Norwich Union reviews with-profits bonus rates and payouts

Article date: 24 June 2003

Norwich Union has reviewed bonus rates and payouts on itswith-profits policies following the bonus announcement in January.Since the January announcement there has been a small recovery inthe stock market, which allowed a lowering in the level of MarketValue Reduction (MVR) at the end of April.

The results of the latest review are:

  • The average level of MVR will be lowered from 11% to 9% withimmediate effect.
  • Regular bonus rates on conventional and unitised with-profitspolicies and final bonuses on unitised with-profits policies willremain unchanged.
  • Payouts on some conventional with-profits policies will bereduced by up to 5% with effect from 1 July 2003.

Commenting on the review, Norwich Union chief actuary, MikeUrmston, said: “The market recovery we have seen has workedthrough in the form of a lower level of MVR. However, onconventional policies that have matured in 2003, we have beenpaying out around 118% of what has been earned (asset share) sosome further adjustment to payouts is necessary for overallfairness.

“On longer-term conventional policies we still need to seepayouts more in line with asset shares as the higher investmentreturns of the past are gradually replaced by the lower level ofinvestment returns we are now seeing. However, if we see a furtherrecovery in the markets we can then start to build up unitisedfinal bonus values again.”

Summary of changes

•  Bonus rates/payouts:
 Conventional policy payouts:Payouts reduced by up to 5%
 Unitised policy payouts:No changes to final bonuses
 Regular bonus rates:No changes
   
Market Value Reduction (MVR) 
 The level of MVR on unitised policies is to bereduced from an average of 11% to an average of 9% with immediateeffect. The level of MVR on unitised policies in April 2003 wasreduced from an average of 14% to an average of 11%.

Ends

Press office contacts:Out of hours
James Evans08703 66 68 7807790 487105
Louise Goffee08703 66 68 7007810 057362
Ian Beggs08703 66 68 7107790 487533
Lorna Wiltshire08703 66 68 7807788 471849

Notes to Editors

Norwich Union is the UK’s largest insurer. It is a leadingprovider of life, pensions and investment products and one of theleading IFA providers. IFAs provide around 70% of thecompany’s long-term savings business.

Norwich Union has strategic alliances with building societiesand other leading UK brand names including Tesco Personal Financeand The Royal Bank of Scotland Group.

Norwich Union’s news releases and a selection of imagesare available from Aviva's internet press centre at www.aviva.com/media.

Return on the with-profit fund

We expect the average return on the with-profit funds for thefirst half of 2003 to be around 7% before tax. The return on thefunds during 2002 was minus 8.5% and minus 9.5% in 2001.

BONUS TERMS EXPLAINED

There are two types of with-profits policies: Unitisedand Conventional.

UNITISED

Contributions buy units in the with-profit 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 of twoelements: The value of units and final bonus.

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

Final Bonus: At the date of claim the value ofthe units is compared with the total earnings of the policy. Anybalance is reflected in the declaration of a final bonus. Rates areexpressed as a percentage of the unit value and vary according tothe year the money was invested. Different final bonus rates willapply to the units bought with the different years’contributions.

Market Value Reduction (MVR): At the date ofclaim the value of the units is compared with the total earnings ofthe policy. Any shortfall is reflected in an MVR. Rates areexpressed as a percentage of the unit value and vary according tothe year the money was invested. Different MVR rates will apply tothe units bought with the different years’ contributions. Theaim is to maintain a balance between value given to those cashingin and those remaining.

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 made upof three elements: the guaranteed benefit, regular bonus andfinal bonus.

Guaranteed benefit (also known as sum insured):This is the amount payable at the date of the claim (eg. maturityor earlier death). Bonuses are added to this amount over the termof the policy.

Regular bonus (also known as annual orreversionary bonus): This is the amount added to a with-profitspolicy each year. It is a payment on account towards the full shareof policy earnings which will be payable at the date of claim. Formost policies 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 oradditional bonus): At the date of claim the total of the guaranteedbenefit and regular bonuses to date is compared with the totalearnings of the policy. Any balance is reflected through thedeclaration of a final bonus. Final bonus rates are expressed as apercentage of the guaranteed benefit and will form a scale of ratesthat will vary according to the year the policy was taken out.

PAYOUT TABLES

The following tables show comparative maturity payouts wherethey have been changed, following the bonus declaration for thethree main companies that now form part of Norwich Union.

Conventional Payouts

  • The endowment policy examples below are based on a male aged30 next birthday, when the policy was started, for a monthlypremium of £50.
  • The pension policy example below is based on a male retiringat age 65 for a monthly premium of £200.

CGNU (including General Accident)

10 year savings endowment

 Maturing 1.7.03Maturing 1.1.03Average rate of
Inflation to June
2003
Guaranteed benefit£5,322£5,322 
Regular bonus£1,843£1,990 
Final bonus£0£0 
Total payout£7,165£7,312 
Yield3.5%3.9%2.5%

 

25 year savings endowment

 Maturing 1.7.03Maturing 1.1.03Average rate of
Inflation to June
2003
Guaranteed benefit£14,431£14,431 
Regular bonus£27,326£27,500 
Final bonus£24,637£28,094 
Total payout£66,394£70,025 
Yield10.4%10.8%3.9%

 

25 year mortgage endowment (excluding any ‘promisepayment’)

 Maturing 1.7.03Maturing 1.1.03Average rate of
Inflation to June
2003
Guaranteed benefit£13,872£13,731 
Regular bonus£26,266£26,166 
Final bonus£23,681£26,731 
Total payout£63,819£66,628 
Yield10.2%10.4%3.9%

 

20 year pension (£2400 p.a.)

