RBC Insurance (RBCI) and Industrial
Alliance (iA) recently announced policy and loan interest rates for calendar year 2019.
These announcements affect Westward
clients who own RBCI or iA policies issued prior to 2014 with funds invested in the Smoothed Return Investment Account (SRIA), and clients who have leveraged their SRIA values with insurer loans.
Both insurers announced rate reductions reflecting challenging market returns since 2014.
Leveraged SRIA is a long-term investment with policy and loan rates that will vary from year to year. The net benefit of the leveraged SRIA will also vary from year to year.
Switching from an insurer loan to a bank loan can dramatically improve annual cash flows.
This Viewpoint details the 2019 SRIA rates for RBCI and iA, and projects the leveraged cash flow results for insurer loans and bank loans.
The opinions expressed in this memorandum are strictly those of Westward Advisors Ltd. This memorandum is for information purposes only and is not legal or tax advice.
RBCI and iA Annual SRIA Rate Adjustments
The SRIA is an investment account option within some RBCI Security Fund and iA Genesis universal life insurance policies. Funds invested in the SRIA are managed on a discretionary basis by the insurer. The investment objective is low volatility with a long-term focus targeting superior returns while minimizing risk of capital loss. Actual returns are smoothed into the policy interest rate by announcing a guaranteed policy rate for each calendar year.
The rate changes for 2019 are as follows:
RBCI: SRIA rate of 4.25% and loan rate of 6.05%, down from 4.75% and 6.40% respectively
iA: SRIA rate of 3.50% and loan rate of 5.0%, down from 4.00% and 5.50% respectively
2019 Cash Flow Comparison
The table below shows the impact of the new rates. The example is based on a $1.0 million loan and $1.0 million cash value, and assumes a bank loan rate of 3.5% and a tax rate of 50%.
The Bank Loan Program
Clients interested in switching to a bank loan are welcome to call Westward to discuss our Bank Loan Program. We will prepare a customized projection and detail how it can improve plan performance.