Norwich Union announces new regular bonus rates

Article date: 16 January 2002

Norwich Union today announces new regular bonus rates forconventional and unitised with-profit life and pension contractsfor Norwich Union, former General Accident, Commercial Union, andCGU policies.

2001 was a very difficult year for investments with the value ofthe FTSE 100 falling by 16 % in 2001. This, combined with theprevious year's fall of 10 %, has resulted in considerablereductions in the value of ordinary shares - a main constituent ofwith-profit investments.

In line with these economic conditions, and underlining ourprudent management of with-profits, the regular bonus rate forunitised 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-profitpolicies will be 4.75 % (2001: 5.75 % ).

Against the backdrop of lower investment returns, low interestrates and low inflation, Norwich Union is again paying competitiveregular unitised bonus rates.

For the second year in succession policies have been creditedwith an investment return in excess of actual earnings. Maturingpolicies are being paid more than earnings, demonstrating thestrong level of smoothing taking place.

Even with the reduction in payouts, the real return topolicyholders remains attractive. For example, 25-year endowmentpolicies are, on average, producing a return of 11.4 % a yearcompared to inflation averaging 4.4 % a year over the sameperiod.

As part of its drive to improve transparency on with-profits,Norwich Union will again be providing policyholders withcomprehensive information on how their policy has performed.Details will include the returns achieved on the with- profit fundover the last five years, and a detailed explanation of howsmoothing has worked.

Commenting on the new bonus rates, chief actuary, Mike Urmston,said: "These new bonus rates show Norwich Union's continuedcommitment to providing good value with-profits investment productsand offering policy holders competitive returns. The new rates needto be set against the backdrop of stock market performance in 2000and 2001.

"The with-profit fund showed a negative return (-9.6 %) during2001 against our projected return of +7.25 %. A strong degree ofsmoothing has again taken place within the fund enabling us tobenefit all policyholders with competitive payouts.

"We have taken great care to ensure bonus rates strike the rightbalance between prudent management of the with-profit fund and alsoensuring a fair return to all policyholders. The very poorperformance of the stock markets has had a direct impact on thevalue of with-profit funds and this has to be reflected in bonusrates and payouts.

"Payouts are likely to fall further in the longer-termreflecting anticipated lower investment returns compared to thoseenjoyed in the 1980's and 1990's. However we see no reason why withprofits should not continue to provide attractive returns to bothnew and existing policyholders."

-Ends-

Press office contacts:
 
James Evans08703 66 68 7807790 487105
Louise Goffee08703 66 68 7007810 057362

Notes to editors

Norwich Union is the UK's largest insurer. It is the UK'slargest provider of life, pensions and investment products and oneof the leading IFA providers. IFAs provide around 75% of thecompany's long-term savings business.

Norwich Union has strategic alliances with over 20 buildingsocieties and other leading UK brand names including Tesco PersonalFinance and The Royal Bank of Scotland Group.

  • Norwich Union's news releases are available on the internet atwww.cgnu-group.com
  • A selection of images are available from the CGNU Newscastsite at www.newscast.co.uk
  • An ISDN facility is available for studio quality interviews.Call the press office on 08703 666873
  • For all life & pensions media enquiries 08703 66 6873
    For all other media enquiries 08703 66 68 68

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: Unitisedand Conventional.

UNITISED

Contributions buy units in the With-Profits Fund. The unit priceincreases as the annual bonus is added on a daily basis.

The payout for a unitised with profits policy is made up oftwo elements: The value of units and finalbonus.

Value of units: This is the value of the units held.

Final Bonus: At the date of claim the value of the unitsis compared with the total earnings of the policy. Any balance ismade up by the declaration of a final bonus. Scales are expressedas percentage of the unit value and vary according to the year themoney was invested. Different final bonus rates will apply to theunits bought with the different years' contributions.

CONVENTIONAL

Contributions secure a guaranteed benefit. Bonuses are added tothe guaranteed benefit annually and at the end of the policy termas detailed below.

The payout under a conventional with-profits policy is madeup of three elements: the guaranteed benefit, regularbonus and final bonus.

Guaranteed benefit (also known as sum insured): This isthe amount payable at the date of the claim (e.g. maturity orearlier death). Bonuses are added to this amount over the term ofthe policy to make up the final payout.

Regular Bonus (also known as annual or reversionarybonus): This is the amount added to a with-profits policy eachyear. It is a payment on account towards the full share of policyearnings which will be payable at the date of claim. For mostpolicies it is expressed as one percentage applying to theguaranteed benefit and a further percentage applying to the bonusalready added in previous years.

Final bonus (also known as terminal or additional bonus):At the date of claim the total of the guaranteed benefit andregular bonuses to date is compared with the total earnings of thepolicy. Any balance is made up through the declaration of a finalbonus. Final bonus rates are expressed as a percentage of theguaranteed benefit and will form a scale of rates that will varyaccording to the year the policy was taken out.

Please note: The above is designed as an introduction to bonusterms. For details relating to specific policies, you should referto the policy terms and conditions.

UNITISED BONUS - PAYOUT TABLES

The following tables show comparative maturity payoutsfollowing the bonus declaration for the three main companies thatnow form part of Norwich Union.

