Investment-Linked Insurance Policies (ILPs) - Education, Investment Company, Market news

Lessons From a Tycoon's $201 Million Life Insurance Policy

ridodirected@gmail.com (RIDO) — Sat, 10 May 2014 00:16:00 +0000

By Dan Caplinger
Posted on May 3, 2014
Article from http://www.fool.com

Earlier this year, a California tech billionaire set a new record, buying a life insurance policy with the highest death benefit ever: $201 million. The policy was so big that the advisors working with the billionaire had to split the policy between 19 different life insurance companies, so that none of them would bear too much risk from a single person's life. Given the estate planning challenges that the ultra-wealthy face, a policy that big could be a big win for the billionaire's entire family.

Of course, you probably don't need $201 million in life insurance. But most people face the same types of financial risks on a smaller scale, and therefore, having life-insurance protection often makes sense. But people often get confused about life insurance and how to make sure that you get the policy that's right for you and your needs. With that in mind, let's take a look at five lessons that you can take to heart from this billionaire's experience.

1. Buy the right amount of life insurance.

When you're buying life insurance, one key decision is how large a death benefit you want your family to get. The right death benefit will depend on the financial needs of your family, including paying off a large mortgage after your death or ensuring that your spouse and children will have enough financial resources to take care of their needs if something happens to you. Moreover, bear in mind that you can't necessarily count on getting additional coverage later, as health changes can make you uninsurable for new policies while still letting you retain policies you bought prior to an adverse health condition. Therefore, it's smart not only to consider your current needs but also to anticipate future increases in those needs.

2. Make sure you use life insurance companies you can trust.

Shopping for life insurance based on price is a natural thing to do, but in some cases, you do get what you pay for. Some insurance companies offer lower-priced policies because they're not as well capitalized as their competitors, and therefore have weaker ratings from agencies like A.M. Best for financial strength. In exchange for saving minimum amounts on your annual premiums, going with cut-rate life insurance companies can put your family at risk of not being able to collect on your policy after your death. Guaranty associations provide some measure of protection from life-insurance company insolvency, similar to what the FDIC does for bank accounts. But limits can be relatively low, and so you might not get the full coverage you'd expect.

3. Look into special life insurance strategies.

If you're rich enough to need to consider estate taxes, how you own your life insurance can make a critical difference. Owning a policy in your own name means that the proceeds will be included in your taxable estate, and therefore be subject to taxes at rates up to 40% if your total assets exceed the lifetime exemption threshold. If you own a policy through a life insurance trust, however, the proceeds won't be included in your estate, and that can make sure that more of your life insurance payout goes to your family and less goes to the IRS.

4. But be careful of investment-related life insurance products.

Insurance products have special tax advantages that are similar to what retirement accounts offer, in that investments within life insurance products grow on a tax-deferred basis until they actually pay out benefits. As a result, many advisors recommend investment-linked life insurance policies to take advantage of prospective tax savings. However, those investments can be complex, and the fees involved can add substantial annual maintenance costs to sustaining your policy. Some life-insurance investments can be valuable, but in many cases, you'll do better investing elsewhere and keeping your life insurance policy as simple as possible.

5. Revisit your life insurance needs from time to time.

Life insurance is intended to protect your family from the financial consequences of your death. But at some point, your family won't need as much protection, and at that time, it makes sense to revisit whether you really need to retain your life insurance. For instance, once your children are grown, then you won't need to worry about the expenses involved in raising them if you die. Similarly, as your retirement assets grow, your spouse might not need as much financial protection from third-party life insurance companies, instead relying on your own family savings.

Life insurance can be tricky, but that doesn't mean you should just ignore the financial risks you face. By keeping these five lessons in mind, you can make sure your insurance coverage does the job for you and your family.

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Dan Caplinger
Posted on May 3, 2014
Article from http://www.fool.com

Let SFC regulate investment-linked insurance policies

ridodirected@gmail.com (RIDO) — Sat, 03 May 2014 05:50:00 +0000

Enoch Yiu
PUBLISHED : Monday, 21 April, 2014, 11:41am
UPDATED : Monday, 21 April, 2014, 11:56pm
Article from http://www.scmp.com/business/money/investment-products/article/

New insurance regulator may lack expertise when it comes to investment-linked policies

Sales of ILAS tend to follow the fortunes of the stock market, suggesting that policyholders treat them as an investment product. Photo: Bobby Yip

The Hong Kong government will finally push ahead with the long-awaited establishment of an Insurance Authority next year, but the reform has not gone far enough to solve the problem of investment-linked assurance schemes (ILAS).

To protect the interest of policyholders, the ultimate solution should be to move these products under the regulation of the Securities and Futures Commission instead of the Insurance Authority.

The products, which have become popular in recent years, are a combination of a life insurance policy and an investment fund. Policyholders choose how to invest the premium among various funds.

This is different from traditional insurance policies, where the insurer decides how to invest the premium and pays dividends to the policyholders.

Investment-linked policies have the advantage of providing a higher return in a bull market run. But what goes up can come down.

When the market declines, policyholders may have their fingers burned, and there have been many complaints from policyholders that salespeople did not tell them the whole truth about the risks of the products.

Another problem is that these policies provide less insurance protection. When the policyholder dies, the amount of money left for the family may not be as high as expected.

Hong Kong's 80,000 insurance salespeople, be they insurance agents, brokers or bank staff, do not need to apply for a licence. The lack of regulation has led to mis-selling.

The setting up of the Insurance Authority will help solve this problem, as the regulator will license and regulate the salespeople and may fine those who have committed misconduct as much as HK$10 million.

However, the regulator will not have as much investment expertise as the SFC. So the government should shift the regulation of investment-linked policies to the SFC.

Statistics show investors buy investment-linked products in line with stock market movements. When the Hang Seng Index rose to a record in October 2007, their sales also reached a high of HK$60 billion, three times that of traditional insurance policies.

Then, when the markets were hit by the global financial crisis, such sales dropped in 2009 to HK$15.06 billion, or about half those of traditional insurance policies.

If investors are treating these policies like investments, the job of regulation should fall under the SFC, which has the mandate to protect investors.

enoch.yiu@scmp.com

Enoch Yiu
PUBLISHED : Monday, 21 April, 2014, 11:41am
UPDATED : Monday, 21 April, 2014, 11:56pm
Article from http://www.scmp.com/business/money/investment-products/article/

Policyholders to pay more for coverage

ridodirected@gmail.com (RIDO) — Tue, 22 Apr 2014 13:04:00 +0000

by Christina Chin
Published: Sunday April 20, 2014 MYT 12:00:00 AM
Updated: Sunday April 20, 2014 MYT 11:26:53 AM

PETALING JAYA: Faced with higher claims from rising medical costs, many insurance companies have increased their charges and premiums by up to 20%.

National Association of Malaysian Life Insurance Field Force and Advisers (Namlifa) deputy president Kho Chui Ing said most companies had adjusted their charges and premiums for medical, health and investment-linked policies over the last few months to cope with medical inflation.

“Some companies are offering policy upgrades and at the same time increasing premiums while others just raise the existing policy charges and premiums,” he said, adding that insurance companies only needed to issue a 30-day written notice to policyholders for the hike to take effect.

Policyholders must comply with the new rates or risk their policy lapsing.

Admitting that agents have a tough time explaining the increases, Kho said Namlifa had a duty to protect the welfare of its 12,000 members and policyholders.

“We are also policyholders and we too have to pay the same rates for the same benefits as our clients. Policyholders have to see what is causing the inflation and solve that rather than get angry with the insurance companies and agents.

“Even hawkers are raising their prices insisting it’s not by choice but a necessity as ingredients are expensive,” he said, adding that Namlifa would engage with Bank Negara to ensure a more sustainable growth for the industry.

Prudential Assurance Malaysia Berhad (PAMB) recently notified its policyholders that the PRUmajor med plans (PMM) premiums and charges would be increased effective from the individual’s policy anniversary date. PMM is a medical and hospitalisation rider that is attached to investment-linked insurance plans (known as PRUlink plans) offered by PAMB.

PAMB CEO Philip Seah said only those with a PMM plan attached to their investment-linked policies were included in the revision.

He said the percentage of increase varied from individual to individual, depending on the type of plan. Any revision was only made after taking into consideration the rising costs and frequency of people seeking treatment. This was to ensure that policyholders continued to enjoy medical coverage in the long run.

“We’ve increased the lifetime limit of all PMM plans to ensure that policyholders are able to cope with rising medical inflation,” he said, adding that medical inflation in Malaysia was currently about 10% yearly and projected to continue rising.

In December, the Government allowed a maximum 14.4% rise in private medical fees – almost half of the 30% requested by the Malaysian Medical Association (MMA).

General Insurance Association of Malaysia (PIAM) chairman Chua Seck Guan said medical and health insurance, which accounted for RM920mil of the sector’s total market share last year, was projected to grow as demand in the healthcare sector increased in line with the country’s development as a medical hub.

MMA president Datuk Dr N.K.S. Tharmaseelan said insurance companies should control wasteful expenditure by hospitals instead of increasing premiums. They should also be “eagle-eyed” when presented with hospital bills and speak up when they are overcharged.

“(Instead) they take the easy way out by arm-twisting doctors to lower their fees,” he said.

Fomca secretary-general Datuk Paul Selvaraj said insurance companies should not hold consumers to ransom because health insurance was a necessity.

“Any increase should only be on new or upgraded policies and policyholders must be given an option whether or not they want the extra benefits. If they are happy with the present coverage, insurance companies should not force them to pay more,” he said.

Christina Chin
Published: Sunday April 20, 2014 MYT 12:00:00 AM
Updated: Sunday April 20, 2014 MYT 11:26:53 AM

Life insurance industry's Q1 sales up 9%

ridodirected@gmail.com (RIDO) — Wed, 15 May 2013 08:00:00 +0000

By Toni Waterman
POSTED: 14 May 2013 1:55 AM
Article from http://www.channelnewsasia.com/news/business/singapore/

Singapore's life insurance industry has seen a 9% jump in first-quarter sales from a year ago. Weighted sales totalled S$561.8 million, coming on the back of strong growth in regular premium products.

SINGAPORE: Eighty-two per cent of life agents with major insurers have passed an exam qualifying them to sell Investment-Linked Life Insurance Policies (ILPs), according to the Life Insurance Association, Singapore.

This comes as a June 30 deadline on new testing requirements looms.

Singapore's life insurance industry has seen a 9 per cent jump in first-quarter sales from a year ago.

Weighted sales totalled S$561.8 million, coming on the back of strong growth of 19 per cent in regular premium products, which totalled S$428.9 million. But that rise was countered by lagging sales for single premium products, which fell 15 per cent on-year to S$132.9 million.

The Life Insurance Association's president, Annette King, said the industry has sustained a level of growth despite a slowing economy.

This comes as the industry gets ready to meet new testing requirements implemented by the Monetary Authority of Singapore (MAS) last year.

Among them is a test to qualify financial advisors and insurance agents to sell ILPs.

If they do not pass, agents will be limited to the sale of non-complex life insurance products like term policies, whole life plans and endowment plans.

Dr Khoo Kah Siang, deputy president of the Life Insurance Association, said: "The exams have actually helped to increase the professionalism of the advisors, in terms of them being able to provide the advisories for the more complicated products.

"So in that sense, the exams will help increase the level of professionalism for the industry and the consumer. It will benefit the consumer in the long run."

An MAS survey conducted in February showed that 70 per cent of financial advisory representatives have passed the test - known as Module 9A - but only 66 per cent working for insurers have passed.

The Life Insurance Association said eight in 10 agents with major insurers have now cleared the test, as of 2 May 2013.

Ms King said the exams won't have an impact on industry revenues.

She said: "Singaporeans still need and seek advice and 80 per cent of people say that having quality advice is instrumental in their decision around insurance.

"So more qualified professionals is a good thing and that we continue to see a growth in our industry with people predominately driven by advice, and I think we will continue to see that."

Analysts have speculated that some advisors who do not pass the exam will leave the life insurance industry.

- CNA/ms

Toni Waterman
POSTED: 14 May 2013 1:55 AM
Article from http://www.channelnewsasia.com/news/business/singapore/

Fairness of HK commission disclosure rules challenged

ridodirected@gmail.com (RIDO) — Mon, 13 May 2013 09:44:00 +0000

From Asia May 10 2013 BY: Simon Danaher
Article from http://www.international-adviser.com/news/asia/

Questions have been raised over the fairness of plans to introduce commission disclosure for advisers selling Investment Linked Assurance Schemes (ILAS) in Hong Kong, as those tied to banks or insurers will not be subject to the new rules.

