With-Profits Bonus announcement

Article date: 13 January 2004

Main press release
Regular bonus rates
Policy payouts
With-profit fund performance
With-profit fund investment mix
Market value reduction (MVR)
Bonus terms explained
Policy payout tables

UK: With-ProfitsBonus Announcement

Norwich Union announces regular bonus rates and payouts for itswith-profits policies for 2004. In the main, maturing policypayouts and bonus rates are lower. However for some policies,payouts and bonus rates will be maintained at 2003 levels. Inaddition, regular bonus rates for the current range of investmentand pensions products are unchanged.

During 2003, the investment return on the with-profit fundimproved significantly as a result of the rising stock market. Thereturn on the fund in 2003 was 11.5% (before tax) compared to minus8.6% in 2002. This strong investment return will be passed onto allwith-profits policies through increases in underlying assetshares.

While asset shares have increased due to the excellent fundperformance, most maturing policy values are still higher thanindividual asset shares. As a result, payouts on these maturingpolicies still need to be lowered to bring them closer into linewith their individual asset share. This process is necessary toensure all our policyholders receive their fair share of thefund.

The strong investment performance means that investors whojoined the with-profit fund during 2003 benefit from both a regularand final bonus being declared on their policy. For example, acustomer who invested in a with-profits bond on 1 January 2003 willhave seen a regular bonus of 3.25% and a final bonus allowance of3% - giving an overall equivalent bonus of 6.35% (net of tax).

During 2003 Norwich Union paid out an average of 110% of assetshares on maturing policies demonstrating the smoothing of returnstaking place within the fund and the benefit to customers ofinvesting in with-profits.

Mike Urmston, chief actuary of Norwich Union, said: “Theexcellent investment return on the with-profit fund in 2003 willresult in an increase in the underlying asset share of allwith-profits policies which is good for policyholders. In addition,the turnaround in investment performance has also enabled us todeclare a final bonus of 3% on money invested in unitised policiesduring 2003.

“With-profits continues to serve customers well,delivering excellent returns over the medium to long term. Forexample a 25-year savings endowment has returned 10.1% a year aftertax. New customers can continue to take advantage of with-profitsinvestments and will see investment returns, subject to smoothing,from when they join the fund.”

Norwich Union with-profits policies continue to offer excellentreturns:

  • A 25-year savings endowment has returned 10.1% a year aftertax - a real return of 6.4% a year
  • A 20-year with-profits pension has returned 8.7% a year - areal return of 5.5% a year
  • A 10-year with-profits bond has returned 5.7% a year after tax– a real return of 3.1% a year

Norwich Union has also reduced the Market Value Reduction (MVR)applicable to early encashment of unitised with-profits policiesfrom an average of 9% to an average of 8%.

The growth in the stock market will lead to some improvement inthe position of mortgage endowment policies. As a result manypolicyholders would see slightly lower projected shortfalls orslightly higher projected surpluses now.

During 2003, the CGNU life with-profit fund equity backing ratio(shares and property) increased from 54% to 65%. This was due to anincrease in the value of property and shares and a strategic moveof cash into shares during the early part of 2003.

Mike Urmston added: “While we saw a positive return on thefund in 2003, over the previous three years we saw a cumulativereturn of minus 18.2% and the changes we have made need to be setagainst this. The FTSE 100 is still around 2,400 points below itspeak level of 6,930 in December 1999. We are however cautiouslyoptimistic about the stock market where we have seen good growthover the last nine months from the FTSE 100 low point of 3,287 inMarch. ”

All figures and examples of returns quoted above refer solely tothe CGNU life with-profit fund

REGULAR BONUSRATES

UNITISED POLICIES

  • Explicit charge life and investment products (incl. bonds): nochange from 4.25%
  • Explicit charge pensions: no change from 4%
  • Explicit charge stakeholder pensions: no change from 3.5%
  • Offshore bonds: no change - 5% for sterling and 4.75% for euroor dollar business
  • Implicit charge life/investment bonus rate will be reducedfrom 3.25% to 2.50%
  • CGNU: Implicit charge pensions rate will reduce from 3.75% to3.0%
  • For NULAP/ CU: the equivalent implicit charge bonus rate iscurrently unchanged at 4% but will change to the CGNU rate of 3%during 2004

Explicit charging means that the annual management charge isdeducted from the unit value separately to the bonus rate setting.Implicit charging means that the annual management charge for thepolicy is deducted from the investment return before the annualbonus rate is set.

