Tokio Marine Never Cuts Bonus: Participating Fund Update 2014 - Things We Can Learn From

Just received Tokio Marine's Participating Fund 2014 update from my whole life policy with them.  As expected, they are maintaining the bonus rate for their participating policies.

For info, Tokio Marine is one of the few companies that maintains its bonus rate for its whole life policies pretty consistently over the years.  In fact, the report states that they are the ONLY life insurer in Singapore to have honoured all their bonus rates for the last 66 years!

This is probably testament to their sound investing policy for their participating fund.  Even though they acknowledged the volatile investment climate of 2013, they are still maintaining the par fund bonus even though the returns came in lower than expectations.

Some interesting stats from their par fund:

Market Value (measured by total assets in $million)

• 2011:  $2,142
• 2012:  $2,677
• 2013:  $3,073

Asset Mix of Fund for 2013

• Equity : 37%
• Fixed Income: 52%
• Cash: 7%
• Property: 3%
• Others: 1%

Breakdown of Fixed Income S$1,589million

• Singapore Government Securities = S$288million (18%)
• Quasi-Govt/Investment Grade Bonds = S$857 million (54%)
• Other Bonds = S$444 million (28%)

Top 10 Equity Holdings (the most interesting part to me...) S$1,126 million

• Tokio Marine Fund - Far East Equity Portfolio
• TMA Umbrella Fund - TMAI Asian Equity Fund
• SingTel
• DBS 
• UOB
• OCBC
• Keppel Corp Ltd
• Singapore Press Holdings (SPH)
• StarHub
• Singapore Technologies Engineering

Disclaimer:  I am not a Tokio Marine insurance agent and am not making any recommendations whatsoever about Tokio Marine and its insurance or investment products.

Analysis of Asia Junior Life Policy (Part 2)

Previously, I wrote a short analysis on one of the whole life policies that I owned. It can be found over here. Today, I shall continue with my part 2 of the analysis.

In today's analysis, we will look at participating policies and bonuses.

BONUS ALLOCATION

Main feature of a participating policy is its ability to provide stable returns while participating in the performance of a Participating Fund or Par Fund. While one does not have any control over what the par fund is invested in, one can expect to participate in the performance through bonuses which are allocated to the policy holder.

Policy benefits or bonuses depend on the following factors:
1. Investment performance
2. Claims experience
3. Expenses
4. Decision of the Appointed Actuary and approval by Board of Directors

Usually, bonuses are allocated based on the surplus of the Par Fund. When bonuses are being considered, the actuary and directors take into account average performance of the par fund over a period which is longer than one year so as to minimise short term fluctuations in asset values of the par fund.

Hope this short posting explains how bonus allocation works for all you participating policy holders out there.

Analysis of Asia Junior Life Policy (TM Asia Life)

As most of my readers will know, I have a "legacy" whole life policy that I took over from my parents after I started working. My parents bought the whole life policy from an agent in the then Asia Life which is now taken over by TM Asia.

The policy name is Asia Junior Life Plus Assurance with Escalating Reversionary Bonus.

Every now and then, I will try to analyse abit of this complicated insurance plan and try to decipher each and single statement on the policy contract as well as bonus declaration statements to see what it means.

Today, I will try to interpret what I read from the Bonus Declaration Statement in Year 2010.

BONUS DECLARATION STATEMENT IN YEAR 2010

TM Asia was kind enough to send a pretty concise booklet on the Annual Bonus Update 2010 together with my bonus declaration statement for the year 2010.

Here are some key points that I note from the Annual Bonus Update:

1. This is the 3rd published bonus update report for TM Asia Life Singapore Ltd's Participating Fund. The annual bonus update 2010 is an update on the participating fund for the year ending 31 December 2009.

2. For 2007, gross investment returns was 12.25%. For 2008, -17.13% and for 2009, 20.05%.

3. TM Asia Life has an unmatched record of never reducing bonus rates. Since they have never reduced bonuses even during the financial crisis of 2008, we can see that insurance companies typically use a bonus smoothing technique to ensure that bonuses are paid out both in good times and bad. When times are good, they might not pay out too much bonus but instead "store" this money in the par fund so that they can have money to pay out bonuses even when the funds are not doing well. In a sense, the policy owner does not get the wild fluctuations in policy value that is associated with investment linked plans. On the downside, it also means that one cannot expect big bonuses even when the market is doing well.

4. Participating Funds can sometimes be "black holes" of investment where we know little about the assets that are being held. In the Annual Bonus report, I can see that the Top 10 Equity holdings for the Par Fund are:

1. TM Asia Equity Fund
2. DBS
3. UOB
4. OCBC
5. Singtel
6. Capitaland
7. Keppel Corp
8. Wilmar
9. Singapore Airlines
10. Singapore Exchange

5. The bonus rate is $10 for every $1000 Sum Assured. I am insured for $160,000. That means that I am entitled to $1,600 bonus for the year. In ADDITION, there is a bonus added on accrued bonus (by a rate of 1%). As my accrued bonus is now $20,292.02, the bonus on bonus is $202.92. The total bonus I get for this year is thus $1600 + $202.92.