 Maturing 1.7.03Maturing 1.1.03Average rate of
Inflation to June
2003
Guaranteed benefit£60,779£ 60,779 
Regular bonus£82,337£ 82,337 
Final bonus£615£ 2,213 
Total payout£143,731£145,329 
Yield9.6%9.7%3.3%

 

Commercial Union

10 year savings endowment

 Maturing 1.7.03Maturing 1.1.03Average rate of
Inflation to June
2003
Guaranteed benefit£5,361£5,361 
Regular bonus£1,621£1,796 
Final bonus£0£0 
Total payout£6,982£7,157 
Yield3.0%3.5%2.5%

 

25 year savings endowment

 Maturing 1.7.03Maturing 1.1.03Average rate of
Inflation to June
2003
Guaranteed benefit£13,200£13,200 
Regular bonus£38,258£40,183 
Final bonus£14,408£16,015 
Total payout£65,866£69,398 
Yield10.4%10.7%3.9%

 

25 year mortgage endowment (excluding any ‘promisepayment’)

 Maturing 1.7.03Maturing 1.1.03Average rate of
Inflation to June
2003
Guaranteed benefit£12,447£12,592 
Regular bonus£36,075£38,333 
Final bonus£13,586£15,277 
Total payout£62,108£66,202 
Yield10.0%10.4%3.9%

 

20 year pension (£2400 p.a.)

 Maturing 1.7.03Maturing 1.1.03Average rate of
Inflation to June
2003
Guaranteed benefit£43,458£43,458 
Regular bonus£91,192£97,883 
Final bonus£5,386£5,653 
Total payout£140,036£146,994 
Yield9.4%9.8%3.3%

 

Norwich Union Life & Pensions(NUL&P)

10 year savings endowment

 Maturing 1.7.03Maturing 1.1.03Average rate of
Inflation to June
2003
Guaranteed benefit£5,533£5,533 
Regular bonus£1,278£1,278 
Final bonus£0£249 
Total payout£6,811£7,060 
Yield2.5%3.2%2.5%

 

25 year savings endowment

 Maturing 1.7.03Maturing 1.1.03Average rate of
Inflation to June
2003
Guaranteed benefit£14,500£14,500 
Regular bonus£28,755£28,755 
Final bonus£13,340£16,313 
Total payout£56,595£59,568 
Yield9.4%9.7%3.9%

 

25 year mortgage endowment (excluding any ‘promise’payment)

 Maturing 1.7.03Maturing 1.1.03Average rate of
Inflation to June
2003
Guaranteed benefit£14,108£14,108 
Regular bonus£27,978£27,978 
Final bonus£12,979£15,871 
Total payout£55,065£57,957 
Yield9.2%9.5%3.9%

 

20 year pension (£200 p.m.)

 Maturing 1.7.03Maturing 1.1.03Average rate of
Inflation to June
2003
Guaranteed benefit£56,338£56,373 
Regular bonus£71,696£71,743 
Final bonus£2,817£9,301 
Total payout£130,851£137,417 
Yield9.1%9.6%3.3%

 

Provident Mutual

10 year savings endowment

 Maturing 1.7.03Maturing 1.1.03Average rate of
Inflation to June
2003
Guaranteed benefit£5,625£5,625 
Regular bonus£1,291£1,291 
Final bonus£0£0 
Total payout£6,916£6,916 
Yield2.8%2.8%2.5%

 

25 year savings endowment

 Maturing 1.7.03Maturing 1.1.03Average rate of
Inflation to June
2003
Guaranteed benefit£15,230£15,230 
Regular bonus£21,558£21,558 
Final bonus£8,829£11,404 
Total payout£45,617£48,192 
Yield8.0%8.3%3.9%

 

25 year mortgage endowment (excluding any ‘promise’payment)

 Maturing 1.7.03Maturing 1.1.03Average rate of
Inflation to June
2003
Guaranteed benefit£14,650£14,650 
Regular bonus£21,413£21,413 
Final bonus£8,770£11,328 
Total payout£45,311£47,869 
Yield7.7%8.1%3.9%

 

20 year pension (£2,400 p.a.)

 Maturing 1.7.03Maturing 1.1.03Average rate of
Inflation to June
2003
Guaranteed benefit£61,202£61,202 
Regular bonus£37,117£37,117 
Final bonus12,991£18,559 
Total payout£111,310£116,878 
Yield7.5%7.9%3.3%

 

Important notes:

Future bonus rates are not guaranteed and may vary, as theydepend on profits yet to be earned. Past performance is not a guideto the future. The value of investment linked funds can go down aswell as up and is not guaranteed. The illustrative maturity amountsinclude periods of high inflation and high investment returns. Wemay apply a market value reduction on encashments (except on somematurity or death) which will reduce what you get back from theunitised with-profit fund. Past performance is based on thecharging structures applicable to the products at the time thepolicies were effected. Different charging structures apply to thecurrent products. Full written terms and conditions of NorwichUnion products are available on request. Norwich Union isauthorised and regulated by the Financial Services Authority andonly advises on its own products.

Back to top