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The investment returns used in the Benefit Illustration of Participating products are reviewed on an annual basis to ensure its relevance and appropriateness.
As part of the review process, the following are considered:
a) Investment return for each asset class
LIA will conduct a survey to seek the views of its member companies of the long term investment outlook for specific asset classes such as equities, bonds and properties. A number of factors are taken into account in determining this long term investment outlook, for example the macro-economic climate, GDP growth and inflationary expectations over the period.
For the survey of investment outlook, two different scenarios are considered, i.e. a central and negative scenario. The median returns submitted for each asset class (i.e. the midpoint of the distribution of investment return for each asset class based on the survey result) under both a central scenario and a negative scenario are then determined.
b) Asset allocation
LIA will also determine a benchmark asset portfolio for the year. This takes into consideration the industry’s average percentage allocation to each asset class (i.e. equities, bonds, properties and cash) in the past year, as well as the future market outlook.
c) Portfolio returns
The benchmark asset portfolio return is computed by multiplying the median return of each asset class with the percentage allocation to that asset class, and then summing up the numbers across the different asset classes in the portfolio.
The benchmark asset portfolio return derived for the negative scenario will be used as the illustrated lower investment return in the Benefit Illustration. The figure derived for the central scenario on the other hand will be used as the illustrated upper investment return.
These two investment returns used are purely for illustrative purposes and do not represent the upper and lower limits of the investment performance of the insurer's Participating Fund.
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How are investment returns (i.e. interest rates) used in the Benefit Illustration of Participating Products derived? To find out more...click here.
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