Alvin Soong’s Blog

Weekend September 27, 2008 by Stanley Jeremiah

WE SHOULD expect to spend 12 to 15 per cent of our income on healthcare. This was the evaluation of Health Minister Khaw Boon Wan at a SingHealth event recently.

I don’t think most people have considered the significance of what the Minister said. If you earn $50,000 a year, you should expect to put aside $7,500 a year for your healthcare.

Singaporeans do not seem to appreciate how big an impact the cost of healthcare is going to have on their lives. The minister have some good reasons: Medical developments, new drugs, better doctor-patient ratios, to name a few. To this list we have to add medical or healthcare cost inflation, which is currently running at about 4.5 per cent.

Medical cost is not only about doctor’s bills, the price of medication and hospitalisation fees. It includes the cost of medical insurance. We can therefore expect the cost of health insurance, which is only a reflection of ongoing medical
cost, to rise in tandem.

The “as-charged” design of most of the private shield plans means they are more exposed to increased cost in treatment and medication, perhaps due to new advances in the field, but by the same token, they provide much better cover than those
policies that limit cover under a “schedule of benefits”.

While the public has accepted increased medical costs, it appears that it does not expect this to translate to higher medical insurance premiums. The link between the two, however, is inextricable.

Recently, MediShield revised its product to improve the level of cover. MediShield premiums were then revised to take into account this wider cover. For someone in my age group - 41-50 years - the MediShield premium has been increased by a staggering 43 per cent. All shield plans are integrated with MediShield with the lower B2 and B1 plans having greater integration. This cost will be translated into increased premium for the private shield plans as well.

The Government has conceded that more of its reserves have to be tapped for healthcare and the Minister of Finance is going to table a Constitutional Amendment to facilitate this. The Minister of Health has conceded that the current spend on healthcare at a national level has to be increased from about4 per cent of GDP per annum to about8 to 9 per cent, making it comparable to Japan’s level of spending.

These will change the spending pattern of the nation, and equally, Singaporeans will have to change their personal spending patternsif healthcare is going to cost them 12 to 15 per cent of their income.

Financial planners as well as compensation and benefits consultants have not taken stock of this. Most people I know are reluctant to spend even less than 2 per cent of their income on a good health insurance plan. My peers often grumble about having to pay less than $550 a year (with the assist rider) for an Incomeshield Preferred Policy which provides as-charged cover in a private hospital - this, even when $391 of this total premium can be paid from their Medisave account.

We are not being realistic and we are not preparing ourselves for the increases to come. Think about this: The Ministry of Health just increased your MediShield premium by 43 per cent, albeit with an increase in cover. MediShield only provides the most basic form of health insurance and does not cover the total bill even in a class-C ward.

We also need to address the level of medical benefits provided by employers. The Government puts a cap on tax deductibility on medical benefits provided by employers to 1 per cent of gross wages or 2 per cent of gross wages where there is a portable
plan.

Considering that even the Government admits that there has to be increased spending on healthcare at a national level and that the current spending of 4 per cent of GDP is not realistic, isn’t it time to review the1- and 2-per-cent cap for deductibility
of medical benefit cost imposed on employers? Keeping these caps is not in alignment with the Government’s own admission that spending on healthcare has to increase.

On the other hand, employees and unions have long assumed that medical benefits are an entitlement. They do not expect to make a contribution to the cost of this benefit.

Let’s be realistic, no company can afford to spend 15 per cent, or 12 per cent of their total wage cost, on benefits - very few could even spend 5 per cent.

Therefore, the only way for employers to provide effective and comprehensive healthcare benefits would be on the basis of co-payment of premium between employerand employee. The sooner employees and unions accept this reality, the sooner
employers will be able to realign their benefit programmes to ensure better cover for employees through the employers’ health and welfare benefit schemes.

Just as in the United States, as healthcare costs begin to take up a bigger share of personal income, GDP and even government spending, some other things will have to give and people will have to take another look at their financial and retirement
plans and rework all the numbers to take into account this new reality, where healthcare cost becomes a much bigger component of their total spending.

The writer is a lawyer and chartered insurer who is a council member of the Singapore Insurance Institute.

I was concerned for my clients when my friend from Edgeworth Properties ask me to refer friends to him. I found some information useful for my clients after a conversation with him.

