Canada Life 2013 participating policyowner dividend scale announcement

Transcription

1 Nov. 8, 2012 Canada Life 2013 participating policyowner dividend scale announcement New dividend scale effective Jan. 1, 2013 Why the decrease for 2013 Detailed information important for advisors Updated illustrations for new sales available Nov. 26, 2012 Impact on premium offset Impact on enhanced coverage option Transition rules Canada Life has offered participating life insurance products for over 165 years. We believe in the important advantages and choice that participating life insurance offers as part of a client s sound financial security plan. To learn more about the strength and stability of participating life insurance, read Canada Life s Unwavering commitment to participating life insurance (form ). New dividend scale effective Jan. 1, 2013 On Nov. 8, 2012, the Board of Directors of Canada Life approved a reduction to the dividend scale effective Jan. 1, 2013 for all Canada Life (open and closed block) and former Crown Life Term Plus II individual participating life insurance policies. The dividend scale for all former New York Life and all other former Crown Life individual participating life insurance policies will remain unchanged. The Canada Life, former Crown Life and former New York Life participating accounts are managed and reviewed separately and their experience will differ. Participating life insurance policyowners will be notified of the change on their 2013 policy anniversary statements. Effective Jan. 1, 2013, the dividend scale interest rate, which is the rate used to calculate the investment component of participating policyowner dividends, is decreasing from 6.96 to 6.50 per cent for Canada Life open and closed block policies. The decrease in the dividend scale interest rate, along with updates applied for changes in experience such as mortality and taxes, will result in an overall 5.3 per cent reduction in the Canada Life open block participating policyowner dividends on average. This is compared to the dividends that would have been received at the 2013 policy anniversary if there had been no change. For Canada Life closed block policies, this will result in an overall average reduction of 11 per cent. To learn more, read information on former New York Life and former Crown Life individual participating life insurance policies. The investment environment continues to be challenging because of the volatile equity markets and low interest rates. With yields at historical lows, the Canada Life dividend scale interest rate is very competitive relative to fixed-income investments available in today s marketplace. Canada Life s participating life insurance products continue to be competitive and provide a history of strong, stable performance.

2 In 2013, Canada Life will distribute an estimated $130 million 1 in participating life insurance policyowner dividends. Notes 1 Full-year estimates at Sept. 30, Why the decrease for Canada Life open block policies The dividend scale is affected by investment returns, mortality experience, expenses, lapses, taxes and other factors associated with the participating account. Although factors such as mortality and taxes have improved, these were not enough to offset the declines in the participating account s investment experience from the continuing low interest rate environment and negative returns in the equity markets. The account is broadly diversified, with a goal to have approximately 80 per cent of the invested assets in fixed-income investments and 20 per cent in common stock and real estate investments. The low interest rate environment means new and maturing fixed-income assets are being invested at lower rates. The investment returns associated with the participating account are reflected in the dividend scale through the dividend scale interest rate. The 2013 dividend scale interest rate takes into account the smoothed investment experience of assets backing participating account liabilities from July 1, 2011, to June 30, 2012, and also includes smoothed gains and losses from prior periods, and other factors. This reduction in the dividend scale helps maintain the integrity, strength and stability of the participating account. Detailed information important for advisors Canada Life open block participating life insurance policies Participating life insurance policyowner dividends will decrease 5.3 per cent on average compared to the dividend that would have been received at the 2013 policy anniversary had there been no change to the dividend scale. The actual dividend reduction for any policy varies by product, issue year, issue age, duration and risk class. Enhanced coverage option term enhancement rates will be reduced by five per cent on average for existing policies and new sales. Enhanced coverage option maximums and additional deposit option maximums are changing for Estate Achiever and Wealth Achiever, effective Nov. 26, There will be some increases and decreases while others will remain unchanged Canada Life closed block participating life insurance policies Participating life insurance policyowner dividends will decrease 11 per cent on average compared to the dividend that would have been received at the 2013 policy anniversary had there been no change to the dividend scale. Enhanced coverage option term enhancement rates and maximums remain unchanged. Former Crown Life participating life insurance policies Dividend scale interest rate remains unchanged.