As reported earlier this week, advisers selling ILAS products in Hong Kong will, from 1 July, have to formerly disclose the amount of commission they are due to receive on each sale to the client in a newly created Important Facts Document. This disclosure must also be followed by a call from the life company providing the scheme to check, among other things, that the adviser’s remuneration has been properly explained.

However, Rosetta Fong, chief executive of Convoy Financial Services – a listed company and the largest financial advisory business in Hong Kong, said, while in support of safeguarding the consumer’s interest, there is “room for improvement” in the new rules.

“According to the requirement, only insurance brokers are incumbent to disclose the amount of commission and fee to the clients,” she said.

“It means when insurance agents and banks sell insurance products, they are not obliged to comply with this new guideline on remuneration disclosure. This is unfair to brokers and consumers will feel confused.

“This unequal arrangement might lead to improper use of such disclosed information by some illegitimate industrial players. To protect the consumers’ interest at large, standard guidelines for the whole industry should be considered to enhance the level of transparency.”

In response to our earlier reports, Selina Lau, general manager, communications & committee at the Hong Kong Federation of Insurers said: “The Important Fact Statement highlights and summarizes the most important facts relating to an ILAS policy, including the purpose of the purchase, affordability, suitability, charges, payment terms, and alerting the customer that remuneration may be paid to the intermediary that recommends/sells the ILAS product.

"We believe that the IFS will help ensure customers have a clear understanding of the key features of the products they purchase and the risks involved.”

Simon Danaher
Article from http://www.international-adviser.com/news/asia/

Pru Life UK, Plan International sign pact for school-based disaster preparedness projects in Tanay

ridodirected@gmail.com (RIDO) — Sat, 11 May 2013 07:15:00 +0000

May 7, 2013 9:30am

Article from http://www.gmanetwork.com/news/story/307152/cbb/pru-life-uk-plan-international-sign-pact-for-school-based-disaster-preparedness-projects-in-tanay

Pru Life UK’s AVP for Advertising and Communications Reena J. Villamor and Senior Manager for Brand Activation and Community Relations Anna Gizelle V. Camua (fourth and fifth from left), together with partners from implementing organization Plan International, pose for a group photo with high school students from Tanay, Rizal who will be attending the summer camp workshops on disaster preparedness this May.

Pru Life UK, representing the Prudence Foundation, and Plan International recently signed a covenant of commitment with partner government agencies and organizations to implement a three-year disaster risk reduction program in vulnerable barangays in Tanay, Rizal.

At the launch program held in Tanay, officers of the local government unit led by the Municipal Mayor’s office, local crimewatch volunteers, as well as school administrators from the Department of Education, including teachers and students from six beneficiary public secondary and elementary schools, gathered together to pledge their commitment to the Climate Smart Disaster Risk Reduction project that will be implemented by Plan International.

Plan International will integrate the school-based disaster preparedness projects in public high schools of Marciana Catolos, Tanay and Tanay West, as well as public elementary schools of Marciana Catolos, Patricio Jarin and Wawa.

Tanay, Rizal was one of the worst-hit towns during the typhoon Ketsana (Ondoy) in 2009, and thousands of residents from its low-lying coastal barangays remain vulnerable due to its proximity to Laguna de Bay.

Teachers and students from the six public schools will be trained starting May on disaster risk reduction, first aid, water safety and other preparedness training including camp management.

“We aim to equip children, families and communities with survival skills in times of extreme natural disasters,” Pru Life UK’s SVP and Chief Marketing Officer Belle Tiongco explained.

“With Plan International’s school-based disaster preparedness program, we will help ensure the safety of schools and the children’s continued access to education by minimizing disruption of classes in times of disaster.”

“The focus of our project is child-centered disaster preparedness,” Emil Paz, Technical Officer for Research and Program Development of Plan International said, while briefing participants about the project. Plan International has been actively involved in disaster relief and rehabilitation for many years, “But we all know this is not enough especially since typhoons are becoming stronger, even more frequent, and more communities are getting affected.”

“Consciousness for disaster preparedness should be an everyday practice,” Dr. Gabriel C. Piguing, Municipal Administrator, said in his remarks during the program. “We are happy that this project now involves our students and children in schools, that way, even they are equipped to respond to emergency and disaster. It will really benefit our community if more residents are ready and prepared in times of emergency.”

The Prudence Foundation and Pru Life UK have recently announced Php100-M financial support for new disaster preparedness and pre-school child care programmes that will directly benefit more than 100,000 Filipinos in more than 100 barangays in Metro Manila, and in Bulacan, Rizal, and south central Mindanao provinces.

Established in 1996, Pru Life UK is a subsidiary of British financial services giant Prudential plc. Pru Life UK is the pioneer and current market leader of unit-linked or investment-linked life insurance products, and is one of the first life insurance companies approved to market US dollar-denominated unit-linked policies in the country. Pru Life UK is a life insurance company and is not engaged in the business of selling pre-need plans.

Prudential plc is a United Kingdom-registered company. Its regional headquarters, Prudential Corporation Asia, is based in Hong Kong.

Pru Life UK and Prudential plc are not affiliated with Prudential Financial, Inc. (a US-registered company), Philippine Prudential Life Insurance Company, Prudentialife Plans, Inc. or Prudential Guarantee and Assurance, Inc. (all Philippine-registered companies).

May 7, 2013 9:30am

Article from http://www.gmanetwork.com/news/story/307152/cbb/pru-life-uk-plan-international-sign-pact-for-school-based-disaster-preparedness-projects-in-tanay

Maybank launches new investment-linked product

ridodirected@gmail.com (RIDO) — Thu, 09 May 2013 07:07:00 +0000

Published: Tuesday April 9, 2013 MYT 4:40:00 PM
From http://biz.thestar.com.my

KUALA LUMPUR: To tap into potential of the luxury goods market, Malayan Banking Bhd (Maybank) has launched Luxury Edition, a single premium closed-ended investment-linked insurance plan in Malaysia.

Maybank Luxury Edition offers a combination of insurance protection and investment for potentially higher returns, all within one single plan. It is the first such investment-linked plan in Malaysia which is tied to the luxury market.

The largest financial group in the country targets to achieve its cap of RM275 million in sales by the time the fund closes on 7 May 2013.

Luxury Edition is a 3-year single premium closed-ended investment-linked insurance plan that invests part of the collected premium in an option linked to a basket of six stocks within the luxury theme listed at various stock exchanges. The plan is tailored with potentially higher returns riding on the constant rise of the luxury goods market.

Maybank deputy president & head of community financial services, Datuk Lim Hong Tat said this new plan was designed to meet the increasing demand for attractive investment products that will fit the varying risk profiles of customer segments.

“Luxury Edition is capital guaranteed and has a number of other attractive features that will interest customers who believe in the growth potential of the luxury market,” he said in statement today.

Datuk Lim added that based on research, the luxury market has outgrown global GDP by more than two-fold over the last 10 years and this trend is expected to continue.

“In fact, growth statistics from emerging markets has clearly shown the increasing prominence of luxury spending in these markets,” he explained. “This positive growth has given us the opportunity to tap into the affluent market providing our customers with an insurance plan which offers exclusive advantages,” he said.

Datuk Lim also said that emerging markets are expected to make up over 70% of the global luxury goods market size by the year 2020, with growth expected to be driven by countries such as Macau, China and Russia.

“All these factors highlight Luxury Edition's unique features which we believe will drive demand for this new investment plan. It is risk-free as customers could enjoy potentially higher investment gains apart from the capital guarantee, while being protected at the same time,” he said.

The Luxury Edition plan, underwritten by Etiqa, requires a minimum investment of RM15,000, with additional investments in multiples of RM1,000.

With a short tenure of three years, the plan offers a potential gross cash payout of 8% at the end of the second and third policy year. Apart from the cash payout, the plan offers 100% capital back, 10% of the Single Premium at the end of the first policy year and the remaining 90% at maturity while giving customers life coverage of up to 130% of the capital during investment period.

Published: Tuesday April 9, 2013 MYT 4:40:00 PM
From http://biz.thestar.com.my

What you need know before buying an Investment-Linked Insurance Plan

ridodirected@gmail.com (RIDO) — Tue, 07 May 2013 04:52:00 +0000

by AIA Singapore
http://www.sias.org.sg/

Many people generally view Investment-Linked Insurance Plans (ILPs) as simply ‘investment’. However few are aware that ILPs also provides insurance protection. In other words, ILPs can help meet your protection and savings or investment needs.

There are broadly two types of ILPs:

Single premium ILPs - Generally provide a lower level of insurance coverage as compared to regular premium ILPs and tend to be more investment focused.

Regular premium ILPs – Allows you to vary the level of insurance coverage to meet your protection needs. You can choose to enhance your protection by adding on additional benefits for disability or critical illness coverage.

If you have just started a family and insurance protection is your priority, you may opt for a regular premium ILP to enjoy a higher protection cover while a smaller portion of your premium is channeled to fund your investments in the initial years.

If you are retiring and have no dependents relying on you for financial support, you may then adjust your policy to provide for a lower protection cover and thus allowing your retirement funds to accumulate faster.

However, do note that investment returns are not guaranteed. It depends on the performance of the investment-linked funds which is not guaranteed and the price of the units can rise or fall.

Here are three quick tips on what you need to know before buying an ILP:

Think long term

Ensure that you have sufficient liquidity before purchasing an ILP because ILPs need a long term investment horizon to potentially grow and accumulate the funds. It is not suitable for you if you are just investing for short term needs.

Use dollar cost averaging

This is a strategy where regular investment is made over specified periods regardless of market conditions. This can help to eliminate a common investment mistake that most investors make of trying to time the market. In the long term, dollar cost averaging can help mitigate the impact of market volatility to your investment.

Know your risk appetite

Performance of the investment in an ILP is not guaranteed and hence the entire risk of the investment value is borne by you. You should know your own risk tolerance level before purchasing an ILP.

Ultimately, ILPs can be a tool for personal protection and wealth creation. Before purchasing one, you should review your financial goals, protection needs and risk profile, among other things. A qualified insurance advisor will be able to advise and recommend you a suitable plan.

by AIA Singapore
http://www.sias.org.sg/

Manulife confident of better year

ridodirected@gmail.com (RIDO) — Thu, 12 Apr 2012 17:53:00 +0000

Thursday April 12, 2012

By DALJIT DHESI

daljit@thestar.com.my

Article from The Star Online

It expects investment-linked funds to boost premiums

KUALA LUMPUR: Despite the current uncertainties and the volatile global economic environment Manulife Holdings Bhd is confident it will be able to perform better this year.

One of reasons for this bullish outlook is due to its investment-linked business.

Group chief executive officer Michael Chan said this year it expected its investment-linked products to contribute close to 80% of its new business premiums compared with 70% last year.

Last year, new business premiums stood at about RM62mil. Currently, he said the company was on track to meet its target for its new business premiums growth.

He said investment-linked plans were very transparent and offer customers the flexibility to manage their insurance plan according to their needs.

Customers were informed on all the fees and charges and the choice of investment-linked funds was made based on the customer's risk-reward appetite, he added.

Manulife has a range of investment-linked funds that caters to a diverse range of risk profiles. If a customer is inclined towards low risk, they could choose bond or fixed income funds such as the Manulife Income Fund.

Chan said its Manulife Managed and Equity Funds had been consistently strong performers in the local equity market.

The latest fund that Manulife launched was the Manulife FlexiInvest Fund, a fund ideal for investors who want to leave the asset allocation decision to the fund manager, he said adding that there would be more funds in the pipeline.

Chan added that the newly granted private retirement scheme (PRS) licence to Manulife Unit Trusts Bhd would help to grow the company's business in the coming years. The PRS would form another important line of business to the company, he noted.

Manulife Unit Trust Bhd, a wholly-owned subsidiary of Manulife Holdings Bhd, is one of the eight intermediaries which was recently selected by the Securities Commission as the country's provider of PRS.

As accuracy in the relevant processes for a PRS business is critical, he added Manulife would be investing substantially in its imaging workflow and dual entry systems. “Manulife globally has the expertise in pension and retirement schemes and we will capitalise on this expertise to boost our PRS business. We will also have a sophisticated customer website to enable investors to switch funds, analyse future and past contribution of various funds, among others,'' he said in an interview with StarBiz.

