Catherine LaroucheProduct Manager, Whole LifeMarch 2013
Performax Gold
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Agenda
Whole Life 101 Base guarantees
Base model & luxury edition
Dividends and Performance Credits
Same objective – Different risk
Does current matter?
Going forward
Illustration software changes
Product vs illustration rate
Cost for 15 years
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Whole Life – base guarantees
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Guaranteed Death Benefit
Guaranteed Cash Value
ClaimCancellation
Leverage
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Premium: level and guaranteed
Death Benefit vs Cash Value
Client gets one or the other, but not both
Whole Life 101
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Guaranteed Death Benefit
Guaranteed Cash Value
ClaimCancellation
Leverage
YEARS
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Some whole life plans have a level death benefit
(base model)
Don’t have to be
participating to
be Whole Life
Whole Life 101
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Guaranteed Death Benefit
Guaranteed Cash Value
ClaimCancellation
Leverage
YEARS
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Others have a death benefit that increases over time
(luxury edition)
Non-guaranteed Death Benefit
These plans are
typically
participating
How do values grow beyond the guarantees?
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Guaranteed Death Benefit
Guaranteed Cash Value
ClaimCancellation
Leverage
YEARS
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It all starts with a dollar amount credited back to the policy annually
Dividends (Par)
Performance Credit (PGold)
This is the key to any
growth in values, in excess
of the guarantees
Whole Life – increase in values
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Guaranteed Death Benefit
Guaranteed Cash Value
ClaimCancellation
Leverage
YEARS
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Paid-up insurance purchased with dividends/PC credit
Total Cash Value
This dollar amount is used to purchase Paid-up insurance.
PUI increases the Death Benefit and the amount that was used to purchase the
insurance becomes cash value.
Participating Whole Life - dividends
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Guaranteed Death Benefit
Guaranteed Cash Value
ClaimCancellation
Leverage
YEARS
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If there is more money in the Par Fund than what’s required to satisfy the guarantees, “surplus” becomes available and dividends may be distributed to policies.
Dividends – not guaranteed 100% variable
Factors that impact surplus - Par products
Mortality – experience is better or worse than assumed in product pricing
Lapses – experience is better or worse than assumed in product pricing
Expenses – higher or lower cost to administer the product that what was expected
Taxes, inflation, …
Investment returns
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Factors that impact surplus - Performax Gold
Surplus does not apply to Performax Gold
Mortality – Experience is better or worse than assumed in product pricing
Lapses – Experience is better or worse than assumed in product pricing
Expenses – Higher or lower cost to administer the product that what was expected
Taxes, inflation, …
Investment returns
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The risks associated to mortality, lapses, expenses, and other factors
are taken on by Manulife (shareholders) not the policyholders.
Just like UL and Term.
Factors that impact surplus - Performax Gold
Surplus does not apply to Performax Gold
Mortality – Experience is better or worse than assumed in product pricing
Lapses – Experience is better or worse than assumed in product pricing
Expenses – Higher or lower cost to administer the product that what was expected
Taxes, inflation, …
Investment returns
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But clients are still getting some value for it. It’s contractually guaranteed and
part of the Performance Credit the policy receives annually.
Investment returns - it’s the only variable factor left in the equation, and the contract
shows how it will impact policy values.
Performax Gold – Performance Credit
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Guaranteed Death Benefit
Guaranteed Cash Value
ClaimCancellation
Leverage
YEARS
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Minimum guaranteed PC
Policies will always receive a Performance Credit.
Performax Gold – Performance Credit
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Guaranteed Death Benefit
Guaranteed Cash Value
ClaimCancellation
Leverage
YEARS
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Minimum guaranteed PCVariable PC based on investment return
And another amount based on investment performance
PGold vs others: same objective – increase values
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Guaranteed Death benefit Guaranteed Death Benefit
Death Benefit Death Benefit
Par Whole Life Performax Gold
Paid-Up insurance
Paid-Up insurance
Different ways to get there – risk level
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Dividends Performance Credits
Par Whole Life Performax Gold
More risk Less risk
What does this mean for your clients?
With Performax Gold, just like with a UL, it’s an investment risk discussion
The investment risk is borne by policyholders but in a deferred fashion
The investment conversation is a unique one: A forward looking question
What will returns be, on average, over the lifetime of your policy
Investment return will have more impact in the later policy years than in the earlier policy years
It’s a perfect opportunity to showcase what Performax Gold can do for them
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PGold is well positioned to tackle today’s economic uncertainty
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$0
$500,000
$1,000,000
$1,500,000
$2,000,000
$2,500,000
46 49 52 55 58 61 64 67 70 73 76 79 82 85 88 91 94 97 100AGE
Male 45 HS3 (NS), $500,000 base coverage, Cost for 15 years, PUI, 15 annual payments of $16,586
Total Death Benefit
Strong long-term values and IRR
All @ 6%3.5% for 10 years
3.5% for 15 years
3.5% for 20 years
DB $1.25M $1.22M $1.16M $1.06M
DB IRR 5.26% 5.19% 5.02% 4.72%
CV $903K $882K $834K $752K
CV IRR 4.19% 4.12% 3.93% 3.59%
Values at age 83
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Male 45 HS3 (NS), $500,000 base coverage, Cost for 15 years, PUI, 15 annual payments of $16,586
So does “current” really matter?
