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Family Money

Snap Shots

Modern Medicine

Heart to Heart with Hillary

A Slice of Thai History

Personal Directions

Social Commentary by Khai Khem

Women’s World

Family Money: Endowment Policies - Part 1

By Leslie Wright,
Managing director of Westminster Portfolio Services (Thailand) Ltd.

What’s The Basic Idea Behind Endowment Policies?

Most UK residents or ex-residents are familiar with the concept of the endowment policy. Basically longer-term savings plans, endowment policies are sold in conjunction with an interest-only mortgage, as a low-risk route to growth that will pay off the capital element of the loan at the end of its term (usually 25 years). They are also available for more general savings purposes – school fees, for example – in the shape of fixed-term savings plans, typically running for 10 years.

The policy itself is a savings vehicle or wrapper. The monthly premium covers an element of life insurance, which will pay out the target maturity value if you die before the end of the term. The rest of the premium is generally channelled into your choice of a range of underlying investments, which may be structured as unit-linked or with-profits funds.

Unit-linked funds provide direct exposure to the stock market, and their value is directly related to those of the assets they hold. Needless to say, the disastrous performance of the stock market over the past three years has ensured that policy holders investing in these funds have suffered badly. One survey, which looked at the performance of an annual premium of ฃ500 invested by a 30-year old male, showed that over a 10-year period to 1 March 2000 (and a total investment of ฃ5,000 during that time) the average maturity value from a unit-linked endowment was ฃ8,454. Over the 10 years to 1 March 2003, that average had fallen by more than 40%, to (ฃ4, 817).

However, until the early 1990s, when life companies started to broaden the choice available by introducing unit-linked offerings, the basis of most endowment policies was with-profits investment, promoted as a far less risky way of gaining some exposure to the equity markets.

With-Profits Problems

With-profits funds work by investing in a mix of assets, including bonds, gilts and property, as well as equities. The ups and downs of the market are ‘smoothed’ by holding back some of the profits in those years when the market performs strongly, and using them to bolster payouts in less prosperous years.

With-profits, like unitised funds, have been hit by stock market volatility, but the mix of assets they hold and the smoothing effect means that the impact has been less pronounced. That same survey shows that the average performance of a low-cost with-profits endowment over 10 years to 2003 was ฃ6,544.

Some returns are paid out each year, and those cannot be taken away: the rest is paid out on maturity, as a terminal bonus. But annual bonuses have fallen throughout the 1990s, in the face of falling inflation and interest rates, with particularly severe cuts of up to 55% reduction from one life company over the past year. Terminal bonuses, which used to account for 60-70% of the total policy value, have recently dwindled to almost nothing, with drastic effects on final payouts.

And as another recent survey shows, falls in with-profits endowment maturity values are gathering pace. On 1 April 2003, a 29-year old non-smoking male, paying ฃ20 a month over 25 years, would have received a final payout averaging 19% less than if it had matured on the same date in 2002. That 2002 value was down 9% on the equivalent for 2001, which in turn was only 6% down on 2000. A similar trend is evident for 10-year polices.

Worse still, with-profits funds have the right to apply a ‘market value adjustment’ (MVA) in the event of a severe fall in the market, or a rush to cash-in policies. The MVA amounts to a penalty for policy holders who cash in their holdings, on the grounds that they will deplete the fund for those remaining. The same survey found that of 26 life companies who responded, 14 had applied MVAs since August last year, imposing penalties of up to 30% entirely at the discretion of the company.

The Consumers’ Association publication “Which?” magazine emphasises the problem of transparency in its damning February 2002 report on with-profits funds. It points out that insurance companies don’t have to disclose crucial information such as underlying charges, actual investment performance, or why payments made to policyholders may differ from real investment returns. “There is no clear link between the amount of annual bonus you receive and the fund’s actual return. Policyholders, therefore, have no way to judge how well their insurance company is managing the fund, or work out whether they’re getting a good deal,” says the report.

Clearly, the scale of cuts and restrictions imposed on with-profits endowments recently suggests that all is not well with many insurance companies - yet the complexities of with-profits funds, and the opacity surrounding them, means that consumers are not provided with comprehensive explanations. Given the supposed benefits of the smoothing process as a way of protecting against hard times, it is difficult for angry, out-of-pocket investors who thought they were entering into a low-risk contract to understand why the insurance firms got themselves into this position.

What Went Wrong?

In the early 1980s when endowment policies were at the height of their popularity, inflation was booming, interest rates were high and tax relief was available on the premiums paid. Prospects were sufficiently strong for annual growth of 8~12% to be assumed and achieved, and for investors to take out their policies in the expectation that they would not only achieve their target sum but be able to pocket a handy surplus as well.

But tax relief was abolished years ago, investment growth has been hit by steadily declining interest and inflation rates, and the forecasts made so optimistically through the 1980s and early 1990s are no longer viable. Growth rates of 4~6% are now quoted by insurance companies as an optimistic guide for the future for endowment investors - leaving many who took out their policies in the late 1980s or early 1990s with a large shortfall to make up.