3 There will be no change to the dividend scale for 2013 for former Crown Life policies, except forterm Plus II policies. For Crown Life Term Plus II policies, basic participating life insurance policyowner dividends will be reduced to zero. The change does not impact: o Paid-up additions dividend rates o The guaranteed $5 permanent dividend enhancement received by all former Crown Life policyowners Enhanced coverage option term enhancement rates and maximums remain unchanged. Former New York Life participating life insurance policies Dividend rates, enhanced coverage option term enhancement rates and maximums for all policies remain unchanged. All policies Premium deposit account crediting rate is decreasing from 2.75 to one per cent, effective Nov. 26, Delayed claim interest rate is decreasing from two per cent to 0.5 per cent, effective Nov. 26, Variable policy loan interest rate remains unchanged. Dividend accumulation interest rate remains unchanged. The dividend scale interest rate methodology used to smooth realized and unrealized gains and losses recognized from real estate assets in the participating account changed for the 2013 dividend scale to be more consistent with common stock. Smoothed returns help reduce volatility (form ) has been updated to reflect the change. Updated illustrations for new sales available Nov. 26, 2012 Starting Nov. 26, 2012, illustrations for new sales will reflect the 2013 dividend scale, including new enhanced coverage option term enhancement purchase rates and maximums and premium deposit account crediting rate. The primary example will be based on the new dividend scale. A reduced example will be available. Advisors may choose to illustrate with the assumed interest rate reduced by 100 basis points, 150 basis points or 200 basis points. An alternate example will be available and may be used to supplement the primary and reduced examples. Advisors may choose to illustrate with the assumed interest rate reduced by 50 basis point, 100 basis points, 150 basis points or 200 basis points or increased by 50 basis points or 100 basis points. When providing policy illustrations for new sales between now and Nov. 26, clients should be advised the non-guaranteed values illustrated are based on a higher dividend scale than will be in force Jan. 1, As a result, the values illustrated by the primary example will likely be higher than under the new dividend scale. To help clients better understand how a dividend scale reduction can impact future values, refer to the reduced example in the policy illustration. To closely reflect the upcoming reduction in the dividend scale interest rate, use the optional alternate example in the illustration to show the effect of a decrease of 50 basis points in the current dividend scale interest rate. Inforce illustrations based on the new scale will be available starting Jan. 1, 2013.

4 Impact on premium offset Policyowners with premium offset that is not supportable in 2013 will receive notification on their anniversary statements. If you have questions about policies on premium offset, contact the Client Service Centre. Impact on enhanced coverage option The enhancement coverage option will not be affected if it is still within the enhanced coverage option guarantee period. If there are any situations where the current annual dividend is less than the cost of the term enhancement and the guarantee period has expired, the clients will be notified. They have the option to pay the shortfall out of pocket or let the enhancement coverage decrease. Transition rules Canada Life New sales All applications signed on or after Nov. 26, 2012 receive the new enhanced coverage option and additional deposit option maximums. They must be illustrated using Concourse illustration software, version All applications signed Nov. 25, 2012 or earlier and received on or before Dec. 10, 2012 receive the old enhanced coverage option and additional deposit option maximums. They must be illustrated using Concourse illustration software, version Inforce changes Quotes - For quotes dated on or after Nov. 26, 2012, the new enhanced coverage option and additional deposit option maximums apply. - For quotes dated Nov. 25, 2012, or earlier, the old enhanced coverage option and additional deposit option maximums apply. - Changes - All applications signed on or after Nov. 26, 2012 receive the new enhanced coverage option and additional deposit option maximums. - All applications signed Nov. 25, 2012, or earlier and received on or before Dec. 10, 2012, receive the old enhanced coverage option and additional deposit option maximums. Saving age for new issues and inforce changes The application must be signed Nov. 25, 2012, or earlier and received on or before Dec. 10, 2012, to obtain the old enhanced coverage option and additional deposit option maximums. If a policyowner wants to save age, the regular save age rules apply. More information

5 For information on historical average returns on Canada Life s participating account assets, refer to Participating life insurance financial facts (form ), available from your regional marketing centre and electronically on Canada Life RepNet. Use this booklet to: Help explain how participating life insurance works Reinforce the value of participating life insurance Provide detailed information on participating account assets and returns The participating account asset mix information is updated quarterly and can be accessed on RepNet, Product & Tools > Life insurance > Participating life insurance > Participating account investment reports. If you have any questions about the dividend scale change, contact your regional marketing consultant.