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Performax Gold. Catherine Larouche Product Manager, Whole Life March 2013. Important information.

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Performax gold

Performax Gold

Catherine Larouche

Product Manager, Whole Life

March 2013


Important information
Important information

We've provided written material with this oral presentation to make it easier for you to take notes. Do not rely on the written material on its own because it may be incomplete or inaccurate without the additional context and information provided by the oral presentation.

Because of this, and also because the presentation is of a technical nature designed for insurance professionals, the written material should not be redistributed. We have provided client-friendly material about many of our products and concepts on our advisor website at www.manulife.com/repsource.

This presentation is for educational purposes only. It should not be construed as legal, tax or accounting advice.

This presentation doesn't bind Manulife to provide, or to continue to provide, any of the concepts or products described in the presentation. It also doesn't limit Manulife's ability to change any of the procedures that may be described in the presentation.

If this presentation contains competitive information, we've made every effort to ensure its accuracy as of the date of the original oral presentation. We can't, however, guarantee the accuracy and, if you have any questions regarding this information, you should contact the competitor directly.


Agenda
Agenda

  • Whole Life 101

    • Base guarantees

    • Base model & luxury edition

    • Dividends and Performance Credits

  • Same objective – Different risk

  • Does current matter?

  • Going forward

  • Illustration software changes

  • Product vs illustration rate

  • Cost for 15 years


Whole life base guarantees
Whole Life – base guarantees

Cancellation

Leverage

Claim

Premium: level and guaranteed

Death Benefit vs Cash Value

Client gets one or the other, but not both

Death Benefit

Cash Surrender Value

Guaranteed Death Benefit

Guaranteed Cash Value

YEARS


Whole life 101
Whole Life 101

Cancellation

Leverage

Claim

Some whole life plans have a level death benefit

(base model)

Don’t have to be participating to be Whole Life

Death Benefit

Cash Surrender Value

Guaranteed Death Benefit

Guaranteed Cash Value

YEARS


Whole life 1011
Whole Life 101

Others have a death benefit that increases over time

(luxury edition)

Cancellation

Leverage

Claim

These plans are typically participating

Non-guaranteed Death Benefit

Death Benefit

Cash Surrender Value

Guaranteed Death Benefit

Guaranteed Cash Value

YEARS


How do values grow beyond the guarantees
How do values grow beyond the guarantees?

Cancellation

Leverage

Claim

It all starts with a dollar amount credited back to the policy annually

This is the key to any growth in values, in excess of the guarantees

Dividends (Par)

Performance Credit (PGold)

Death Benefit

Cash Surrender Value

Guaranteed Death Benefit

Guaranteed Cash Value

YEARS


Whole life increase in values
Whole Life – increase in values

Cancellation

Leverage

This dollar amount is used to purchase Paid-up insurance.

PUI increases the Death Benefit and the amount that was used to purchase the insurance becomes cash value.

Claim

Paid-up insurance purchased with dividends/PC credit

Death Benefit

Cash Surrender Value

Total Cash Value

Guaranteed Death Benefit

Guaranteed Cash Value

YEARS


Participating whole life dividends
Participating Whole Life - dividends

Cancellation

Leverage

Claim

If there is more money in the Par Fund than what’s required to satisfy the guarantees, “surplus” becomes available and dividends may be distributed to policies.

Dividends – not guaranteed

100% variable

Death Benefit

Cash Surrender Value

Guaranteed Death Benefit

Guaranteed Cash Value

YEARS


Factors that impact surplus par products
Factors that impact surplus - Par products

  • Mortality – experience is better or worse than assumed in product pricing

  • Lapses – experience is better or worse than assumed in product pricing

  • Expenses – higher or lower cost to administer the product that what was expected

  • Taxes, inflation, …

  • Investment returns


Factors that impact surplus performax gold
Factors that impact surplus - Performax Gold

  • Surplus does not apply to Performax Gold

  • Mortality – Experience is better or worse than assumed in product pricing

  • Lapses – Experience is better or worse than assumed in product pricing

  • Expenses – Higher or lower cost to administer the product that what was expected

  • Taxes, inflation, …

  • Investment returns

The risks associated to mortality, lapses, expenses, and other factors are taken on by Manulife (shareholders) not the policyholders. Just like UL and Term.


