS 320.
In my view, this does not provide sufficient protection for the interest of consumers. There is a conflict of interest within the board, that represents the shareholders.
I hope that MAS will change the approach. It is better to have an independent actuary, appointed by MAS, to look at the bonus distribution and make sure that they have been declared fairly to consumers.
In the absence of adequate safeguards, it is better for the consumer to avoid investing in life insurance policies. It is better to invest in a low cost investment fund, due to its transparency. The investor will be able to keep most of the investment gains, less the transparent charges.
Tell your family and friends about your bad experience with this insurance company. It will happen, again and again. Tell them to avoid high cost life insurance products, which provides poor value. Most of your investment gains are taken away as expenses and profit, leaving you with a poor return.
May I ask if the non-guaranteed reversionary bonuses are determined by individual insurance company? Are these bonuses declarations subject to MAS regulatory control or are they depend on the “mood” of the insurance company?
I have similar situations with company Y. To our disappointment, the payouts of non guaranteed reversionary bonus for the matured policies (belonging to my wife and me) are grossly reduced to a mere 0.12% of the sum assured, instead of the 0.45% as per point of sales illustration. More unbelieving was the fact that the company declared their overall total assets investment return for 2007 was 5.7% p.a. with fixed income return of 4.9% p.a. and a strong equity portfolio investment return of 8.6%.
We feel that we are not given the fair share of the illustrated payouts of the reversionary bonus during last few years, with the strong performance of the economy and the insurance company in particular. Now, we learnt that the illustrated numbers at the point of sales are no more than a set of empty promised number.
I see no other alternatives, besides writing to the insurance company for clarifications and going to FiDREC to seek redress. Do want to learn from you on how can the interest of the policyholders be protected from the giant insurance company from either “misrepresenting” or “under declaring” their payouts to earn more from us, the commoners.
REPLY
You should write to MAS and ask them to find out the reason from company Y on your behalf. It is the duty of MAS to ensure that the insurance companies treat their policyholders fairly in respect of the declared bonuses for these type of approved products.
MAS now requires the bonus distribution to be decided by the board of directors, on the recommendation of the appointed actuary, and that the process be governed by an "internal governance policy" as set out in MAS 320.
In my view, this does not provide sufficient protection for the interest of consumers. There is a conflict of interest within the board, that represents the shareholders.
I hope that MAS will change the approach. It is better to have an independent actuary, appointed by MAS, to look at the bonus distribution and make sure that they have been declared fairly to consumers.
In the absence of adequate safeguards, it is better for the consumer to avoid investing in life insurance policies. It is better to invest in a low cost investment fund, due to its transparency. The investor will be able to keep most of the investment gains, less the transparent charges.
Tell your family and friends about your bad experience with this insurance company. It will happen, again and again. Tell them to avoid high cost life insurance products, which provides poor value. Most of your investment gains are taken away as expenses and profit, leaving you with a poor return.
Wednesday, May 28, 2008
A better bonus philosophy
EXTRACTS FROM STATEMENT BY
NICK RHODES, APPOINTED ACTUARY OF INCOME, 2002-2007
Income, as a Cooperative, distributes less to shareholders .... so a variable and high annual bonus can be paid, to the benefit of policyholders.
Income has managed to maintain remarkable stability in its non-guaranteed Terminal Bonus over the years - not even reducing it when STI was down at 1,300.
As a result, in my opinion, the Income bonus philosophy was much better than that adopted by competitors, since the policyholder could predict with greater certainty the value of his policy as it approached maturity.
Other companies have an inferior product - and it would be unfair to policyholders for Income to unnecessarily follow "market norms".
NICK RHODES, APPOINTED ACTUARY OF INCOME, 2002-2007
Income, as a Cooperative, distributes less to shareholders .... so a variable and high annual bonus can be paid, to the benefit of policyholders.
Income has managed to maintain remarkable stability in its non-guaranteed Terminal Bonus over the years - not even reducing it when STI was down at 1,300.
As a result, in my opinion, the Income bonus philosophy was much better than that adopted by competitors, since the policyholder could predict with greater certainty the value of his policy as it approached maturity.
Other companies have an inferior product - and it would be unfair to policyholders for Income to unnecessarily follow "market norms".
An amicable solution
I discussed with NTUC Income's management to seek an amicable solution that will be in the best interest of policyholders and the reputation of NTUC Income.
Tan Suee Chieh asked me not to appear to "take credit" for getting Income to make some changes. He wanted both parties to appear to "win-win". I agreed.
I am disappointed that he made a statement to the media that I changed my tone after understanding the issues behind the restructuring of the bonus. This is not true. I have told Suee Chieh a few times that I am against the restructuring of the bonus,
Tan Suee Chieh asked me not to appear to "take credit" for getting Income to make some changes. He wanted both parties to appear to "win-win". I agreed.
I am disappointed that he made a statement to the media that I changed my tone after understanding the issues behind the restructuring of the bonus. This is not true. I have told Suee Chieh a few times that I am against the restructuring of the bonus,
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