Comparing products: Prudential replies

We thank Ms Evelyn Tan-Leong for her feedback ("Full review of insurers' products, practices needed"; Forum Online, Oct 9).

Her letter refers to the insurance coverage of an endowment plan and the cost of a term insurance plan.

A term insurance plan usually provides for a fixed level of insurance protection without cash values, for a fixed period.

A participating endowment plan, on the other hand, is largely for the purpose of savings, with a lesser element of insurance protection.

The level of insurance protection of an endowment plan may vary depending on product design.

Due to these differences in benefit structure, it may not be appropriate to directly compare the cost or premiums payable for an endowment with that of a term insurance plan.

An endowment plan, such as PRUSave Max Limited Pay, is a participating ("Par") plan. The objective of a Par plan is to provide stable returns in the medium to long term.

These plans are made up of guaranteed benefits and non-guaranteed bonuses. The level of bonuses declared is affected by factors such as investment performance, claims and surrender experience, and the level of expenses incurred in managing the participating fund ("Fund").

Premiums from participating policies are combined and invested in the Fund, which has a wide range of asset classes.

When determining the investment strategy of the Fund, Prudential will carefully consider achieving the balance between improving the long-term investment performance and reducing the risk level of the Fund.

Similarly, when determining the benefits of a participating product, Prudential considers the balance between the level of guaranteed benefits and the non-guaranteed bonuses.

Having a higher level of guaranteed benefits may mean that a larger proportion of the assets needs to be invested in safer assets.

This may potentially hinder the investment freedom and flexibility of the Fund to achieve a higher long-term investment return.

This may affect the level of non-guaranteed bonuses eventually declared to the policies.

The Monetary Authority of Singapore regulates the level of profit paid to shareholders from the participating fund: For every $9 distributed to policyholders, a maximum of $1 is distributed to shareholders.

Hence, shareholders will not receive more profit distribution, unless the insurer declares more bonuses to the policyholders. Thus, shareholders' interests are aligned with policyholders'.

Prudential has an established rigorous corporate and governance framework which underpins all activities involving policyholder monies.

Prudential remains committed to manage the participating fund with the aim of maximising returns for our policyholders in a prudent manner.

Marcus Ho

Senior Vice-President

Appointed Actuary

Prudential Singapore