Norwich Union today announces new regular bonus rates for conventional and unitised with-profit life and pension contracts for Norwich Union, former General Accident, Commercial Union, and CGU policies.
Norwich Union today announces new regular bonus rates for conventional and unitised with-profit life and pension contracts for Norwich Union, former General Accident, Commercial Union, and CGU policies.
2001 was a very difficult year for investments with the value of the FTSE 100 falling by 16 % in 2001. This, combined with the previous year's fall of 10 %, has resulted in considerable reductions in the value of ordinary shares - a main constituent of with-profit investments.
In line with these economic conditions, and underlining our prudent management of with-profits, the regular bonus rate for unitised with-profit pension policies will be 5.25 % for 2002 ( 2001: 6.25 %) and, for savings policies, the rate will be 4.25 % (2001: 5.25 % ). The rate for stakeholder pension with-profit policies will be 4.75 % (2001: 5.75 % ).
Against the backdrop of lower investment returns, low interest rates and low inflation, Norwich Union is again paying competitive regular unitised bonus rates.
For the second year in succession policies have been credited with an investment return in excess of actual earnings. Maturing policies are being paid more than earnings, demonstrating the strong level of smoothing taking place.
Even with the reduction in payouts, the real return to policyholders remains attractive. For example, 25-year endowment policies are, on average, producing a return of 11.4 % a year compared to inflation averaging 4.4 % a year over the same period.
As part of its drive to improve transparency on with-profits, Norwich Union will again be providing policyholders with comprehensive information on how their policy has performed. Details will include the returns achieved on the with- profit fund over the last five years, and a detailed explanation of how smoothing has worked.
Commenting on the new bonus rates, chief actuary, Mike Urmston, said: "These new bonus rates show Norwich Union's continued commitment to providing good value with-profits investment products and offering policy holders competitive returns. The new rates need to be set against the backdrop of stock market performance in 2000 and 2001.
"The with-profit fund showed a negative return (-9.6 %) during 2001 against our projected return of +7.25 %. A strong degree of smoothing has again taken place within the fund enabling us to benefit all policyholders with competitive payouts.
"We have taken great care to ensure bonus rates strike the right balance between prudent management of the with-profit fund and also ensuring a fair return to all policyholders. The very poor performance of the stock markets has had a direct impact on the value of with-profit funds and this has to be reflected in bonus rates and payouts.
"Payouts are likely to fall further in the longer-term reflecting anticipated lower investment returns compared to those enjoyed in the 1980's and 1990's. However we see no reason why with profits should not continue to provide attractive returns to both new and existing policyholders."
-Ends-
| Press office contacts: | ||
| James Evans | 08703 66 68 78 | 07790 487105 |
| Louise Goffee | 08703 66 68 70 | 07810 057362 |
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.
Norwich Union has strategic alliances with over 20 building societies and other leading UK brand names including Tesco Personal Finance and The Royal Bank of Scotland Group.
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CONVENTIONAL WITH PROFIT REGULAR BONUS RATES
Bonus on sum assured / Attaching bonus
| Life | ||
| 2002 | 2001 | |
| Commercial Union | 1.0% / 2.75% | 1.5% / 3.5% |
| General Accident | 1.5% / 3.0% | 2.0% / 3.75% |
| Norwich Union L&P | 1.25% / 2.25% | 1.5% / 2.75% |
Bonus on sum assured / Attaching bonus
| Pensions | ||
| 2002 | 2001 | |
| Commercial Union | 1.0% / 2.75% | 1.5% / 3.5% |
| General Accident | 2.0% / 2.5% | 3.0% / 4.0% |
| Norwich Union L&P | 0.25% / 0.75% | 0.75% / 1.25% |
(There may be variations for minor product types)
BONUS TERMS EXPLAINED
There are two types of with-profits policies: Unitised> and Conventional.
UNITISED
Contributions buy units in the With-Profits Fund. The unit price increases as the annual bonus is added on a daily basis.
The payout for a unitised with profits policy is made up of two elements: The value of units and final bonus.
Value of units: This is the value of the units held.
Final Bonus: At the date of claim the value of the units is compared with the total earnings of the policy. Any balance is made up by the declaration of a final bonus. Scales are expressed as percentage of the unit value and vary according to the year the money was invested. Different final bonus rates will apply to the units bought with the different years' contributions.
CONVENTIONAL
Contributions secure a guaranteed benefit. Bonuses are added to the guaranteed benefit annually and at the end of the policy term as detailed below.
The payout under a conventional with-profits policy is made up of three elements: the guaranteed benefit, regular bonus and final bonus.
Guaranteed benefit (also known as sum insured): This is the amount payable at the date of the claim (e.g. maturity or earlier death). Bonuses are added to this amount over the term of the policy to make up the final payout.
