Norwich Union today announces new regular bonus rates and payouts for with-profits policies for 2003. The bonus rates and payouts are lower than 2002 as a direct result of the continuing poor stock market environment.
Norwich Union today announces new regular bonus rates and payouts for with-profits policies for 2003. The bonus rates and payouts are lower than 2002 as a direct result of the continuing poor stock market environment.
However, even with reduced payouts, maturing policies are still providing competitive real returns, with a 25 year endowment returning 10.8% a year after tax (a real return of 6.8% a year)*.
In 2002 alone, the UK stock market declined by 24%. This, combined with the falls in the previous two years, has resulted in the worst bear market for more than a quarter of a century.
However, during 2002, Norwich Union’s with-profit fund showed a slightly improved performance over 2001 (minus 8.6% in 2002 compared to minus 9.5% in 2001). This was due to the impact of higher returns from property and fixed interest.
* This example is based on annualised returns for a 25 year endowment in the CGNU Life with-profit fund.
Norwich Union Chief Actuary, Mike Urmston, said: “These new bonus rates and payouts demonstrate how with-profits policies continue to provide real returns – despite poor investment conditions. In 2002 alone Norwich Union added around £1.5 billion in bonuses to with-profits policies.
“We have to ensure we maintain the right balance between what we pay out now to customers with maturing policies and the guaranteed values that are added to policies through annual bonus additions in the future. Prudent action has to be taken in this difficult investment climate. The changes we are making are designed to protect the interests of all policyholders and ensure continued financial stability of the fund.”
Annual bonus rates and payouts for unitised with-profits policies:
- On life and investment products the bonus rate will be reduced from 3.75% to 3.25%.
- For stakeholder pensions the bonus rate will be reduced from 4.25% to 3.50%. On other currently marketed pension products the bonus rate will be reduced from 4.75% to 4.00%.
- For offshore bonds the bonus rate will reduce from 4.75% to 4.0%.
- Payouts will be reduced (by reducing the amount of the final bonus paid) on unitised policies by between 1% and 15%.
Annual bonus rates and payouts on conventional with-profits policies:
- A table of new bonus rates for conventional policies is shown in Notes To Editors.
- On life and investment policies, payouts will be reduced by between 9% and 15%.
- On pension policies, payouts will be reduced by between 5% and 20%.
Mike Urmston added: “Looking to the future, we need to see a sustained improvement in the investment climate to enable current bonus levels and payouts to be maintained. With the continuing stock market volatility we expect to review bonus rates more regularly in the future. This will enable us to respond better to changing market conditions and ensure continued fairness and transparency in the payments we make to all policyholders in the fund.
“We firmly believe that with-profits is still a key part of the investment mix for many customers. The fundamentals of with-profits remain the same and still continue to deliver the benefit of investing in a managed fund with smoothing of returns. New investors can be assured that they will benefit from any future investment growth without feeling the effects of the poor equity returns we have experienced over the last three years.”
Ends
For further information please contact the Norwich Union Life press office on 08703 666878, 08703 666871 or 08703 666870. For out of hours calls please contact: James Evans on 07790 487105, Ian Beggs on 07790 487533 or Louise Goffee on 07810 057362.
Notes To Editors
- Unitised Regular Bonus rates for the main current products
| Jan 2003 % | Aug 2002 % | |||
| Life business (including investment bonds) | 3.25 | 3.75 | ||
| Stakeholder pensions | 3.5 | 4.25 | ||
| Other explicit charge pensions | 4.0 | 4.75 | ||
| Offshore bond | 4.0 | 4.75* |
* Offshore Bond was available from September 2002.
