FWD Life Insurance Company (Bermuda) Limited (“FWD”) issues participating policies, which offer the policyholders with dividend / bonus benefits that are not guaranteed.
Through the policy dividend / bonus declaration, the policyholders participate in the financial performance of the participating products. Financial performance covers investment performance of the underlying investment return on asset supporting those policies, as well as other factors including but not limited to expenses, persistency, claims and the future outlook as pertaining to both internal and external conditions. The experience over the long-term is compared against expectation, and the non-guaranteed dividend / bonus is adjusted if the experience over the long-term is different from the expectation.
Due to the variation of features and benefits of different products, the frequency and magnitude for the change in dividend / bonus scale may vary for different products. In general, the adjustments on dividend / bonus scale are more frequent and significant for products with higher risk profile. Policies of the same product may be separated into different bucket with different dividend / bonus rates, with an aim to more closely reflect the underlying financial performance.
To stabilize the dividend / bonus, FWD may distribute a proportion of the financial performance in a particular year attributable to the policyholder, with an aim to smooth out the short-term volatility of dividend / bonus rate over the course of the policy term.
FWD review and declare the dividend / bonus 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 listed equity, 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:
- MaxFocus: Fixed income type securities (Target 44%) and equity-type investments (Target 56%)
- MaxFocus Supreme: Fixed income type securities (Target 51%) and equity-type investments (Target 49%)
- Crisis XDefender: Fixed income type securities (Target 60%) and equity-type investments (Target 40%)
- Other Participating Products: Fixed income type securities (Target 84%) and equity-type investments (Target 16%)
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 dividend / bonus 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.