UK: Strong growth for Aviva with-profits customers

04 Feb 2011

Aviva today announces that it has increased final bonuses and reduced market value reductions (MVRs) for unitised with-profits customers. Investors have seen strong growth in their investments during 2010 and £1.45 billion in bonuses have been added to customers’ policies.

Highlights

  • The main Aviva With-Profit Fund grew by 12% (gross) in 2010. Equities and property now account for 66% of the fund.
  • Final bonus rates for bond customers have typically increased by 6% and MVRs reduced by an average of 4% during 2010.
  • 70,000 with-profits bond customers will benefit from valuable guarantees in 2011.
  • A with-profits bond investment of £10,000 held for 10 years in January 2011:
    • Has grown in 2010 by £1,168, or 10.1% (after tax and charges)
    • Is worth £14,680 (with no-MVR guarantee)  - a return of 3.9% annually
    • Outperformed a bank or building society average savings account which returned 2.3% a year (after basic rate tax and charges).
  • A 25-year £50 a month mortgage endowment* started on 1 January 1986:
    • Has a maturity value of £33,937 and grown 7.6% in 2010,
    • Annual return of 6% compares favourably with 3.4% from an average bank or building society savings account. (All figures net of basic rate tax). *Invested in Old & New With-Profits Sub Funds (ex-CGNU fund).

David Barral, chief operating officer at Aviva, said: “Aviva’s with-profits investors have enjoyed good returns over 2010 and our funds continue to deliver steady returns for cautious investors. We’ve increased unitised final bonus rates, reduced MVRs and a 10-year bond with the no-MVR Guarantee gives an annual return of 3.9%, outperforming average savings accounts. This is impressive when you consider that we have been through two bear markets in the last decade with the FTSE-100 returning 2.9% annually over the same period. We’ve also increased investment in equities with the aim of maximising potential returns.”

1. Bonus rate and MVR changes made throughout 2010

  • Market value reductions have been reduced by an average of 4%.
  • Final bonus rates for unitised life and pension policies have been increased by an average of 6%.
  • Regular bonus rate for new business bonds is maintained at 2.75%. For new pensions the regular bonus rate remains at 3.25%.
  • Regular bonus rates for conventional policies, including endowments, are maintained at the 2010 rate.

2. Unitised with-profits bond and pensions performance

Aviva’s with-profits funds continue to deliver steady growth with relatively low risk. A customer who invested £10,000 in an investment bond on 1 January 2006 would have seen a total return over five years of 16.7%, equivalent to 3.1% per annum. This beats the returns from a bank or building society average savings account, which returned 11.6%, or 2.2% per annum. (All figures net of basic rate tax).

With-Profits Bond five and 10 year payouts

Date of investment

Amount invested

Bond Value at

1 Jan 2011

Cash

 

ABI Balanced Managed Sector Average

 

 

FTSE 100

 

Onshore investment bond held for 10 years

1 Jan 2001

 

£10,000

 

£14,680

(3.9% pa)

£12,606

(2.3% pa)

£13,009

(2.7% pa)

£13,373

(2.9% pa)

Onshore Investment bond held for 5 years

1 Jan 2006

 

£10,000

 

£11,670

(3.1% pa)

£11,161

(2.2% pa)

£11,951

(3.6% pa)

£12,626

(4.8% pa)

With-Profits Bond growth over 2010

Date of Investment

Bond value at

1 Jan 2011

Bond value at

1 Jan 2010

Bond growth

in 2010

£10,000 onshore investment bond held for 10 years

1 Jan 2001

(with No-MVR Guarantee)

£14,680

(3.9% pa)

£11,520

(1.6% pa)

£3,160

(27.4%)

1 Jan 2001

(without No-MVR Guarantee)

£12,688

(2.4% pa)

£11,520

(1.6% pa)

£1,168

(10.1%)

£10,000 onshore investment bond held for 5 years

1 Jan 2006

£11,670

(3.1% pa)

£10,837

(2.0% pa)

£833

(7.7%)

 

These tables show the returns of an investment bond invested in the main Aviva With-Profit Fund. All growth bond customers who invested on the 1 January 2001 will get the no-MVR guarantee at the 10th anniversary. This guarantee was withdrawn on the 16 January 2002 and is no longer available to new bond customers. The figures also show the 10-year growth without the no-MVR guarantee.