Regular Bonus (also known as annual or reversionary bonus): This is the amount added to a with-profits policy each year. It is a payment on account towards the full share of policy earnings which will be payable at the date of claim. For most policies it is expressed as one percentage applying to the guaranteed benefit and a further percentage applying to the bonus already added in previous years.
Final bonus (also known as terminal or additional bonus): At the date of claim the total of the guaranteed benefit and regular bonuses to date is compared with the total earnings of the policy. Any balance is made up through the declaration of a final bonus. Final bonus rates are expressed as a percentage of the guaranteed benefit and will form a scale of rates that will vary according to the year the policy was taken out.
Please note: The above is designed as an introduction to bonus terms. For details relating to specific policies, you should refer to the policy terms and conditions.
UNITISED BONUS - PAYOUT TABLES
The following tables show comparative maturity payouts following the bonus declaration for the three main companies that now form part of Norwich Union.
- Norwich Union writes new with profits business in the CGNU Life with profit fund. The CGNU Life fund was previously the CGU fund. It has been chosen because of its stronger position in relation to equity backing ratio and superior pay out record, particularly for long term contracts
- To maintain financial strength, investment flexibility and to facilitate the eventual merger of the with profits funds, a proportion of the with profit business will be reassured to other with profit funds in the CGNU Group, namely the Commercial Union Life (CU) and the NU Life (NUL&P) funds
- Investment objectives and risk controls for the 3 with profit funds are the same as for CGNU Life.
CGU (including General Accident)
With profits bond
| Maturing 1.8.01 | Maturing 1.1.02 | Average rate of Inflation to December 2001 | |
| Effected 5 years ago: | |||
| Unit value | Ł13,434 | Ł13,320 | |
| Final bonus | Ł2,149 | Ł400 | |
| Total payout | Ł15,583 | Ł13,720 | |
| Yield | 9.3% | 6.5% | 2.5% |
| Effected 10 years ago: | |||
| Unit value | Ł19,683 | Ł19,329 | |
| Final bonus | Ł6,102 | Ł3,869 | |
| Total payout | Ł25,785 | Ł23,198 | |
| Yield | 9.9% | 8.8% | 2.6% |
10 year personal pension
| Maturing 1.8.01 | Maturing 1.1.02 | Average rate of Inflation to December 2001 | |
| Unit value | Ł33,046 | Ł32,657 | |
| Final bonus | Ł5,579 | Ł2,443 | |
| Total payout | Ł38,625 | Ł35,100 | |
| Yield | 9.2% | 7.4% | 2.7% |
Commercial Union
With profits bond
| Maturing 1.8.01 | Maturing 1.1.02 | Average rate of Inflation to December 2001 | |
| Effected 5 years ago: | |||
| Unit value | Ł12,836 | Ł12,754 | |
| Final bonus | Ł1,540 | Ł255 | |
| Total payout | Ł14,376 | Ł13,009 | |
| Yield | 7.5% | 5.4% | 2.5% |
| Effected 10 years ago: | |||
| Unit value | not applicable yet | not applicable yet | |
| Final bonus | |||
| Total payout | |||
| Yield |
10 year personal pension
| Maturing 1.8.01 | Maturing 1.1.00 | Average rate of Inflation to December 2001 | |
| Unit value | Ł30,936 | Ł31,790 | |
| Final bonus | Ł3,882 | Ł2,992 | |
| Total payout | Ł34,818 | Ł34,782 | |
| Yield | 7.2% | 7.2% | 2.7% |
Norwich Union Life & Pensions (NUL&P)
With profits bond
10 year personal pension
The bond examples above are based on a Ł10,000 single contribution made by a man under age 75 at outset. The Pension example is as issued to a male for a monthly premium of Ł200, maturing at age 65, with a return of fund death benefit. CONVENTIONAL BONUSES - PAYOUT TABLESCGU (including General Accident) 10 year endowment
25 year endowment
CONVENTIONAL BONUSES - PAYOUT TABLESCommercial Union 10 year endowment
25 year endowment
CONVENTIONAL BONUSES - PAYOUT TABLESNorwich Union Life & Pensions (NUL&P) 10 year endowment
25 year endowment
The endowment policy examples above are based on a male aged 30 next birthday, when the policy was started, for a monthly premium of Ł50. Important notes:Future bonus rates are not guaranteed and may vary, as they depend on profits yet to be earned. Past performance is not a guide to the future. The value of investment linked funds can go down as well as up and is not guaranteed. The illustrative maturity amounts include periods of high inflation and high investment returns. We may apply a market adjustment factor on encashments (except on maturity or death) which will reduce what you get back from the unitised with-profits fund. Past performance is based on the charging structures applicable to the products at the time the policies were effected. Different charging structures apply to the current products. Full written terms and conditions of Norwich Union products are available on request. Norwich Union is regulated by the Financial Services Authority and only advises on its own products. All charging structures are applied to the product at the time the policy was effected. |