OrangeJuice
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David Pett, Financial Post Magazine
Published: Tuesday, December 02, 2008
Segregated funds
Like a hot new toy during the Christmas season, segregated funds, a type of mutual fund sold by insurance companies that offer guaranteed payouts regardless of market conditions, have become the must-have product this year for investors seeking protection from the crush of the credit crisis. Much maligned in more bullish times by investment experts for being too pricy (太高价), the mutual funds promising peace of mind continue to enjoy a rise in sales. Good news all around for insurance companies, right? Not necessarily.
Over the past few years, Manulife Financial and Sun Life Financial blitzed the marketplace with promotions for their respective Income Plus and SunWise segregated brands, and many other companies have jumped on the bandwagon, resulting in more than 1,500 seg funds for sale in Canada. But as markets tumbled this fall, these same companies were increasingly strained by the need to set aside cash to backstop their seg funds, and they convinced the Office of the Superintendent of Financial Institutions (OSFI), to allow them to keep less money on reserve to guarantee future payouts.
Despite the change in regulations, the scare led to speculation that insurance companies might scrap products, raise premiums (提高保费) or limit guarantees (限制保障). So does this mean the death of seg funds as we know it?
...
It seems that once insurance companies are sure they have perfected their winning formula - fees high enough to cover risks from market downturns - they will ramp up their efforts to flog their seg funds. Then, they can sit back and wait for the inevitable rebound in the markets, when mutual fund performances will improve and the fat fees (高收费) from seg funds will start to pile up.
Published: Tuesday, December 02, 2008
Segregated funds
Like a hot new toy during the Christmas season, segregated funds, a type of mutual fund sold by insurance companies that offer guaranteed payouts regardless of market conditions, have become the must-have product this year for investors seeking protection from the crush of the credit crisis. Much maligned in more bullish times by investment experts for being too pricy (太高价), the mutual funds promising peace of mind continue to enjoy a rise in sales. Good news all around for insurance companies, right? Not necessarily.
Over the past few years, Manulife Financial and Sun Life Financial blitzed the marketplace with promotions for their respective Income Plus and SunWise segregated brands, and many other companies have jumped on the bandwagon, resulting in more than 1,500 seg funds for sale in Canada. But as markets tumbled this fall, these same companies were increasingly strained by the need to set aside cash to backstop their seg funds, and they convinced the Office of the Superintendent of Financial Institutions (OSFI), to allow them to keep less money on reserve to guarantee future payouts.
Despite the change in regulations, the scare led to speculation that insurance companies might scrap products, raise premiums (提高保费) or limit guarantees (限制保障). So does this mean the death of seg funds as we know it?
...
It seems that once insurance companies are sure they have perfected their winning formula - fees high enough to cover risks from market downturns - they will ramp up their efforts to flog their seg funds. Then, they can sit back and wait for the inevitable rebound in the markets, when mutual fund performances will improve and the fat fees (高收费) from seg funds will start to pile up.
