With-profits bonus announcement 2007

Article date: 11 January 2007

Crawford Davidson, marketing director atNorwich Union, said: "Returns from the stock market and commercialproperty continued to be strong in 2006 and as a result most finalbonus rates have increased significantly with all policiesincreasing in value in 2006.

"In addition, regular bonus rates are also being maintained for newcustomers and most existing customers – this follows anincrease in regular bonus rates for many bond holders in mid 2006.Market value reductions (MVRs) were reduced twice last year; theyhave again been reduced at the start of this year and we aim toremove them completely as soon as the stock marketallows.

"With-profits sales have grown strongly in thefirst three quarters of 2006 due to our innovative InflationProtection Guarantee bond and we remain committed to providingcompetitive returns to both existing and new with-profitscustomers."

Figures at a glance:

  • Strong performance from property (18.0%) and UK equitymarkets (16.2%) enabled the CGNU with-profit fund to achieve anoverall return of 11.7% before tax
  • Bonuses totalling £1.3 billion added during 2006 for around2.5 million customers
  • Most final bonus rates increased significantly. Forexample, for bonds invested in 2005 the final bonus increasedfrom 2% to 11% and for those invested in 1995, the final bonusincreased from 12% to 21%
  • Money invested in 1998 now no longer subject to anMVR
  • Policy values increased strongly during the year:
    • Cash-in value for a £10,000 single contribution 10-yearbond is £16,739, an increase in value of £1,130 during2006
    • A 25-year £50 a month mortgage endowment maturing in 2007will pay £46,829, £12,898 over the target amount with thepolicy increasing in value by £5,054 in 2006 (excludingpremiums paid in 2006)
    • A 20-year £200 a month pension maturing in 2007 will pay£110,888 – with the policy increasing in value by £8,653in 2006 (excluding premiums paid in 2006).

Figures for investment and policy returns relate to theCGNU with-profit fund only. Returns quoted assume the policiesmature on 1 January 2007. Endowment example is for a 29 year oldmale at the outset of the policy.


Press office contacts:

Norwich Union Life press office: 01904 452617 /452828 / 452791
Louise Soulsby 07800 699526
David Gwyer 07800 699508
Cheryl Cox 07800 695275
Rob Pell 07800 699563

1) Investment returns and how customers moneyis invested
2) Increase in customers’ policy values during 2006
3) How investment bond returns compare to cash
4) Regular bonus rates for customers for 2007
5) Changes to cash-in values for unitised policies (known asMVRs)
6) Investment markets overview 2006 and economic outlook for2007
7) Potential reattribution of the inherited estate of CGNU andCULAC funds
8) General information and further facts and figures

1) Investment returns and how customers money isinvested
We have seen another year of good returns on theCGNU and CULAC with-profit funds, with a return in 2006 of 11.7%before tax. The comparable returns in 2005 and 2004 were 17.7% and11.6% respectively (all before tax). The UK stock market furtherimproved with the FTSE 100 Index ending the year up 11% at 6221 -but still remains 10% below its peak at the end of 1999.

The return on the NULAP with-profit fund was 10.7% before tax,while the return on the Provident Mutual (PM) fund was 1.8% beforetax. The PM figures reflect the higher proportion of assetsinvested in fixed interest investments. For those PM endowmentpolicyholders who opted during 2005 to switch future investmentreturns to the CGNU with-profit fund, the return in 2006 was 11.7%before tax.

The investment return has been passed on to policyholders throughan increase in the underlying value of their policies (known asasset share).

Investments in the CGNU with-profit fund at the end of2006

Investment type

% at the end of 2006

% at the end of 2005

% at the end of 2004

UK shares




International shares








UK fixed Interest/bonds




International bonds








The equity backing ratio (proportion in shares& property) increased from 72% at the start of 2006 to 74% atthe end of the year. A significant EBR is important for long-termperformance. The equity backing ratio of the CULAC fund is 74%, theNULAP fund is 65% and the Provident Mutual fund is 14%.

2) Increase in customers’ policy values during2006

Investments bond

Cash in value

Cash in value

Increase %

3 year (01/01/04)




5 year (01/01/02)




10 year (01/01/97)




15 year (01/01/92)




The examples above are based on a £10,000 singlecontribution for a male aged under 75 at outset.

Mortgage endowment – 25 years

Cash in value


Maturity value


Target amount

Excess over target

Increase %
(Excl. premiums paid)

CGNU (incl. GA)
























* investments not switched to CGNU mid-2005

Savings endowment – 25 years

Cash in value

Maturity value

Increase %
(Excl. premiums paid)

CGNU (incl. GA)
















* investments not switched to CGNU mid-2005

The above endowment examples are based on a male aged 29 investing£50 a month for 25 years with the policy starting on 1 January1982.