Factors that impact surplus performax gold1
Factors that impact surplus - Performax Gold

  • Surplus does not apply to Performax Gold

  • Mortality – Experience is better or worse than assumed in product pricing

  • Lapses – Experience is better or worse than assumed in product pricing

  • Expenses – Higher or lower cost to administer the product that what was expected

  • Taxes, inflation, …

  • Investment returns

But clients are still getting some value for it. It’s contractually guaranteed and part of the Performance Credit the policy receives annually.

Investment returns - it’s the only variable factor left in the equation, and the contract shows how it will impact policy values.


Performax gold performance credit
Performax Gold – Performance Credit

Cancellation

Leverage

Claim

Policies will always receive a Performance Credit.

Death Benefit

Minimum guaranteed PC

Cash Surrender Value

Guaranteed Death Benefit

Guaranteed Cash Value

YEARS


Performax gold performance credit1
Performax Gold – Performance Credit

Cancellation

Leverage

Claim

And another amount based on investment performance

Variable PC based on investment return

Death Benefit

Cash Surrender Value

Minimum guaranteed PC

Guaranteed Death Benefit

Guaranteed Cash Value

YEARS


Pgold vs others same objective increase values
PGold vs others: same objective – increase values

Death Benefit

Death Benefit

Paid-Up insurance

Paid-Up insurance

Guaranteed Death benefit

Guaranteed Death Benefit

Performax Gold

Par Whole Life


Different ways to get there risk level
Different ways to get there – risk level

Dividends

Performance Credits

More risk

Less risk

Performax Gold

Par Whole Life


What does this mean for your clients
What does this mean for your clients?

  • With Performax Gold, just like with a UL, it’s an investment risk discussion

  • The investment risk is borne by policyholders but in a deferred fashion

  • The investment conversation is a unique one:

    • A forward looking question

    • What will returns be, on average, over the lifetime of your policy

    • Investment return will have more impact in the later policy years than in the earlier policy years

  • It’s a perfect opportunity to showcase what Performax Gold can do for them


Pgold is well positioned to tackle today s economic uncertainty
PGold is well positioned to tackle today’s economic uncertainty

Total Death Benefit

$2,500,000

$2,000,000

$1,500,000

$1,000,000

$500,000

$0

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67

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91

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97

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AGE

Male 45 HS3 (NS), $500,000 base coverage, Cost for 15 years, PUI, 15 annual payments of $16,586


Strong long term values and irr
Strong long-term values and IRR uncertainty

Values at age 83

Male 45 HS3 (NS), $500,000 base coverage, Cost for 15 years, PUI, 15 annual payments of $16,586


So does current really matter
So does “current” really matter? uncertainty

  • It doesn’t

  • It’s not an estimate or a guarantee of what the future holds

  • It’s more a reflection of what happened in the past

    • Because of smoothing of returns

    • Because of surplus (par products)


Lessons learned from the not so distant past
Lessons learned from the (not so distant) past uncertainty

  • With Performax Par

    • If you were “conservatively” illustrating at current less 2% 10 years ago, your dividends are now being calculated using a rate that is 15 bps lower than your original illustration

    • If you were “conservatively” illustrating at current less 1%6 years ago, your dividends are now being calculated using a rate that is 50bps lower than your original illustration


Lessons learned from the not so distant past1
Lessons learned from the (not so distant) past uncertainty

  • With one of the main par competitors

    • If you were “conservatively” illustrating at current less 2% 10 years ago, your dividends are now being calculated using a rate that is 11bps lower than your original illustration

    • If you were “conservatively” illustrating at current less 1%5 years ago, your dividends are now being calculated using a rate that is 21bps lower than your original illustration


Gov of canada long term bonds benchmark
Gov of Canada – long term bonds benchmark uncertainty

Jan 2010

Mar 2013


Fund mix
Fund mix uncertainty

67% Fixed Income

81% Fixed Income

65.3% Fixed Income


Observations
Observations uncertainty

  • In their Dividend Scale announcements, companies are alluding to future decreases due to the sustained low interest rates environment.

  • Even with participating whole life, investment returns have the largest impact on surplus, and as a result, dividends.

  • Par funds allow previously accumulated surplus to be taken into account when determining the Dividend Interest Rate for the year.

  • It’s just another form of smoothing. It doesn’t mean that Par funds get better investment returns than other funds, or that they are immune to low interest rates and market downturns.


What does this mean going forward
What does this mean going forward? uncertainty

  • Significant downward pressure on fund yields

    • Consider the asset mix

    • What percentage of fixed income assets? 60%? 80%? 90%?

