Norwich Union today announces that it will extend, to all its with profit mortgage endowment policyholders, the innovative 6% promise introduced by CGU in January 2000. The statement also gives details of annual bonuses and maturity payouts on conventional and unitised with profits life and pensions policies.
Norwich Union today announces that it will extend, to all its with profit mortgage endowment policyholders, the innovative 6% promise introduced by CGU in January 2000. The statement also gives details of annual bonuses and maturity payouts on conventional and unitised with profits life and pensions policies.
The extension of the 6% promise means that Norwich Union intends to top up final bonuses on ALL Norwich Union with profits mortgage endowments at maturity, where there is any short-fall between the claim value and the mortgage originally targeted - provided future investment earnings average 6% a year after tax (see notes to editors 1&2).
The total number of policyholders who now benefit from our mortgage promise reaches almost 1.4 million. These customers have the added reassurance that no with profits mortgage endowment policy associated with any of the companies that are now part of Norwich Union has ever failed to meet its intended target.
Customers whose policies mature in 2001 will enjoy excellent rates of return on their investment, well above the rate of inflation. For example, 25 year with profits mortgage endowments are on average producing a return of 12.4% a year compared to inflation of 4.7%*.
Commenting on today's announcement, Norwich Union Life Chief Actuary, Mike Urmston said:
"The extension of the mortgage promise brings welcome reassurance to all Norwich Union with profits mortgage endowment customers at a time of falling returns. Furthermore, policies maturing today are continuing to pay out more than the associated mortgage amount."
BONUS DECLARATION
This year's regular bonus declaration reveals that rates have been generally reduced in line with long term investment returns. However, all our policies have received bonuses in excess of our investment earnings.
Maturity payouts are estimated to total Ł2.2 billion to some 114,000 customers in 2001. The underlying financial strength of its with profits funds has allowed Norwich Union to smooth the performance of its with profits policies very much to the benefit of all its with profits policyholders.
Reductions in regular bonus rates have been made as part of our strategy of bringing regular bonuses in line with an environment of low inflation and lower investment returns. However, once final bonuses are added, the total payout to policyholders compares well with other types of investment.
Commenting on the figures, Mike Urmston said: "During 2000 we have seen the FTSE 100 index fall by over 10%. Against this backdrop, returns on Norwich Union's with profit funds have been close to zero. However, the benefit of 'smoothing' of the investment returns has come into play strongly this year, so that with profits has proved a lower risk to policyholders than a simple managed fund".
TRANSPARENCY
Norwich Union supports the call for greater transparency in how life assurance providers communicate. We are committed to ensuring customers fully understand the financial products they buy and we are providing more information this year than ever before on investment performance and how we arrive at bonus rates. This represents the first stage of a major initiative to attain very high standards across all our communications and to create even greater access for all to our wide, flexible product range going forwards.
Norwich Union will undertake a research programme during 2001 to better understand consumer preferences and motivators. Whilst work is ongoing to identify the full scope of our research, we will cover core subjects in relation to with profits investments. Our objective is to enhance explanations of issues such as charging structures, expenses in the fund, the investment mix, the underlying investment performance of the fund, financial strength and asset share calculations.
Commenting on the drive towards greater transparency, Norwich Union Sales & Marketing Director Peter Hales said:
"I believe it is important that consumers do not lose sight of the benefits of with profits investments. It could be the right investment for risk-averse investors who wish to benefit from equity growth. We are committed to informing the customer on every aspect of their investment. The vital point is choosing the right with profits offer. Not only do Norwich Union policies have an excellent track record, the outlook is attractive, backed by today's promise."
Research will ultimately form the basis of a substantial educative campaign by Norwich Union to develop a clear understanding of financial products among existing policyholders and potential new customers.
