Alvin Soong’s Blog

Some clients enquire for similar products like I-maternity. This product has been stopped.

There is other alternatives of insurance covering for lady illness and complications due to pregnancy:
Lady Plus. (as attached in below link:)
lady-plus-info.pdf
lady-plus-brochure.pdf

Another type covers for congential issues is Parenthood Insurance by ntuc union.

Recently the medical support groups, doctors & beauty saloons are hit with rules and concerns by the government.

It began with the control of Botox and Liposuction and some measures of weight loss given to by Beauty Saloons. Now, for Liposuction - above 28 percent BMI are not approved due to concerns of possible health conditions.

Even Kidney Transfers did not spare the headlines when recently Mr Tang the 2nd generation of the Tangs Retail and Hotel group got charged when he engaged a middlemen to buy a kidney transfer. The government is considering it this should be legalised by law yet, but it does raise ethical concerns for people who undersell their kidney in poor countries to the rich in developed world, while leaving these middlemen to profit from it.

I welcome all readers to comment on what they have read and to give their feedback on the concerns, and the pros and cons on such matters.

It is often said that we lose our health making money, and then lose our money to restore our health. Lorna, the straits times journalist’s take on that is: Not if you have adequate medical insurance.

I summarised the points in here: Her mother was admitted for Spinal fusion surgery , a five-hour operation at NUH and total hospitalised for five days in a Class A1 ward.

From the claims she realised it is possible to be hospitalised and not have to pay a single cent from your pocket or Medisave account, through the private Shield plans.

These are hospitalisation plans offered by insurers that can be funded from one’s Medisave, subject to an annual cap of $800. Here are the two major pluses of such a plan:

1. Lifetime cover: Most private Shield plans offer lifetime cover, whereas MediShield cover ceases when one turns 85.

2. As-charged feature: Almost all private Shield plans offer this feature, which removes the benefit limits on the amount that can be claimed each day for hospital stay and procedures. This means hospitalisation expenses will be paid according to what is billed.

In contrast, traditional plans come with specific sub-limits, such as specified dollar benefits for room and board. Of course, you are still subject to the plan’s deductible and co-insurance (unless you have a rider), and annual limits.

To have an appropriate level of cover, buy a plan that matches your health-care expectations, provided you can afford the premiums. So, if you expect to stay in a class B1 ward, then buy a hospital plan with B1 coverage. But if for one, his/her plan is an Enhanced Incomeshield Advantage plan, which means it covers Class A wards of government/restructured hospitals such as NUH ,she could have opted to be hospitalised at a private hospital, but her insurer, NTUC Income, would then pay up to 65 per cent only of the hospitalisation bill.

Also premiums rise as you age. So, it is important to ensure that you have sufficient money to fund future premiums so as to prevent policies from lapsing. It is also wiser to buy a higher-class plan now while I can afford it, with a view to downgrading to a lower plan when I am older and premiums are higher.

All Shield plans come with deductible and co-insurance features. The former refers to the first layer of charges that the policyholder has to bear. Depending on the type of plan, the deductible is typically about $2,000 to $3,000. The co-insurance feature means that the policyholder shares part of the cost of the bill, usually 10 per cent over and above the deductible.

You can use only cash to pay the premiums. In the case of Income, it no longer offers the ‘Plus rider’ to new policyholders. In its place is the ‘Assist rider’, which covers the deductible. This leaves the policyholder to foot the co-insurance portion, which is capped at a specified amount depending on the type of Shield plan.

Many people hold off buying private Shield plans because they believe that they are adequately covered by their employers. That’s a very short-sighted view. Such covers are usually not portable, and there will come a day when you will leave your employer. Also, as you grow older, you may develop medical conditions and it is very difficult to find an insurer who will cover you once you have them. Hence the bottom line is to insure yourself adequately while you are still healthy.

Summarised main pts from Sunday Straits Times Lorna’s article

This is an extract and my summary from The Edge July 14. In my opinion, it is a reflection that the economy may not bounce back that fast, and we should still look into something safer and hedge against inflation:

In current bearish environment for equities and bonds, where inflation is surging, and global economy is slowing, many are flocking to cash instruments, capital-protected structured products, inflation protected bonds as well as absolute return orientated investments such as hedge funds.

