2 May 2008
Reply from NTUC Income to TODAY paper
I refer to your query on NTUC Income's bonus rate cut of 40-45%. I am pleased to have this opportunity to clarify the actual situation and to provide you with information that might be useful for your story.
In April this year, NTUC Income announced a re-structuring of the bonus with respect to life policies incepted after 1993, by decreasing our annual bonus from 2.3% to 1.3% of the sum assured - ie a reduction of 1%, and increasing our special bonus from 25% of accumulated bonus (for policies of more than 15 years) to 30-120% (for policies ranging from 20 years to 2 years). The policyholder benefits are not impacted by the re-structure.
Reasons for the re-structure
The re-structuring means that we do not have to put aside as much money to reserve for the annual bonus, and instead we are able to leave more money in the life fund. As the life fund can withstand changes in the investment markets better, the current structure gives us better solvency, flexibility and strengthens the financial position of NTUC Income.
While we aim to keep our yields in line with our past practice, we do not wish to build in annual bonuses which prevent flexibility. This strengthens the position of the life fund for the benefit of all.
In other words, we put more into variable (special) bonuses instead of basic or fixed (annual) bonus. Our overriding intention is that the combination of special and annual bonus will give a return in surrender value or death claim equal to what was intended in the past, is competitive and in line with our future investment returns. This bonus structure is in line with industry practice and widely regarded as prudent actuarial practice.
Our 2007 investment returns were good. However, we do not distribute bonuses based on one year’s returns alone. To ensure long term sustainability, we look at moving averages over five or ten year periods.
Declaring a return of 5-6% for most of our policies maturing today is fair and in line with experience. It would not be financially sound to hike up returns for 2007 simply because the actual return for 2007 was 10.7%.
In the benefit illustration that is presented to customers prior to a sale of a life insurance policy, the annual and special bonuses appear collectively as a non-guaranteed item. While our aim is to meet our policyholders' reasonable expectations of yields they will get upon surrenders, maturities or death claims, this will be dependent on future investment experience.
Click here for the FAQs on our bonus re-structuring exercise.