Crediting Interest Rate Philosophy
FWD Life Insurance Company (Macau) Limited (“FWD” or “We”) issues universal life policies, which credits non-guaranteed interest to the account of the policyholders (“You”).
Financial performance covers the experience and future outlook of a numbers of factors, including but not limited to investment performance, expenses, persistency and claim experience. Through the crediting interest rate declaration, you participate in the investment performance of the universal life products after deducting a spread earned by us, and the declared crediting interest rates are floored by the minimum guaranteed crediting interest rate of the product (if any). The declared crediting interest rate of universal life products may also be affected by other factors e.g. expenses, persistency and claim experience.
FWD reviews the crediting interest rate at least annually based on our crediting interest rate policy. The crediting interest rate could be adjusted if the financial performance is different from the expectation, and as a result the actual declared crediting interest rate may be different from the benefit illustrations.
The crediting interest rate recommendation is reviewed and approved by our Board of Directors (the “Board”), with written declaration by the Chairman of the Board, an Independent Non-Executive Director and the Appointed Actuary on due regard to the crediting interest rate policy as well as the principle of fair treatment of customers.
The current year and projected crediting interest rate would be communicated to you at least annually. Any changes in the current year and projected crediting interest rate will be reflected in the policy annual statement.
Smoothing
Financial performance is unforeseeable. To facilitate your financial planning, we have a smoothing process aiming to declare more stable crediting interest rates during the policy term.
When the financial performance is better (worse) than expected, we may hold back a portion of the gains (losses), which will be passed back to you over the future years to ensure more stable crediting interest rates. Due to the variation of features and benefits of different products, different levels of smoothing may also be applied.
Pooling
Consistent with the nature of insurance contracts, we also group similar policies together to pool the risks amongst a larger number of policyholders to provide diversification benefits, which helps to stabilize the financial performance (hence the crediting interest rates).
To maintain the fairness between policyholders, we may also separate different generations of policies of the same product into different buckets with different crediting interest rates, with an aim to more closely reflect the underlying financial performance. As a result, the frequency and magnitude of the crediting interest rate scale adjustments may vary among different products and buckets. In general, the adjustments on crediting interest rates are more frequent and significant for products with higher risk profile.
Investment Strategy
FWD’s investment strategies are customized for different products to optimize the return. In particular, these asset portfolios employ a balanced asset allocation investment strategy, which consists of
- Investment-grade fixed income type securities
- Equity-type investments to enhance the investment performance in the long run. This may include listed equity, hedge funds, mutual funds, private equity and property
- Reinsurance assets with good credit rating
The asset portfolios also target to provide diversification across different geographic regions and industries to the extent the size of portfolio can support.
Currency exposure of the underlying policies is mitigated by closely matching either through direct investments in the same currency denomination or the use of currency hedging instruments. Currently, the majority of the asset is invested in the United States and Asia Pacific and denominated in USD.
Furthermore, the asset portfolio is actively managed by investment professionals to closely monitor the investment performance. In addition to conducting regular review, FWD also reserves the right to change the investment strategy and shall notify policyholders for any material changes.
Investment Vehicle
The crediting interest rate will be influenced by the performance of the underlying investment portfolio, which consists of both fixed income type securities and equity-type investments. The performance is not static and will be highly affected by the change in market conditions:
Fixed income type securities
- The return of fixed income type securities arise from the interest income (“the yield”) attained at the purchase of the securities. Under a higher (lower) market interest rates environment, the company is more likely to attain higher (lower) interest income with the new money (e.g., proceeds from coupons, maturities, new contributions);
- The defaults or downgrades of the fixed income type securities will result in unfavorable investment performance.
Equity-type investments
- The movement of the market price of the equity-type investments will result in change in the market value of the portfolio. Rise (fall) in the market price will increase (decrease) the market value of the portfolio.
- The change in dividend-type income from the equity-type investments will impact the investment results. Higher (lower) dividend-type income from the underlying investment will improve (worsen) the investment results.