Norwich Union agrees with today's call by the Financial Services Authority (FSA) for greater transparency across the industry on with-profits policies.
Norwich Union agrees with today's call by the Financial Services Authority (FSA) for greater transparency across the industry on with-profits policies.
As a leading provider of with-profits products, the company believes that the initiatives proposed will go a long way towards rebuilding confidence in with-profits and addressing many of the criticisms levied.
Norwich Union has led the market in improving the understanding of with-profits as an important investment vehicle for many consumers. The company ALREADY provides comprehensive information to policyholders each year about with-profits, including:
- Fund performance over the last five years
- A full breakdown of how the fund is invested
- A detailed explanation of how smoothing is applied to the fund
- Details of asset share payouts and projected payouts for the next year.
Norwich Union also welcomes the move towards realistic reporting of liabilities, which will give a clearer picture of the true financial health of insurance companies.
Commenting, Mike Urmston, chief actuary of Norwich Union, said: "We believe that greater transparency and better customer communications - stimulated by the FSA findings - will greatly enhance consumer confidence and help rebuild trust in with-profits.
"With-profits continues to be a suitable investment choice for consumers wanting to benefit from an investment in equities without the short-term volatility of the stock market."
| Press office contacts | Out of hours | |
| James Evans, head of media relations | 08703 66 68 78 | 07790 487105 |
| Ian Beggs, media relations manager | 08703 66 68 71 | 07790 487533 |
Notes to editors
Norwich Union is the UK's largest insurer. It is the UK's largest provider of life, pensions and investment products and one of the leading IFA providers. IFAs provide around 75% of the company's long-term savings business.
In 2001, UK financial services providers sold investments to a total value of around Ł63bn, of which Ł20bn was invested in with-profits.
Of the total with-profits investments, Norwich Union has an approximate 18% market share. Norwich Union has around 3.5 million with-profits policy holders and with-profit funds under management of around Ł50 billion.
Norwich Union has strategic alliances with building societies and other leading UK brand names including Tesco Personal Finance Limited and The Royal Bank of Scotland Group.
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Norwich Union proactively discloses the following information to all with-profit customers each year:
- How the money is invested: The percentage of the fund currently invested in shares and property is 73%. The target percentage for the fund to be invested in shares is between 65% and 75%.
- Full breakdown of the investment split of the fund:
UK shares 48 % International Shares 14 % UK Fixed Interest 13 % Property 11 % Corporate Bonds 9 % International Bonds 3 % Cash 2 % - Investment returns on the fund over the last five years:
Year before tax* after tax** 1997 20.8 % 18.2 % 1998 18.6 % 16.1 % 1999 18.5 % 16.0 % 2000 -1.1 % -0.7 % 2001 -9.6 % -8.1 %
*Appropriate to pension policies. **Appropriate to savings policies. - An explanation of smoothing and how payouts are calculated:
In normal financial conditions we aim to ensure that total returns to policyholders on equivalent policies do not change by more than 10 % one year to the next.
In normal conditions we aim on average to return 100 % of asset share. In any one year payouts will represent not less than 90 % and not more than 110 %.
In overall terms we aim to return to policyholders a fair share of the assets of the fund (known as the asset share).
We forecast average payouts for 2001 would be 109 % of asset share based on an anticipated investment return of 7.25 % before tax. The actual return was 9.6 %. As conditions were far from normal we needed to cut payouts by an average of 15 % rather than the normal up to 10 %. We also recognised that to achieve a reasonable level of smoothing of result we would need to exceed the 110 % asset share limit in some cases.
In 2001 we paid out on average 111 % of asset share.
For 2002 we anticipate paying out 113 % based on an assumed investment return of 7.25 % before tax.
- Bonuses:
An explanation of what the bonuses are and how they are calculated.
The above information has been taken from the annual with-profits bonus notification mailing. All the figures relate to the 2001 bonus mailing. A full copy of the document is available on request.