It doesn’t
It’s not an estimate or a guarantee of what the future holds
It’s more a reflection of what happened in the past Because of smoothing of returns
Because of surplus (par products)
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Lessons learned from the (not so distant) past
With Performax Par If you were “conservatively” illustrating at current less 2% 10 years
ago, your dividends are now being calculated using a rate that is 15 bps lower than your original illustration
If you were “conservatively” illustrating at current less 1% 6 years ago, your dividends are now being calculated using a rate that is 50bps lower than your original illustration
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Lessons learned from the (not so distant) past
With one of the main par competitors If you were “conservatively” illustrating at current less 2% 10 years
ago, your dividends are now being calculated using a rate that is 11bps lower than your original illustration
If you were “conservatively” illustrating at current less 1% 5 years ago, your dividends are now being calculated using a rate that is 21bps lower than your original illustration
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Gov of Canada – long term bonds benchmark
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Jan 2010
Mar 2013
Fund mix
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65.3% Fixed Income
81% Fixed Income67% Fixed Income
Observations
In their Dividend Scale announcements, companies are alluding to future decreases due to the sustained low interest rates environment.
Even with participating whole life, investment returns have the largest impact on surplus, and as a result, dividends.
Par funds allow previously accumulated surplus to be taken into account when determining the Dividend Interest Rate for the year.
It’s just another form of smoothing. It doesn’t mean that Par funds get better investment returns than other funds, or that they are immune to low interest rates and market downturns.
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What does this mean going forward?
Significant downward pressure on fund yields Consider the asset mix
What percentage of fixed income assets? 60%? 80%? 90%?
Smoothing creates a lag Fund yield: Smoothed returns will be slower to decrease but slower
to increase
Dividend Interest Rates: Previously accumulated surplus may help slow down the decrease, but are we depleting faster than we’re replenishing?
Everyone is going in the same direction
For your clients: Set the right expectations, illustrate under different interest rate assumptions
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Changes to our illustration software
Changes to the “Rates” tab for Performax Gold
In January 2012, we changed the software to allow users to specify an illustration rate and gave them the ability to customize using the spreadsheet (like UL)
With this new release, we’ve completely removed the “current” terminology, users will have to specify a rate
The default setting will now be 0%
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Changes to the Rates tab in Diamond View
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The “Current” terminology has been removed.
The PC rate is now defaulted to 0%. Max is rate currently in effect
Can specify a rate up to 8%
There is no magic
Illustrating whole life should be about long term projections
Illustrate Performax Gold and the competitors at a rate that, on average, could be reasonably expected over the next 30-40 years
We’re all moving in the same direction, par or non-par, it doesn’t matter, investment performance has the greatest impact on values
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Death Benefit based on guaranteed values
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$400,000
$450,000
$500,000
$550,000
$600,000
$650,000
$700,000
41 43 45 47 49 51 53 55 57 59 61 63 65 67 69 71 73 75 77 79 81 83 85 87 89 91 93 95 97 99
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Age
Estate Achiever Sun Par Protector Performax Gold
Annual payment: Performax Gold $11,341 Estate Achiever $11,330 Par Protector $11,595
CL = 0.12%
PGold = 1.42%
Sun = 0.01%
$675,000
Male 40 HS3 (NS), $500,000base coverage, Costs -to -100, Accum Account, Pay for life, illustrated at 0%
IRR at LE
Don’t be afraid to show the worst case scenario
Consider the product’s performance under different interest rate scenarios
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Death Benefit, M45 NS, PUI, $500K base, 10 payments of $28K
Performax Gold Custom illustration rate: Years 1-5: 4.5%Years 6-12: Increasing by 25bps every yearYears 13 thereafter: 6.5%
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Death Benefit, M45 NS, PUI, $500K base, 10 payments of $25.6K
Performax Gold Custom illustration rate: Years 1-5: 5.15%Years 6-12: Increasing by 25bps every yearYears 13 thereafter: 7.15%
Unique Cost for 15 years duration Unique in the marketplace – our main competitors offer a
20 pay duration
Offers competitive value, in no more than 15 payments, guaranteed
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Male 45 NSValues at LE (83)
Performax Gold 15-pay
Estate Achiever20-pay
Sun Par Protector 20-pay
Annual payment $11.7K $11.7K $11.7K
Number of payments 15 20 20
Base coverage $350K $378K $337K
Death benefit @ 6.5 / 7.15 $994K $1.1M $1.3M
IRR 5.66% 5.50% 5.99%
Death benefit @ 5 / 5.15 $679K $769K $725K
IRR 4.41% 4.17% 3.97%65bps illustration
rate difference
for Sun
A different kind of Gold Product design that’s minimally impacted by returns in the
early policy years
Performance and value in good and bad times
Most flexible illustration – Allows you to set the right client expectations
Minimum Guaranteed Performance Credit paid every year that will contribute to Death Benefit and Cash Value growth
Full disclosure, no unknowns, more contractual guarantees than par products
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Manulife Segregated Fund RESP details
Manulife introduces a Segregated Fund RESP!
A new option to help your clients prepare for their children’s post-secondary education and achieve their financial goals
No additional licensing will be required if already life licensed
A new means of appealing to a broader market, including younger clients
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Manulife Segregated Fund RESP – Product features
1. Selection of 7 segregated funds invested in underlying Manulife Mutual Funds
2. 75% Death Benefit Guarantee*
3. 75% Maturity Guarantee*
4. Contract Maturity Date is Dec 31st of the 35th year (40th year for a Specified Plan) after the RESP Inception Date
5. Individual or Family Plan
6. Client name only
7. Life license is the only requirement to sell the product
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*Reduced proportionally by withdrawals
Contract & deposit minimums and maximums
Deposit minimums: No deposit is required if applying for the Canada
Learning Bond and / or the Alberta Centennial Education Savings (ACES) Grant
Fund minimum = $100 per fund, per sales charge option
Pre-authorized Credit (PAC) deposit minimum = $25/month, per fund
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Thank you