The rich are now putting money where that would give them a level of comfort and credibility. They do not necessarily want high returns but they want their principal back at the end of the day. Hence now they are not interested in high risk structured products any more and are looking for capital protection plans. With inflaton and interestes rates creeping up, bonds would give low returns, but inflation protected bonds may still be in high demands.

For higher risk alternative investments, those that are popular are commodity linked products and hedge funds, but caution should be given that in this volatile asset class, one should have gone into commodities 2 yrs ago instead of now. However oil prices are still high and commodities though volatile need not be pulled back in near future.

The above is feedback from Sipko Schat, vice-chairman of Rabobank International and non-executive director of Dutch Bank’s international private bank operationsand my summary from full actual report by Kelvin Tan

One of the reader requested on the impact on investments in Asia market esp. Singapore based Investments after the Indy -Mac incident. Incidentally, Straits Times has a report on this and I placed this up to answer on his question.

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In the worst-case scenario, US government support is still affordable. The Federal National Mortgage Association (Fannie Mae), the Federal Home Loan Mortgage Corporation (Freddie Mac) and the 12 regional Home Loan Banks are what are known as government-sponsored enterprises (GSEs).

The current attention is focused on Fannie and Freddie, which between them own or guarantee about half of all US mortgages, worth about US$5.2 trillion (S$7 trillion). Some mortgages they keep on their balance sheet, others they buy as a pool from lenders and then create mortgage-backed securities, with their guarantee, to be sold in the capital markets. To fund the on-balance sheet mortgages, they issue debt paper at various maturities, but they do not take deposits.

Freddie and Fannie are listed companies in the United States and are not owned by the US government. Nor is their debt formally guaranteed by the government. Technically, this is still not guaranteed, but the latest announcement by US Treasury Secretary Hank Paulson that the government would support Fannie and Freddie with additional temporary lending facilities and capital injections, if necessary, gives added weight to what was always thought to be an implicit government guarantee.

The Federal Reserve also announced that it would extend its liquidity facilities to the GSEs.
The GSEs do not provide housing loans themselves but buy these loans from banks and, in the past, they were able to borrow at relatively low spreads over interest rates paid to US government bonds.

This is partly because home mortgages are normally fairly safe assets and partly because the markets and ratings agencies always believed that the government would have to stand behind them if it ever became necessary.

The implicit guarantee, together with a special regulatory regime allowing them to operate with much lower capital ratios than commercial banks, enabled them to provide mortgages at relatively low interest rates while still making money for their shareholders.

Unfortunately, the plunge in the US housing market has called into question their ability to stay afloat. With combined mortgage assets of US$5.2 trillion and existing capital of only US$81 billion, Fannie and Freddie are operating on a capital ratio of only around 1.6 per cent (US$81 billion divided by US$5.2 trillion), much less than banks. An eventual loss of just 1 per cent on this portfolio, even taking into account the interest margins they earn, would erode their capital beyond sustainable levels. The stock market realised this, and their stock prices are off 80 per cent or more since last September. On July 11, their stocks closed with a combined market capitalisation of just US$15 billion.

They have since recovered.

Nonetheless, the vast bulk of the mortgages they have bought are relatively safe middle-market mortgages. And while they did buy some sub-prime mortgages and Alt-A mortgages, it seems that they generally are fairly selective, buying or guaranteeing those that are insured - somewhat. Most of the mortgages with the GSEs are outside the worst-hit segments of the housing market. And we can see this from the OFHEO house price index compiled by the Office of Federal Housing Enterprise Oversight, Freddie and Fannie’s regulator. This index rose less than the widely followed housing index, the S&P Case-Shiller Index, during the 2002-2006 housing boom. Crucially, it has fallen by only 4 per cent, much less than the 17 per cent drop in the Case-Shiller Index, which covers almost all houses, in the last year or so.

In short, the GSEs have a relatively good portfolio. Having said that, house prices are still falling fast and both indices are certain to fall far more. The housing downturn has yet to bottom out.