Meanwhile, Manulife Insurance Bhd senior vice-president and chief agency officer Jeffrie Teh Cheng Keat said it would intensify training to its agency force and teach its agents on how a product works as well as train them to become financial planners.

“Manulife has developed a comprehensive training system that will help agents become successful. We want to develop a professional agency force where customers can trust our agents to help them make key financial decisions,” Teh added.

Manulife has nine branches or regional support centres and 70 agency offices.

Article from The Star Online

Indexes Up as China Acts to Lure Foreign Investors

ridodirected@gmail.com (RIDO) — Sat, 07 Apr 2012 08:22:00 +0000

By BETTINA WASSENER

Published: April 5, 2012

Article from The New York Times

HONG KONG — Stocks in China rallied on Thursday, helped by the country’s newly announced decision to open its markets to more foreign investment and expectations that Beijing might soon take additional steps to bolster flagging economic growth.

The mainland Chinese market has lagged behind much of the world this year amid worries about the health of the Chinese economy, where growth has slowed sharply in recent months.

That trend reversed itself Thursday, with the Shanghai composite index gaining 1.7 percent and the Shenzhen index rising 3.1 percent on the first day of trading after a three-day holiday in mainland China.

Most other markets in Asia fell Thursday on renewed concerns over the euro zone crisis after a government bond auction by Spain on Wednesday yielded disappointing results.

The Nikkei index in Japan closed down 0.5 percent and the Hang Seng index in Hong Kong fell 0.95 percent Thursday.

Chinese markets were buoyed by expectations that foreign investment would increase in line with a loosening of quotas that cap the amount of foreign capital that can flow into domestic stock and bond markets in mainland China.

The liberalization of the investment program, announced Tuesday, raised the quota for qualified foreign institutional investors to $80 billion from $30 billion. Analysts said the new quota was not especially large but still symbolically important because it appeared to be part of China’s gradual efforts to overhaul its tightly controlled capital markets.

The “move is a sign of a push for greater capital account opening,” said Dariusz Kowalczyk, a senior economist at Crédit Agricole in Hong Kong. “It is also a step toward attracting more foreign investment.” At the same time, many analysts predict Beijing will continue its drive to lift the economy with measures that some say could include an interest rate cut this month.

The Chinese economy, a leading engine of global growth, has been flagging in recent months. Government efforts last year to hold back excessively rapid expansion and the inflation that accompanied it then are still weighing on the economy. At the same time, demand for Chinese-made exports has waned amid economic turmoil in Europe.

Manufacturing sector data for March painted a complex picture. Growth appears to have been resilient among large state enterprises, but lagging at smaller, private companies as a result of tight liquidity and slowing demand. That has complicated policy makers’ balancing act, analysts said: Beijing needs to encourage growth, but at the same time avoid reigniting inflation.

The central bank has loosened the reins on bank lending twice in recent months in an effort to stimulate economic activity, and many analysts say they expect more cuts to the so-called reserve requirement ratio for lenders in the coming months.

Economists are less consistent, however, in their views on whether the bank might announce more sweeping measures, like a cut in the lending rate.

Mr. Kowalczyk of Crédit Agricole said the central bank might cut the rate, possibly before the release of first-quarter economic growth data, due April 13.

Those figures are likely to show that the economy expanded about 8.4 percent from a year earlier, but only 1.6 percent compared with the preceding three months, Mr. Kowalczyk said. He predicted that would prompt more stimulus from Beijing. “The big guns have not been fired yet,” he said. “But I think they may do so soon.”

Some other economists said that the authorities may stick to smaller, selective measures like tax cuts, added financial market liberalization or increased spending on education and health care to buoy growth.

“You could call it ‘easing by reform’ — gradual and small movements to unleash the potential of consumption,” said Yao Wei, China economist at Société Générale in Hong Kong.

Ms. Yao said recent comments by policy makers appeared to indicate that efforts to overhaul the economy were picking up pace. “The focus appears to be more on the quality of growth, rather than the speed of growth,” she said.

A version of this article appeared in print on April 6, 2012, on page B5 of the New York edition with the headline: Indexes Up as China Acts To Lure Foreign Investors.

Article from The New York Times

Annuities: Assessing the alternative

ridodirected@gmail.com (RIDO) — Thu, 05 Apr 2012 09:58:00 +0000

Annuity rates are falling and the headlines are full of dire news for pensioners, so surely now is better than ever to maximise retirement income. But are alternative annuities still being overlooked? Laura Suter investigates

By Laura Suter | Published Mar 20, 2012

Article from FT Adviser

The annuities market has come a long way in terms of development and innovation since the first annuity product was launched more than 50 years ago. While the market is now near unrecognisable from its former days and undoubtedly there is more choice, advisers jobs are far harder.

However, the broader market offers far more opportunity for advisers to show their worth. A simple move of selecting a suitable enhanced annuity over a conventional lifetime option can generate thousands of pounds of additional income for a client. Meanwhile opting for a joint life annuity over a single life one can be a lifesaver for couples.

After the advent of the first annuity there was stagnation in product development until legislative changes in the 90s brought about drawdown. Following this came flexible annuities, investment backed options, enhanced and impaired annuities and fixed term annuities.

The innovation has not stopped there, and most recently Primetime Retirement, formerly known as Living Time, brought out a fixed term annuity backed by a structured product. This offers a fixed term of six years and is written under a SIPP. But alongside the income and guaranteed maturity lump sum at the end of the term, the product offers the opportunity for some investment growth. Linked to the FTSE 100, the product will work like a structured product, offering growth if the market grows, within certain criteria.

While many advisers have been keen to embrace these alternatives to the standard lifetime annuity, many are still not doing enough and more education is needed.

The impact of the RDR on the alternative annuity market is much debated, as with all aspects of the RDR. Some say that it will lead to more specialist retirement advisers, who have clients referred from other adviser firms and are fully versed in the options available.

However, others feel that it will see a move away from those with smaller pots, putting advice out of reach for many low and middle income providers. As an explicit fee will need to be paid, rather than commission, many feel that advisers will only deal with higher net worth, who can afford to pay for the time needed to research all retirement options.

One group that believes that RDR will lead to more specialist retirement advisers, and which has already put such a model in place, is Intelligent Pensions. The company has developed financial software in order to graduate the at retirement process and receives the vast majority of the 1,400 clients it has dealt with from referrals from other advisers.

It has tapped into an emerging trend in the at retirement area, of not just selecting one annuity option, but using a raft of them alongside each other. The principal is that it is a very risky strategy to take the entire pension pot and buy an annuity with it all on one day.

Steve Patterson, managing director of the company, instead refers to it as a decade of annuitisation. “It’s a shades of grey process rather than black and white”.

Rather than selecting one annuity option and sticking with it, many advisers are now urging clients to take a pick and mix approach. By using drawdown to offer flexibility in the earlier stages of retirement an annuity can be selected later on, when ill health or simply older age will garner a better rate.

Another option is to secure the ‘must have’ income with a lifetime annuity and then invest the remainder of the pot in drawdown, enabling more risk to be taken.

Opening up the market

You cannot mention annuities and not mention the open market option (OMO). It is the campaign that has been trying to encourage shopping around and forcing customers to get a better deal, rather then defaulting to their pension plan provider.

The campaign reached a big milestone in March of this year, when the ABI published its new code for insurance providers. It now means that instead of allowing the pension provider to mail out an annuity quote complete with application form, at the retirement date, providers have to go one step further.

The code, which only affects ABI members, means that providers must highlight different options and that shopping around can get a better deal and send out wake-up packs that do not include application forms for their own annuities. The new code also means that providers must ask six key questions on the retiree’s health and circumstances, to help assess whether an alternative annuity is a better option.

While the move has been heralded as a leap forward in the system, it is by no means the end of the OMO campaign. The ABI code will not affect a large portion of the industry, namely non-ABI members and the occupational market, and many feel that the demands on insurers need to go further still.

Quotes can still be included in the packs sent by providers to retirees, which was a contentious issue when the guidelines were being drawn up. However, research from the organisation showed that it made no difference to retirees’ annuity buying if the quote was omitted. However, as Steve Lowe of Just Retirement points out, “If it offers no value to the customer, then why include it?”

The other issue with the code is the time lag between the ABI issuing it this March and it actually being put into practice. Companies have a year to implement it, until March 2013, but it seems unlikely that it would actually take companies more than two months to make the necessary changes. Whether they will actually move so quickly remains to be seen.

Another contentions issue surrounding the OMO campaign is whether it really applies to all people with all size pots.

John Lawson, head of pensions policy at Standard Life, says that those with small pots should address the issue of their retirement situation, whether they can retire yet and if they can afford to do so before they look at the best rates out there. His, admittedly biased, argument is that they will get this discussion if they stay with their pension provider, like Standard Life, but that they will not get this if they just go to a shopping around broker who assesses the best rate that can be obtained and not the suitability of that decision.

Lawson adds, “Those with small pots are only likely to gain around £1 per week by shopping around anyway. It’s more important that they get that information on retirement.”

However, Steve Lowe of Just Retirement completely disagrees, understandable considering that he comes from an alternative annuity background – a sector that benefits from shopping around. He says that it is a “lazy piece of rhetoric to say that it’s not worth it” for small pots to shop around.

And, while a generalisation, it could be argued that those with smaller pots are likely to be less well off and so more likely to be in ill health and therefore benefit from an enhanced or impaired annuity.

Another concern surrounding the OMO campaign is that it places too much focus on the best rates, with other aspects being overlooked. Standard Life’s Lawson says that while getting a good rate is important, many do not consider issues such as the financial strength of the organisation or trust in the name.

Much in the same way that those who look at car insurance quotes on online supermarkets do not necessarily select the cheapest option from an obscure provider and instead pay an additional £50 a year for a well-known name, the same can be said of the annuity industry.

Andrew Tully, pensions technical director at MGM Advantage, agrees, saying that as a smaller provider it is sometimes not recognised by consumers, who may choose to put their money elsewhere. He also argues that rather than solely focusing on the best rate, consumers need to be aware of the most appropriate option too.

While the ABI’s move on the code is an encouraging step forward, it also does not address the issue of occupational schemes, which represent a large proportion of pension pot holders. Tully adds, “Industry members think that trustees and employers will give them the best deal and do not realise the need to shop around.”

Getting the gender right

Aside from RDR, another factor that will have a big impact on the annuity market this year is the European Court gender ruling, which determines that annuity rates cannot be based on gender. Currently, annuity rates for men and women are different as they have different life expectancy and contract different illnesses.

While the fine detail of some of the ruling, which comes into place in December 2012, is yet to be clarified – such as how gender specific illness will be handled – the industry is already geared up to alter its pricing.

However, some predict that the move will lead to the emergence of more internal and external pricing, internal being the rate quoted to existing customers, while external is what it quoted on the open market.

The logic behind this is understandable. Providers know the gender mix of customers on their books and so can factor in the longevity risk of this relatively accurately, with women tending to live longer and so getting lower rates.

However, for the open market they have no idea what mix they will get and so need to build in a risk margin for this – leading to lower annuity rates.

While Tully admits that he can see why some providers would want to do this, he is “not a fan of the idea”.

This all may become a moot point, as many believing that the concept of a standard rate may be a thing of the past in coming years. An entirely underwritten process is likely, many believe, with all quotes being based on the individual’s circumstances, rather than assumptions for certain groups.

Education, education, education

More education for consumers is another key issue with which the industry is in agreement. The ABI’s new code makes some steps forward, stating that customers must be contacted between two and five years ahead of their selected retirement date. However, it adds, “We agree that the sooner customers engage in retirement decisions, the better, but we believe this is beyond the reach of the code.”

A large hurdle in the pensions market is getting people engaged. Some say providers should be doing more, approaching retirees at an earlier stage and going beyond their current remit of having to send wake up packs six months and six weeks before the selected retirement date.

Standard Life’s Lawson agrees. “As a company we need to do more further out, not just five years ahead but engaging people between the age of 20 and 50.”

Why they have not already done so remains to be seen, but Lawson argues that up until now they have relied on IFAs and brokers to educate consumers. He says that in the past five years a raft of non IFA advised customers has come to the company “from nowhere” and that this customer is unserviced. He adds that the company has not yet had time to react to this trend, but will work on doing so.

Many feel that the Money Advice Service has a role to play, acting as a central and neutral resource for information on annuities. Technology certainly can be used as a low cost option for providing information as a first port of call.