  • Smoothing creates a lag

    • Fund yield: Smoothed returns will be slower to decrease but slower to increase

    • Dividend Interest Rates: Previously accumulated surplus may help slow down the decrease, but are we depleting faster than we’re replenishing?

  • Everyone is going in the same direction

  • For your clients: Set the right expectations, illustrate under different interest rate assumptions


Changes to our illustration software
Changes to our illustration software uncertainty

  • Changes to the “Rates” tab for Performax Gold

  • In January 2012, we changed the software to allow users to specify an illustration rate and gave them the ability to customize using the spreadsheet (like UL)

  • With this new release, we’ve completely removed the “current” terminology, users will have to specify a rate

  • The default setting will now be 0%


Changes to the rates tab in diamond view
Changes to the Rates tab in Diamond View uncertainty

The PC rate is now defaulted to 0%. Max is rate currently in effect

The “Current” terminology has been removed.

Can specify a rate up to 8%


There is no magic
There is no magic uncertainty

  • Illustrating whole life should be about long term projections

  • Illustrate Performax Gold and the competitors at a rate that, on average, could be reasonably expected over the next 30-40 years

  • We’re all moving in the same direction, par or non-par, it doesn’t matter, investment performance has the greatest impact on values


Don t be afraid to show the worst case scenario
Don’t be afraid to show the worst case scenario uncertainty

Death Benefit based on guaranteed values

Estate Achiever

Sun Par Protector

Performax Gold

$700,000

$675,000

$650,000

PGold = 1.42%

$600,000

IRR at LE

Total Death Benefit

$550,000

$500,000

CL = 0.12%

$450,000

Sun = 0.01%

$400,000

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Age

Annual payment: Performax Gold $11,341 Estate Achiever $11,330 Par Protector $11,595

Male 40 HS3 (NS), $500,000base coverage, Costs -to -100, Accum Account, Pay for life, illustrated at 0%


Consider the product s performance under different interest rate scenarios
Consider the product’s performance under different interest rate scenarios

Death Benefit, M45 NS, PUI, $500K base, 10 payments of $28K

Performax Gold Custom illustration rate:

Years 1-5: 4.5%

Years 6-12: Increasing by 25bps every year

Years 13 thereafter: 6.5%


Death Benefit, M45 NS, PUI, $500K base, 10 payments of $25.6K

Performax Gold Custom illustration rate:

Years 1-5: 5.15%

Years 6-12: Increasing by 25bps every year

Years 13 thereafter: 7.15%


Unique cost for 15 years duration
Unique Cost for 15 years duration $25.6K

  • Unique in the marketplace – our main competitors offer a 20 pay duration

  • Offers competitive value, in no more than 15 payments, guaranteed

65bps illustration rate difference for Sun


A different kind of gold
A different kind of Gold $25.6K

  • Product design that’s minimally impacted by returns in the early policy years

  • Performance and value in good and bad times

  • Most flexible illustration – Allows you to set the right client expectations

  • Minimum Guaranteed Performance Credit paid every year that will contribute to Death Benefit and Cash Value growth

  • Full disclosure, no unknowns, more contractual guarantees than par products



Manulife introduces a segregated fund resp
Manulife introduces a Segregated Fund RESP! $25.6K

  • A new option to help your clients prepare for their children’s post-secondary education and achieve their financial goals

  • No additional licensing will be required if already life licensed

  • A new means of appealing to a broader market, including younger clients


Manulife segregated fund resp product features
Manulife Segregated Fund RESP – $25.6KProduct features

  • Selection of 7 segregated funds invested in underlying Manulife Mutual Funds

  • 75% Death Benefit Guarantee*

  • 75% Maturity Guarantee*

  • Contract Maturity Date is Dec 31st of the 35th year (40th year for a Specified Plan) after the RESP Inception Date

  • Individual or Family Plan

  • Client name only

  • Life license is the only requirement to sell the product

*Reduced proportionally by withdrawals


Contract deposit minimums and maximums
Contract & deposit minimums and maximums $25.6K

Deposit minimums:

  • No deposit is required if applying for the Canada Learning Bond and / or the Alberta Centennial Education Savings (ACES) Grant

  • Fund minimum = $100 per fund, per sales charge option

  • Pre-authorized Credit (PAC) deposit minimum = $25/month, per fund


Thank you
Thank you $25.6K


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