Qn 1. What are the past total average returns per year of the investments?
Qn 2. What are the company’s shares in the holdings of edgeworth properties?
Qn 3. Are there ay loans the company is still holding? What is the paid up capital of the company?
Qn 4. What are the charges not mentioned previously in the meeting? (eg entry

Ans 1) We are having our first 3 projects exiting next year. Each average at 15% net profit per annum.
Ans 2) Edgeworth Properties Singapore is wholly owned by Edgeworth Ventures, together with Sonex and EMIC.
Ans 3) There are 7 million cash in bank. 10 million loan. Capital is 6 million.
Ans 4) There are not other charges. Once investor invest in that amount, all is inclusive. When they exit, only have to less 25% tax from the profit.

Conclusion: Edgeworth Properties can be an alternative short term investment. If anyone needs any good representative from Edgeworth Properties, pls feel free to drop me at the email: alvinsch@singnet.com.sg (Heading: Edgeworth) or call me at 96667946. I would recommend my friend to you

A friend send me on this to help him place on my blog. I thought this was quite interesting, as he told me with a min. sum of $17k-$18k, the after-tax profits is 18.75%pa for 2 yrs. Venue is set at Canada, Jasper Lake. For short term 2yrs investment, I thought this would be useful for those who are mitigating the risks of putting all money in banks’ structural or investment products.

——————————————-

Edgeworth Properties Inc. (“EPI”) is a Canadian Property Development corporation with offices in the cities of Toronto, Calgary, Edmonton, Singapore, Kuala Lumpur and Cebu City. It invests in and develops land in the oil-rich Canadian Province of Alberta.

Its current projects include land re-zoning projects, service “Lot Programs” and condominium developments. The company is a registered member of the Better Business Bureau of Central and Northern Alberta.

In Asia (Singapore, Malaysia and Philippines), EPI is offering an exciting investment opportunity called Development Banking, where you can make a healthy profit from the property development boom in Alberta Canada, the next global oil superpower.

What is Development Banking?
The first stage in the Property Development Cycle is converting Raw Land into Usable Land. Investors have the opportunity to purchase units of undivided interest in a parcel of Land, which EPI then proceeds to apply for planning permissions from the local government, thus raising the value of the land.

Once planning is approved, it triggers a buy-back feature in the program, where EPI will pay up to 100% plus the original purchase price.

The investment is secure because Investors are registered owners with the Alberta Land Titles Office and their capital is protected by insurance too.

Why Canada?

One of the greatest economic booms in modern history is happening right now in Alberta Canada. With Oil Sands that contain 8 times more oil reserves than Saudi Arabia, it will soon be one of the biggest oil producers in the world.

With US$228 Billion worth of investments flowing into the province, Alberta is the richest and only debt-free province in Canada, with the highest population growth, and lowest unemployment.

Companies in Alberta pay some of the highest salaries in Canada, attracting the tens of thousands more workers that are needed for ambitious growth plans in the next decade. Currently, Alberta is facing a severe housing shortage, resulting in a huge property boom, providing an ideal opportunity for savvy Property Developers and Investors.

In Summary

Purchasing land with EPI is a simple, secure process. Investors can take comfort in knowing that the purchase price of their land is all inclusive with no hidden fees or ongoing costs. Title to the land purchased gives investors an added sense of security as does the option to sell their interest any time they choose.

All Inclusive

The purchase price for a unit of land includes the following costs:

• Research costs before purchasing a parcel of land
• Architectural and engineering costs
• All necessary permits
• Tax filing fees and administration
• Any administrative fees (title transfer etc.)
• Insurance police premium

Your Capital is Protected

All land purchased are insured for the original purchase price (ie your principal investment amount). If an investor wishes to relinquish ownership of the title before the project has exited, you will be paid an amount equal to the original purchase price.

Your Return is Guaranteed

Once desired rezoning and planning has occurred, EPI will purchase the land back from investors and develop the land itself. The purchase-back rates are as follows:

—————————————-

Click to Download to read the following newspaper articles:

7-sep-08-st-article-long-wait-but-good-returns-in-the-end.pdf

Information adapted from Edgeworth Properties Singapore

Actual News Extract from Straits Times Today. Original text to retain the importance of the contents:

—————————————————————————————————-

THE questions came fast and furious: How well are insurance policies protected? Are offshore banks safe? Can the Government make banks raise the guaranteed amount for deposits?
In an uncertain economic climate that has seen seemingly rock-solid financial institutions in the United States topple one after another, anxious residents yesterday quizzed the Finance Minister himself on Singapore’s financial system.

