How to choose a participating policy? Check three key indicators before applying (with a comparison of multi-currency savings insurance from multinational insurers)

Participating savings insurance is the best-selling insurance category in Hong Kong, accounting for more than 80% of total annualised premiums in 2022. It is popular with the public because there is a wide range of products to choose from, allowing customers to select suitable premium payment terms and withdrawal methods according to their individual needs, and to let their money grow over time for potentially attractive returns.

In the market, many participating savings insurance products, including the increasingly popular multi-currency savings insurance, are marketed on the basis of “high returns”. So how should consumers compare them before taking out a policy? It is worth noting that most savings insurance products include both “guaranteed returns” and “non-guaranteed returns”, with the overall return largely depending on the performance of the “non-guaranteed returns”. In the past, the total returns of savings insurance lacked transparency, but as regulators have required insurers to disclose the dividend realisation rate of participating savings insurance, transparency has improved. As a result, 10Life has consolidated a large volume of data and created the “Insurer Dividend Realisation Score” to help everyone choose the right savings insurance.

It is often said that “wealth planning should start early”. If everyone takes out a savings insurance policy in their prime, making good use of the power of time to compound and grow wealth, they can have more options in the second half of life, such as travelling around the world, changing career paths, or even starting a business, or building a safety net for retirement.

When it comes to choosing savings insurance, many people opt for insurers with a strong reputation and solid financial strength. This time, we have selected four multinational insurers, including AIA, AXA Hong Kong and Macau, Manulife and Prudential, to compare their multi-currency products.  

We have placed the four insurance products on the same starting line. We assume a 30-year-old man takes out a multi-currency savings insurance policy with a five-year premium payment term and total premiums of US$100,000, aiming to withdraw the funds in a lump sum after 30 years, i.e. at age 60, in order to compare the payout amounts of the four products.

Before the comparison, an explanation of the column headings in Table 1 is provided. The “Expected Cash Value” comprises the “Guaranteed Cash Value”, “Accumulated Reversionary Bonuses” and “Terminal Bonus”.

Among these, the cash value of the “Reversionary Bonus” is credited annually to the savings insurance policy account. When the policyholder needs to withdraw cash value from the policy, the insurer will first pay out from the policy’s accumulated reversionary bonuses. If the reversionary bonuses are sufficient to cover the amount, the policyholder does not need to surrender the policy, which gives it a certain degree of liquidity. Among the four products, only AXA Hong Kong and Macau and AIA include reversionary bonuses, with AXA Hong Kong and Macau offering the higher amount at US$44,822.  

As for the “Expected Cash Value”, which policyholders are most concerned about, the highest amount is also found in AXA Hong Kong and Macau’s product, at US$534,709. In fact, the “Expected Cash Value” of all four products exceeds US$500,000, equivalent to more than 500% of total premiums paid. However, whether the “Expected Cash Value” can ultimately be achieved depends on the insurer’s ability to deliver dividends, which is the next indicator, Indicator 2.  

The former Office of the Commissioner of Insurance (the predecessor of the Insurance Authority) required insurers to disclose bonus fulfilment ratios from 2017 onwards, thereby improving transparency around insurers’ participating policy performance. However, because different insurers update their information at different times, and participating products involve different currencies and bonus types with complex presentation formats, it is not easy for the public to understand.

To address this pain point, in the fourth quarter of the end of 2023, 10Life collected the bonus fulfilment ratio data available at the time (i.e. for the 2022 reporting year), covering 19 insurers, 3,290 data points and 640 participating products, and carried out sorting and analysis to derive insurers’ bonus fulfilment scores, making it easier for the public to understand insurers’ actual bonus distribution performance. 

When scoring, 10Life only uses data points from policy durations of six to ten years and over ten years, so as to better reflect the long-term dividend fulfilment performance of participating policies. Meanwhile, 10Life’s dividend fulfilment score takes into account both the average dividend fulfilment ratio and its stability, to reflect whether returns meet expectations and whether performance is consistent.

For scoring details, please refer to: 【Dividend Fulfilment Ratio 2024】Comparing dividend fulfilment scores across major insurers.

Among the four insurers above, the highest dividend fulfilment score is shared by AXA Hong Kong and Macau and AIA, both with a score of 9.6, reflecting the stronger dividend fulfilment capability of their participating policies. In terms of the average dividend fulfilment ratio, AXA Hong Kong and Macau recorded 95%, while AIA recorded 93%. As for stability, meaning the proportion of data points with a dividend fulfilment ratio above 70%, AIA recorded 100%, while AXA Hong Kong and Macau recorded 97%. 

Policyholders should not only pay attention to the “projected cash value” of participating policies and the insurer’s participating strength, but also to whether the policy terms can protect policyholders’ interests, such as the product’s bonus policy. Of course, different products each have their own bonus policies, which may not necessarily be disclosed publicly. However, AXA Hong Kong and Macau’s Wealth Elite clearly sets out a profit-sharing provision, stating that “the aim is to allocate 90% of profits or losses to you (i.e. the policyholder), with the remaining 10% retained by the insurer”, greatly enhancing product transparency.

By taking out a multi-currency plan, the aim is to increase capital flexibility. If you live abroad in the future, you can also switch to a suitable policy currency for easier living overseas. For multi-currency plans, the public should pay attention to whether the policy’s total cash value will remain unchanged when switching policy currency. Among the products mentioned above, AXA Hong Kong and Macau Axa Affinity, Manulife Legacy, and Prudential Flexi Wealth all state that the total cash value remains “unchanged”, so policyholders do not need to worry about losing policy cash value when switching policy currency. By contrast, the terms of AIA Fortune Guard mention that the total cash value “may be lower than or higher than the corresponding value before conversion”.

In summary, when choosing a savings insurance plan, the public should not focus solely on the level of returns, but should also consider multiple factors in order to make the most suitable choice for themselves. 

Last updated: 9 September 2024

This English version of this article has been generated by machine translation powered by AI. It is provided solely for reference purposes. In the event of any discrepancy or inconsistency between this translation and the original Chinese version, the Chinese version shall prevail.