- Conventional Regular Bonus rates for the main products
| Bonus on sum assured / Attaching bonus | ||||
| Life | January 2003 % | January 2002 % | ||
| Commercial Union | 0.5 / 1.5 | 1.0 / 2.75 | ||
| CGNU (General Accident) | 1.0 / 2.0 | 1.5 / 3.0 | ||
| Norwich Union L&P | 0.5 / 1.0 | 1.25 / 2.25 | ||
| Pensions | January 2003 % | January 2002 % | ||
| Commercial Union | 0.5 / 1.5 | 1.0 / 2.75 | ||
| CGNU (General Accident) | 1.0 / 1.5 | 2.0 / 2.50 | ||
| Norwich Union L&P** | 0 / 0 | 0.25 / 0.75 | ||
** No regular bonus has been declared in this series for 2003 as the product has valuable guarantees from the original guaranteed benefit and from regular bonuses already added.
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-profit funds, a proportion of the with-profits 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 three with-profit funds are the same.
- CGNU Life with-profit fund performance
In 2002, the with-profit fund return was minus 8.6 %. The return on the fund in 2001 was minus 9.5% and in 2000 minus 1.1%.
- CGNU Life With-profit fund investment mix
Estimated investment mix of the CGNU with-profit fund at the end of 2002
| Investment type | % of fund at the end of 2002 | end of 2001 | ||
| UK Shares | 32 | 48 | ||
| International shares | 9 | 14 | ||
| Property | 15 | 11 | ||
| UK Fixed Interest | 17 | 13 | ||
| Corporate Bonds | 17 | 9 | ||
| International Bonds | 5 | 3 | ||
| Cash | 5 | 2 |
At the start of 2002 the equity backing ratio (EBR) was 73% (of which shares were 62% and property 11%). During the year the EBR fell to 56%. Of this fall of 17%, 12% was a direct result of relative movement in asset values and 5% because of movement out of shares into fixed interest.
Impacts of Smoothing
The smoothing of payouts is still evident even after today’s announcement as the following example shows.
£10,000 Bond started on 1 Jan 1993:
| 1 Jan 2002 | 1 Aug 2002 | 1 Jan 2003 | ||||
| With Profits | £20,171 | £19,768 | £ 18,972 (- 6 %) | |||
| Managed Fund | £17,793 | £15,357 | £ 15,038 (-15%) |
This example is based on a GA Bond.
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 building societies and other leading UK brand names including Tesco Personal Finance and The Royal Bank of Scotland Group.
Norwich Union's news releases are available on the Aviva plc website at www.aviva.com
A selection of images is available from the Norwich Union Newscast site at www.newscast.co.uk
Life and pension media enquiries call 08703 66 68 73
For all other media enquiries call 08703 66 68 68
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Appendix
BONUS TERMS EXPLAINED
There are two types of with-profits policies: Unitised and Conventional.
UNITISED
Contributions buy units in the with-profit 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 a 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.
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.
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.
Unitised Payouts
The bond examples below are based on a £10,000 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 £200, maturing at age 65, with a return of fund death benefit. Other examples are available on request.
