View from Appointed Actuary (2002-2007)

Dear Kin Lian

A high terminal bonus (which some companies suddenly reduced to zero when STI was low in 2002/3) is used by most companies to pass much of the investment risk to policyholders, without giving any significant additional return. If a policyholder wants an investment linked product, he can buy one - a policyholder who buys With Profit wants and deserves a more predictable ultimate claim value.

Stock Companies (i.e. all companies offering With Profits life insurance policies in Singapore, other than Income) are constrained in that their shareholders demand a stable dividend. The amount that can be transferred to Shareholders is limited to 1/9th of the cost of bonus - hence the annual bonus has to be sustainable with a very high degree of confidence, even in extreme financial conditions - and hence has to be low.

Income, as a Cooperative, distributes less to shareholders and is not constrained in this way - the transfer from Par Fund to Shareholders Fund has been no more than 2% of the cost of bonus - so a variable and high annual bonus can be paid, to the benefit of policyholders.

Income has managed to maintain remarkable stability in its non-guaranteed Terminal Bonus over the years - not even reducing it when STI was down at 1,300. As a result, in my opinion, the Income bonus philosophy was much better than that adopted by competitors, since the policyholder could predict with greater certainty the value of his policy as it approached maturity.

Other companies have an inferior product - and it would be unfair to policyholders for Income to unnecessarily follow "market norms".

Nicholas Rhodes,
Appointed Actuary of Income 2002-2007.