The 10-year return including MVR would have been 26.9%. Other data sourced from Lipper Hindsight based on investment return at 1 January 2011. The average savings account used is the Moneyfacts Average up to 90 days’ notice. The alternative cash index is the Moneyfacts Average Instant Access index, which gives a lower return.

Pension performance and payouts

20 year Pension payout (£200/month) at 1 January 2011

Fund

Amount invested

Value at retirement

Cash

 

ABI Balanced Managed Sector Average

 

 

FTSE 100

 

Old & New With-Profits Sub Funds (ex-CGNU)

£48,000

£90,159

(5.9% pa)

£68,919

(3.4% pa)

£94,379

(6.3% pa)

£101,267

(6.9% pa)

With-Profits Sub Fund (ex-NULAP)

£48,000

£76,015

(4.4% pa)

£68,919

(3.4% pa)

£94,379

(6.3% pa)

£101,267

(6.9% pa)

The above examples are based on a male, investing £200 a month for 20 years from 1 January 1991 with the policy maturing at age 65, with a return of fund death benefit. The figures at 01 January 2011 assume retirement at selected retirement age and therefore benefit from the MVR-free guarantee. All figures are gross of tax and after charges.

3. Mortgage endowment performance and payouts

Customers who invested £50 a month for 25 years in the Old & New With-Profits Sub Funds (ex-CGNU fund), whose policies mature on 1 January 2011, will receive a return equivalent to 6.0% pa, giving a maturity value of £33,937. In addition, the customer has had valuable life cover of £39,800 over that period.

Endowment customers who invested £50 a month in the With-Profits Sub Fund (ex-NULAP) for 25 years will have received a return equivalent to 3.9% pa against a 3.4% annual return from a bank or building society average savings account. (All figures net of basic rate tax and charges).

Mortgage endowment performance and payouts

25 year term (£50/month invested) – payout value as at 1 Jan 2011

Fund

Amount invested

Payout Value 01/01/2011

Cash

 

ABI Balanced Managed Sector Average

 

 

FTSE 100

 

Old & New With-Profits Sub Funds (ex-CGNU)

 

£15,000

 

£33,937

(6.0% pa)

£23,387

(3.4% pa)

£32,085

(5.6% pa)

£46,960

(8.2% pa)

With-Profits Sub Fund (ex-NULAP)

£15,000

£25,353

(3.9% pa)

£23,387

(3.4% pa)

£32,085

(5.6% pa)

£46,960

(8.2% pa)

Figures for mortgage endowments mailing show that 3% of policies are "green", 4% "amber" and 93% "red". For policies maturing in 2011, 2% are "green". Aviva recognises that not meeting the target amount will be disappointing for many customers and has been informing them of endowment shortfalls and their options for more than 10 years.

Aviva continues to write to endowment customers annually to encourage them to consider ways to tackle shortfalls. Research shows about 66% of Aviva endowment customers have taken action and are not relying on their policy to pay their mortgage, and are using it as a savings plan. 

 

Year on year growth of endowment policies

Fund

Payout value as at 1 Jan 2011 (25 years) *

Payout value as at 1 Jan 2010 (24 years)

Policy growth in 2010**

Old & New With-Profits Sub Funds (ex-CGNU)

£33,937

(6.0% pa)

£30,968

(5.9% pa)

£2,369

(7.6%)

With-Profits Sub Fund (ex-NULAP)

£25,353

(3.9% pa)

£23,965

(4.0% pa)

£788

(3.3%)

The above endowment examples are based on a male, non-smoker, aged 29 investing £50 a month for 25 years with the policy starting on 1 January 1986. Figures are net of basic rate tax and charges. The average savings account used is the Moneyfacts Average up to 90 days’ notice, with a £10,000 minimum investment.

* These figures exclude any 6% mortgage endowment promise amount.