Mr Tharman Shanmugaratnam assured them Singapore is ‘not in the same situation as the US’.

‘We need not panic,’ he told residents at a dialogue in Toa Payoh East.

One resident noted that if there is a run on a bank here, depositors are protected for up to $20,000 in their accounts. ‘I think many of us have more than $20,000. Can the minister do something to make the bank increase the guaranteed amount?’ he asked.

Mr Tharman replied: ‘I can assure you our Singapore banks are well regulated and there is no risk and no reason whatsoever to have a run on our banks.’

Singapore has been ‘old-fashioned’ in its strict regulatory approach to make sure banks have adequate assets, and do not over-lend to property owners.

‘So frankly, you need not worry about how solid our banks are, your money is safe,’ he said.

If banks are made to increase the guaranteed amount from $20,000, it will mean higher costs, ultimately borne by the customer. ‘So I would say this system is better: regulate the banks well, keep deposit insurance cost low.’

To another resident who wanted to know how well-protected Singaporeans’ insurance is, Mr Tharman stated categorically: ‘You can have equal confidence in our insurers.

‘Any insurance company operating in Singapore, including the foreign companies, have to abide by strict regulations.’

As for offshore banks, they are required to maintain assets in Singapore to meet their liabilities, he added.

‘It is not possible for anyone to say all banks are safe, but what I can say is our local banks are safe, and foreign banks in Singapore are subject to tighter regulations compared to most other places.’

Ultimately, consumers must have their eyes open when going to financial institutions, and judge where their money is safe, he said. ‘This is a responsibility that you have. Especially wheThe minister repeated this point when telling reporters later that there were lessons to be gleaned from the crisis.

The system can be improved, he acknowledged, whether on the part of the regulator, the Monetary Authority of Singapore (MAS); financial institutions; or the consumer.

‘The MAS approach is one that balances regulation with responsibility on the part of the institution and the investor. All three play a part, and in all three areas, I’m sure there can be improvements, coming out of the recent problems.’

But he warned against over-regulating, saying risk is inherent in the system.

‘We have to avoid swinging in a pendulum-like fashion when it comes to the regulation of financial products.

‘There have to be improvements in marketing and selling and disclosure. There are learning points coming out from the recent problems.

‘(But) let’s not swing to over-regulation because that is going to increase costs and it’s going to reduce the range of products that meet everyone’s needs.’

He cited as an example Lehman Bonds, which, as late as July, were rated A1 by credit-rating agency Moody’s. The highest rating is Aaa.

‘Should MAS say A1 bonds should not be bought by people? I think that would be over-regulation, but it turned out that Lehman Bonds went bust.

‘So it’s an example of how there is risk in the system, there is no way you can get it out of the picture by over-regulation unless you over-regulate to the extent you cut out options to sensible investors.

‘So let’s find a suitable middle ground (to) improve the system.’

Note the different terms in plans out in the market, esp the difference between capital gaurantee and capital protected.

1) Effective rate of return

Most structured products pay a guaranteed minimum rate. Some pay this out as a lump sum - after a period of time - into the deposit, for example, after the first year. Because of the short span of time, the returns will appear inflated. The smart thing to do is divide this by the total number of years to get the effective rate of return.

For instance, if the bank pays 8 per cent after the first year and the tenure of the product is four years, the effective interest rate is 2 per cent per annum.

In fact, many investors may be unaware that the first payout of, say, 8 per cent, is taken from their investment. The bank had simply returned some of their money. They will see a profit, if any, only at maturity.
Any investor who liquidates the product the day after receiving this first payout will find that his investment has dropped by 8 per cent.

2) Types of ‘observations’

The higher returns of structured deposits are linked to the performance of an underlying investment. This ‘performance’ is measured at intervals known as observations which, in turn, dictate how the returns are paid out.