So far, Fannie and Freddie have reported only modest losses, but as house prices fall further, the losses will accumulate. While we are unable to provide a realistic evaluation of the likely eventual losses at this point, it is worthwhile to try to imagine an extreme worst-case scenario and explore the implications. To do this, we assume that the Case-Shiller Index falls an eventual 45 per cent and the OFHEO index falls 30 per cent. This is at the outside range of our expectations.

We further assume that 50 per cent of mortgage holders end up with homes worth less than their loans, that is, they are in negative equity. The next step is to hypothesise that 20 per cent of the total end up with their house values worth less than 80 per cent of their mortgage values, the point at which Fannie and Freddie have insurance. If all 20 per cent default and the agencies collect only 50 per cent on the mortgage, then the losses amount to 10 per cent of their portfolio, or US$500 billion. These losses would emerge over several years and some would be covered by the ongoing interest rate spread but, ultimately, the government might face a loss approaching US$500 billion.

This looks like, and is, a huge number, but to put things in perspective, it is less than 4 per cent of the gross domestic product of the US and less than the cost of the Iraq war.

Moreover, the assumptions made are based on the worst-case scenario, so the likely actual outcome, even if house prices do fall this much, should be substantially less.

The US government had no choice but to explicitly support Freddie and Fannie. The conclusion is, therefore, that even in the very worst scenario, government support for the GSEs is affordable and the alternative is, in any case, unthinkable. If it had failed to do so, the availability and cost of home mortgages would have tightened sharply, exacerbating the house price collapse, while investors holding Fannie and Freddie debt paper, which include most banks, would have potentially faced new write-downs.

In our view, the ongoing collapse of the housing market will require the government to put in capital at some point. The eventual cost to taxpayers could be substantial, but is affordable and there is no need for worry over the US government’s credit rating.

Bond markets are correct to interpret these moves as adding to inflation risks, but we think the US economy will stay weak and inflation will fall back next year. However, there will be political strains to accommodate these losses in a budget which will almost certainly be under stress from a weak economy and low tax revenues over the next few years. We could see some eye-watering US budget deficits for a few years and a rise in government debt.

There is also some danger that this situation may lead to expansionary fiscal and monetary policy which eventually accommodates higher inflation. However, if the economy is weak, there will also be very strong disinflationary forces and we expect them to prevail.

Importantly, almost lost in the turmoil over Freddie and Fannie, a large Californian savings bank called IndyMac was taken over by the Federal Deposit Insurance Corporation (FDIC) after a run on deposits. Its balance sheet of US$32 billion makes this the largest US bank failure since the failure of Continental Illinois in 1984, although IndyMac is substantially smaller than Northern Rock in the United Kingdom.

In comparison to IndyMac, the failure of Freddie and Fannie would be immense, with the repercussions likely to reverberate throughout the financial world, plunging the markets into a deeper crisis.

The problems at Freddie and Fannie should have little direct impact on Singapore because the local banks have minimal exposure. But if the crisis at Freddie Mac and Fannie Mae deepens, it will have implications for Singapore.

A deepening crisis at these GSEs would necessarily mean a worsening housing crisis in US and further unwinding of the credit turmoil inflicting the global financial markets. And the credit and housing crisis, should it deteriorate further, could lead the US into a much sharper slowdown than what we are currently anticipating.

Already, Singapore exports are showing signs of strain with the second quarter’s non-oil domestic exports contracting 5.5 per cent on weaker demand from key export markets, including the US, the European Union and Japan. Tighter global credit conditions could also lead to more cautious lending practices domestically and slow investments.

While the US housing tumble is unlikely to have a contagious effect on the domestic property market, the dent in consumer confidence and investor sentiment would, in turn, impact negatively on property market activity, as we have seen in recent months.

Surely, while the fortunes of Singapore are not directly tied to that of Freddie and Fannie, the GSEs’ fate in the next few months could point to where the Singapore economy - as well as the global economy - could be heading.

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Impact on Singapore

The problems at Freddie and Fannie should have little direct impact on Singapore because the local banks have minimal exposure. But if the crisis at Freddie Mac and Fannie Mae deepens, it will have implications for Singapore.

20th July Straits Times 2008