** Policy growth excludes premiums paid in the previous year.

4. About the fund, underlying investments and policies

Aviva has approximately two million with-profits customers; 500,000 bondholders, 900,000 have with-profits pensions, and 600,000 hold endowment policies. At the end of June 2010, the total value of Aviva’s with-profits funds was approximately £49 billion. Old & New With-Profits Sub Funds (ex-CGNU and ex-CULAC) £26 billion, With-Profits Sub Fund (ex-NULAP) £21 billion, Provident Mutual £2 billion. The main Aviva With-Profit Fund, the New and Old With-Profits Sub Funds, delivered an estimated 12% growth (gross).

Asset mix of the old and new with-profits sub funds

Year

UK equity

Overseas equity

Property

Gilts

Corporate bonds

Overseas bond

Cash

2010*

32.2%

15.9%

18.6%

4.2%

16.0%

10.9%

2.2%

2009

23.1%

16.6%

17.6%

15.7%

13.3%

5.2%

8.5%

2008

24.2%

13.6%

17.9%

11.8%

23.8%

6.9%

1.8%

(*As at December 2010)

Aviva has steadily increased the main with-profits fund’s equity backing ratio - the proportion invested in equities and property - from 55% at the end of 2008, 57% in 2009 to 66% in 2010. In addition, there has been greater investment in the Asia Pacific region (excluding Japan), where greater growth potential is expected.

A shift from gilts (UK government bonds) into corporate bonds has diversified fixed interest investments and holdings in cash have been reduced. These changes are designed to rebalance the mix of investments, with the overall aim of maximising potential returns.

5.  Important notes

  • Past performance is not a guide to the future and is based on the charging structures applicable to the products at the time the policies were taken out. Different charging structures apply to the current products.
  • Money in a savings account is accessible and safe, and interest, once earned, is guaranteed. In comparison, with-profits investment is for the medium to long-term. The value can go down as well as up and an investor may not get back their original investment. Tax treatment is also different.
  • Mortgage endowment policies include a return of the target mortgage amount on death and a guaranteed minimum return at maturity. These features are not included in the alternative investments above.
  • Future bonus rates are not guaranteed and may vary. We may apply a market value reduction (MVR) on encashments, but not on maturities or death. MVRs ensure that policyholders taking money out of the fund do not take more than their fair share. A MVR reduces what a customer would get back from the unitised With-Profit Fund. The no-MVR guarantee is no longer available to new customers.
  • Aviva launched its mortgage endowment promise in 2000 to assist policyholders who, at the time of the announcement, faced a projected shortfall on their mortgage endowment policy (the amount needed to pay off their mortgage when it matured). The mortgage promise was conditional on the company earning a sufficient investment return on its free reserves as well as the policy not being altered or sold. Aviva committed around £1 billion of capital for future endowment shortfall assistance – underlining the strength of its with-profits funds.

-ends-

If you would like further information, please contact:                    

Louise Soulsby 01904 452617 / 07800 699526

David Gwyer 01904 452659 / 07800 693187

Notes to editors:

Aviva is one of the world's largest insurance groups* with 53 million customers worldwide and 46,000 employees. Aviva’s main activities are long-term savings, fund management and general insurance, with worldwide total sales of £45.1 billion and funds under management of £379 billion*.

In the UK, Aviva takes care of its 19.2 million customers by helping them look after their future, protecting what’s important – from their health to their homes, their cars to their business – and saving for the future.

Aviva has a 10.5%** share of the UK life and pensions market and insures one in six homes and one in 10 cars in the UK. It is also one of the oldest UK insurers, with a heritage stretching back more than 300 years.

RAC, which is owned by Aviva, provides breakdown and insurance services for individuals and businesses and has around seven million customers.  Aviva is carbon neutral worldwide, and is ranked in the top 10% of socially responsible companies globally by the Dow Jones Sustainability World Index. In the UK, Aviva invested £3.8 million into local communities in 2009. Read our corporate responsibility report at www.aviva.com/cr.

Aviva’s global Street to School programme is working in partnership with Railway Children in the UK to get children living on the streets back into education and everyday life. Find out more at www.aviva.co.uk/street-to-school.

The Aviva media centre at www.aviva.com/media includes images, company and product information and a news release archive. For broadcast-standard video, please visit www.aviva.com/media/b-roll-library/. Follow us on twitter: www.twitter.com/avivaplc

*based on gross worldwide premiums at 31 December 2009

**Source: ABI data released August 2010