MGM’s Tully goes one step further, calling for a central resource to which all providers direct customers, with information on products, and five step guide to shopping around, example rates and a list of advisers to approach for more detailed, personalised information.

However, Jane Vass, head of public policy at Age UK and a member of the OMO working group, says that the system should be turned on its head. “The system assumes that people go through life needing to know how to annuitise when they only do it once. It seems better to have a system that moves people seamlessly into the right option.

She adds that as there are not hundreds of providers, “it’s not beyond the wit of man to link them up and offer a centralised service”.

What’s the alternative?

It is all well and good to say that alternative annuities pay more and offer more options, but just how much more can be gained by deviated from a standard option?Table 1 lists the various alternative annuities that can be purchased with a £100,000 pot, the standard rate is also shown as a basis for comparison.

Looking at the headline rates for the RPI linked annuities shows why many consumers are put off them initially, as the rate is so much lower than the standard. However, here is where advisers come into play, to really show clients how exactly that rate can grow, potentially diminishing the standard rate in later years. With inflation circling 5% in the past year, the value of these annuities is really shown.

Looking at the fixed term options shows that Aviva pays the lowest at all terms and for both genders. For the lowest paying rate for a male at five years the total payout of £104,792 represents a 0.94% AGR, pretty dismal.

When compared with the best performer at this term for a male of Just Retirement’s total return of £107,763, the impact of picking the right provider can be seen. Although Just Retirement’s 1.51% AGR is still not astounding and many would feel that they can do better themselves, through drawdown. The difference in rates between providers is also because Aviva is a household name and many would feel more comfortable putting their money with them rather than a smaller provider, but this does come at a premium.

Looking at the AGR of the annuities shows that retirees are relying on being in ill health or annuity rates having risen by the term end, as the growth on the £100,000 income is negligible at five years.

At 10 years it improves, with MetLife providing the best overall results, delivering £127,823 for a male and £126,581 for a female, or 2.49% and 2.39% AGR respectively. However, with annuity rates continuing to fall sharply, this may not make up for the drop in rates should ill health not occur.

The high costs of some products in the fixed term annuity market have hampered their success, some believe. Steve Patterson at Intelligent Pensions says that charges need to come down before more will consider them. “There are products with quite heavy expense loadings, which creates a problem in the market,” he adds.

For with profits both Prudential’s Income Choice and MGM’s Flexible Income Annuity are shown. Each one is shown at the maximum income that can be taken, the equivalent to what a level annuity would purchase with the same pot and the minimum income. While actual results cannot be shown, the Table shows the impact that taking a high level of income can have on the pot. With the maximum income taken and a 5% return on the Prudential product, the income rapidly reduces after 10 years.

What the future holds

With product innovation having come on in leaps and bounds over the past few decades, where does the annuities industry go next?

Many providers feel that products that allow for more investment growth but in a secure way will be the largest area of development, not dissimilar to Primetime’s new offering.

Peter Carter, product marketing director at MetLife, says that with people now looking at spending 30 or more years in retirement, any investment linked to an annuity needs to be considered as long term. However, retirement is not a time of life to be taking undue risk, so protection on the downside is needed.

Carter also believes that there is some mileage in creating a product that combines an ISA and a pension, offering tax relief and limited withdrawing of funds.

Long term care is another key issue in the market at the moment, with many not being adequately prepared to pay for it should the need arise. A product that allows for long term care to be paid from the pension pot could be another product development that would have direct demand from consumers.

Nigel Barlow, director of technical product development and marketing at Partnership, believes that disability linked annuities could be developed. The product could be flexible and on diagnosis of a condition the annuity could increase by 50% to 100% in order to pay for a care home. Obviously this would come at an additional cost at the outset, but as rising care costs are a constantly debated need it could well benefit many people.

Tully adds that MGM will also be creating new products this year, mainly in the fixed term area but will expand on what is already offered. He adds that consumers want flexibility of when to buy their annuity and want to do it in phases, as with selling down of equity portfolios.

Platforms, which appear to be dominating large areas of the financial services market already, could also come into play in annuities. Currently, when investors are on a platform and they annuitise they remove money from the platform, ergo it is in the platform’s interest if more retirement income options are offered that lead to staying invested on the platform.

Another question is whether more development is needed. With new products comes a move further away from a simplified market. If providers begin bringing out products with slightly different tweaks do advisers, let alone clients, have any hope of understanding all of them and their limitations?

As Carter says, “Innovation for its own sake is a bit pointless.”

Article from FT Adviser

50 years of life assurance

ridodirected@gmail.com (RIDO) — Mon, 02 Apr 2012 21:30:00 +0000

Life assurance played a major part in many people’s financial plans over the years. But beset with mis selling scandals, accusations of high unit linked charges and inflexible products, can the life assurance companies learn from the past and build on the future, asks David Severn?

By David Severn | Published Mar 23, 2012

Article from FT Adviser

With profits and unit linked policies and bonds have formed the backbone of the products available to IFAs, as well as direct sales staff, over the past 50 years and have formed the major source of remuneration for many advisers.

More importantly life assurance has been the vehicle by which IFAs have met the investment and protection needs of millions of their clients, not to mention mortgage repayment vehicles and health insurance needs – although strictly speaking this latter comes under the heading of general insurance.

It is therefore no surprise that Money Management has always devoted substantial coverage to life products and their application over the past 50 years.

The launch of Money Management coincided with a major change in product design in the life industry.

Until the 1960s with profits offices had the industry sewn up. But the first unit linked contracts were soon to appear and the unit linked concept really took off when Sir Mark Weinberg founded Abbey Life Assurance in 1961.

The 1960s and 1970s were also a period of major change in other aspects of the financial sector, leading to significant pressure on offices to change.

Proprietaries, mutuals and demutulisations

Over 50 years the number of life offices has declined and there has been a shift in the legal status of many.

In 1962 Prudential and Legal & General were the biggest offices, both still around today but now challenged by giants such as Aviva. As commercial pressures mounted on mutual offices and exacting solvency requirements were imposed, an increasing number looked to demutualise or were taken over.

Becoming a public limited company meant that an office was able to access a much broader capital base. For ordinary policyholders there was the temptation of a windfall payment. The downside was that, whereas a mutual concerned itself with the interests of its members, on conversion it would be beholden to shareholders and their interests could conflict with those of policyholders.

The first significant mutual to change was Scottish Equitable, which was taken over by Aegon in 1994. Others held out for some years, Standard Life for example not converting until 2006. Some mutual offices were even allowed to keep their original names after demutualisation – Scottish Mutual, for example, became a limited company but continued to be called Scottish Mutual after it demutulised…

In terms of the total size of the life industry there were £6.7bn of assets under management in 1962, which has risen to £1,597bn in 2011. The number of policies in force in 1962 was around 14.2m and by last year it was 73.2m.

With profits

Any history of the past 50 years of life assurance products has to start at with profits policies.

Equitable Life was formed around 1760 and Standard Life and Scottish Widows in the early 1800s. For a number of reasons they started to build substantial surpluses and as mutuals they distributed some of the surpluses as a reversionary bonus to members.

This happy situation continued – excepting World Wars – until the 1960s when challenges to with profits came from a number of quarters:

• After World War II there was a major shift towards equities and offices had problems managing the greatly increased volatility of the surplus, now principally an investment one;

• The introduction of the unit-linked concept;

• The era of much greater competition in financial services starting in the 1970s and regulation.

With-profits offices tried to adapt in a number of ways. There was a shift away from reversionary bonuses, for which offices had to reserve because once allocated they could not be taken away, as long as premiums continued to be paid.

Because of the onerous requirements to effectively guarantee the payment of reversionary bonuses, there was a distinct shift towards terminal bonuses, for which, until recently, offices did not have to reserve.

But this meant that policyholders were exposed more to investment risk. The concept of unitised with profits, which did not need so much capital, was invented around the early 1980s in an attempt by with profits offices to get back the market share that they had lost to the new unit linked offices.

Unit linked

The introduction of unit linked assurance marked a radical change to the market.

A unit linked policy did not have to be equity linked, although most were, nor did it have to invest in units of a unit trust. It transferred more investment risk to the policyholder so that, at maturity of the policy or on death or on surrender, the return was the value of the units at the unit price prevailing.

The role played by the actuary in with profits offices in smoothing and determining bonuses was redundant. Also, the fact that unit linked policies were not subject to the same reserving standards as with profits meant that IFAs could illustrate better returns for unit linked plans.

When stock markets boomed unit linked products were attractive, as policyholders did not have an actuary holding back some of the investment return for a later day. But the popularity of unit linked products necessarily tracked the fortunes of the market so that, when corrections occurred such as in 1973/74 and Black Monday in 1987, new business suffered.

The performance of unit linked policies was also affected by the notorious ‘capital units’ that many employed in the 70s and 80s. They were the brainchild of Geoff Westall, the actuary at Hambro Life (later to become Allied Dunbar), the second life company to be formed by South African Mark Weinberg.

Capital units were a way in which the salesman could honestly say that 100% of the investor’s money was invested from day one – glossing over the fact that, in the first two or sometimes more years that investment would be in capital units which bore an additional annual charge of, say, 6% pa.

That in itself may not have been such a bad thing, if it were not for the fact that those capital units continued to bear the extra charge throughout the lifetime of the policy. This could be lost in the performance if that was going up, but the minute the stock market faltered the extra burden imposed by the capital unit charge began to become obvious.

Although then largely discredited as a form of charging, many life company marketing departments tried to convince us that it was in fact a fairer way of taking charges than levying, say, 50-100% of the first year’s premiums at the outset, because the premiums paid in the earlier years had the longest to grow and therefore taking out charges in one go was less beneficial to policyholders than taking them out over the term of the policy.

Unit linked life offices stopped using capital units about 15 years ago although, obviously, there are still many policies in force today that still contain them.

Following the 1987 crash the attention of some unit linked offices also turned to unitised with profits in an attempt to staunch the flow of money into with profits or other funds with capital guarantees.

It was not until 1986 that separate data was collected for unit linked policies, by which time £39.4bn was under management and by 2010 this had grown to £1,028bn (64% of the whole market).

Low cost endowments

Although just a variant of with profits or unit linked policies, the low cost endowment, generally reckoned to have been invented by Legal & General in 1972, deserves a mention.

Designed with the laudable aim of making it affordable for consumers to buy a home the low cost endowment came unstuck because it was assumed that unrealistically high returns could be sustained over the long term and be sufficient to pay off the capital sum on an interest only mortgage.

When it was clear that many policies would not deliver, the industry was lumbered with a review of past business sending ‘traffic light’ letters to many customers giving them the bad news that their outstanding mortgage would not be paid off.

Distribution

There have been major changes in the pattern of life assurance distribution over the past 50 years often driven by regulation and quite often working to the advantage of IFAs.

In 1962 and as a generalisation life offices fell into two camps.

In the first were the long established, often mutual, with profits offices. Their distribution was principally through brokers and there was often a strong link with mortgage business.

The newcomers were the proprietary unit-linked offices and their distribution was principally through direct salesforces. After Sir Mark Weinberg quit Abbey Life he formed Hambro Life and when this company took over a unit trust manager and a small bank Allied Dunbar was born in 1985.

With it came a sales and marketing approach that involved hard selling and advertising and the payment of high commissions to agents so that some competitors dubbed it Allied Crowbar.

But just as salesforces and brokers were embarking on an enthusiastic drive to sell more policies, conduct of business regulation came on the scene. The market was polarised in 1988 between independent advisers and those salesmen tied to a single product provider.

Standards were imposed on the information that advisers were expected to obtain from customers. Disclosure emerged as a key requirement originally in the form of product particulars and with profits guides.

Illustrations of the possible future value of a policy had long been a sales aid and now the regulators attempted to impose limits by prescribing a range of permissible investment returns.

Originally illustrations were based on a standard set of charges assumptions issued by the regulator for offices, its argument being that if a life office used its own charges, consumers would be too influenced by the price of a product rather than its performance.

This is an issue that Money Management fought hard to change, publishing its ground breaking surveys of own charges illustrations with the help of an actuary. In the end, as a direct result of MM’s surveys, the regulator was forced to abandon standard illustrations because, in one landmark survey, MM proved that every single life office had higher charges than the standard charges illustrations, making the whole regulated assumptions a nonsense.

