Fulfillment Ratio

Why do we need a fulfillment ratio?

Participating policies pay both guaranteed and non-guaranteed benefits to policy holders, who are entitled to receive non-guaranteed dividends or bonuses by sharing the insurer’s profits. At the point of sale of a participating policy, a potential policy holder will be provided with a document of benefit illustrations, which gives a view of the benefits projected into the future.

To help policy holders understand the past performance of non-guaranteed benefits declared by insurers, Guideline on Underwriting Long Term Insurance Business (Other Than Class C Business) (GL16) requires insurers to publish the fulfillment ratio of non-guaranteed benefits for participating policies. This demonstrates the insurer’s record of meeting its forecast up to that period. The fulfillment ratio is applicable to all participating products with new policies issued since 2010 and in the previous five calendar years.

How is the fulfillment ratio calculated?

In simple terms, the fulfillment ratio can be understood as the aggregate actual accumulated non-guaranteed benefits against the illustrated aggregate amounts for all relevant policies at the point of sale. A ratio close to 100% means the insurer has come close to achieving its projected non-guaranteed benefits. If the ratio is higher than 100%, it means that the actual payout was higher than the illustrated amount at the point of sale, and vice versa.

Formula

Fulfillment ratio =	Aggregate actual accumulated amount of non-guaranteed benefits
	Aggregate accumulated amount of non-guaranteed benefits illustrated at the point of sale

Three types of fulfillment ratio

Considering the features of different dividends and bonuses, insurers disclose three types of fulfillment ratios: annual dividends, reversionary bonuses, and terminal dividends or bonuses.

Types of dividends or bonuses

While the meaning should follow the policy contract, the dividends or bonuses typically have the features shown in the following table.

Type of dividend or bonus	Dividend or bonus features	Notes on the calculation of the fulfillment ratio
Annual dividend	Declared and paid out annually Fixed amount once declared Can be withdrawn or left with the insurer to earn non-guaranteed interest	The fulfillment ratio for annual dividends includes both aggregate accumulated annual dividends and accumulated interest. It is assumed that all declared dividends are left with the insurer to accumulate interest based on the relevant actual interest rate determined by the insurer.
Reversionary bonus	The face value of the bonus is fixed once declared and is a permanent addition to the sum assured in the policy and payable upon death. The cash value of the bonus is not guaranteed and is paid at a discount upon policy termination (other than death). The cash value of the bonus is usually less than its face value.	The fulfillment ratio for a reversionary bonus includes the cash value (rather than the face value) of the accumulated reversionary bonus.
Terminal dividend or bonus	This is a one-off entitlement and payable upon policy termination (e.g. death, surrender or maturity). The amount may change for each declaration; the actual amount is determined only when it is payable.	The fulfillment ratio for a terminal dividend or bonus includes the payout of a terminal dividend or cash value of a terminal bonus for all relevant policies terminated in the reporting year.

Please visit the section Fulfillment Ratio Examples on this webpage for more details.

Where to find Fulfillment Ratio?

The Fulfillment Ratio disclosure is a regulatory requirement. Insurers are required to publish the fulfillment ratio figures on their websites. Go to the List of Insurers’ Websites on the Fulfillment Ratio to search for the insurers’ published fulfillment ratios.

Some insurers may have a number of fulfillment ratios for different types of participating products. While the fulfillment ratio is not directly comparable across all products, you can refer to the fulfillment ratio of a product series with the features that are similar to what you are interested in, such as the type of non-guaranteed benefits and product type. After selecting a product series, look at the ratios across all policy years to get a better understanding of how the insurer fulfills its non-guaranteed benefits over time.

Useful information

To learn more about how to calculate the fulfillment ratio and points-to-note to interpret the figures, study the following sections of this website.