CONVENTIONAL POLICIES
Life and investment

  • NULAP: The rate on the sum assured will reduce from 0.50% to0% and on the attaching bonuses from 1.0% to 0.50%
  • Commercial Union: No change from 0% / 0.50%
  • CGNU: No change from 0.50% / 1.0%
  • Provident Mutual: The rate on the sum assured will reduce from0.50% to 0% and on the attaching bonuses from 1.0% to 0.50%.

Pensions

  • Provident Mutual: The rate will be reduced from 0.50% to0%.
  • Other pensions: no change from 0% / 0%

POLICYPAYOUTS

UNITISED POLICIES

  • In most cases the final bonus rate remains the same
  • 3% final bonus rate introduced for monies invested in2003
  • 1.75% final bonus introduced for single premiums into newwith-profit bonds in 2004

CONVENTIONAL POLICIES
Life and investment policies

  • NULAP: Policy payouts over 10 and 15-year terms are unchanged.Policy payouts with a term of 20 years plus will be lower by5%.
  • Commercial Union & CGNU: Policy payouts will be lower bybetween 3% and 7%

Pension policies

  • NULAP: Policy payouts will be up to 10% lower
  • Commercial Union: Regular premium policy payouts up to 15years stay unchanged. Other policy payouts will be between 5% and10% lower
  • CGNU: Policy payouts will be 10% lower

Ends

Press office contacts:
Norwich Union Life press office: 01904 452791 / 452617 /452828

Out of hours 
  
James Evans07790 487105
Louise Goffee07810 057362
David Gwyer07800 699508

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 building societiesand other leading UK brand names including Tesco Personal Financeand The Royal Bank of Scotland Group.

Norwich Union's news releases are available on the Aviva plcwebsite at www.aviva.com
Norwich Union writes new with-profits business in the CGNU Lifewith-profits fund.

  • CGNU Life with-profit fundperformance
YearFund performance (before tax)
2003plus 11.5%
2002minus 8.6%
2001minus 9.5%
2000minus 1.1%.
  • CGNU Lifewith-profit fund investment mix

Estimated investment mix of the CGNU with-profit fund at the endof 2003

Investment type% at end of 2003% at end of 2002
UK Shares41.431.1
International shares9.39
Property14.514.3
UK Fixed Interest and bonds26.134.2
International Bonds4.44.7
Cash4.36.7

At the start of 2003 the equity backing ratio (EBR) of the CGNUfund was 54.4% (of which shares were 40.1% and property 14.3%).During the year the EBR rose to 65.2%.

  • Change to Market ValueReductions (MVR)

The level of MVR applicable to early encashment of unitisedwith-profits products has been reduced from an average of 9% to anaverage of 8%. The average MVR rate on 1 January 2003 was 12%.

BONUS TERMSEXPLAINED

Asset share: Asset share is a calculation ofwhat has been “earned” for a policy and it is anaccumulation of premiums plus investment return, less charges andcost of life cover and adjusted for tax where appropriate.

There are two types of with-profits policies: Unitised andConventional.

UNITISED
Contributions buy units in thewith-profit fund. The unit price increases as the annual bonus isadded 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 made up by the declaration of a final bonus. Scales 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 reductions (MVR): A market valuereduction is used as part of the smoothing policy for with-profits.It is applied only in extreme market conditions to help managefunds in a way that is fair to all with-profits policyholdersduring the difficult conditions.

CONVENTIONAL
Contributions secure aguaranteed benefit. Bonuses are added to the guaranteed benefitannually and at the end of the policy term as detailed below.

