AIA Participating Fund Update

The following s AIA’s participating fund update.  AIA is projecting to pay out S$548 million in AIA Participating Fund bonuses and dividends for 2022.  AIA will be increasing bonus and dividend rates for some policies and maintaining the bonus and dividend rates for remaining policies at the same scale as the previous year. 

This commentary is about the performance of the Participating Fund, as well as bonuses and dividends allocated to policies for the accounting period ending 31^st December 2021, which were recommended by the Appointed Actuary and approved by AIA Board of Directors.  Annual bonuses and dividends will be credited to client policies at the policy anniversary from the 01^st July 2022.  Terminal bonus and dividend rates, if applicable to the policy, will apply from the 01^st July 2022 onwards. 

The following are some key statistics of the participating fund, for 2021.

Bonuses / Dividends Declared

S$548 million 

Investment Returns

S$ Overall 1.9%

US$ Overall 4.0%

A$ Overall 0.2% 

Total Assets as of 31^st December 2021

S$30,642 million 

Total Expense Ratio

1.4% 

Total Benefits Paid

S$1,216 million 

Insurance claims and expenses were in line with company expectation in 2021.  Short term fluctuations of non-investment performance, of which insurance claims and expenses are key factors, are not expected to significantly affect future bonuses. 

The global economy continued its spirited recovery in the first half of 2021, driven by accommodative monetary and fiscal policies designed to introduce financial liquidity and stability, to limit the social and financial impact from the COVID-19 pandemic.  This was on the back of buoyant economic data as countries bided to return to normal by dialing back border restrictions and controls.  Sentiments of a complete recovery to pre-pandemic levels moderated in the latter half of 2021, as the world grappled with a resurgence of COVID-19 variants, leading to renewed restrictions.  There were pressures on global supply chains with rising demand as COVID-battered economies began to emerge stronger post successful vaccination and health protocols while key manufacturing locations struggled with reduced labour productivity amidst escalating costs of production inputs.  With inflation concerns flaring up as higher cost of energy and raw materials ripple through the economy, several central banks acknowledged the scale and longevity of inflationary pressures and accelerated plans to normalise monetary policies as 2021 drew to a close.  This was especially significant, with the US Federal Reserve declaring its intention for several interest rate hikes and trimming its balance sheet substantially, a stark contrast to its previous policy stance. 

Global equity markets continued to climb higher in 2021 on the back of stronger economic resilience and robust corporate earnings, with S&P 500 Index ending near record levels.  Overall, investment performances were positive in 2021 while navigating uncertainty and volatility which are likely to remain in the future. 

As of 31^st December 2021, the market value of total Participating Fund assets was S$30,642 million, supporting Singapore Dollar (S$), US Dollar (US$) and Australian Dollar (A$) plans.  The asset strategy varies by the currency of the plans. 

2021 was a challenging year filled with momentous events with global repercussions.  These headwinds continue to persist in 2022, with the Russia-Ukraine conflict spiraling in the first quarter, adding further pressure to the fragile global economic recovery.  The war has instigated a tremendous adverse supply shock for key commodities such as energy and soft commodities such as agriculture and fertilisers, and presents a concern of potential future conflicts.  The inflationary consequences of the current geopolitical conflict may spread and stall any global economic growth.  With such heightened risks associated with the geopolitical conflict and determined central banks looking to stem red-hot inflation prints amid a tight labour market, it is important for us to stay invested and focus on quality assets with durable structural growth drivers, which enables AIA to strengthen portfolio resilience and deliver sustainable long-term investment returns over different economic regimes. 

Bonuses or dividends allocated for a policy will depend on the performance of the plan it belongs to, based on past and projected future investment returns, and past and projected future experiences such as claims, surrenders and expenses of the plan.  Any changes to the bonus or dividend rates for a plan will apply to all policies of that plan. 

AIA tries to provide stable returns over the life of your participating policy, by adopting the smoothing concept - we try to spread profits and losses over the life of our clients’ plans.  For example, if the Participating Fund performance is particularly good in one year, we may hold back a portion of the earnings so that we may be able to maintain bonuses in years when the Participating Fund does not perform so well.  The future outlook of investment returns is a key factor impacting future bonuses.  If investment returns continue to be persistently low going forward, it may be necessary to lower estimates of future bonuses and dividends for some blocks of participating businesses accordingly.  Our aim is for the long-term cost of smoothing to be broadly neutral across generations of policy owners. 

The current year bonus and dividend rates including those for the previous three years will be included in your Participating Policy Annual Statement (PPAS), which will be sent to AIA clients or it may be viewed the PPAS via My AIA SG1, within two months of their next policy anniversary.  AIA clients can also obtain a Post Sales Policy Illustration (PSPI) online for all policies via My AIA SG.  AIA clients can also visit AIA website at www.aia.com.sg/parfundupdate for a list of “Frequently Asked Questions” on participating bonuses and dividends. 

Frequently Asked Questions on Participating Bonuses / Dividends

The term “bonus” or “bonuses” in this FAQ refers to both participating bonuses and participating dividends. 

Q1. When are bonuses reviewed and declared?

Bonuses are normally reviewed and declared annually. In situations of large market volatility, there may be ad-hoc reviews during the year as well.  AIA will notify its participating policyholders of the bonuses that may be credited to their policies at least annually, and of any changes made to the bonus scales. 

Q2. How are bonuses determined?

When a client buys a participating policy, their premiums are paid into the AIA Participating Fund where they are combined with the premiums paid by all other participating policyholders. AIA makes benefit payments and deducts expenses from the Participating Fund, and the balance is invested in assets. 

