Someone asked me how to calculate bonuses for participating life policies. I asked the individual to provide me with the latest benefit illustration. The policy was already in-force for some time already. I will use this policy as an example on how to calculate bonuses. Unfortunately, there was insufficient information to calculate bonuses for surrender values. So the illustration below is only for bonuses due to death claims.

The relevant information provided by the benefit illustration is shown below:

Complicated but largely unregulated derivatives like mortgage-backed securities (MBS), Credit Default Swaps etc had found its way to ordinary investments such as unit trusts. I recalled in 2008, even money market funds had MBS inside it. Because Investments-linked policies (ILPs) basically invest in underlying unit trusts, even ILPs can be considered complicated. To make things worse, the plain vanilla and simple to understand Exchange traded funds (ETFs) have become complex because a very large number of ETFs these days are synthetic (swap based) with no real underlying securities.

The case “Lim Lina v Estate of Quick Cheng Gee, deceased” dated 19 Dec 2011 shows that insurance nominations made under Section 73(1) of the Conveyancing and Law of Property Act does not form part of the life assured’s estate. To me it is a straight forward case but nevertheless it was still disputed. The plaintiff had to bring it to the High Court to confirm that the insurance proceeds form a separate estate.

Since high frequency trading has become a norm, it is important to further understand this. Although the retail investors cannot gain access to this type of trading, it is important to understand the impact of it. Investment has become more complex these days. Here is a short video on the topic:

High speed trading. It is also known as algorithmic trading, quantitative trading and high frequency trading. Much of such algorithmic trading is proprietary. Very little is known how it works. It was estimated that high frequency trading account for 56% of the equity trades in the US. In other words, 1 out of 2 trades (by value) were done by a robot! Below is a CBS documentary on high speed trading.

In the Straits Times today entitled Agents fear they can’t measure up, many financial advisers expressed fear that they may not be able to pass the two new exams required by the regulator. For those who are advising on collective investment schemes (CIS), they are required to pass “M8A - Collective Investment Schemes II” while those who are also advising on life insurance policies are required to pass “M9A - Life Insurance And Investment-Linked Policies II”.

Where the economy is going? How should one invest? While there are market news that you can get from the Internet, newspapers and friends, it is too easy to be overwhelmed by the large amount of information. It does not help that many of these information contradicts each other.

In a video presentation I made on July 2011 this year for investment clients, the following topics were covered:

It was reported that the 22-year-old student who collapsed and died after completing a 21.1km half-marathon on Sunday, was regarded by his friends as a 'man of steel'. My sincere condolences to his friends and relatives. It is indeed shocking how such a young and healthy individual could collapse and die in this manner. Once again, this incident is a reminder that it is a myth that the young and healthy do not need any form of risk management planning. In fact, the following are common myths that people hold:

During the launch of the Representative Notification System (RNS) on 26 Nov 2010, several financial institutions failed to ensure that the relevant regulated activities were reflected against their representatives’ names in the public register before their representatives engaged in regulated activities. As a result, their representatives conducted regulated activities before they were duly appointed. See: MAS TAKES REGULATORY ACTION AGAINST 15 FINANCIAL INSTITUTIONS

FSA bans retail sale of traded life policies. In a very strongly worded announcement, the UK's finance regulator FSA labeled it as "toxic products which pose significant risks for retail investors. The failure of these products in the past has led to significant consumer detriment. Ultimately we aim to ban TLPIs from being marketed to UK retail investors."

Source: UK's FSA to ban retail "death bond" sales

Central Provident Fund (CPF) monies bequeathed to a bankrupt by a deceased member stands to be seized by the Official Assignee (OA). This is the verdict by the Court of Appeal in the case of Lim Lye Hiang v Official Assignee (Singapore Law Watch). The Straits Times carried the same story available from CPF’s IM$avvy link: HERE.

Source: Figure 4 from HSBC’s 'The Future of Retirement' report