The means by which life offices remunerated advisers to obtain business was as hot an issue in 1962 as it remains today. A voluntary Life Offices Association (LOA) agreement sought to control commissions but some of the newer offices stayed outside it.

Later the regulators tried to maintain the maximum commissions agreement (MCA) but that approach was struck down by the Office of Fair Trading in a landmark ruling headed by Sir Gordon Borrie. His argument was that, if the MCA were scrapped it would drive down commission levels. Exactly the opposite happened and they sky rocketed.

There is not space to cover some of the industry’s failures – the willingness to chase market share at nil or even negative profitability, the lemming like rush into appointed representatives, the bancassurers’ avarice in using low cost endowments as a revenue earner, the ‘closing down sale’ prompted by the abolition of Life Assurance Premium Relief (LAPR) that had effectively subsidised hidden charges.

But it has not all been bad news. In the past decade the life industry has made concerted efforts to try to improve the service that it provides to consumers. In 1999 it set up a pensions, protection and life assurance board, which, among other things set about devising a ‘raising standards’ quality mark.

Then in 2006 Customer Impact was set up to track every year consumer attitudes about the life industry.

Industrial branch

The past 50 years have seen the demise of industrial branch business – “the man from the Pru” making weekly door to door collections of premiums. The other big industrial branch office of the day was Pearl Assurance.

The model could not withstand the increasing costs of frequent personal collection of very small premiums and was put under further strain as more consumers got access to a bank account and regulation began to bite.

There was one industrial office whose policies held to maturity returned less than the total premiums paid. And surrender rates for policies were high so many consumers lost money that way. In 1962 there were over 114m policies in force, which has shrunk today to 10m, and for only about 20% of these are premiums still paid.

It is a strain to recall the dinosaur age of IT that existed in 1962. Look for a computer and you were most likely to find a mainframe occupying a large space in a life office.

The chance of finding one in an IFA’s office was remote. It was another 20 years or so before IT started to intrude into IFA offices with videotext based quotation services.

Key events were the formation of Origo and The Exchange in 1989/90. The original purpose of the latter was to facilitate electronic new business processing with IFAs but in 1994 efforts were directed to dealing with own charges illustrations and other new regulatory requirements.

In the past decade the introduction of wraps and platforms has had a major impact on the business of IFAs improving communications and administration and providing a range of tools.

It is ironic that the level of contract and investment charges levied on consumers have generally increased at the same time as the technology to operate contracts has dramatically reduced costs; the reason seems to be the increased costs imposed by regulation militating against savings being passed on to consumers.

Regulation and compensation

In 1962 life offices were subject to prudential regulation by either the Department of Trade or the Friendly Societies Commission.

This remained the case until the Financial Services Authority (FSA) arrived. The influence of the EU has grown steadily. As early as 1979 the First Life Directive started the task of creating a single market for life insurance. More recently implementation of the Solvency Directive has proved a major task.

The failure of Nation Life led to the introduction of the Policyholders Protection Act 1975, which provided the first compensation scheme for insurance companies. The Policyholders Protection Board oversaw the arrangements until 2001 when the Financial Services Compensation Scheme (FSCS) took on responsibility, since when there has been no failure of a life insurer for which the FSCS has had to pay compensation.

Equitable Life

Although it was Equitable Life’s capacity as a major pension provider that brought about its near collapse, the consequences were to affect the whole with profits sector.

In common with others Equitable offered a guaranteed annuity rate on its personal pensions at levels that became increasingly difficult to meet as investment returns declined.

After a court action and failure to find a buyer Equitable had to close to new business in 2000 and the Government announced an enquiry into its regulation by the FSA. This was the trigger for the FSA to announce in February 2001 a review of the whole of the with profits sector.

With profits review

The FSA’s review of the with profits sector has resulted in a major shakeup and as recently as 2010 the regulator was still addressing issues such as corporate governance.

In the 10 years since the review started with profits offices have had to cope with abolition of the role of the appointed actuary, the introduction of ‘Principles and practices of financial management’ setting out how funds are run, the introduction of a policyholder advocate, new rules on treating with profits policyholders fairly, risk sensitive capital requirements and individual capital adequacy assessments, and more intensive supervision.

Closed funds and consolidators

A feature of recent years has been the increasing number of with profits funds that have closed to new business.

In 2004 the FSA reported that out of 110 funds 66 were closed to new business and those closed funds had £191bn under management, roughly a fifth of the total assets of the sector.

Closed funds have presented a new challenge for IFAs in deciding whether to advise clients to stick with their policies. Although they earned the nickname zombie funds the FSA pointed out that not all funds had closed because of financial weakness and not all were returning poor investment performance and lower bonuses.

In recent years there has been a trend for consolidators such as Resolution Life, formed in 2004, to take over closed funds with the aim of ensuring proper management in the interests of the policyholders.

Let’s end on a positive note

It has been 50 years of turmoil for life assurance and often the actions of the industry have not always enhanced its reputation among consumers or IFAs.

But it is worth remembering that many millions of consumers have saved with the industry and many have got good returns from their investments. For example in 1961 something like £405m was paid out to policyholders (equivalent to £7bn in 2010 prices) while £60bn was paid out in 2010.

Yet there are still many consumers who are failing to save or who have no protection. Last but not least many IFAs have depended for their living on the products of the industry.

----------------------------

Timeline

1961 Abbey Life founded and unit-linked assurance starts to take off

1972 Low cost endowment invented

1975 Policyholders Protection Act provides for compensation

1979 First Life Directive starts the process of EU dominance in setting standards for life assurance regulation

1980s Unitised with-profits invented

1988 Life companies become subject conduct of business regulation as respects their sales and marketing

1989/90 Origo and The Exchange formed

2000 Equitable Life closes to new business

2001 FSA announces With-Profits Review

2001 Lifeline thrown to life offices by FSA to prevent forced sale of equities to bolster plummeting excess capital levels needed to support with-profits business

2002 Ron Sandler’s Review of Medium and Long-Term Retail Savings proposes Stakeholder products

2002 FSA consultation paper CP121 on depolarisation and defined-payment system

2007 Discussion Paper from the FSA on the Retail Distribution Review

2009 Tougher stress testing regime for providers introduced by FSA

2011 New requirements for protecting with-profits policyholders introduced

2011 The Prudential Regulation Authority sets out how it proposes to carry out insurance supervision

2011 Unit-linked policyholders given further protection under Solvency II to ensure offices invest prudently

Five Things You Didn’t Know About Life Assurance (With Thanks To Icki Iqbal)

Happy and glorious

The Church of England used to insure the Queen for a substantial sum. Reprinting Prayer Books costs money!

Surviving WWII

Life offices could have gone bust in WWII. Two things saved them. Actuarial valuations were carried out every three or five years so the regulator’s hand was not forced. And the Government was persuaded to cap the income tax on life funds at 7/6d to the £1.

Elementary Dr Watson

Sir Arthur Conan Doyle was one time chief medical officer of a life office.

Bastards and later issue

In his book ‘The Tebbit test’ Icki Iqbal reports the issue risk policy. One of the problems when an estate was placed in trust was that there could be children unknown or children born in the future. The executors could take out a policy to guard against this. The trick for the insurer was to make sure the couple had been happily married – which reduced the likelihood of any bastards being around - and that the wife was past child bearing age – so it was very unlikely any children would be born in the future.

Article from FT Adviser

Warning over effect of FSA independence rules on care advice

ridodirected@gmail.com (RIDO) — Sun, 01 Apr 2012 10:04:00 +0000

Qualifications requirements could discourage advisers, but providers say opportunities exist.

By Donia O'Loughlin | Published Mar 30, 2012

Article from FT Adviser

In the post-Retail Distribution Review world advisers will need to differentiate themselves to attract business and the care arena will be a way to do that, but tough qualifications requirements could deter some from moving into the space, according to product providers.

In a recent guidance note, The Retail Distribution Review: independent and restricted advice, the Financial Services Authority indicated that care fees advice and long-term care insurance would be classed as a ‘specialist’ activity.

This means advisers wishing to remain independent post-RDR must have either the relevant qualification or a referral process in place in order to protect their clients’ interests.

Andrew Tully, pensions technical director at MGM Advantage, agreed that long-term care is going to become an “increasingly important” part of the retirement advice process as the population ages.

He said: “Advisers who choose the independent route after RDR will want to differentiate themselves and being able to advice on specialist areas such as long-term care is one way to do that.”

However Mr Tully pointed out that more innovation was needed and the government “may want to consider other options”.

He said: “For example, giving tax incentives to someone with a ‘normal’ pension annuity who asks for some or all of the income to be paid direct to a care home in later life.

“Flexible investment linked annuities may also be a useful option as they allow a higher income to be withdrawn than a standard annuity, so people can increase income being taken if they have additional outgoings for long-term care.”

Andrea Rozario, director general of Safe Home Income Plans, said that while the RDR will require advisers to undertake further qualifications, this “will not deter them” from entering the long-term care sector.

She said: “People are living longer than ever before, yet as we well know many will not have sufficient income or savings to pay for all of their possible care needs.

“Therefore it is likely that many more consumers will seek financial advice, to ensure they are financially prepared to cope with these costs.

“Advisers will want to make sure they are prepared and equipped to offer the best advice for their clients, especially given the importance and sensitivity needed when making decisions around how to pay for care.”

However, Dean Mirfin, group director at Key Retirement Solutions, believes the RDR it will both deter and encourage advisers to enter the care arena.

He said: “Some will see this as an opportunity due to the hoops to jump through to deliver advice to this sector at a time when others are backing away.

“I would expect many to steer clear, though, for two reasons. The first being the requirements to advise this sector and the scrutiny post-HSBC fine, but also as a result of the ongoing lack of clarity from the government regarding what precisely individuals have to contribute towards the costs of their care.”

Ros Altmann, director general of the Saga group said: “I do fear that imposing tough qualification requirements on those advising on long-term care risks reducing the amount of advice available to the increasing numbers of older people who will be needing care in coming years.

“In fact, advice is vital to help them manage with the costs of care and to also help people plan for later life care needs as well.”

Article from FT Adviser

Sanlam makes bold UK debut with distinctive offshore bond

ridodirected@gmail.com (RIDO) — Fri, 30 Mar 2012 09:26:00 +0000

FROM UNITED KINGDOM MAR 28 2012 BY: MARK BATTERSBY , EDITOR , INTERNATIONAL ADVISER

Article from International Adviser

South African financial services group Sanlam is launching an offshore bond into the UK for the first time, with an interesting new option to protect against downside risk in falling markets.

Called the Sanlam Global Investment Plan (SGIP), the investment proposition offers three options. The first gives access to 500 different funds, denominated in various currencies, and spread across 34 asset managers including many well-known names.

But it is the second option which differentiates Sanlam from its competitors, called P2Strategies, managed by Milliman, one of the world's largest risk management firms well known in the institutional world and currently only available through Sanlam.

P2Strategies is designed to provide risk-adjusted compound returns over time, so for example a fund invested in India might have 70% invested in the equity portfolio and 30% in a tracking account which maps the fund to a set of indices, using the deeply liquid futures market.

Corbus Kruger, managing director of Sanlam Global Investment Solutions said: “We are offering clients a unique investment strategy that cushions the value of an investment in funds against increased volatility in equity and bond markets, merging capital preservation and investment growth needs in a single portfolio.”

The third option is discretionary fund management.

The bond offers UK-based investors multi-currency reporting and competitive pricing as well as bespoke online and website support. It will be available on a single or joint basis, as well as to companies, partnerships and trustees.

The SGIP is an investment-linked whole of life assurance policy, issued by Sanlam Guernsey, available in sterling, dollars or euros, with a minimum initial investment of 50,000 and additional investments of 5,000 in these denominated currencies.

Kruger added: “The SGIP is a long-term investment and also allows access to leading global fund managers, including Sanlam’s own discretionary investment management [DIM] services, or an independent DIM of one’s choice. In addition, investors will have access to Sanlam’s Accel risk profiler and Accel investment solutions through the Sanlam Global Investment Plan.”

Nigel Speirs, head of distribution for Sanlam UK, said: “We are excited about launching the SGIP as it will complement our newly-launched Sanlam Portal wrappers of ISA, General investment Account, Personal Pension and onshore bond. We are proud to be at the forefront of innovation by offering P2Strategies to UK IFAs and their clients, which we believe to be a first.”

Sanlam Private Wealth, Intrinsic, and Nucleus wrap are three of the routes Sanlam has chosen to distribute their offshore bond in the UK.

