Wednesday, August 02, 2006

Our growth policy still provide an attractive return

A customer invested her savings in two growth policies which offered a return of 3.55% over 6 years and 4% over 10 years. These rates were much higher than the prevailing interest rate from the bank at the time that the investments were made.

She saw that the short term interest rate has increased in recent months, and asked this question: currently, market interest rate is high, about 3.45%,are we adjusting
our returns to be comparable with the market?

Here is my explantion:

Dear

When a policyholder invest in the growth policy, we promise the guaratneed sum assured and a bonus that will vary accordign to the actual return from the investments in the fund.

We have to invest the money to achieve an attractive long term rate of return, but in safe investments. This is done in the interest of our policyholders.

Most of our investments are in bonds and a smaller proportion in shares. The actual return from our fund is quite different from the short term interest rate offered by the banks.

Generally, when the market interest rate has increased, we should see an increase in the return from our fund, but the increase will apply only to the portion of the fund that has not yet been invested. The impact will be smaller than the actual increase in the interest rate.

In recent years, we have increased our bonus rates on the growth policy to reflect the better return from our fund. Our growth policy still provide an attractive return, compared to other investments.

I hope that you understand and accept my explanation.

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