Certain features of insurance products have weakened in recent years. Insurers explain that this is the case with the resetting of segregated fund capital guarantees, often referred to as “resets”.
In a special feature article on segregated funds published in the October 2024 Insurance Journal, Loredana Cappellano, Sales Director at Sun Life Global Investments, pointed out that most insurance companies have changed the reset clause on segregated fund guarantees.
Cappellano explains that resets help guarantee a higher portfolio value and take advantage of bull markets, while protecting capital. “These can be automatic and built into the product, or applied at the client's request at a specific date,” she adds.
David Parent, Manulife's Regional Vice President, Quebec Market, notes that numerous revisions to the reset clause have “made segregated funds a little less attractive” than mutual funds, he stated in an email to the Insurance Portal.
Among these revisions, Parent mentions the end of guaranteed withdrawal benefit funds. He also believes that reset and maturity capital guarantees are now less generous.
Financial and regulatory risk
A search carried out by the Insurance Portal on InsuranceINTEL, an insurance product information centre confirms this. Among other things, almost all insurers have abandoned a feature of the reset clause that allowed the guaranteed value to be increased up to 10 years before the maturity of the segregated fund. This has been replaced by a minimum reset period of 15 years prior to maturity.
According to InsuranceINTEL data, only BMO Insurance and RBC Insurance still offer guarantee resets 10 years prior to segregated fund maturity. On the other hand, Assumption Life, Manulife and Sun Life offer no resets for either maturity or death benefit guarantees.
For its part, Desjardins Insurance revealed to Insurance Portal why it has increased the time limit for resetting the maturity guarantee from 10 to 15 years. “We changed it to reflect economic and regulatory changes, while ensuring that we offer a competitive product in the Canadian segregated fund market,” Philippe-Olivier Dumas, Section Manager, Product Development Guaranteed Investment Funds and Annuities at Desjardins Group, told Insurance Portal.
From 10% to 15% in 2009
Dumas recalls Desjardins Insurance’s involvement in this market beginning with the launch in the mid-90s of its first version of the 10% deposit maturity guarantee, with the Millenia III contract (at the time of its subsidiary Imperial Life).
“Called 100/100 r, the version with a maturity guarantee of 100% of deposits over 10 years stopped being sold in May 2009,” he explains. Dumas underlined the generosity of this version. Offered on the Helios contract, the guarantee was automatically renewed after 10 years, for another 10 years, “and there was a guarantee reset to market value if the market value was higher than the guaranteed value,” he adds.
In addition, the insurer agreed to reimburse 30% of the fees paid for the guarantee, should the fund's market value exceed the guaranteed value at maturity.
In April 2018, Desjardins Insurance launched the 100/100 i guarantee in its current contract, Helios2. It guarantees 100% of deposits at maturity over 15 years, and allows resets at the customer's request. “The product provides additional flexibility by allowing the policyholder to request a maturity guarantee adjustment to market value at any time,” says Dumas.
Desjardins Insurance, however, limits the reset of the maturity guarantee to twice per calendar year. “When the amount is adjusted, the maturity date is extended to 15 years after the adjustment date. At the end of the 15-year period, the guarantee is automatically renewed for another 15 years, with a reset to market value,” explains Dumas.
A word of caution
How do you convince an advisor that resets are still an advantage for a client hesitating between a segregated fund and a mutual fund? Dumas believes that the segregated fund offering is different from that of mutual funds, which do not offer a 100% capital guarantee at maturity.
“This product is the only one on the market that meets the needs of more cautious clients who want to protect their capital, while offering growth potential through investment in high-performance funds. This is suitable for individuals with a 15-year investment horizon,” he maintains.
Desjardins also says it offers an alternative that allows participation in stock markets with an investment horizon of 2 to 5 years, still with 100% capital protection. “Our Guarantee Advantage product is a term investment whose return is linked to that of a basket of securities from different sectors. It offers a guaranteed minimum return and its capital is fully guaranteed at maturity and at death,” adds Dumas.
This article is a Magazine Supplement of the October issue of the Insurance Journal.
