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Life Industry
Wednesday, August 1, 2007
Payback time

More than half a million retirement annuity (RA) fund and endowment policies benefited from value enhancements implemented by life insurance companies over the past six months in line with the Statement of Intent. The deadline for retrospective value enhancements of qualifying policies was the end of May this year.

The Statement of Intent was signed by the Life Offices’ Association (LOA), and Finance Minister Trevor Manuel in December 2005 with the aim of providing better values for retirement annuity fund members and endowment policyholders who could no longer afford their premiums.
Lizè Lambrechts, chairperson of the LOA, says the implementation of the Statement of Intent represented an important step for the life insurance industry towards regaining consumer confidence.
By the end of May life companies had delivered on their promise to enhance RA fund and endowment policies that were still on their books and that had their values reduced by more than 35% because premiums had been stopped or reduced between January 2001 and the end of November 2006.
“While the implementation was largely completed by the end of May two of our members are currently completing manual enhancements on a very small number of policies, which could not be completed electronically with the rest of the batch. These policies currently represent less than 1% of the total policies enhanced.”
The implementation process is being monitored by the Financial Services Board.  Thus far life companies have spent almost half of the R3 billion set-aside for the purpose of enhancing values. The remaining funds will go towards ensuring that:
• RA fund members who lapsed their RA fund policy or took full or partial early retirement between January 2001 and December 2006 and who still need to contact their life insurers receive value enhancements.
• RA fund policies and endowments that are made paid-up (premiums are stopped) or where the premiums or term of the policy are reduced after 1st December 2006 receive at least 70% of the fund value.
• RA fund members who decide to retire early will also receive at least 70% of the fund value.
• Endowments that are surrendered will receive at least 60% of the fund value.

Lambrechts says that all policyholders who qualified for value enhancements would by now have been contacted by their life companies. “The exceptions are RA fund members who lapsed their RA fund policy or took full or partial early retirement between January 2001 and December 2006. If this applies to you, you need to apply for value enhancements before 1st December 2009. This does not, however, apply to endowments surrendered or lapsed between January 2001 and December 2006.”
She says it is important for policyholders to understand that policy value enhancements are being funded exclusively by shareholders and will not impact in any way on existing policyholders.
There follows further detail of who would have benefited from the value enhancements completed by 31 May, 2007 because of contractual changes made between January 1, 2001 and December 1, 2006:
• RA fund members who stopped paying their premiums or reduced the policy term without the policy coming to and end and whose fund values were reduced by more than 35%;
• RA fund members who lowered their premiums and whose fund values were reduced by more than 35%, calculated as a ratio of the premium reduction (e.g. if the premium is reduced by half, then the fund value reduction may not be more than 17.5%);
• RA fund members who retired from their fund before it matured, and whose fund values were reduced by more than 35%. If this applies to you, you must apply for a value enhancement before December 1, 2009 since your policy is no longer on the life insurer’s books;
• RA fund members who partially retired from their fund before it matured, and whose fund values were reduced by more than 35% (calculated as a ratio of the partial reduction). If you have not yet received your final benefit your life insurance company will contact you. If you have received your benefits you need to contact your life insurer before December 1, 2009;
• RA fund members who lapsed (stopped premiums before the fund value exceeded unrecovered costs) their RA fund policy. If this applies to you, you must apply for a value enhancement before December 1, 2009 since your policy is no longer on the life insurer’s books; and,
• Endowment policyholders who stopped or reduced their premiums, or who reduced their policy term, but who have left their investment with the life insurer. Again, life insurers will make sure that you will have received at least 65% of total fund values (premium reductions will be calculated as with RA funds). This does not apply to surrendered endowment policies, where you have already taken the money or the policy has lapsed.
 

Copyright © Insurance Times and Investments® Vol:20.7 1st August, 2007
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