Norwich Union response to publication of Sandler Review

Article date: 9 July 2002

Norwich Union, Aviva plc’s UK life business and theUK’s largest insurer, today welcomed publication of theSandler Review, which is aimed at closing the savings gap in the UKand therefore increasing the size of the long-term savings market.During the course of the Review, Norwich Union is pleased to haveworked closely with the Sandler team. The Review is verycomprehensive and needs detailed examination and consultation.

Norwich Union expects that its share of the UK long- termsavings market will grow profitably within an expanded market asconsumers are encouraged to make greater provision for their futurefinancial well-being through improved consumer education and a newrange of simple products. It believes there will be a continued“flight to quality” as consumers select strong brandsas their choice of long-term savings provider. Norwich Union hasdoubled its share of the UK life market over the past five years toapproximately 12% and is targeting a market share of 15% by the endof 2005.

Norwich Union is particularly pleased that:

  • Consumer access to financial services products is to bewidened through the development of a new range of simpleproducts.

    Norwich Union has supported the idea of new products whichwould significantly widen access and could be sold under a‘lighter touch’ regulatory regime.

    There is a clear need for a range of products that enableaccess to be provided to the mass market at an affordablecost.

  • Complex and overlapping regulation, which confuses consumersand increases costs, is to be tackled.

    We are pleased that the Review recommends the removal ofoverlapping regulation where both products and the advice processare regulated. This will reduce distribution costs substantially.However, we need to ensure that consumers receive sufficientprotection.

    There is to be a major programme of consumer education. Thereneeds to be a major focus on stimulating informed consumer demandand a regulatory environment that allows consumers to beencouraged to save.

  • The value of with-profits investments to UK consumers has beenrecognised.

    We agree with the desire for greater transparency and bettercustomer communications across the industry on with-profitspolicies and Norwich Union is already at the forefront of theindustry in these areas. Such changes will greatly enhance theattractiveness of with-profits plans to consumers.

    Norwich Union remains committed to with-profits as a keyinvestment choice that has proved most suitable for the vastmajority of customers who want access to a low to medium riskinvestment option and to benefit from investing in equitieswithout the short term volatility of the stock market.

  • The cost of financial advice is to be made clearer.

    We are pleased the Review recognises the value of advice,particularly independent advice. We are also pleased that, in theproposals for remuneration, the Review recognises that thisremuneration can be contingent on a sale. This overcomes a numberof the weaknesses within the defined payment system (DPS) underCP121 (the FSA’s ‘Reforming Polarisation’consultation paper).

    However, we are concerned that any proposals remain practicaland cost-effective, and do not result in a reduction in theindependent advice sector. In addition, any changes must be madewithin a transitional period and must be accompanied by aprogramme of consumer education.

  • There is to be a simpler and easier tax regime.

    The recommendation relating to tax requires detailedconsideration.

We are concerned that there should be a level playing fieldacross all sectors of the industry, both in terms of personaltaxation and corporate taxation. The regulatory regime andrequirements for regulatory capital need to be consistent acrossunit trusts, investment trusts, Open Ended Investment Companies(OEICS) and life companies.

With-Profits Business

It has been proposed that with-profits business should operateon the basis of ‘charges less expenses’, also called a100:0 basis. Whilst we believe that there is nothing intrinsicallywrong in operating a 90:10 basis, we are confident that there isvalue in both methods. Norwich Union already has considerableexperience of operating on a 100:0 basis, for example, all of ourwith-profits stakeholder pensions business operates in this way asdoes some of Norwich Union’s existing with-profits investmentbonds business.

Under Sandler’s proposals, some future with-profits newbusiness would be offered on a 100:0 basis, although in the shorterterm, all relevant Norwich Union products would continue to bemarketed on a 90:10 basis.

The impact on new business margins is unclear at this earlystage and the actual effects on financial results will bedetermined by a number of factors, including product mix,distribution costs, efficiency gains, improving volumes andcompetitive forces. However, Norwich Union estimates that if thischange had occurred in 2001 then, based on our new business anddistribution mix, the average margin achieved on the UK life andpensions business would have been reduced by no more than fivepercentage points. Levels of absolute profitability will benefitfrom targeting an increased market share in what Norwich Union seesas an expanding UK long- term savings market.

In addition, Norwich Union believes that these proposals couldlead to a reattribution of the inherited estate (see Notes forEditors) being in the interests of policyholders and shareholders,and will pursue the investigation of this. This process wouldrequire approval by the courts, regulators and other experts, whichNorwich Union would hope to have been completed by the end of 2004.The inherited estate was estimated to be £5 billion at 31 December2001.

Philip Scott, Chief Executive of Norwich Union Life, commented:“The objective of the Sandler Review is to close the savingsgap in the UK and this brings with it a significant growthopportunity for us.

“Consumers will benefit from new, simple, low-costproducts which are easily accessible and can be sold within a‘lighter- touch’ regulatory regime. They will seekcompanies such as Norwich Union with strong brands and financialstrength with whom to entrust their savings.

“We have the size and scale to produce low-cost productsefficiently and at a profit. Our growth in market share over thepast five years demonstrates our ability to grow in a changingmarket environment. With products available through a range ofdistribution channels, we are well-placed to take a growing shareof a growing market.”



Steve Riley, Investor Relations Director
+44 (0)20 7662 8115

James Evans, Head of Media Relations, Norwich Union Life
+44 (0)1904 452791
Hayley Stimpson, Director of External Affairs, Aviva plc
+44 (0)20 7662 7544
Alex Child-Villiers, Financial Dynamics
+44 (0)20 7269 7107

Notes to editors

  • The inherited estate, held within the main with-profits funds,consists of free reserves that do not form part ofpolicyholders’ reasonable expectations, and that areunlikely to be distributed to existing with-profits policyholders.A reattribution of the inherited estate is an exercise whereshareholders offer to buy out the interests of existingpolicyholders now, in return for ownership and eventualdistribution of the estate in the future.
  • Norwich Union is the UK’s largest insurer. It is theUK’s largest provider of life, pensions and investmentproducts and one of the leading IFA providers. IFAs provide around75% of the company’s long-term savings business. NorwichUnion has strategic alliances with building societies and otherleading UK brand names including Tesco Personal Finance and TheRoyal Bank of Scotland Group. Norwich Union is part of Avivaplc.
  • Aviva plc is the UK's largest insurance group, one of thetop-five life insurers in Europe and has substantial positions inother markets around the world. Aviva is the world’sseventh- largest insurer based on worldwide gross writtenpremiums.
  • Norwich Union’s news releases are available on the Avivaplc website at
  • A selection of images are available from the Norwich UnionNewscast site at

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