18. Special bonus declared by UK Life business
On 5 February 2008, the Group's UK long-term business operation, Norwich Union Life, announced a one-off, special bonus worth an estimated £2.3 billion, benefiting around 1.1 million with-profit policyholders in its CGNU Life and CULAC with-profit funds. This special bonus has been made possible by the strength of these with-profit funds and a change to the investment strategy for supporting policy guarantees. This has enabled the business to free up a significant part of the inherited estate (included within the unallocated divisible surplus) for payment to policyholders. This change will not affect normal policy returns, nor will it impact on policyholders' security or alter the type of investments backing their policies.
The bonus will be used to enhance policy values by around 10% in total, in three instalments, with the qualifying dates being 1 January 2008, 1 January 2009 and 1 January 2010. In accordance with the way the funds are managed, the bonus distribution is being split on a 90/10 basis between policyholders and shareholders. Over the three years, policyholders will receive a total currently estimated as £2,127 million and shareholders will receive a total currently estimated as £236 million.
The Group's insurance and participating investment contract liabilities are measured in accordance with IFRS 4, Insurance Contracts, and FRS 27, Life Assurance. The latter requires liabilities for with-profit funds falling within the scope of the UK's Financial Services Authority's capital regime to be determined in accordance with this regime, adjusted to remove the shareholders' share of future bonuses. This requires us to recognise planned discretionary bonuses within policyholder liabilities at the balance sheet date, even if there was no constructive obligation at the time. As a result of the announcement made above, a transfer of £2,127 million has been made from the unallocated divisible surplus in order to increase insurance liabilities by £1,728 million and participating investment contract liabilities by £399 million. In compliance with paragraph 4(a) of FRS 27, the insurance liabilities on a realistic basis exclude any shareholders' interest in this bonus. Furthermore, no profit arising to shareholders has been accrued in these financial statements as the payment to them was not a constructive obligation at the balance sheet date.