The fees and charges and charges are as follows:

Annual advice fee: maximum of 1.5%

Annual admin fees: 0.4% to 0.25%, depending on the size of the plan

P2Strategies: 0.75% p.a.

Accel Portfolios with P2Strategies: 1.00% p.a.

Article from International Adviser

Reaching new heights in the insurance sector

ridodirected@gmail.com (RIDO) — Wed, 28 Mar 2012 09:06:00 +0000

by Justin Yap, justinyap@theborneopost.com. Posted on March 26, 2012, Monday

Article from The Borneo Post

KUCHING: Sarawakian Jong Thian Lung, who started as a rookie insurance agent six years back, is now one of the most successful insurance consultants in Malaysia after being recognised as a Million Dollar Round Table (MDRT) member recently.

Working as a group sales manager for Sian & Associates, an agency for the third-largest insurer in the country ING Insurance Bhd (ING), he was noted as the first person in Malaysia to receive the MDRT award in 2012.

It represents the industry’s highest international honour and only topmost of insurance consultants worldwide have been awarded.

In a recent interview with The Borneo Post, Jong credited his achievement to the company, saying, “We are kind of like business partner for Guan, the owner for Sian & Associates and that’s what drive us to move forward, taking pride in what we do for ourself and the company.”

He further pointed out he first joined ING in 2006 purely because it was a very lucrative industry.

“It was only in 2009, when I hit it really big, I realise other than money there are so much things that I can do in this industry.”

“I found out that I can also be involved otherways in product designs.

“It is very interesting to listen to what others are offering before taking into consideration and try to see if we can tailored a better products. At the end of the day, it benefits everyone,” he added.

When asked what were the steps to become a successful insurance agent, Jong said, “The tricky things about insurance industry is that you can make a lot of money or you can make no money, or probably in between. There’s no limit in that sense.”

“Having a wide network or an amazing list of potential prospects will not help an one to be successful. It is the people you meet and the relationship that you have with your clients that count.

“Everyone has their own way of doing business, most targeted volume while mine is more of a niche market,” explained Jong.

When further asked if there was plan to start his own agency, he said, “That was a dream that I had but now I’m not sure because not everyone can be a good manager and it takes certain skill to head a company. I don’t think im ready for that yet.”

“My manager always tell me do not force yourself to do things that you don’t know but to excel in the things that you know. My top priority now is to do even better than what i did before and trying my very best to achieve the impossible,” stressed Jong.

On the other hand, he also pointed out that the biggest obstacles for an insurance agent was discipline and that would be the toughest thing to handle. One need to be consistant in terms of appointments – going out to meet clients and doing follow up works.

“Finding clients and convincing clients is not though. However, building up a trusted relationship will be the thoughest. The beauty of an insurance industry is that you are allowed to have that kind of ‘downtime’ whenever you are tired,” relates Jong.

On the clientel front, he pointed out that most tend to shy away from an insurance agent. “I will not force a deal if the products or for a certain reason my clients rejected the proposal. I always believe in doing long term business and in this industry, repeated sales or referral is much more important.”

“I will not talk or discuss about insurance unless my relationship with the person gets to a certain level. However, I will always make known that I’m an insurance agent and that I’m from ING. I wouldn’t talk about business with him unless he initiates a conversion,” he added..

In 2011, Jong achieved RM792,000 first year premium and he revealed his target of crossing over the million ringgit mark this year. “Since I have got the MDRT award, the next qualification I’m targeting is the COT (Court of A Table) or TOT (Top of A Table).

“I believe this is achievable given that the insured rate in Malaysia is still very low compared with Taiwan and Japan, whereby their insured rate is already over a hundred per cent. Even our neighbouring country Singapore has reach 90 per cent and its insurance industry is still very robust in terms of sales,” he explained.

Recently, ING expected to grow its investment-linked insurance segment from 17 per cent last year to 25 per cent this year and to subsequently push it to account for half of its portfolio in 2014.

The group currently have 90,000 policyholders for investment-linked products and expected to register an additional 25,000 policyholders with the launch of its latest INGeasi For You series, which would translate to RM80 million in premiums.

Article from The Borneo Post

It’s Time to Tune Up the Portfolio

ridodirected@gmail.com (RIDO) — Sun, 25 Mar 2012 21:22:00 +0000

By TARA SIEGEL BERNARD
Published: March 23, 2012
Article from The New York Times

So much of our financial lives requires regular maintenance — whether it’s updating who’s going to inherit what, checking that you’re not paying too much for car insurance or making sure your investments, particularly your retirements savings, are still working for you.

As the markets ebb and flow, the mix of investments that you originally put into place will probably change shape over time. And if you let your portfolio roam free for too long, your long-term plan can be thrown off kilter. Your retirement savings could become too heavily invested in stocks, potentially magnifying your losses when the market takes its next dive. Or your savings could become too conservative, and that’s a problem, too.

You can solve all of this, though, by regularly rebalancing, the industry’s term for putting your investments back in the proportions you originally set. But unless you hand off the reins of your portfolio to a financial planner, you need to make the time to do this yourself (ditto for investors who periodically hire a professional and want to carry out the advice themselves).

So, in theory, the task should be as simple and as automated as possible. Otherwise, you probably won’t find the time to do it. And really, most of the time, you just need to do a little maintenance.

Going through the exercise should be as easy as it is at TIAA-CREF, the financial services organization. When I recently set up a new 403(b) there for a family member — 403(b)s are essentially another flavor of 401(k) plans — I was pleasantly surprised by one of the options presented: Would you like to rebalance your portfolio back to your original allocations on your birthday?

That’s genius, I thought, and so incredibly simple. Why doesn’t my 401(k) plan offer this? Why doesn’t everyone’s plan offer this? And what online brokerages offer similar types of automated services?

As it turns out, automatic rebalancing is a standard option in many, but not all, 401(k) plans. But it should be. There’s little downside as long as you’ve already set up the proper investment mix. It shouldn’t cost you anything, there are no tax implications and you’re simply keeping your risk level intact. Aon Hewitt, a giant retirement plan administrator, said that more than half the companies in its database that offer 401(k) plans — covering more than 12 million workers — offered employees the ability to rebalance last year. That’s a large increase from a decade earlier, when less than 15 percent offered the feature.

Surprisingly, only a few of the larger online brokerage firms, including TD Ameritrade and Fidelity, offer anything remotely similar. Part of the reason, some providers said, is that the situation becomes more complicated when investors hold a mix of taxable and nontaxable accounts, since there can be tax implications and trading costs.

Of course, there are plenty of investments, namely target-date funds, that will automatically rebalance for you. These funds include a mix of investments that gradually becomes more conservative over time. As long as you fully understand what you’re buying and you’re not overpaying, they are good options for many investors, particularly those with smaller balances. Unfortunately, the entire category came under fire after the big market dive because many funds were too aggressively invested and managed to lose more than the broader stock market.

But if you’re trying to do this on your own, the question becomes this: How often should I rebalance and which providers make this as easy as possible?

There are a couple of schools of thought. Some experts recommend rebalancing based on an indicator, like when a piece of your portfolio moves a certain percentage outside your desired range, while others say it’s perfectly fine to pick a date and do it once a year. Vanguard has found that, historically, rebalancing once or twice a year — and only when a portfolio has drifted from its goal by at least 5 percent — produces results that are just as good as more complicated, frequent rejiggering strategies.

Consider what might happen if you did nothing at all. Beginning in 1987, a portfolio of 60 percent stocks and 40 percent bonds would have ballooned to 71 percent stocks by the end of last year, according to Vanguard. Rewind the same portfolio back to 1946 and it would have almost completely changed into an all-equity portfolio, at 97 percent stocks.

It is a counterintuitive strategy, since you’re basically adding money to your losing investments and selling off those that are doing well. But by sticking with it, the exercise helps take the emotion out of investing.

Of course, there are several low-cost services that can do it for you, while many online brokerages will manage your account for a fee. But here’s an informal survey of the offerings for those who want to handle it on their own, both inside and outside of retirement plans (if we missed any, you can add your own suggestions to the list on our Bucks blog):

FIDELITY The firm offers a rebalancing feature through its Portfolio Review tool, available to its 401(k) participants and to retail brokerage customers. After you set up a portfolio, it automatically sends you alerts through its “myPlan monitor” service when your portfolio drifts more than 10 percent from your goals. When you revisit the tool, it will ask you a few questions to make sure your goals remain the same and then recommend how to get back into balance. “So while it’s not automatic, there is an educational element of taking a few minutes to go through it,” said Jeffrey K. Cimini, executive vice president in Fidelity Investments’ personal investing division. Then you can “click to trade” to put everything back into balance.

T. ROWE PRICE The company offers automatic rebalancing as a standard option within the retirement plans it provides to employers. But only 25 percent of workers with access to the tool sign up for it, according to James Griffin, a senior product manager in its retirement plan services group, and that number has been declining over the last few years given the widespread adoption of target-date funds. It offers a similar option for its I.R.A. customers. After filling out a form indicating your selected mix of investments — you need to keep at least $1,000 in each fund in the portfolio — the firm will automatically rebalance your portfolio each quarter if your investments stray more than 5 percent from those goals.

VANGUARD It also offers a similar free rebalancing feature in its 401(k) plans, but employers have to choose to turn on the feature. While offering the service within a 401(k) is relatively straightforward, since there are no tax implications and rarely any related trading costs, the company said it did not currently offer the service to individual investors, though that was something it continued to consider.

SCHWAB It does not offer automatic rebalancing options to retail customers, though it has a couple of tools that illustrate whether your portfolio is off track. But its 401(k) plan participants can elect to have their portfolios rebalanced quarterly, semiannually or annually, and they receive a notice each time it has been reallocated.

TD AMERITRADE Its customers can automatically rebalance through its free Portfolio Planner tool, where you can analyze an existing portfolio or get help building a new one. While the service does not send any automatic reminders letting you know when your portfolio needs to be rebalanced, after you go through the tool, you can choose to “align your current portfolio to your target portfolio,” and it will do the math and set up and execute your trades with a few clicks. You can try to keep commission costs to a minimum by using its 100 commission-free exchange-traded funds and more than 700 mutual funds that don’t charge any transaction fees or commissions.

ING DIRECT/SHAREBUILDER The online brokerage said it would introduce an automatic rebalancing tool to its retail customers later this year. But its 401(k) participants, who are employees of small businesses, can already elect to have their accounts automatically rebalanced each year at no cost.

At Folio, another online brokerage, you are presented with so many options that it can take a few moments to adjust to the way the site is organized (and in their lingo, all portfolios are known as “folios”) since it’s not immediately intuitive. It does not automatically rebalance on a set schedule, nor does it e-mail you if your portfolio is out of whack. But if you automatically add money to the account on a regular schedule, you can choose to have the money land in such a way that it will bring your portfolio as close to your goals as possible. (You can do the same if you want to remove money.) Among other options, you can also simply choose to Rebalance, which will buy and sell holdings to bring you back to your goals without adding or withdrawing money.

If I could create a rebalancing tool from scratch, however, it would look a lot like the MarketRiders, which helps you build and monitor a portfolio of exchange-traded funds (though its cost recently rose to $149.95 a year, so it doesn’t make sense for those with smaller accounts). It sends you an e-mail when your portfolio has drifted 15 percent or more from its desired allocation, and the e-mail includes easy-to-understand instructions on how many shares you need to buy or sell. But what’s really smart about this service is that it allows you to specify which online broker you use and will automatically substitute that firm’s exchange-traded funds that trade free so that you can minimize trading costs.

In a perfect world, those rebalancing instructions would link to your brokerage where you could carry out the plan with one click.

After all, automating has a dual benefit: it helps us do what doesn’t necessarily feel quite right — like buying stock when you may be more inclined to sell — but it ensures the task will get done.

Article from The New

Be financially prepared for milestones

ridodirected@gmail.com (RIDO) — Fri, 23 Mar 2012 21:46:00 +0000

by Ho Lee Yen 04:45 AM Mar 24, 2012

Article from Today Online

In his Budget speech this year, Deputy Prime Minister Tharman Shanmugaratnam emphasised that Singaporeans must "retain a deep sense of responsibility for their families and seek every opportunity to improve themselves and do better".

This year is an auspicious year and said to be a good time to plan for life's biggest moments.

Before making that commitment, take a step back and review your current financial health to see if you are in good stead to proceed. Adjust your plans according to your priorities and needs as you journey through the various life stages and seek professional financial advice to review and map out a plan to achieve your financial goals.