Despite these long-term economic changes, fierce competition through the 1990s drove the life companies to continue to pay out bonuses too generous for the state of their financial reserves. As a consequence, they now find themselves in difficulty - trying to shore up their finances by switching out of equities and into fixed-interest holdings.

(To be continued next week)

Snap Shots: What makes a ‘good’ photograph?

by Harry Flashman

The other day I had the opportunity to go through some assorted photographs from the Jesters Children’s Fair shot by two photographers. One was an amateur, but very keen photographer, while the other was a professional having been hired for the day. Both were intent on bringing the event to life on film. And before you try and guess the outcome, both were successful, but in different ways.

The principal difference came in the amount of film used by the two photographers. This was an all-day event, so obviously there would be quite a few rolls taken, but the number of rolls shot was interesting. Most people would imagine that the pro would take more film, but this was not the case here. There are a couple of reasons for this, leaving aside whether the pro had Scottish or Jewish heritage! The pro had done this fair in previous years, so knew what he was going to shoot, before he even got there. The amateur, on the other hand, was not forearmed to the same extent. The pro also knew his equipment in its totality, so technical details were never going to be a hindrance to photo taking. The amateur was not as au fait with his gear, so there was always that element of uncertainty, hence the need to shoot more images, just to be sure.

Being a children’s fair, most of the images shot were of children, sometimes the interaction between children or children and adults, but the subject matter was similar. However, there were some differences in the way the subjects were shot. The pro used a long lens and featured kid’s faces, rather than the entire child. Shooting with the aperture wide open, he achieved a very short depth of field, relegating the always cluttered fair background into hazy swirls that did not detract at all from the subject.

The amateur, on the other hand, also managed to come home with some good kid’s pix, but tended to have the complete child in the frame, and since he did not have the length of lens used by the pro, could not get the backgrounds out of focus as much as the pro.

Another feature difference was the position from which the shots were taken, with the pro getting down on one knee to get level with the child almost every shot, whereas the amateur did not do this as often, making the child look small as the camera looked down on the subject.

So what do you have to do to get a ‘good’ photo from a fair? The first rule is to shoot more film. It makes no difference whether you are only getting one good image in twelve - if you only take four photographs you are not going to get the image you wanted. Even the pros only expect one in four or one in six, so don’t worry!

The second rule is to use a long lens (at least 135 mm, but around 200-250 is better). With longer lenses you have to shoot at a faster shutter speed (1/250th would be the norm here) and this will mean the aperture has to be opened right up, and I would suggest that f5.6 or larger aperture be aimed for, even if this means shooting at 1/500th or 1/1000. The long lens also allows you to be far enough away from the subjects that they are not aware of you taking their photograph, always great for super candid facial expressions.

The third rule is to get down to the level of your subject. Little people are closer to the ground than we are, so get down with them. (However, with stilt walkers, still get down low and shoot upwards with a wide lens to magnify their height! See, there are no ‘rules’ that can’t be broken.)

The fourth rule is just to know your equipment. Practice with it, know what it can do and its limitations, and shoot within those parameters. Happy snapping!

Part One: The North Korean invasion and the UN response

by Duncan steam

In the early hours of a rainy Sunday, 25 June 1950, heavily armed military units from the Democratic People’s Republic of Korea (North Korea) launched an invasion of the Republic of Korea (South Korea). The action was just the beginning of a protracted conflict that was to last for just over three years.

Two days later, as the South Korean defence forces crumbled and fell back through the country, the United Nations Security Council met in hurried session and agreed to “…furnish such assistance to the Republic of Korea as may be necessary to repel the armed attack and to restore international peace and security to the area.”

Even before the passage of the UN resolution, United States President Harry Truman ordered the commander-in-chief of the Far East, General Douglas Macarthur, to provide whatever assistance was needed to repel the North Korean invasion.

American forces based in occupied Japan were airlifted into South Korea and went into action for the first time on July 5. Outnumbered, the small South Korean army and the US forces fought delaying actions, aiming to gain the necessary time for reinforcements to arrive from nations prepared to commit troops to what the United Nations quaintly termed a ‘police action’.

Britain was the first nation to agree to join the United States in Korea, followed in rapid succession by Australia, France, Canada, and New Zealand. The first forces from these nations began arriving in southern Korea in late August.

In September, the Philippines became the seventh nation to join the coalition, followed by Turkey and then, on November 7, by Thailand. The coalition eventually encompassed 16 nations, with South Africa, the Netherlands, Greece, Belgium, Luxembourg, Ethiopia and Colombia, also committing troops to the United Nations Command (UNC) as the intervention force was known.

Additionally, Denmark, India, Norway and Sweden provided medical units and Italy, although not a member of the United Nations, supplied a hospital.

Approximately 6,500 military personnel from Thailand, comprising one infantry regiment (consisting of three battalions and totalling around 2,100 soldiers), four naval vessels and one air transport unit served in the Korean War. This represented the seventh largest commitment of the 16 nations to the UNC, behind the United States, Britain, Canada, Australia, Turkey, and the Philippines.

