Diversifying Ruined

POLICYHOLDERS of participating life insurance policies can expect non-guaranteed benefits to fall for 2008 and in the future, the Life Insurance Association (LIA) said yesterday.

These benefits, which come in the form of bonuses, will be revised downwards due to the poor investment climate, LIA said.

Also known as par policies, they offer both guaranteed benefits and non-guaranteed benefits, where bonuses are determined based on performance of par funds.

Despite the credit crunch which looks set to last for a few more years, guaranteed benefits should be maintained, and bonuses will still be given, LIA said.

'We remain able to continue to allocate bonuses to par policyholders, albeit at a lower level,' LIA president Darren Thomson said.

Most policyholders can expect to receive letters from their insurers advising of bonus revisions in the coming weeks, Mr Thomson added.

Although the solvency level of life insurers' par funds is still above the regulatory minimum, further deterioration in the economic environment will require companies to strengthen their capital position, LIA deputy president Tan Hak Leh said.

Currently, there are no regulations against cutting non-guaranteed benefits to zero. Only justification is needed.

The bulk of the investment is in debt securities, mostly corporate and government bonds, and equities.

However, asset composition has been changed in light of the risks now, Mr Tan said.

Currently, the economic crisis looks set to be worse than the Asian financial crisis of 1997, where bonus revisions were severe.

Mr Thomson said that the worsening crisis is an indication, and that in spite of previous gains in the better performing years, bonuses will be affected by a prolonged recession.

'Bonuses should be seen as an additional benefit, rather than the main benefit,' Mr Thomson said.

Mr Tan agreed: 'Provision for future bonuses are likely to be revised downwards to reflect the adverse investment performance'.

As of now, only HSBC Insurance and TM Asia Life Singapore have declared their bonus revisions.

Source.

One of the consolation was my switching of Living Policy to Term Insurance. phew