I'm starting work!

Sally is 22 years and will be graduating soon. Her parents will stop giving her monthly allowances and will expect her to help pay the household expenses.

While she has some savings, it is not enough to last her for long. She is currently job-hunting so that she can start work immediately upon graduation.

Firstly, Sally should calculate the estimated amount she would need on a monthly basis to ascertain how long her savings can last before she finds a job.

Upon commencing work, she should consider insurance for herself so that she need not rely on her parents for financial assistance should something unexpected happen. It is important that Sally works out an affordable amount for her insurance premium and not over-commit.

To ensure basic coverage, Sally should consider a Medisave-approved Integrated Shield plan and a Term insurance.

She can also add an optional rider to pay for the co-insurance and deductible portions of the medical expenses. This is payable by cash on a yearly basis.

Sally may also consider enhancing her health coverage with a critical illness plan.

This should be bought as early as possible when she is still young and healthy as premiums tend to be cheaper compared to when she is older or is already suffering from an ailment (which may be excluded from the insurance coverage).

I'm considering a career change.

Michael, 32, is single and has been working for five years. He is an only child and both his parents are employed. Michael is considering changing careers to earn more to meet his demand for higher spending power and support his parents when they retire.

Michael should ensure that he has sufficient savings to tide him over the initial period of settling into a new job, including daily expenses, bills and other miscellaneous spending. It is recommended that his savings comfortably last him for at least six months to ensure that in the unexpected event that Michael is not satisfied with his new job and resigns soon after, he will have sufficient funds to tide him over.

With a higher salary, Michael needs to consider: (a) putting aside money for his daily expenses and other needs, (b) planning for his future family, (c) supporting his parents when they retire, and (d) saving for rainy days.

As Michael is the only child, he will be responsible for the care of his parents if they have not adequately prepared for retirement. Michael needs to first ensure that he is adequately protected before he can support his parents and future family.

Health insurance, such as a medical reimbursement and a critical illness plan, are also important for Michael to be financially prepared.

He should have key policies such as income protection plans, whole life plans and/or term insurance plans to ensure that, should the unexpected occur, his families will be able to maintain their current lifestyle without facing financial difficulties.

We're getting married!

Bernard and Linda, both in their early 30s, are planning to get married. They have purchased a five-room flat which will be ready in three years and will stay with their parents in the meantime.

They will consider having children once they've settled into their own home. Meanwhile, they will focus on their careers before the little ones come along.

Bernard and Linda are no longer alone, but have the obligation and responsibility to provide for each other.

They should review their protection needs together by having honest, open conversations about their existing insurance coverage and where there are gaps.

This provides a basis for them to jointly draw up and purchase insurance plans to complement their existing policies and bridge their protection gaps.

The 2011 AIA Singapore Nationwide Protection Survey revealed that although nearly six in 10 Singaporeans professed they have discussed with their spouse the family's living standards should something unexpected happen to them, only 17 per cent believe they are well-prepared and have the necessary financial planning in place to ensure that their dependents will be able to maintain their living standards.

While Bernard and Linda do not have the worry about mortgage and expenses for their children immediately after marriage, it is best to start planning now.

This includes working out the amount required for their new house and setting aside a fund for that. They should also start saving up for their future children.

The key is to start as early as possible so that you have a longer period to accumulate the desired pool of funds and not put unnecessary strain on the finances.

We're having a Dragon baby!

Peter and Sharon are expecting their first born this year! As first-time parents, they are making all the necessary preparations to ensure a smooth pregnancy and delivery. This includes selecting a single-bedded delivery ward at a private hospital and engaging a confinement nanny.

Sharon is also considering stopping work for two years to care for their newborn, resuming work when the child is old enough to be sent to a childcare centre.

Peter or Sharon can use their CPF Medisave to finance the delivery and pre-delivery medical expenses and claim under the Medisave Maternity Package.

They can also claim for expenses incurred during delivery and pre-delivery medical expenses such as consultations, ultrasounds, tests and medications, noting that the withdrawal limit is up to S$4,400 depending on the type of delivery procedure.

As they have opted for a private hospital, charges will be significantly higher and their CPF Medisave accounts may not cover the full charges. They need to be able to pay the balance out-of-pocket expenses.

After the child is born, the parents need to consider many other expenses including the child's education needs. This is financial commitment for about 20 years and requires careful planning.

Ideally, parents should start building the funds even before the child is born.

However, if Peter and Sharon are only starting to plan now, they may consider:

- Endowment plan - a savings plan with protection coverage for a period of time, eg 18-25 years. This will give parents a ready pool of funds by the time the child is ready for tertiary education. Parents can also choose to add on riders that will allow the plan to continue to be in force in the event that they are not able to continue paying the premiums, for example, due to the death of the parent paying for the plan.

- Investment-linked plan (ILP) -provides a combination of investment and protection. The plan invests in ILP sub-funds to earn a potentially higher return depending on factors such as the investment climate. There are ILPs, such as AIA Family First Protect, which allow policyholders to vary the level of protection and investment within the plan, depending on the needs as they progress in life.

They should also consider coverage for their child's health insurance needs, such as protection against common child critical illness, dengue fever and Hand, Foot & Mouth Disease.

As Peter will be the sole breadwinner in the first two years, it is also important that he is adequately insured so that the family's finances will not be affected should anything unexpected happen to him.

Ho Lee Yen is the chief marketing officer of AIA Singapore.

Article from Today Online

New rules seek to tighten regulation of China's insurance markets

ridodirected@gmail.com (RIDO) — Thu, 22 Mar 2012 05:22:00 +0000

Article from Lexology
SNR Denton
Mary Thomson
China
March 19 2012

In an effort to improve the administration of insurance provisions and premium rates of life insurance companies, the China Insurance Regulatory Commission ("CIRC") issued the "Administration Rules governing Life Insurance Companies' Insurance Provisions and Premium Rates" (the "Administration Measures") on December 30, 2011. The CIRC also issued a "Notice regarding Several Issues on the Administration Rules Governing Life Insurance Companies' Insurance Provisions and Premium Rates" (the "Implementing Notice", together with the "Administration Measures", collectively the "Administration Rules") on January 4, 2012.

The Administration Measures are divided into seven chapters and 57 clauses and were officially implemented as of the date on which the Administration Measures were issued.

The key developments under the Administration Rules are summarized below:

Annuity Insurance

In terms of insurance coverage type, personal insurance products are generally divided into three categories: (1) life insurance, (2) health insurance, and (3) accident and injury insurance. Annuity insurance is typically regarded as a sub-category of life insurance. However, the Administration Rules emphasize the role of annuity insurance, thus giving it a status that is on par with life, health and accident and injury insurance. This re-categorization can be seen as a positive signal that life insurance companies are encouraged to develop more annuity insurance products.

Specifically, in the case of pension annuity insurance, the Administration Rules require that the following must be satisfied: (1) the threshold age at which the insured will be paid survival benefits should not be less than the mandatory retirement age, and (2) the regular survival benefit payment should be made at least once a year.

The Implementing Notice clarifies that the annuity insurance may cover both the death benefit and total disability benefit and that the death benefit should not be more than the greater of (1) the premium that has been paid and (2) the cash value of the policy.

Approval Requirements

The Administration Rules require that the insurance provisions and premium rates of the following insurance products be submitted to CIRC for approval: (1) life insurance products other than ordinary life insurance, dividend sharing life insurance, universal life insurance, and investment-linked life insurance; (2) annuity insurance products other than ordinary annuity insurance, dividend sharing annuity insurance, universal annuity insurance and investment-linked annuity insurance; (3) unqualified group dividend sharing life insurance products and group dividend sharing annuity insurance products (that have been developed without reference to certain required insurance circulars); and (4) other insurance required for approval by CIRC.

Filing Requirements

According to the Administration Rules, the timeline for the filing of insurance provisions and premium rates has been extended from "7 days after sales of insurance products" to "10 days after the life insurance company uses such insurance provisions and premium rate." If a life insurance company decides to stop using certain insurance provisions and premium rates on a nationwide basis (i.e., to stop selling such insurance products), the company must report the termination to CIRC within 10 days, along with a letter setting forth the reason for the termination and its proposed services after the termination.

Endowment Insurance

In accordance with the Implementing Notice, an endowment insurance product should comply with the following requirements:

The first payment of the survival benefits must be made three years after the policy's effective date.

The insured term should be no less than five years.

In case of the investment-linked endowment insurance, or universal endowment insurance, if the insured is an adult, the death benefit at the start of the policy should not be less than 105 percent of the premium that has been paid or 105 percent of the policy's account value. In case of other types of endowment insurance, if the insured is an adult, the death benefit at the start of the policy should not be less than 105 percent of the premium that has been paid.

The death insurance must cover insurance liabilities for death caused by illness and accidents.

The Implementing Notice also clarifies that the insurer is NOT permitted to issue group endowment insurance products.

Supervision of Premium Rates

The Administration Rules also further strengthen the supervision of premium rates of personal insurance products. Specifically, the product actuary report must contain the sources of data and the pricing basis, the pricing method and assumption, and the statutory reserve fund calculation method (and sensitivity analysis of the variation on profit test parameters and major insurance parameters if the insured term is more than one year). If the insured term is more than one year, the insurance company must submit to CIRC, among other required documents, an electronic version of profit test models for approval or filing.

Qualifications of Person-in-charge of Legal Affairs (Chinese: 法律责任人)

The Administration Rules set forth more rigorous qualification requirements for the person-in-charge of the legal affairs of a life insurance company. The particulars are summarized below.

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The newly issued Administration Rules are widely expected to help diversify available insurance products and diminish misleading sales or other malpractice on the part of insurance companies. However, it remains to be seen how the Administration Rules will be enforced and whether they will produce the expected positive effects on the insurance market.

Article from Lexology

A Forecast for Low Returns, and Advice for Investors

ridodirected@gmail.com (RIDO) — Sat, 17 Mar 2012 22:34:00 +0000

Jean L. P. Brunel, chief investment officer at GenSpring Family Offices, says low interest rates have made the investment environment “radically different.”

By PAUL SULLIVAN

Published: March 16, 2012

Article from The New York Times

THE stock market seems to have found its footing lately, touching levels not seen since early 2008.

So I was surprised to hear Jean L. P. Brunel, chief investment officer at GenSpring Family Offices, tell me that he was preparing his clients for a sustained period of low investment returns. And further, he is counseling those clients — families with hundreds of millions of dollars — that they may need to spend less or change their estate plan.

If this is his advice for the wealthy, what does it mean for people with considerably less, who may simply be saving for retirement?

Mr. Brunel argues that the classic link among the return premiums for bonds over cash and stocks over bonds still holds, but they are substantially lower because of the low interest rates set by the Federal Reserve.

Here is how it works. The return on cash is typically the expected rate of inflation plus some real interest rate that is derived from the rate a central bank sets to promote growth. The return on bonds is cash plus some additional amount to account for the duration of the bond. The return on equities is the bond returns plus some premium for the risk associated with stocks.

He noted that cash typically had a return of 4 percent, putting bonds at 6 percent and stocks at 8 to 9 percent. With cash now yielding zero, that has lowered bonds’ return to 2 to 2.5 percent and stocks to 5 percent. The problem, as he sees it, is that too many people are stuck on the old numbers.

“I don’t want you to read into this that we have precise information on real returns,” he said. “I could be wrong. It wouldn’t be the first time. But whichever way you cut it, the environment is radically different.”

Sure, the stock market is off to a nice start this year. But 2011 also started strong — until the tsunami in Japan and the uprisings throughout the Arab world touched off a downward spiral. For the year, the Standard & Poor’s 500-stock index finished flat, unless you include dividends, which put it up 2.1 percent.

We’ll find out if Mr. Brunel’s gloomy take is right. But in the meantime, his forecast of low returns is worth thinking through.

LOWER EXPECTATIONS The consensus among other analysts I spoke with is that most people should plan for single-digit investment returns for a while. That time horizon ran from five to as many as 20 years, in the case of Jim Russell, regional investment director at U.S. Bank Wealth Management.

“If we’re able to generate returns above that, that’s a good problem to have,” he said. “Most clients think the worst is over, but most professional investors think the black swan event is possible.” (A black swan, a term popularized by the economist Nassim Nicholas Taleb, is the unlikely event that too few people plan for.)