- ENDS -
Press Office Contacts
Ian Frater
01904 452 828
Helen Murray Wells
01904 452 617
James Evans
01904 452 791
Notes To Editors
- Average investment earnings for ex-CGU (and former companies') policyholders will be taken as from 31 December 1999. Norwich Union is extending the mortgage promise to mortgage endowment policies written previously by Norwich Union Life and Pensions Ltd. Norwich Union's intention relies upon it achieving sufficient investment returns on its free reserves. Norwich Union Life and Pensions' free reserves are large and the company is confident that future investment earnings will be sufficient to provide the necessary support.
At the end of 2000 free reserves in Norwich Union Life and Pensions were of the order of Ł4bn. Investment returns in 2000 were close to 0% gross, reflecting what has been a poor year for stock markets around the world. This return compares with previous years as follows:
-
YEAR 1996 1997 1998 1999 Investment return 9.9% 18.5% 14.9% 17.0% - Support will apply to all with-profit mortgage endowment policies issued by those life companies that now form part of Norwich Union (that is CGU Life, Norwich Union, General Accident, Commercial Union and Provident Mutual) and that satisfy our criteria, namely 'top up' payments will only be made where premiums have been maintained throughout the policy term and where the policy has not been materially altered or sold through the second hand endowment market.
- The extension of the promise means an additional 700,000 policyholders benefit.
- Norwich Union has 5million policyholders. Of these, around 1.4million hold mortgage endowment policies. The Life business of Norwich Union has funds under management of about Ł80 billion.
- Norwich Union is the UK life and general insurance trading brand of holding company CGNU plc, which was created from the merger between CGU and Norwich Union on 30 May 2000.
- Norwich Union has agreed with its Asset Managers clear investment objectives and has put in place well-defined processes for the management of life and pensions funds. The investment teams' approach is risk-averse and aims to consistently out-perform relevant indices over the shorter-terms in line with specific targets, leading to out-performance over time.
* based on an approximate money weighted average of policies from Norwich Union, General Accident and Commercial Union
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 (eg. 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 1.1.01 | Maturing 1.1.00 | Average rate of Inflation to December 2000 | |
| Effected 5 years ago: | |||
| Unit value | Ł13,552 | Ł13,590 | |
| Final bonus | Ł2,710 | Ł2,718 | |
| Total payout | Ł16,262 | Ł16,308 | |
| Yield | 10.2% | 10.2% | 2.8% |
| Effected 10 years ago: | |||
| Unit value | Ł20,191 | not applicable | |
| Final bonus | Ł8,077 | ||
| Total payout | Ł28,268 | ||
| Yield | 10.9% | 2.8% |
10 year personal pension
| Maturing 1.1.01 | Maturing 1.1.00 | Average rate of Inflation to December 2000 | |
| Unit value | Ł33,642 | Ł34,700 | |
| Final bonus | Ł7,334 | Ł7,295 | |
| Total payout | Ł40,976 | Ł41,995 | |
| Yield | 10.3% | 10.7% | 2.8% |
Commercial Union
With profits bond
| Maturing 1.1.01 | Maturing 1.1.00 | Average rate of Inflation to December 2000 | |
| Effected 5 years ago: | |||
| Unit value | Ł12,927 | Ł13,079 | |
| Final bonus | Ł2,198 | Ł2,616 | |