For example, if a structured deposit has only one observation throughout the life of the deposit, the odds of getting the higher return hinge solely on that one event. This, of course, reduces significantly the odds of the investor earning a higher return.
Structures that have more observations - for example, daily observations - thus give the investor greater odds of earning a higher return. The easiest way to picture this is to think of the number of spins one can have at a game of wheel of fortune. Single-observation structures are like single spins while daily accrual structures give the investor multiple spins of the wheel.

3) Frequency of payouts

The more frequent the payouts, the earlier the customer will get to enjoy returns.
Hence, if an investor is comparing two long-tenure structures with similar maturities, the structure with quarterly payouts will be better than the one that pays the return only at the end.

4) Choice of underlying investment

The golden rule here is: greater returns can be achieved only by taking on more risks. Its corollary is: the more complicated the underlying structure, the higher the risk taken. So, know the type of risk you are taking by understanding what is the underlying investment.

For instance, if the underlying instrument is currencies, your exposure is to forex risks; if it is gold, oil, or metal, you are exposed to commodity prices.

5) Callability

Callability means that the issuer may terminate the structure before the maturity date. Callability is often used as a sweetener by the financial institutions in long-term structures as it gives investors the chance to get their money earlier than the maturity date.

The other way to grasp this is that the bank gives itself the option to buy you out via an ‘early redemption’. If your investment is doing well, your profits will be limited if such a ‘cap’ kicks in.

Banks make this sound like it is an advantage to you when you get your money sooner. In fact, you’re better off with the option of holding on to your investment if it is generating high returns. Think golden goose.

6) Reference entities

Investors should become familiar with the primary reference entities, usually well-known financial institutions, that are linked to the structured products they have bought.

Usually, they are highly rated entities but we know now that even their fate can change drastically over a short period. Investors should be aware of the credit ratings of these entities as they would give an indication of their financial strength.

7) Credit event

A credit event is a financial term that is broadly used to describe a change in a borrower’s credit standing or an actual default in payment that will affect the payoff or value on a structured product.

A credit event could include bankruptcies (as in the Lehman case), defaults on a loan agreement (as in the sub-prime fiasco) or if a creditor raises doubts about a debtor’s ability to meet loan obligations.

By far, bankruptcies are the most common credit events.

A ratings downgrade by credit- rating agencies such as Standard & Poor’s or Moody’s on a particular bank or financial institution can also trigger a credit event.

Bottom line: You need to understand what a credit event is since it is an additional risk factor to consider when buying a structured product.

If you feel that an underlying stock is in danger of triggering a credit event, you can then take appropriate action early.

8) Capital protected

When you buy a fixed income instrument, be it a deposit or a bond, your capital is typically protected until maturity. Usually, the principal sum is invested in safe investments like bonds which, on maturity, are expected to provide the 100 per cent capital protection.

You will of course need to hold the instrument until maturity, to ensure that your capital is returned to you, provided nothing happens to the issuer of the instrument.

Bear in mind the possibility that the issuer and/or the underlying safe investments may default. If that happens, how your capital is paid back to you depends on where you stand in line as a creditor.

On the other hand, if you terminate your holding before maturity, early termination fees may apply. You will then get back less than your capital sum.

9) Capital guaranteed

In this case, the guarantee is usually provided by a third-party financial institution. If there is a 100 per cent capital guarantee on a fund, the third-party guarantor or the insurer will provide the 100 per cent capital guarantee at maturity regardless of the performance of the underlying investments in the fund.

In the event that the issuer of the instrument goes bust, your capital is guaranteed. So, where’s the risk? If the guarantor - the third-party financial institution - defaults, that’s where the buck stops.

The issuer typically pays a fee to the guarantor. This fee is then taken off the returns of the instrument. This explains why capital- guaranteed structures tend to either cost more or give lower returns.

Back in 1999, the first ‘more cautious’ generation of structured products were capital-guaranteed, so they were low-risk but the returns were low too.

So if you have invested in a capital-guaranteed product, you have an additional layer of protection, compared to a capital-protected product. This is because in the event the instrument goes bust, your capital is guaranteed by a third party.
In the case of a capital-protected product, the capital is not guaranteed but the issuer tries to place sufficient protection in the structure so as to limit the loss of capital.

Of course, for both capital-protected and capital-guaranteed products, there is nothing to stop either the issuer or the guarantor from going under.

Extracted from Sunday Straits Times