Manulife Financial | Performax Gold

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Performax Gold
Catherine Larouche
Product Manager, Whole Life
March 2013
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competitor directly.
2
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
3
Whole Life – base guarantees
Cancellation
Claim
Premium: level and guaranteed
Death Benefit
Client gets one or the other, but
not both
Guaranteed Death Benefit
YEARS
4
Cash Surrender Value
Death Benefit vs Cash Value
Leverage
Whole Life 101
Cancellation
Leverage
Claim
Death Benefit
Guaranteed Death Benefit
YEARS
5
Cash Surrender Value
Some whole life plans have a
level death benefit
(base model)
Whole Life 101
Claim
Others have a death benefit
that increases over time
Cancellation
Leverage
Non-guaranteed Death
Benefit
Guaranteed Death Benefit
YEARS
6
Cash Surrender Value
Death Benefit
(luxury edition)
How do values grow beyond the guarantees?
Cancellation
It all starts with a dollar amount
credited back to the policy annually
Dividends (Par)
Performance Credit (PGold)
Guaranteed Death Benefit
YEARS
7
Leverage
Cash Surrender Value
Death Benefit
Claim
Whole Life – increase in values
Claim
This dollar amount is used to purchase
Paid-up insurance.
Death Benefit
Paid-up insurance
purchased with
dividends/PC credit
Guaranteed Death Benefit
YEARS
8
Leverage
Cash Surrender Value
PUI increases the Death Benefit and the
amount that was used to purchase the
insurance becomes cash value.
Cancellation
Participating Whole Life - dividends
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
Guaranteed Death Benefit
YEARS
9
Cash Surrender Value
Death Benefit
Claim
Cancellation
Leverage
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
10
Factors that impact surplus - Performax Gold
 Surplus does not apply to Performax Gold
 Mortality – Experience is better or worse than assumed in
The
risks associated to mortality,
product
pricing
lapses,
expenses, and other factors
 Lapses
– Experience is better or worse than assumed in
are taken on by Manulife
product pricing
(shareholders)
not the
 Expenses
– Higher or lower
costpolicyholders.
to administer the product
like UL and Term.
that what wasJust
expected
 Taxes, inflation, …
 Investment returns
11
Factors that impact surplus - Performax Gold
 Surplus does not apply to Performax Gold
 Mortality – Experience is better or worse than assumed in
But clients
product
pricing are still getting some value
for it.
It’s contractually
and in
 Lapses
– Experience
is better orguaranteed
worse than assumed
part
of the Performance Credit the
product
pricing
receives
annually.
 Expenses –policy
Higher or
lower cost
to administer the product
that what was expected
 Taxes, inflation, …
Investment
returns - it’s the only variable
 Investment
returns
factor left in the equation, and the contract
shows how it will impact policy values.
12
Performax Gold – Performance Credit
Cancellation
Leverage
Policies will always receive a
Performance Credit.
Minimum guaranteed PC
Guaranteed Death Benefit
YEARS
13
Cash Surrender Value
Death Benefit
Claim
Performax Gold – Performance Credit
Cancellation
Claim
Leverage
Death Benefit
Minimum guaranteed PC
Guaranteed Death Benefit
YEARS
14
Cash Surrender Value
And another amount based on
investment performance
PGold vs others: same objective – increase values
Death Benefit
Guaranteed Death benefit
Par Whole Life
15
Death Benefit
Guaranteed Death Benefit
Performax Gold
Different ways to get there – risk level
Dividends
More risk
Par Whole Life
16
Performance Credits
Less risk
Performax Gold
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
17
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
46 49 52 55 58 61 64 67 70 73 76 79 82 85 88 91 94 97 100
AGE
Male 45 HS3 (NS), $500,000 base coverage, Cost for 15 years, PUI, 15 annual payments of $16,586
18
Strong long-term values and IRR
Values at age 83
All @ 6%
3.5% for
10 years
3.5% for
15 years
3.5% for
20 years
DB
$1.25M
$1.22M
$1.16M
$1.06M
DB IRR
5.26%
5.19%
5.02%
4.72%
CV
$903K
$882K
$834K
$752K
CV IRR
4.19%
4.12%
3.93%
3.59%
Male 45 HS3 (NS), $500,000 base coverage, Cost for 15 years, PUI, 15 annual payments of $16,586
19
So does “current” really matter?
 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)
20
Lessons learned from the (not so distant) past
 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
21
Lessons learned from the (not so distant) past
 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
22
Gov of Canada – long term bonds benchmark
23
Fund mix
24
Observations
 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.
25
What does this mean going forward?
 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
26
Changes to our illustration software
 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%
27
Changes to the Rates tab in Diamond View
The “Current”
terminology has
been removed.
The PC rate is
now defaulted to
0%. Max is rate
currently in effect
Can specify a rate
up to 8%
28
There is no magic
 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
29
Don’t be afraid to show the worst case scenario
Death Benefit based on guaranteed values
Estate Achiever
Sun Par Protector
Performax Gold
$700,000
$675,000
Total Death Benefit
$650,000
PGold = 1.42%
$600,000
IRR at LE
$550,000
$500,000
CL = 0.12%
$450,000
Sun = 0.01%
$400,000
41
43
45
47
49
51
53
55
57
59
61
63
65
67
69
71
73
75
77
79
81
83 85
87
89
91
93
95
97
Age
Annual payment: Performax Gold $11,341
Estate Achiever
Male 40 HS3 (NS), $500,000base coverage, Costs -to -100, Accum Account, Pay for life, illustrated at 0%
30
$11,330
Par Protector $11,595
99
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%
31
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%
32
Unique Cost for 15 years duration
 Unique in the marketplace – our main competitors offer a
20 pay duration
 Offers competitive value, in no more than 15 payments,
guaranteed
Male 45 NS
Values at LE (83)
Performax Gold
15-pay
Estate Achiever
20-pay
Sun Par Protector
20-pay
$11.7K
$11.7K
$11.7K
15
20
20
Base coverage
$350K
$378K
$337K
Death benefit @ 6.5 / 7.15
$994K
$1.1M
$1.3M
IRR
5.66%
5.50%
5.99%
$679K
$769K
$725K
4.41%
4.17%
3.97%
Annual payment
Number of payments
Death benefit @ 5 / 5.15
IRR
33
A different kind of Gold
 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
34
Manulife Segregated Fund RESP details
Manulife introduces a Segregated Fund RESP!
 A new option to help your clients
prepare for their children’s postsecondary 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
36
Manulife Segregated Fund RESP –
Product features
1. Selection of 7 segregated funds invested in underlying
Manulife Mutual Funds
2. 75% Death Benefit Guarantee*
3. 75% Maturity Guarantee*
4. Contract Maturity Date is Dec 31st of the 35th year (40th
year for a Specified Plan) after the RESP Inception Date
5. Individual or Family Plan
6. Client name only
7. Life license is the only requirement to sell the product
*Reduced proportionally by withdrawals
37
Contract & deposit minimums and maximums
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
38
Thank you
39
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