Each year, we determine the value of the Participating Fund assets and subtract the value of the guaranteed policy benefits, including previously declared bonuses, plus any accumulated dividends and coupons deposited, and other liabilities.  The amount left over is available to declare future bonuses.  AIA tracks this performance at a plan level; depending on the past performance and future outlook of each plan, the bonuses and bonus adjustments made may differ from those of another plan.  It is possible that bonuses are increased for one plan and decreased for another at the same time. 

When AIA declares bonuses, it aims to give all policyholders a return that reflects the Participating Fund’s experience over the time they have kept their policy with AIA, and the future outlook. 

Based on regulatory requirements, the ratio of bonuses given to the policyholders to the maximum amount that AIA shareholders can receive from the Participating Fund, is fixed at 9:1 – for every $9 given to policyholders, $1 can be given to shareholders.  Hence, if policyholders receive lower bonuses, AIA shareholders will also receive less. 

Q3. What items and expenses are charged to the Participating Fund?

The value of the Participating Fund is affected by benefit payouts to participating policies and a variety of expenses.  Examples of benefit payouts from the Participating Fund include coupons, death claims, morbidity claims, surrender claims, maturity benefits and bonuses.  For expenses, there are investment expenses relating to the management of the Participating Fund’s assets, marketing and other distribution-related costs, general management expenses including a share of AIA’s fixed overheads, tax on policyholder bonuses and other expenses. 

Q4. What does the Participating Fund invest in?

While seeking to maximise investment returns over the long run, AIA also ensure the security and solvency of the Participating Fund.  The Participating Fund achieves diversification by investing in a mix of assets including fixed income securities, listed equities, private equities, properties or property funds and others.  Derivatives may also be used to manage investment risks.  Most of the assets are invested in fixed income securities, which are considered to be lower risk.  As of the end of 2021, about 36% of the entire portfolio is invested in so-called risk assets such as listed equities, private equities and properties or property funds. 

Q5. What are the risks factors affecting the performance of the Participating Fund?

The key factors affecting the performance of the Participating Fund are investment returns, mortality and morbidity experience, lapse and surrender experience, expense risk and business risks, including but not limited to product design, selling and marketing practices, and demographic changes.  Investment returns are in turn affected by economic market risks.  These include interest rates risk, credit spread risk, fixed income default risk, equity market risks, foreign exchange risks including those on equities, property risks and other market risks affecting the performance of the assets that we hold. 

Q6. How are risks shared?

Client premiums are combined with premiums from other participating policies in the Participating Fund.  The combined assets of the Participating Fund are used to pay policy benefits, as well as to meet expenses and charges incurred in running the Participating Fund.  Investment risks are shared among all the policies within the same group or class of products.  The other key risks affecting the value of the Participating Fund, including mortality, morbidity, lapses and surrenders, expenses and business risks, are mostly shared by all the policies in the Participating Fund. 

Q7. Why may client bonus allocation vary from year to year?

The performance of the Participating fund is monitored regularly, and the bonus allocation is reviewed at least annually.  At each review, we will consider the past performance of the fund as well as the future outlook in determining the bonuses to be declared.  An increase in bonus allocation can be made if the past returns on the fund and the future outlook can support a higher bonus allocation, and lower bonus scales may be declared if the current bonus allocation is not sustainable given the past returns on the fund and the future outlook. 

Investment returns will fluctuate with market dynamics and may be volatile.  Other risks on the Participating Fund, described above, can affect its performance.  AIA tries to provide stable bonuses over the life of your participating policy and so adopt a concept known as “smoothing”.  For example, if the Participating Fund performance is particularly good in one year, AIA may hold back a portion of the earnings so that we may be able to maintain bonuses in years when the Participating Fund doesn’t perform so well.  Accordingly, the actual adjustment of the bonus scales in any year may not directly correspond to the performance of the fund in that year. 

Q8. I have more than one participating policy.  Why is the bonus allocation not the same for each policy?

Bonuses allocated for a policy will depend on the product design, the performance of the plan it belongs to, past and projected future investment returns, and past and projected future experiences such as claims, surrender and expenses of the plan.  Any changes to the bonus rates for a plan will apply to all policies of that plan.  Each plan’s performance is monitored and tracked separately, and we determine the bonus scales at a plan level.  Depending on the past performance and future outlook of each plan, the bonus adjustments made may be different.

It may be possible that we increase the bonuses for one plan and decrease the bonuses for another plan at the same time.  When AIA declares bonuses, AIA aims to give all policyholders bonuses that reflect the plan's experience over the time they have kept their policy with, and the future outlook. 

Q9. Why do I not get bonuses on other AIA policies?

The types of policies that are eligible for bonus declarations are mainly whole life and endowment participating policies.  All non-participating policies and non-participating supplementary contracts, also known as riders, including term insurance plans, health insurance and some critical illness riders, are not part of the Participating Fund and do not participate in the profits of the Participating Fund.  As such, they are not eligible for bonuses.  Refer to the contract of the policy or rider, which indicates whether the policy or rider is participating or non-participating.  Investment-linked plans are also non-participating policies that are not entitled to bonuses from the Participating Fund.  These plans have benefits which depend directly on the investment performance of the investment-linked funds chosen. 

Q10. Will bonuses be revised?

Future bonuses, including terminal bonuses, are not guaranteed and depend on the experience of the Participating Fund and, in particular, the past and projected future investment returns.  Investment returns can be volatile, and AIA may vary bonuses significantly from time to time.  Therefore, the actual bonuses credited in a particular year can differ from previous projections or illustrations.  In times of substantial decline in investment returns, AIA may even reduce bonuses declared that year to nil.  Conversely, in times of substantial increases in investment returns, AIA may increase bonuses declared that year to higher than those originally projected at the time of purchase of your policy.  Any changes to bonus rates will only be made after a careful review of the Participating Fund’s experience, the prevailing investment returns and the outlook, and other experience factors.