CGNU (including General Accident)
With-profits bond
| Cashed in 1.8.02 | Cashed in 1.1.03 | Average rate of Inflation to December 2002 | |
| Effected 10 years ago: | |||
| Unit value | £18,766 | £18,242 | |
| Final bonus | £3,190 | £730 | |
| Total payout | £21,956 | £18,972 | |
| Yield | 8.2% | 6.6% | 2.5% |
10 year personal pension
| Maturing 1.8.02 | Maturing 1.1.03 | Average rate of Inflation to December 2002 | |
| Unit value | £32,340 | £31,612 | |
| Final bonus | £1,404 | £0 | |
| Total payout | £33,744 | £31,612 | |
| Yield | 6.6% | 5.4% | 2.4% |
Commercial Union
With-profits bond
| Cashed in 1.8.02 | Cashed in 1.1.03 | Average rate of Inflation to December 2002 | |
| Effected 10 years ago: | |||
| Unit value | £18,114 | £17,620 | |
| Final bonus | £2,898 | £881 | |
| Total payout | £21,012 | £18,501 | |
| Yield | 7.7% | 5.9% | 2.5% |
10 year personal pension
| Maturing 1.8.02 | Maturing 1.1.03 | Average rate of Inflation to December 2002 | |
| Unit value | £31,601 | £31,331 | |
| Final bonus | £1,957 | £0 | |
| Total payout | £33,558 | £31,331 | |
| Yield | 6.5% | 5.2% | 2.4% |
Norwich Union Life & Pensions (NUL&P)
With-profits bond
| Cashed in 1.8.02 | Cashed in 1.1.03 | Average rate of Inflation to December 2002 | |
| Effected 10 years ago: | |||
| Unit value | £17,221 | £16,902 | |
| Final bonus | £3,444 | £845 | |
| Total payout | £20,665 | £17,747 | |
| Yield | 7.5% | 5.9% | 2.5% |
10 year personal pension
| Maturing 1.8.02 | Maturing 1.1.03 | Average rate of Inflation to December 2002 | |
| Unit value | £31,192 | £30,709 | |
| Final bonus | £2,532 | £336 | |
| Total payout | £33,724 | £31,044 | |
| Yield | 6.6% | 5.0% | 2.4% |
Conventional Payouts
The endowment policy examples below are based on a male aged 30 next birthday, when the policy was started, for a monthly premium of Ł50.
CGNU (including General Accident)
10 year endowment
| Maturing 1.8.02 | Maturing 1.1.03 | Average rate of Inflation to December 2002 | |
| Guaranteed benefit | £5,322 | £5,322 | |
| Regular bonus | £2,139 | £1,990 | |
| Final bonus | £448 | £0 | |
| Total payout | £7,909 | £7,312 | |
| Yield | 5.4% | 3.9% | 2.4% |
25 year endowment
| Maturing 1.8.02 | Maturing 1.1.03 | Average rate of Inflation to December 2002 | |
| Guaranteed benefit | £14,241 | £14,431 | |
| Regular bonus | £28,950 | £27,500 | |
| Final bonus | £42,327 | £28,094 | |
| Total payout | £85,518 | £70,025 | |
| Yield | 12.0% | 10.8% | 4.0% |
Commercial Union
10 year endowment
| Maturing 1.8.02 | Maturing 1.1.03 | Average rate of Inflation to December 2002 | |
| Guaranteed benefit | £5,361 | £5,361 | |
| Regular bonus | £1,979 | £1,796 | |
| Final bonus | £587 | £0 | |
| Total payout | £7,927 | £7,157 | |
| Yield | 5.4% | 3.5% | 2.4% |
25 year endowment
| Maturing 1.8.02 | Maturing 1.1.03 | Average rate of Inflation to December 2002 | |
| Guaranteed benefit | £13,200 | £13,200 | |
| Regular bonus | £42,207 | £40,183 | |
| Final bonus | £26,595 | £16,549 | |
| Total payout | £82,002 | £69,932 | |
| Yield | 11.8% | 10.8% | 4.0% |
Norwich Union Life & Pensions (NUL&P)
10 year endowment
| Maturing 1.8.02 | Maturing 1.1.03 | Average rate of Inflation to December 2002 | |
| Guaranteed benefit | £5,533 | £5,533 | |
| Regular bonus | £1,472 | £1,278 | |
| Final bonus | £1,245 | £249 | |
| Total payout | £8,250 | £7,060 | |
| Yield | 6.2% | 3.2% | 2.4% |
25 year endowment
| Maturing 1.8.02 | Maturing 1.1.03 | Average rate of Inflation to December 2002 | |
| Guaranteed benefit | £14,559 | £14,500 | |
| Regular bonus | £32,292 | £28,755 | |
| Final bonus | £23,222 | £16,313 | |
| Total payout | £70,073 | £59,568 | |
| Yield | 10.8% | 9.7% | 4.0% |
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 value reduction on encashments (except on maturity or death) which will reduce what you get back from the unitised with-profit 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.