6. The accrued bonus is not the cash surrender value. This is a very important point which many people are often mistaken about. The cash surrender value comprises guaranteed plus non-guaranteed components. The accrued bonus makes up part of this non-guaranteed bonus and is pro-rated according to the number of years I have been servicing this policy. In other words, if I surrender the policy now, only 25% of my accrued bonus + guaranteed component will be paid out to me. (As the number of years increases, the bonus is increased in percentages. That is why it is called "Escalating Reversionary Bonus"). To find out what is this amount, it is best that you obtain a Benefit Illustration from TM Asia Life.

That is all for today's analysis. I will analyse the various components at a later date. As mentioned, what I am analysing is based on TM Asia Life's Asia Junior Life Policy. It might not be the same as other insurance policies that are out there. If you are interested in me doing an analysis for your policy, you can send the relevant documents to my email at sgfinancialfreedom@gmail.com. Your name and stuff will be kept confidential but I will analyse the policy and publish my findings on this blog.

TM Asia Life Policy

I have an insurance policy with TM Asia. To be exact, it is a whole life policy with a plan name that is called Asia Life Plus. My parents bought it for me when I was 16 and I have been servicing it after I started working.

Recently, TM Asia declared that yearly bonus again for participating whole life policies and even though the returns on the par fund for 2009 wasn't fantastic, the bonuses declared were not reduced. TM Asia has never cut their bonus for the past 10 years. At least that is what I have heard.

After receiving the annual bonus statement, I decided to call the customer service centre for a benefit illustration of my policy. I just received the benefit illustration today.

Do note that since this policy was bought by my parents and handed over to me, I never did any comparisons with other companies then. While many people have never heard of TM Asia, it is actually quite a big company though it is relatively unheard of in Singapore. Its tied agency force is also very small as it tends to rely on IFAs to distribute its products.

A Quick Analysis

I am currently at Year 12 of my policy year meaning that I (and my parents) have paid 12 years of premiums worth a total of $22,204.80 for a coverage of $160,000 for Death and TPD. There is no critical illness coverage in this policy.

Based on the current surrender value, it is $11,200 (Guaranteed) and $4,357 (Non-Guaranteed). That adds up to a total of $15,557 in surrender value provided that the non-guaranteed component is accurate.

The bonuses become guaranteed additions to the sum assured once they are declared.

Terminal bonus on death and maturity

TM Asia whole life policy has the following feature:

Below 10 yrs : 0%
10 to 14 yrs : 25%
15 yrs: 50%
16 yrs: 100%
17 yrs: 150%
18 yrs: 200%
19 yrs : 250%
20 to 24 yrs: 300%
25 to 29 yrs : 400%
30 and above : 500%

This basically means that the non-guaranteed component for death or maturity of the policy starts to increase as the policy years go by. As my policy is only 12 years old, whatever bonuses that have been declared are still subject to 25% payout only. That means that if $10,000 in bonuses have been declared, the non-guranteed component payout is only $2,500. This bonus chart stated above relates only to claims during death and maturity (policy year 99 I am guessing). So I guess it is not really meaningful to me unless I die or I live past the age of 99.

Terminal bonus on Surrender

To add to the already confusing policy, there is another table that shows how the terminal bonus for surrendering the policy works out.

It states: "Terminal bonus on surrender as percentage of attaching bonus is illustrated from the end of 19th year onwards if applicable."

19 year: 125%
20 to 24 yr : 300%
25 to 29 yr: 400%
30 and above: 500%

Basically, at the 20th policy year ( meaning after 19 years of paying premiums), I can expect to see a big jump in the non-guaranteed component of the surrender value. This is illustrated in the benefit illustration where the non-guaranteed surrender value jumps from $8,464 to $20,858 during the 19th and 20th policy year respectively. At the 21st policy year, it almost doubles again to $42,057.

Conclusion

I have had thoughts of surrendering this policy but decided against it as I wanted to wait until the 20th policy year before making any decision. In any case, this policy serves as a good protection and savings plan for me. I know many people will recommend the proverbial Buy Term Invest the Rest mantra but this has worked well for me thus far. While it does not have Critical Illness coverage, I still have my coverage from other policies.

Many IFAs have also touted TM Asia's whole life policies as being one of the most competitive in the Singapore insurance industry. I am not sure how true that is. The only thing I know is that in terms of bonus declaration, TM Asia has been able to pay out a constant bonus over the past 10 years. Dollar for dollar and coverage wise, I would like to think that other companies might have even more competitive plans that provide better coverage at a lower premium. In fact, I think many of the whole life policies now are rather similar and competitively structured. Insurance companies often review their products so that they become better than their competitors.