Starting next month, when life insurers in Singapore do policy illustrations for Singapore dollar-denominated participating policies, they will have to comply with lower limits on illustrative returns on investment.
The goal of the change is to provide consumers with a more realistic range of projected investment returns and will not affect actual returns on existing and future participating policies, the Life Insurance Association (LIA) said yesterday.
The upper illustration rate will be capped at 4.25% per year, down from 4.75%, and the lower illustration rate will be capped at 3% per year, down from 3.25%.
Since these are caps, the general rule for insurers is that the lower illustration rate should be at least 1.25 percentage points per year lower than the upper illustration rate.
Life insurers are supposed to illustrate these scenarios to provide consumers with a potentially reasonable range of benefit levels.
LIA chairman Khor Hock Seng said the downward revision of the ceilings was made “mainly due to the persistent low interest rate environment”.
“Our goal is to provide consumers (with) a more realistic range of projected returns on investment, so that individuals can make more informed financial decisions,” he added.
“It is important to note that consumers should recognize that these upper and lower illustrative rates are for illustrative purposes only… We strongly encourage individuals to consult with their financial advisors to decide on policies aligned with their personal needs and their needs. risk profile. “
The actual returns received from a participating policy will depend on the actual experience – including investment performance – of the participating fund that develops over the life of the policy, LIA said.
Actual investment returns in the future depend on future economic conditions, the actual returns of asset classes and the asset mix of the participating fund.
Any actual returns received by policyholders may be higher or lower than those reflected in the policy illustration.
The Monetary Authority of Singapore has been informed of the downward revision of the ceilings, the LIA said.
The last revision of the illustrative investment return caps used in policy artwork was in 2013, when the top illustration rate cap was reduced from 5.25% to 4.75% per annum.
The lower illustration rate was set at least 1.5 percentage points lower than the upper rate.
The practice of having such illustrative caps began in 1994.
The LIA said it reviews these caps annually “to ensure (their) continued relevance and adequacy, given recent and potential future economic market dynamics.”
The annual review takes into account any changes in the long-term outlook for economic markets to determine whether the caps still reflect a realistic range of projected investment returns in the future.
The association said it would revise the caps “when the realistic range of projected investment returns has changed significantly.”