Endowment Investment TV

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The general view of investing in Endowment Policy



Endowment Policy

The endowment policy is a type of life insurance policy that designed to pay a lump sum at a certain time or if the person dies an endowment policy may mature at ten, fifteen, or twenty years and some of these policies may also provide money if there is a serious illness. Endowment policies are generally the traditional with-profits or unit-linked and with unitised with-profits funds.


Surrender Value and Adjusted Market Value

Endowments can sometimes be chased early or surrendered early and the policy holder receives the amount of the surrender value determined by the insurance company. How much is received is going to depend on how long the endowment policy has been in effect and the amount paid in to it. Under bad investment conditions the encashment or surrender value may be reduced by a market value adjuster to squeeze out some cash during the time when investment conditions are not good and this means the investor will received only the surrender value minus the adjusted market value.

Liberty’s fixed - Retaining business, moving up performance charts.


FINANCIAL SERVICES

Author: David Carte|
01 March 2012 17:17
Article from Money Web


JOHANNESBURG - Liberty Holdings is back in robust health and is to drop the word “fix” from its vocabulary, says CEO Bruce Hemphill.

Since 2008, when investment performance bombed and policy lapses hit historic highs, Liberty has been repairing itself. Today’s R2.66bn normalised headline earnings (2010:R2.59bn) indicates  the repair job is mostly done.

Hemphill declares that the retention management strategy has been “an absolute success”.

He admits, though,  some items still need hammering and nailing, such as corporate business, which yielded a pre-tax loss of R11m and the medical scheme offering, which lost R55m. Fortunately Retail SA and LibFin investments weighed in with R1 314m and R969m respectively. Even Liberty Africa, which has absorbed a lot of time and money, came in positive with a headline contribution of R21m.

One item jumps out from the presentation as a frightening negative – a R34bn decline in money market cash flows. This was R13.6bn negative in 2011 compared to R20.8bn positive in 2010.

CFO Casper Trosky says money market flows are always volatile for the whole industry. When markets fall and fear is all around, money market balances rise dramatically. When interest rates plunge, as they have, the flow goes in search of higher returns and higher risk.

“These funds, which are held for corporates, are off balance sheet and yield very low margins, so that swing is not that important.”   

Assurance results are always an enigma as they are based on abstruse actuarial assumptions. This year is no different. In positive light, persistency assumptions were adjusted to improved trends. The illiquidity premium on investment products was also improved. In negative vein, annuitant mortality assumptions were stepped up.

Liberty has paid a final dividend of 77c, making 159c for the year - but it is not actually a final. Because of the abolition of STC and the introduction of a 15% tax on dividends in the hands of the holder, it has held back part of the dividend until April 1. Last year Liberty paid a total of 445c, so the board can be expected to add an appreciable amount to the 159c paid so far. 

Broadly Liberty is happy with Budget provisions. Because of capital gains, an endowment policy is now more attractive after tax than a straight unit trust investment.

Thabo Dloti, CEO of Stanlib was pleased as Punch with his division’s R414m (2010: R361m) contribution in a flat equity market. This is partly the result of an improved investment performance and that is the result, in term of “a credible investment team”. Funds under management at the year end were R341bn, which means Liberty has held its third position despite competition from MMI, Coronation, Allan Gray and even rambunctious Discovery Life and Discovery Invest.  

Only about 10% of Liberty’s  institutional funds last year ranked in the top two quartiles of performance over three and five years. This year two thirds were in the top two quartiles. This was matched in the retail area as well.  Stanlib picked up six Raging Bull awards.

After losing a big portion of its investment team  in 2008/2009, Stanlib has picked up several names in fund management, such as Herman van Velze, who left and came back,  Andrew Vintcent, formerly of RMB, Kate Rushton and Shawn Stockigt from Absa.

Liberty’s property portfolio containing such landmarks as Eastgate and Sandton City has been its gold mine, returning double-digit figures for 28 years.

This year it level-pegged with headline earnings of R96m. Dloti wants to restore the old glory. There have been extensions to its best ever investment, Sandton City. Other newish ventures have been the Promenade in Mitchells Plain and the Midlands Mall, Maritzburg. It has a chain of Easy Stay hotels competing with City Lodge.  It is interested in starting shopping malls in east and west Africa.

Old Liberty watchers must wonder why it has not come up with showstoppers, such as the Pavilion and Gateway in Durban, the Waterfront in Cape Town and any number of other good new developments, such as Northgate, Southgate and the jam-packed centre at Woodmead by Hyprop. Does Liberty have another Michael Rapp?

The reader must have discerned that the writer really has no view on the investment merits of Liberty now. Warren Buffett said don’t buy a business you don’t understand. Meanwhile, his business, life assurance, is more complex than anything in IT.

For the record, the Liberty share price has forged to 8774c from 6000c in early 2009. The company is valued at R25bn. The share has risen 19% in the past year, suggesting that the market is persuaded that Liberty is fixed.


Article from Money Web