Darrell Cronk, chief investment officer for the Northeast at Wells Fargo Private Bank, said the issue for many clients was the effect of negative real interest rates on their portfolios. This is often a hidden problem because, for example, a 10-year United States Treasury bond was paying 2.295 percent on Friday, but core inflation is around 3 percent. In other words, owning government bonds costs investors money.

“Over the past decade or two, we’ve had positive real rates of return,” Mr. Cronk said. “We talk about purchasing power risk, scarcity of income for portfolios and duration risk, but a negative real interest rate is a challenge for the bond market.”

Maria Elena Lagomasino, chief executive of GenSpring, said clients were not pleased with the implications when she talked to them about Mr. Brunel’s calculations. “The clients get mad when you say what we thought was true in the past may not be true in the future,” she said. “Maybe it won’t happen. But what if it does?”

HOW IT ENDS Mr. Brunel’s forecast is bleakest in how he believes the environment of low investment returns will end: global hyperinflation to reduce government debt burdens.

Given this gloomy time, he may well be overly pessimistic — the flip side of being overly optimistic when it seems that markets can only go up. (Mr. Brunel said that even his son was rooting against his end-game prediction.)

“A lot of our clients are worried about the after-effects of this global liquidity glut and what it will be” said Katie Nixon, chief investment officer for personal financial services at Northern Trust. “The world is awash in developed market currencies. You can inflate your way out of it or you can grow.”

She falls on the side of slow but steady growth.

Mr. Cronk said that the notion of using inflation to deal with too much government debt was an old one. While he agreed that anything was possible, he also said that he expected moderate inflation and moderate growth in gross domestic product.

“It won’t be 5 to 6 percent, but a positive 2.5 or 3 percent growth rate that would allow interest rates to move higher,” he said. “It would reinflate the value of risk assets so you’d get more normal returns.”

Growth that small, he said, probably will not quickly reduce the unemployment rate.

SOLUTIONS When, how and if returns on traditional assets return to old levels is not the immediate issue. Rather, the question is how people should plan for years of low returns, particularly when retirement may be near.

The easiest strategy is to spend less. But telling people to cut back is as difficult a conversation to have as telling people that the old model is broken.

“The day we do that is the day the relationship walks out the door,” Mr. Russell said. Instead, he shows clients portfolio simulations so they can see what the current return rates mean for the future.

If these return predictions are wrong, the worst that can happen is people have more money. (Mr. Brunel is more concerned, he said, with the overly optimistic return projections that many, often underfunded, pension funds are making, since they will have to pay out a set amount of money at some point.)

The other option, which the analysts I spoke to all agreed on, is for people to rigorously practice mental accounting — one of the main tenets of behavioral finance. By putting money in various fictional baskets or buckets, people can become more comfortable about the money they have. As long as the money for the next five years is safe, the thinking goes, clients are less apt to touch the money meant for after that.

Mr. Cronk suggested that investors consider a medium-term basket, which would be for securities that have an income stream. “You need to look for income in nontraditional sources — places where there is growth and income streams over time,” he said. He said he had been recommending real estate investment trusts, master limited partnerships and dividend-paying stocks for his wealthy clients. But these are all securities that most investors can buy.

For the money in the basket meant for growth, Mr. Brunel recommended securities that focus on global issues not tied to the economy of any one country: consumer demand, the need for more energy and technological innovation.

Of course, this is predicated on a long-term view — and an ability to wait. “Things do recover,” Ms. Nixon said. “It just takes time.”

Article from The New York Times

There is lucrative career in insurance

ridodirected@gmail.com (RIDO) — Thu, 15 Mar 2012 09:02:00 +0000

By: Michelle V. Remo
Article from Philippine Daily Inquirer
2:40 am | Monday, March 5th, 2012

Multinational life insurer Pru Life UK intends to grow its business in the Philippines and plans to do so by attracting more people to serve as insurance agents.

Antonio de Rosas, president of Pru Life’s office in the Philippines, says the company sees a huge potential for income growth in the Philippines. Such potential, he says, may be maximized if there will be more people selling its products and making the public understand the benefits of having insurance policies.

Currently, Pru Life has about 3,000 sales agents, 1,000 of whom were hired last year. De Rosas says the company intends to continue its aggressive recruitment program over the next three to five years.

“Our growth strategy for this year, and the next three to five years is to increase our sales force,” De Rosas tells the Inquirer.

The company’s plan of expanding its workforce, however, may be tough given the perception that selling insurance is difficult and income is measly.

But De Rosas stresses that such a perception no longer holds today. He says that in recruitment seminars of Pru Life, participants realize that selling insurance has become much easier and more lucrative.

“What people realize when they attend our seminars is that insurance is a rewarding career. It can actually make sales agents millionaires,” says De Rosas.

The company executive explains that the insurance industry has evolved over the years from selling merely traditional insurance products to offering policies that have investment features. Investment-linked insurance policies are much easier to sell because potential customers are generally more interested in spending for investments rather than insurance alone, he says.

Investment-linked insurance is one that provides coverage to the policyholder, at the same time it gives him an opportunity to earn from various portfolio investments.

De Rosas says the most successful agents of Pru Life earn an annual income of as much as P2 million. More people can do the same if they join Pru Life and if they are aggressive enough in selling policies, he adds.

“Commissions earned from selling insurance range from 30 to 40 percent of the first year premiums. Our successful agents earn as much as P2 million a year,” says De Rosas.

Although per capital income in the country has improved, the penetration rate of insurance in the Philippines has not changed over the past decade, De Rosas notes. Total insurance premiums collected annually in the country remain at nearly one percent of gross domestic product.

“From about $1,000 ten years ago, per capital income in the country is now about $3,000,” says De Rosas, adding that more Filipinos can now afford insurance policies.

There is such a low rate of penetration in the country because insurance firms fail to actively promote and aggressively sell insurance products. Pru Life intends to address this failure, De Rosas says.

“We intend to sell more insurance and further penetrate the Philippine market. We will do so by hiring more agents,” he says.

Article from Philippine Daily Inquirer

Cautious Opening Seen for China's Variable Annuity Market

ridodirected@gmail.com (RIDO) — Mon, 12 Mar 2012 21:07:00 +0000

February 28, 2012

Article from insurancenewsnet.com

By Rebecca Ng

A.M. Best Company, Inc.

For foreign insurers interested in China's fledgling variable annuity market, slow and steady will be the required pace.

A gradual opening of the variable annuity market in China will be more effective than quick development, as variable annuities entail advanced risk management tools and technical hedging systems that domestic Chinese insurers are generally not ready for and will need time to study, according to Clarence Wong, Swiss Re's chief economist in Asia, based in Hong Kong.

Wong said variable annuities involve complicated risk analysis and management, requiring insurers to have dynamic hedging tools and specific risk management instruments. Most Chinese players at present are unfamiliar with those advanced tools, which he believes would increase their risk management difficulties.

Variable annuities are a "very complex" derivative driven by many capital market factors and should be priced and hedged with the combined skills of financial engineering and actuarial science, said Frank Zhang, president and senior consultant at U.S.-based Actuarial Financial Risk Management LLC, in a report.

"Risk management is one of the most important functions for variable annuity products, while hedge profit and loss attribution analysis is a critical tool to measure risk management performance," he added. "Integrating product design with risk management is one of the most effective methods to ensure success."

According to consultancy Celent, because the requirement for effective risk management is high for variable annuities, companies that are experienced in selling variable annuities in global markets are proactively entering the Chinese market while most other types of insurers are adopting a "wait-and-see" approach.

Last May, the China Insurance Regulatory Commission introduced a variable annuity pilot program in five economically developed districts: Beijing, Shanghai, Guangzhou, Shenzhen and Xiamen.

The scheme is only open to insurers with a solvency ratio of at least 150% for the latest two quarters and at least three years of experience with investment-linked insurance products, along with a proper variable annuity administration system.

Insurers can only offer one product, which must have a minimum policy term of seven years. Insurers are also required to set the sales ceiling amount either at 8 billion yuan (US$1.3 billion) or an amount not to exceed four times of their actual capital solvency in the most recent quarter, whichever is lower.

Currently, four types of variable annuity guarantees are allowed in China: guarantee minimum death benefit, guarantee minimum maturity benefit, guarantee minimum accumulation benefit and the guarantee minimum income benefit.

The CIRC requires insurers file internal guidelines on sales, finance, disclosure and product risk management under the pilot program. A chief actuary must be responsible for pricing, risk management techniques and reserves. A chief investment officer must be responsible for implementing risk management, said Leon Cai, deputy general manager and chief actuary at Huatai Life, in a report.

Following the financial crisis, the CIRC concluded that "reasonable pricing and rational guaranteed interests" for insurance products are necessary. Insurers are required to provide a transparent and controllable risk hedging mechanism and cannot overly rely on financial derivative instruments provided by third parties such as banks or reinsurers as risk management tools, the regulator said.

Last November, Beijing-based Huatai Life won regulatory approval to offer a variable annuity product under a pilot program, with sales subsequently amounting to 4 billion yuan (US$629 million). This is the third Sino-foreign life insurance joint venture cleared to develop variable annuity products in China, following two other Shanghai-based insurers: Axa-Minmetals Assurance and MetLife China.

The CIRC introduced variable annuity products to increase product differentiation, move competition away from price and commission and raise the appeal of insurance in an under-penetrated market in the absence of tax advantages, said HSBC in a research report.

Industry consultants have said this market opening would help policyholders hedge against inflation and provide a potentially big market in China, but they question whether the market will see rapid and sizable growth in the short term without tax incentives (Best's News Service, May 24, 2011).

One challenge is there are limited distribution channels for variable annuity products in China, as Celent's senior analyst Wenli Yuan indicated that sales of these products are not allowed through savings counters at bank branches or through telemarketing, which will hinder fast market growth in the short term.

Sales forces in China may not be entirely equipped to sell such sophisticated products, while the general public may be unable to grasp the full benefits of a variable annuity product, according to Sharon Khor, head of insurance in greater China at consultancy Accenture.

Yuan said insurance companies in the pilot program may develop products that do not have high guarantee features, and put hedging or reinsurance procedures in place to control risk effectively.

Although there is no time frame for the existing pilot program to end, Cai said it is expected there will be more derivatives development in China's equity markets and greater development of annuity products, along with development of more risk management techniques like dynamic hedging and more sophisticated constant proportion portfolio insurance.

(By Rebecca Ng, Hong Kong news editor: Rebecca.Ng@ambest.com)

Article from insurancenewsnet.com

‘Easi’ plan for your future

ridodirected@gmail.com (RIDO) — Sun, 11 Mar 2012 09:42:00 +0000

Posted on 28 February 2012 - 11:31am

The Sun Daily

Last week, ING Insurance unveiled its new series called INGeasi For You, comprising three all-in-one, flexible investment-linked insurance packages that offer protection and investment options to suit one's needs at the different life stages.

Designed with simplicity in mind, the 3 packages - Discover, Achieve and Build - offer customers financial solutions to match their needs when they graduate and join the working world, or as they advance on their career paths or as they start a family and have to plan for their future and that of their loved ones.

Whether you want a bigger house, or to take a long trip all around Asia, or play golf all day long after you retire, ING Insurance Berhad (ING Insurance) aims to make this future you want possible.

Speaking at the launch, Bruce Hodges, deputy CEO of ING Insurance said: "The INGeasi For You series was inspired by the fact that everyone has big plans for the future. At ING Insurance, we have made it easier to meet the future you want by coming up with plans tailored to meet the different protection and financial needs of our customers. This way, our customers can focus on achieving their goals and dreams in life."

Hodges added that ING Insurance recognised the growing popularity of products that combine the protection and investment elements.

This is evidenced by the strong growth of the investment-linked insurance segment of the life insurance industry in recent years.

The segment recorded growth in new business of more than 11% between 2004 and last year.

The company kicked off the launch of INGeasi For You by introducing a Facebook application that allows users to meet their future self, virtually.

The application is designed to replicate the Facebook user's profile and show their future in 5, 10 and 20 years based on their chosen goals and dreams.

The application can be viewed and played at apps.facebook.com/future-you.

Users interested to know how they can go about planning the future they want can proceed to read about the packages recommended to fulfil their current protection needs.

The Sun Daily

There is lucrative career in insurance

ridodirected@gmail.com (RIDO) — Tue, 06 Mar 2012 21:25:00 +0000

By: Michelle V. Remo

Article from Philippine Daily Inquirer

2:40 am | Monday, March 5th, 2012