Pension policy – 20 years

Cash in value

Maturity value

Increase %
(Excl. premiums paid)

CGNU (incl. GA)
















The above examples are based on a male, investing£200 a month for 20 years from January 1987 with the policymaturing at age 65, with a return of fund death benefit. In mostcases the effective policy return is enhanced by the right to avaluable guaranteed annuity rate.

Further examples of payouts for conventional andunitised policies over different terms are available onrequest.

3) How investment bond returns compare tocash

Investment bond – 10 years

Original investment

Value of investment after 10 years

% pa return before inflation of 2.8% pa

CGNU (incl. GA) with-profit bond




CULAC with-profit bond




NULAP with-profit bond




Bank/building society savings account




Examples based on a £10,000 single contributionmade on 1 January 1997. The original investment plus Retail PriceIndex (RPI) would be £13,180. Returns are quoted net of basic ratetax.

The bank/building society savings account illustration is compiledfrom an aggregate of 19 bank and building society rates, chosen torepresent the industry as a whole, for a deposit of £2,500 to£25,000. Source: Micropal S&P. When comparing different typesof investment and savings products you should bear in mind thataccess, tax treatment and risk to your money may differ.

4) Regular bonus rates for customers for2007
Regular bonus rates have been held with theexception of one policy type (Implicit charged pensions - NULAPpolicies reduced from 3% to 2%). Some regular bonus rates were alsoincreased mid-year 2006.

  • Explicit charged unitised policies: 4.25% (investment) and 4.5%(pensions), 4% (stakeholder pension). For NU International(NUIL) offshore bonds 5% sterling or 4.75% euro/$

    (Expressed as a gross rate before the deduction of the 1%annual fund management charge)
  • Implicit charged investment policies: 3.25% for CGNU & CULAC(post-October 1998 policy rates increased mid-2006 from 2% to3.25%) and 2% for NULAP
  • Implicit charged pensions: 3.5% (CGNU & CULAC). NULAPpolicies reduced from 3% to 2%. This reduction is necessary tomanage the level of further guarantees added to the fund.Awarding more investment performance through final bonus(increased this year) gives us greater flexibility for thebenefit of all policyholders.

    (Implicit charged products mean that the annual managementcharge for the policy is deducted from the investment returnbefore the annual bonus rate is set)

    (The different levels of bonus rates for the implicit andexplicit (net of charges) policies reflects the level ofguarantees built up in the different ranges of policies and thediffering investment periods during which money has beeninvested)

Conventional policies:
Life, investmentand pension policies for CGNU, CULAC, NULAP and PM policies - nochanges to regular bonus rates. Regular bonus rates on the mainpolicies range from 0% to 2%. These bonus rates reflect the levelof valuable guarantees in the funds.

The above bonus rates on unitised and conventional policies areapplicable until further notice.

5) Changes to cash-in values for unitised policies (knownas a Market Value Reduction (MVR))
Average MVR rates*for money invested in a specific year are:

Year money invested

New MVR at January 2007

MVR at March 2006

MVR at January 2006

















*across CGNU/CULAC/NULAP and includes Bonds and Pensions

An MVR is a mechanism used to ensure fair treatment to all membersof the with-profit fund. It is designed to ensure that people whochoose to leave the fund do not take more than their fair share ofassets at the expense of those who remain in the fund.

6) Investment markets overview 2006 and economic outlookfor 2007
Markets in 2006 - Most equity marketsperformed strongly over the year. Having steadily climbed tosix-year highs in May 2006 on the back of ongoing global economicexpansion, swelling corporate earnings and a raft of bid activity,stocks fell back sharply in May and early June over concerns aboutexcessive monetary tightening by the world’s centralbanks. However, the decision by the US Federal Reserve topause its protracted monetary tightening policy in August helpedequity markets rebound strongly. Also helping to drive bullishsentiment towards stocks over the last few months was fallingenergy prices, benign inflation data and rebounding consumeroptimism in the US.

Over the 12-month period, UK, European, the bulk of Asian and otheremerging markets fared particularly well, while the US and Japanesemarkets were in a comparatively subdued state. The positive trendin the commercial property market continued. Strong investor demandremains the major factor driving markets and the reassuringqualities of property suggest that it will remain a favourite forsome time to come. For a period the retail sector stronglyoutperformed. However, more recently the office sector has staged astrong recovery, particularly in the West End and City offices. Therecovery in office occupier markets is being driven by robustactivity levels in the financial and business services sector. Theexpectation of further significant rental growth is also drivingvery strong investor demand for offices.