| Total payout | Ł15,125 | Ł15,695 | |
| Yield | 8.6% | 9.4% | 2.8% |
| Effected 10 years ago: | |||
| Unit value | not applicable yet | not applicable yet | |
| Final bonus | |||
| Total payout | |||
| Yield |
10 year personal pension
| Maturing 1.1.01 | Maturing 1.1.00 | Average rate of Inflation to December 2000 | |
| Unit value | Ł33,391 | Ł32,244 | |
| Final bonus | Ł6,355 | Ł5,666 | |
| Total payout | Ł39,746 | Ł37,910 | |
| Yield | 9.7% | 8.9% | 2.8% |
Norwich Union Life & Pensions (NUL&P)
With profits bond
| Maturing 1.1.01 | Maturing 1.1.00 | Average rate of Inflation to December 2000 | |
| Effected 5 years ago: | |||
| Unit value | Ł12,769 | Ł12,950 | |
| Final bonus | Ł2,426 | Ł3,238 | |
| Total payout | Ł15,195 | Ł16,188 | |
| Yield | 8.7% | 10.1% | 2.8% |
| Effected 10 years ago: | |||
| Unit value | Ł18,631 | Ł19,604 | |
| Final bonus | Ł5,030 | Ł3,921 | |
| Total payout | Ł23,661 | Ł23,525 | |
| Yield | 9.0% | 8.9% | 2.8% |
10 year personal pension
| Maturing 1.1.01 | Maturing 1.1.00 | Average rate of Inflation to December 2000 | |
| Unit value | Ł31,926 | Ł32,831 | |
| Final bonus | Ł7,371 | Ł7,861 | |
| Total payout | Ł39,297 | Ł40,692 | |
| Yield | 9.5% | 10.2% | 2.8% |
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 TABLES
CGU (including General Accident)
10 year endowment
| Maturing 1.1.01 | Maturing 1.1.00 | Average rate of Inflation to December 2000 | |
| Guaranteed benefit | Ł5,322 | Ł5,322 | |
| Regular bonus | Ł2,525 | Ł2,721 | |
| Final bonus | Ł1,098 | Ł1,448 | |
| Total payout | Ł8,945 | Ł9,491 | |
| Yield | 7.7% | 8.8% | 2.8% |
25 year endowment
| Maturing 1.1.01 | Maturing 1.1.00 | Average rate of Inflation to December 2000 | |
| Guaranteed benefit | Ł14,139 | Ł13,937 | |
| Regular bonus | Ł30,288 | Ł31,703 | |
| Final bonus | Ł60,864 | Ł71,199 | |
| Total payout | Ł105,291 | Ł116,839 | |
| Yield | 13.3% | 13.9% | 4.7% |
CONVENTIONAL BONUSES - PAYOUT TABLES
Commercial Union
10 year endowment
| Maturing 1.1.01 | Maturing 1.1.00 | Average rate of Inflation to December 2000 | |
| Guaranteed benefit | Ł5,361 | Ł5,361 | |
| Regular bonus | Ł2,441 | Ł2,676 | |
| Final bonus | Ł1,170 | Ł1,527 | |
| Total payout | Ł8,972 | Ł9,564 | |
| Yield | 7.8% | 9.0% | 2.8% |
25 year endowment
| Maturing 1.1.01 | Maturing 1.1.00 | Average rate of Inflation to December 2000 | |
| Guaranteed benefit | Ł13,253 | Ł13,253 | |
| Regular bonus | Ł52,328 | Ł55,058 | |
| Final bonus | Ł36,725 | Ł39,620 | |
| Total payout | Ł102,306 | Ł107,931 | |
| Yield | 13.2 | 13.5% | 4.7% |
CONVENTIONAL BONUSES - PAYOUT TABLES
Norwich Union Life & Pensions (NUL&P)
10 year endowment
| Maturing 1.1.01 | Maturing 1.1.00 | Average rate of Inflation to December 2000 | |
| Guaranteed benefit | Ł5,533 | Ł5,533 | |
| Regular bonus | Ł1,727 | Ł2,009 | |
| Final bonus | Ł1,937 | Ł1,937 | |
| Total payout | Ł9,197 | Ł9,479 | |
| Yield | 8.3% | 8.8% | 2.8% |
25 year endowment
| Maturing 1.1.01 | Maturing 1.1.00 | Average rate of Inflation to December 2000 | |
| Guaranteed benefit | Ł14,260 | Ł14,260 | |
| Regular bonus | Ł34,335 | Ł36,756 | |
| Final bonus | Ł37,433 | Ł38,502 | |
| Total payout | Ł86,028 | Ł89,518 | |
| Yield | 12.1% | 12.3% | 4.7% |
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 Personal Investment Authority and only advises on its own products. All charging structures are applied to the product at the time the policy was effected.