  • Norwich Union writes new with profits business in the CGNULife with profit fund. The CGNU Life fund was previously the CGUfund. It has been chosen because of its stronger position inrelation to equity backing ratio and superior pay out record,particularly for long term contracts
  • To maintain financial strength, investment flexibility and tofacilitate the eventual merger of the with profits funds, aproportion of the with profit business will be reassured to otherwith profit funds in the CGNU Group, namely the Commercial UnionLife (CU) and the NU Life (NUL&P) funds
  • Investment objectives and risk controls for the 3 with profitfunds 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
£13,434
£13,320
Final bonus
£2,149
£400
Total payout
£15,583
£13,720
Yield
9.3%
6.5%
2.5%
Effected 10 years ago:  
Unit value
£19,683
£19,329
Final bonus
£6,102
£3,869
Total payout
£25,785
£23,198
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
£33,046
£32,657
Final bonus
£5,579
£2,443
Total payout
£38,625
£35,100
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
£12,836
£12,754
Final bonus
£1,540
£255
Total payout
£14,376
£13,009
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
£30,936
£31,790
Final bonus
£3,882
£2,992
Total payout
£34,818
£34,782
Yield
7.2%
7.2%
2.7%

Norwich Union Life & Pensions (NUL&P)

With profits bond

 
Maturing 1.8.01
Maturing 1.1.02
Average rate
of Inflation to
December 2001
Effected 5 years ago:
Unit value
£12,663
£12,687
Final bonus
£2,279
£381
Total payout
£14,942
£13,068
Yield
8.4%
5.5%
2.5%
Effected 10 years ago:
Unit value
£18,121
£17,629
Final bonus
£4,711
£4,055
Total payout
£22,832
£21,684
Yield
8.6%
8.0%
2.6%

10 year personal pension

 
Maturing 1.8.01
Maturing 1.1.02
Average rate
of Inflation to
December 2001
Unit value
£31,625
£31,466
Final bonus
£6,281
£3,100
Total payout
£37,906
£34,566
Yield
8.8%
7.1%
2.7%

The bond examples above are based on a £10,000 singlecontribution made by a man under age 75 at outset. The Pensionexample is as issued to a male for a monthly premium of £200,maturing at age 65, with a return of fund death benefit.

CONVENTIONAL BONUSES - PAYOUT TABLES

CGU (including General Accident)

10 year endowment

 
Maturing 1.8.01
Maturing 1.1.02
Average rate
of Inflation to
December 2001
Guaranteed benefit
£5,322
£5,322
Regular bonus
£2,413
£2,276
Final bonus
£773
£456
Total payout
£8,508
£8,054
Yield
6.8%
5.7%
2.7%

25 year endowment

 
Maturing 1.8.01
Maturing 1.1.02
Average rate
of Inflation to
December 2001
Guaranteed benefit
£14,139
£14,241
Regular bonus
£30,407
£28,926
Final bonus
£55,683
£46,620
Total payout
£100,229
£89,787
Yield
13.0%
12.3%
4.4%

CONVENTIONAL BONUSES - PAYOUT TABLES

Commercial Union

10 year endowment

 
Maturing 1.8.01
Maturing 1.1.02
Average rate
of Inflation to
December 2001
Guaranteed benefit
£5,361
£5,361
Regular bonus
£2,282
£2,160
Final bonus
£841
£602
Total payout
£8,484
£8,123
Yield
6.7%
5.9%
2.7%

25 year endowment

 
Maturing 1.8.01
Maturing 1.1.02
Average rate
of Inflation to
December 2001
Guaranteed benefit
£13,253
£13,253
Regular bonus
£50,931
£43,980
Final bonus
£32,091
£29,761
Total payout
£96,275
£86,994
Yield
12.8%
12.1%
4.4%

CONVENTIONAL BONUSES - PAYOUT TABLES

Norwich Union Life & Pensions (NUL&P)

10 year endowment

 
Maturing 1.8.01
Maturing 1.1.02
Average rate
of Inflation to
December 2001
Guaranteed benefit
£5,533
£5,533
Regular bonus
£1,728
£1,472
Final bonus
£1,549
£1,300
Total payout
£8,810
£8,305
Yield
7.5%
6.3%
2.7%

25 year endowment

 
Maturing 1.8.01
Maturing 1.1.02
Average rate
of Inflation to
December 2001
Guaranteed benefit
£14,559
£14,559
Regular bonus
£35,056
£32,292
Final bonus
£32,103
£26,789
Total payout
£81,718
£73,640
Yield
11.7%
11.1%
4.4%

The endowment policy examples above are based on a male aged30 next birthday, when the policy was started, for a monthlypremium of £50.

Important notes:

Future bonus rates are not guaranteed and may vary, as theydepend on profits yet to be earned. Past performance is not aguide to the future. The value of investment linked funds can godown as well as up and is not guaranteed. The illustrativematurity amounts include periods of high inflation and highinvestment returns. We may apply a market adjustment factor onencashments (except on maturity or death) which will reduce whatyou get back from the unitised with-profits fund. Pastperformance is based on the charging structures applicable tothe products at the time the policies were effected. Differentcharging structures apply to the current products. Full writtenterms and conditions of Norwich Union products are available onrequest. Norwich Union is regulated by the Financial ServicesAuthority and only advises on its own products. All chargingstructures are applied to the product at the time the policy waseffected.

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