Further stockmarket gains in 2007 - After threeyears of exceptionally good returns around the world, stock marketsare expected to make further modest gains in 2007 and returns of6-10% look plausible. Bond yields are higher than the recent cyclelows but do not offer great value. Although inflation should remainunder control and fears of outright deflation have dissipated,yields around the world still look too low. With little likelihoodof a global recession, yields look unlikely to fall much further,which implies disappointing returns for investors.

In the UK, the Bank of England raised interest rates in November to5% and we anticipate that they will rise once more in early 2007 toreach 5.25%. Inflation is above target and may rise further. TheBank of England is concerned that higher inflation will lead tohigher wage demands over the key winter pay round.

The US economy is slowing as the housing market cools and spreadsto the retail and manufacturing sectors. The economy is growingmore slowly than usual but there are several reasons to beoptimistic. Companies have plenty of cash and are investing andhiring. Consumers are still willing to spend and interest rates arerelatively low. Unemployment is expected to rise a little as theeconomy slows, but not by enough to cause a consumermeltdown.

In Europe, economic growth has improved but will slow again in2007. Eurozone growth slowed in the third quarter of 2006, and weakconsumer spending in Germany is likely to be made worse because thecountry is about to experience one of the biggest tax increasesever seen. Inflation is below target but the European Central Bankis concerned that it could push higher in early 2007, partlybecause of the increase in German VAT.

The Japanese economy is finally recovering from the problems of the1990s, but there is still too much optimism about prospects forgrowth. The Japanese economy will grow in 2007 but more slowly thanmost commentators think.

7) Potential reattribution of inherited estate of CGNU andCULAC funds
Aviva announced on 27 October 2005 thatit was investigating the potential to reattribute the inheritedestate of the CGNU and CULAC funds. On 21 November 2006 Avivaannounced that it had appointed an independent policyholderadvocate, Clare Spottiswoode, to represent policyholders innegotiations on the potential reattribution. Aviva has not yetmade a decision as to whether it will proceed with a reattributionand will proceed only if it is clear that any negotiated outcome isfair to its policyholders and shareholders. It is important tostress that eligible customers will be completely free to choosewhether or not to participate in any offer.

8) General information and further facts and figures

Mortgage endowment shortfall status:
Statistics for themailing undertaken by Norwich Union in 2006 show the followingstatus: 10.5% of policies on green and 89.5% of policies on red(previous 7% green, 21% amber, 72% red). NU no longer uses amber asa separate designation.

Mortgage endowment promise:
Norwich Union launched itsmortgage endowment promise in 2000 to assist policyholders who, atthe time of the announcement, were in a position of shortfall ontheir mortgage endowment. This promise was designed to help peoplemake up the shortfall on a mortgage endowment policy when itmatured and is needed to pay off the mortgage. The mortgage promisewas conditional on the company earning a sufficient investmentreturn on its free reserves.

The company has already committed around £1 billion of capital forfuture endowment shortfall assistance – underlining thestrength of our with-profit funds. Norwich Union believes that itsmortgage endowment promise remains fully viable under the currentand improving market conditions and, as a result, is not underreview. If market conditions were to change significantly in thefuture then the promise may be reviewed. Norwich Union hascommitted to its customers that if it was to review the promise, itwill give policyholders at least three years’ notice of anyproposed changes.


Notes to editors:
Norwich Union has approximately 2.5million with-profit customers of which 1 million are endowments,0.9 million are pensions and 0.6 million are investment bonds. Atthe end of June 2006, the total value of Norwich Union’swith-profit funds was approximately £61 billion. (CGNU £15 billion,CULAC £16 billion, NULAP £27 billion, PM £3 billion).

Important notes: Future bonus rates are notguaranteed and may vary, as they depend on profits yet to beearned. Past performance is not a guide to the future. The value ofinvestment linked funds can go down as well as up and is notguaranteed. The illustrative maturity amounts include periods ofhigh inflation and high investment returns. We may apply a marketvalue reduction on encashments but not on most maturities and onall deaths, 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.

About Norwich Union
Norwich Union is theUK’s largest general insurer with a market share of around15%, with a focus on insurance for individuals and smallbusinesses.

It is a leading provider of life, pensions and investment productsand one of the largest financial adviser (FA) providers. FAsprovide over 70% of the company's long-term savings business in theUK.

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

The information published in this sectionis solely intended for use by members of the media. Customersshould not rely on the information contained within these newsreleases to form the basis of investmentdecisions.

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