FWD Life Insurance Company (Bermuda) Limited (“FWD”) issues universal life policies, which credit the policyholders’ account with interest that is not guaranteed.
Through the crediting interest rate declaration, the policyholders participate in the investment performance of the asset portfolio supporting Universal Life, after allowing for the profit target of FWD and minimum guaranteed crediting interest rate guarantees, if any. The declared crediting interest rate may be affected by other factors, including but not limited to, market conditions, investment outlook, persistency and claims experience.
Due to the variation of features and benefits of different products, the frequency and magnitude for the change in crediting interest rate may vary for different products. In general, the adjustments on crediting interest rate scale are more frequent and significant for products with higher risk profile. The premiums deposited may be separated into different buckets with different crediting interest rates, with an aim to more closely reflect the yields attained during the period of premiums deposited.
To stabilize the crediting interest rate, FWD may distribute a proportion of the investment income in a particular year attributable to the policyholder, with an aim to smooth out the short-term volatility of crediting interest rate over the course of the policy term.
FWD review and declare the crediting interest rate at least annually, with written declaration by the Chairman of the Board, an Independent Non-Executive Director and the Appointed Actuary.
FWD’s asset portfolio employs a balanced asset allocation investment strategy, which consists primarily of investment graded fixed income type securities to meet the guaranteed financial obligation. Equity-type investments, with majority invested in mutual fund and private equity, are also utilized to enhance the investment performance in the long run for non-guaranteed benefits. The investment strategies are customized for different products to optimize the return:
- Savie: Reinsurance asset with good credit rating (Target 99%) and Cash (Target 1%) or Fixed income type securities (Target 100%)
- Provie: Fixed income type securities (Target 100%)
- For your interest: Reinsurance asset with good credit rating (Target 99%) and Cash (Target 1%)
- Other Universal Life: Fixed income type securities (Target 85%) and equity-type investments (Target 15%)
The asset portfolio also targets 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.
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 movement of market interest rates will result in the change in the market value of the fixed income type securities. Generally, under a rising market interest rates environment, the market value of the fixed income type securities will fall, or vice versa.
- The defaults of the fixed income type securities will result in unfavorable investment performance.
- The movement of the market price of the equity-type investments will result in change in the market value of the portfolio. Rise in the market price will increase the market value of the portfolio, or vice versa
- 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 increase (decrease) the investment return.