The payout under a conventional with-profits policy is made upof three elements: the guaranteed benefit, regular bonus and finalbonus.

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 made up 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.

Number of with-profit policies - approximately 3.3 million madeup as follows:

  • 1.2 million with-profits pensions
  • 1.3 million with-profits endowments
  • 0.8 million with-profits investment bonds

PAYOUTTABLES

The following tables show comparative payouts following thebonus declaration for the three main companies that now form partof Norwich Union.

Unitised Payouts
The bond examples beloware based on a £10,000 single contribution made by a male agedunder 75 at the outset. The Pension example is for a male for amonthly premium of £200, maturing at age 65, with a return of funddeath benefit. Other examples are available on request.

CGNU (including General Accident)

With-profits bond started on 1 January 1993

 Cashed in 01.01.03Cashed in 01.07.03Cashed in 01.01.04
Total surrender value£19,421£19,785£20,159

10 year personal pension

 Maturing 1.7.03Maturing 1.1.04Average rate of Inflation to Dec2003
Unit value£30,655£30,452 
Final bonus£0£48 
Total payout£30,655£30,500 
Yield4.8%4.7%2.5%

Commercial Union

With-profits bond started on 1 January 1993

 Cashed in 01.01.03Cashed in 01.07.03Cashed in 01.01.04
Total surrender value£18,511£18,812£19,113

10 year personal pension

 Maturing 1.7.03Maturing 1.1.04Average rate of Inflation to Dec2003
Unit value£31,138£29,713 
Final bonus£0£45 
Total payout£31,138£29,758 
Yield5.1%4.6%2.5%

Norwich Union Life & Pensions(NUL&P)

With-profits bond started on 1 January 1993

 Cashed in 01.01.03Cashed in 01.07.03Cashed in 01.01.04
Total surrender value£17,747£18,033£18,673

10 year personal pension

 Maturing 1.7.03Maturing 1.1.04Average rate of Inflation to Dec2003
Unit value£29,848£29,468 
Final bonus£239£390 
Total payout£30,087£29,858 
Yield4.4%4.3%2.5 %

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 1.1.04Average rate of Inflation to Dec2003
Guaranteed benefit£5,322£5,217 
Regular bonus£1,843£1,660 
Final bonus£0£0 
Total payout£7,165£6,877 
Yield3.5%2.7%2.5%

25 year savings endowment

 Maturing 1.7.03Maturing 1.1.04Average rate of Inflation to Dec2003
Guaranteed benefit£14,431£14,431 
Regular bonus£27,326£26,142 
Final bonus£24,637£22,315 
Total payout£66,394£62,888 
Yield10.4%10.1%3.7%

25 year mortgage endowment

 Maturing 1.7.03Maturing 1.1.04Average rate of Inflation to Dec2003
Guaranteed benefit£13,872£13,641 
Regular bonus£26,266£24,710 
Final bonus£23,681£21,093 
Total payout£63,819£59,444 
Target amount£28,779£28,779 
Yield10.2%9.7%3.7%

20 year pension (£2400 p.a.)

 Maturing 1.7.03Maturing 1.1.04Average rate of Inflation to Dec2003
Guaranteed benefit£62,709£61,182 
Regular bonus£83,456£68,593 
Final bonus£628£273 
Total payout£146,792£130,048 
Yield9.5%8.7%3.2%

Commercial Union

10 year savings endowment

 Maturing 1.7.03Maturing 1.1.04Average rate of Inflation to Dec2003
Guaranteed benefit£5,361£5,361 
Regular bonus£1,621£1,444 
Final bonus£0£0 
Total payout£6,982£6,805 
Yield3.0%2.5%2.5%

25 year savings endowment

 Maturing 1.7.03Maturing 1.1.04Average rate of Inflation to Dec2003
Guaranteed benefit£13,200£13,133 
Regular bonus£38,258£35,905 
Final bonus£14,408£13,730 
Total payout£65,866£62,768 
Yield10.4%10.1%3.7%

25 year mortgage endowment

 Maturing 1.7.03Maturing 1.1.04Average rate of Inflation to Dec2003
Guaranteed benefit£12,447£12,562 
Regular bonus£36,075£34,343 
Final bonus£13,586£13,133 
Total payout£62,108£60,038 
Target Amount£28,613£31,171 
Yield10.0%9.8%3.7%

20 year pension (£2400 p.a.)