Thailand’s 21st Infantry Regiment was initially assigned to the US 187th Airborne Regiment, then to I Corps (December 1950), IX Corps (January 1951), the First Cavalry Division (March 1951) and finally the Second Infantry Division on 27 December 1951.

Eight of the participating United Nations Command countries supplied naval vessels, and on 7 January 1951, the Thais suffered a severe loss when the corvette HTMS Prasae ran aground in a snowstorm while patrolling off the Korean east coast. Stranded behind enemy lines, the Prasae had to be destroyed when salvage efforts failed to break her loose. Her crew was airlifted by helicopter to the safety of US naval ships standing offshore. The Prasae had originally been built for the British Royal Navy and had later been given to the Indian Navy.

In October 1951, the United States transferred the frigate USS Gallup to Thailand as a replacement. She was renamed Prasae.

Thailand was also only one of four countries, apart from the US, to supply air transport units. The others were Australia, Canada, and Greece.

In addition, again apart from the United States, Thailand was one of 10 nations that sent nurses to serve with the UNC.

by Christina Dodd

Remember when you were young and growing up your mother or father would always come up with some saying to spur you on or to teach you what was right and what was wrong, or the difference between bad and good? One of my mother’s favorites was, “There’s no such word as can’t in the dictionary!” I can still hear her voice to this day saying this at times to me during my childhood and later on in life. I am sure that it helped me a great deal in the way I think and I behave today, indeed in helping me know who I am.

Words can be extremely powerful. They have an almost magical quality to them and a limitless depth to their strength and capability to inspire and motivate. But I wonder if we really grasp this as we use words in our everyday lives. Do we fully realize the consequences of the words we speak and the way in which we say them?

Another phrase my mother would say to me is, “Where there’s a will, there’s a way”. She was a great positive thinker, my mum, now that I look back and see her and understand that she really had to think this way and behave in this way to bring us up in those days. Words such as these most likely helped her to simply “get on with it” and to do the things she had to do to feed us and clothe us, get us through school and into adult life when we could finally take care of ourselves.

Let’s take a look at this phrase, where there’s a will there’s a way. When you first say it, do you completely understand it, or are you just uttering words because you have been asked to? Do you totally come into tune with their meaning? Those of us who have perhaps had to fight for what we have or fight for what we want to be or do in life, will immediately recognize the depth of these words and their immense value.

I know from my own experiences that this statement has so much truth in it that it is definitely overpowering. I can recall numerous incidents in my life where I have made it and gotten through all kinds of circumstances and incredible obstacles purely because of my “will”, and because my “will” was determined and focused, I was able to draw on the resources and capabilities within myself to achieve what I wanted to achieve. From small tasks to much larger ones, if you have a will to complete them, you will complete them. You will find a way!

Sometimes I wonder whether children growing up today have the opportunity to hear such words as these spoken in the home by their mothers and fathers. In certain places and societies no doubt they do. But I fear the majority of children in this world would have no such positive warmth and communication come their way. Education, in these terms, is far more essential to life than any other. I find the attitudes and behavior of children and the youth of today in desperate need of attention. This is at all levels of schooling right from the very start.

The ultimate responsibility lies with parents and families as to how their children are “educated”. But it also lies with the education system as well. I believe that it is the duty of educators to provide an additional dimension to learning and that it should take the form of a “positive learning approach” to life. In every aspect of kindergarten, primary school, high school, college and university there should be more emphasis on personal development and human achievement – the possibilities within each individual to succeed. To my mind we could do little harm in providing such opportunity based on the serious lack of it that exists in a lot of families today.

You know, and I know the power that positive thinking and positive speech can have. Why do we have to only realize this as adults? If we can learn so many details of history and understand the complexities of physics at school, why can’t we learn about the benefit and value of positive behavior and thinking as well? Wouldn’t it be a great leap forward and an add-on to the other forms of education we receive, helping us to enter adult life and the corporate world in a much more prepared way?

The reason why this whole subject is so important is that it is so easy to feel defeated. Our nature is such that we think negative before we think positive and because of this, it is that bit harder to fight back. When people retort that your idea, for example, which you think is good, is ridiculous and has no possibility of getting off the ground, you are more inclined to give up than to continue and fight for it. Most people give up upon hearing a negative response or discouragement. Both the giver and receiver of “words” need to understand their power and potential.

Let me just point out at this stage that I am not advocating that “positive thinking” makes life easy, not at all. But it will get help you through life and all its struggles by overcoming adversity, and if applied in the right way, help you achieve a meaningful, happy and rewarding life. Nothing is ever easy – it is all totally up to us – and that is why you have to take on the world everyday with a positive outlook. The consequences of “positive words” are important to life and this needs to be conveyed (at their level and not lectured) to the young people of today as a matter of necessity and of urgency.

If you’d like more details on our programs for your professional or personal needs, please contact me at Christina.dodd @asiatrainingassociates.com and until next time – have a great week!