Dividend Fulfillment Ratio: HK Savings Insurance IRR Explained

What the ratio compares, and what 100% does not mean

The numerator is the non-guaranteed bonuses actually paid; the denominator is the non-guaranteed bonuses illustrated at the point of sale. Guaranteed benefits sit outside the calculation altogether. So 100% means something narrow: the non-guaranteed portion was paid as illustrated. It does not mean the total return met the illustration, does not mean the guaranteed portion is high, and does not mean the product is the best value in the market.

Several definitions have to be kept apart. Within one insurer, different product lines, different policy years and different currencies each have their own ratio; a single table cannot summarise the whole range. In the early years the non-guaranteed bonus is a small part of total value, so an impressive ratio in year three says little about what is finally received — the gap opens up twenty or thirty years later. Disclosure bases and year-by-year figures should come from the insurer's own website and the regulator's published material, not from a forwarded screenshot or a claim that "we have always paid 100%".

IRR is not the same as "one extra percent"

IRR folds cash flows from different years into a single annualised number, and it changes with time: the figure read at year ten, year twenty and year thirty are very different. The 6-7% in a brochure is normally the illustrated IRR at a distant holding year. Earlier years sit well below it, and the earlier we exit, the further away we are from it.

That is why "one point higher" only works with its assumptions attached: bonuses broadly paid as illustrated, no surrender, no reduction in coverage, no policy loan, no sustained adverse currency move, and money that can genuinely stay locked for that long. Remove one and the compounding effect shrinks. Surrender is the most direct enemy of the model — early cash values are low, so exiting does not merely trim a bit of return, it cuts off the time entirely.

A more useful habit when reading an illustration is to copy out the guaranteed and non-guaranteed cash values for the same policy year separately, then apply a haircut to the non-guaranteed column using the fulfillment ratio. That number is more trustworthy than the illustrated IRR on the final line.

Three traps when comparing ratios

Comparing across insurers assumes shared assumptions. Each company uses its own investment return assumptions, bonus locking and smoothing policies; two products both showing 100% can be very different in substance. The same applies across currencies: USD, HKD and CNY policies do not share illustrated rates or bonus policies. Comparing across time is subtler — older products were illustrated on a different basis, so using a new policy's ratio to infer what a ten-year-old contract will pay gets the direction wrong.

The safer approach is to narrow the frame: one insurer, one product series, several consecutive policy years, matched to the year and currency of the policy actually held. A single year's figure is useful for spotting an obvious anomaly, not for ranking products.

What has to hold for 6-7% long-term compounding

At least five things have to be true at once: a long, undisturbed holding period; non-guaranteed bonuses broadly in line with the illustration; no sustained adverse move in currency; no early surrender, reduction or policy loan interrupting the build-up of cash value; and household cash flow that genuinely allows the money to be locked away that long. Loosen any one and a gap opens between the brochure and the money received.

Set Hong Kong participating policies alongside mainland increasing whole life and annuity products and the difference lies mainly in the guaranteed portion, the currency and the bonus mechanism — not in the first line of the illustration. Mainland products carry a heavier guarantee; Hong Kong policies place more of the space in non-guaranteed bonuses, buying the possibility of a higher long-term illustration while also taking on fulfillment volatility. That is exactly why the guaranteed column has to be read alongside it; comparing illustrations alone is comparing who is willing to print the bigger number.

One more layer is usually skipped: the fee structure. Among products that all call themselves long-term savings, those driven by scale quietly lose return through issuance timing, portfolio turnover and layered charges. None of that shows up in a fulfillment ratio, and all of it affects what finally arrives.

How to read the articles below

The collected articles come in on three lines: the calculation of the fulfillment ratio and its three common misreadings, and where the 6-7% compounding actually comes from; the comparison between Singapore IUL, US IUL and Hong Kong participating policies, plus how Hong Kong policies and mainland annuities and increasing whole life look thirty years out; and finally why wealth products so often fail to make money, which completes the picture from the cost side. Read the definitions first, then the comparisons, then the costs; reversing the order lets the illustrated numbers lead.