 Maturing 1.7.03Maturing 1.1.04Average rate of Inflation to Dec2003
Guaranteed benefit£43,458£43,458 
Regular bonus£91,192£84,501 
Final bonus£5,386£5,118 
Total payout£140,036£133,077 
Yield9.7%9.3%3.2%

Norwich Union Life & Pensions(NUL&P)

10 year savings endowment

 Maturing 1.7.03Maturing 1.1.04Average rate of Inflation to Dec2003
Guaranteed benefit£5,533£5,533 
Regular bonus£1,278£1,061 
Final bonus£0£221 
Total payout£6,811£6,815 
Yield2.5%2.5%2.5%

25 year savings endowment

 Maturing 1.7.03Maturing 1.1.04Average rate of Inflation to Dec2003
Guaranteed benefit£14,500£14,500 
Regular bonus£28,755£25,133 
Final bonus£13,340£14,138 
Total payout£56,595£53,771 
Yield9.4%9.0%3.7%

25 year mortgage endowment

 Maturing 1.7.03Maturing 1.1.04Average rate of Inflation to Dec2003
Guaranteed benefit£14,108£14,108 
Regular bonus£27,978£24,453 
Final bonus£12,979£13,755 
Total payout£55,065£52,316 
Target Amount£31,006£31,006 
Yield9.2%8.9%3.7%

20 year pension (£200 p.m.)

 Maturing 1.7.03Maturing 1.1.04Average rate of Inflation to Dec2003
Guaranteed benefit£56,338£56,886 
Regular bonus£71,696£64,092 
Final bonus£2,817£0 
Total payout£130,851£120,978 
Yield9.1%8.5%3.2%

Provident Mutual

10 year savings endowment

 Maturing 1.7.03Maturing 1.1.04Average rate of Inflation to Dec2003
Guaranteed benefit£5,625£5,625 
Regular bonus£1,291£1,125 
Final bonus£0£0 
Total payout£6,916£6,885 
Yield2.8%2.7%2.5%

25 year savings endowment

 Maturing 1.7.03Maturing 1.1.04Average rate of Inflation to Dec2003
Guaranteed benefit£15,230£15,230 
Regular bonus£21,558£19,900 
Final bonus£8,829£10,539 
Total payout£45,617£45,669 
Yield8.0%8.0%3.7%

25 year mortgage endowment

 Maturing 1.7.03Maturing 1.1.04Average rate of Inflation to Dec2003
Guaranteed benefit£15,036£15,036 
Regular bonus£20,934£18,255 
Final bonus£8,993£9,987 
Total payout£44,963£43,278 
Target Amount£30,812£30,812 
Yield7.9%7.6%3.7%

20 year pension (£200 p.m.)

 Maturing 1.7.03Maturing 1.1.04Average rate of Inflation to Dec2003
Guaranteed benefit£61,201£61,201 
Regular bonus£37,118£31,351 
Final bonus£12,991£13,324 
Total payout£111,310£105,876 
Yield7.8%7.0%3.2%

Important notes:
Future bonus rates are not guaranteed and may vary, as they dependon profits yet to be earned. Past performance is not a guide to thefuture. The value of investment linked funds can go down as well asup and is not guaranteed. The illustrative maturity amounts includeperiods of high inflation and high investment returns. We may applya market value reduction on encashments (except on some maturity ordeath) which will reduce what you get back from the unitisedwith-profit fund. Past performance is based on the chargingstructures applicable to the products at the time the policies wereeffected. Different charging structures apply to the currentproducts. Full written terms and conditions of Norwich Unionproducts are available on request. Norwich Union is authorised andregulated by the Financial Services Authority and only advises onits own products.

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