Norwich Union champions with profits by extending mortgage endowment promise

Article date: 24 January 2001

Norwich Union today announces that it will extend, to all itswith profit mortgage endowment policyholders, the innovative 6%promise introduced by CGU in January 2000. The statement also givesdetails of annual bonuses and maturity payouts on conventional andunitised with profits life and pensions policies.

The extension of the 6% promise means that Norwich Union intendsto top up final bonuses on ALL Norwich Union with profits mortgageendowments at maturity, where there is any short-fall between theclaim value and the mortgage originally targeted - provided futureinvestment earnings average 6% a year after tax (see notes toeditors 1&2).

The total number of policyholders who now benefit from ourmortgage promise reaches almost 1.4 million. These customers havethe added reassurance that no with profits mortgage endowmentpolicy associated with any of the companies that are now part ofNorwich Union has ever failed to meet its intended target.

Customers whose policies mature in 2001 will enjoy excellentrates of return on their investment, well above the rate ofinflation. For example, 25 year with profits mortgage endowmentsare on average producing a return of 12.4% a year compared toinflation of 4.7%*.

Commenting on today's announcement, Norwich Union Life ChiefActuary, Mike Urmston said:

"The extension of the mortgage promise brings welcomereassurance to all Norwich Union with profits mortgage endowmentcustomers at a time of falling returns. Furthermore, policiesmaturing today are continuing to pay out more than the associatedmortgage amount."

This year's regular bonus declaration reveals that rates have beengenerally reduced in line with long term investment returns.However, all our policies have received bonuses in excess of ourinvestment earnings.

Maturity payouts are estimated to total £2.2 billion to some114,000 customers in 2001. The underlying financial strength of itswith profits funds has allowed Norwich Union to smooth theperformance of its with profits policies very much to the benefitof all its with profits policyholders.

Reductions in regular bonus rates have been made as part of ourstrategy of bringing regular bonuses in line with an environment oflow inflation and lower investment returns. However, once finalbonuses are added, the total payout to policyholders compares wellwith other types of investment.

Commenting on the figures, Mike Urmston said: "During 2000 wehave seen the FTSE 100 index fall by over 10%. Against thisbackdrop, returns on Norwich Union's with profit funds have beenclose to zero. However, the benefit of 'smoothing' of theinvestment returns has come into play strongly this year, so thatwith profits has proved a lower risk to policyholders than a simplemanaged fund".

Norwich Union supports the call for greater transparency in howlife assurance providers communicate. We are committed to ensuringcustomers fully understand the financial products they buy and weare providing more information this year than ever before oninvestment performance and how we arrive at bonus rates. Thisrepresents the first stage of a major initiative to attain veryhigh standards across all our communications and to create evengreater access for all to our wide, flexible product range goingforwards.

Norwich Union will undertake a research programme during 2001 tobetter understand consumer preferences and motivators. Whilst workis ongoing to identify the full scope of our research, we willcover core subjects in relation to with profits investments. Ourobjective is to enhance explanations of issues such as chargingstructures, expenses in the fund, the investment mix, theunderlying investment performance of the fund, financial strengthand asset share calculations.

Commenting on the drive towards greater transparency, NorwichUnion Sales & Marketing Director Peter Hales said:

"I believe it is important that consumers do not lose sight ofthe benefits of with profits investments. It could be the rightinvestment for risk-averse investors who wish to benefit fromequity growth. We are committed to informing the customer on everyaspect of their investment. The vital point is choosing the rightwith profits offer. Not only do Norwich Union policies have anexcellent track record, the outlook is attractive, backed bytoday's promise."

Research will ultimately form the basis of a substantialeducative campaign by Norwich Union to develop a clearunderstanding of financial products among existing policyholdersand potential new customers.

- ENDS -

Press Office Contacts

Ian Frater
01904 452 828

Helen Murray Wells
01904 452 617

James Evans
01904 452 791

Notes To Editors

  1. Average investment earnings for ex-CGU (and former companies')policyholders will be taken as from 31 December 1999. NorwichUnion is extending the mortgage promise to mortgage endowmentpolicies written previously by Norwich Union Life and PensionsLtd. Norwich Union's intention relies upon it achieving sufficientinvestment returns on its free reserves. Norwich Union Life andPensions' free reserves are large and the company is confidentthat future investment earnings will be sufficient to provide thenecessary support.

    At the end of 2000 free reserves in Norwich Union Life andPensions were of the order of £4bn. Investment returns in 2000were close to 0% gross, reflecting what has been a poor year forstock markets around the world. This return compares withprevious years as follows:

  2. YEAR1996199719981999
    Investment return9.9%18.5%14.9%17.0%
  3. Support will apply to all with-profit mortgage endowmentpolicies issued by those life companies that now form part ofNorwich Union (that is CGU Life, Norwich Union, General Accident,Commercial Union and Provident Mutual) and that satisfy ourcriteria, namely 'top up' payments will only be made wherepremiums have been maintained throughout the policy term and wherethe policy has not been materially altered or sold through thesecond hand endowment market.
  4. The extension of the promise means an additional 700,000policyholders benefit.
  5. Norwich Union has 5million policyholders. Of these, around1.4million hold mortgage endowment policies. The Life business ofNorwich Union has funds under management of about £80billion.
  6. Norwich Union is the UK life and general insurance tradingbrand of holding company CGNU plc, which was created from themerger between CGU and Norwich Union on 30 May 2000.
  7. Norwich Union has agreed with its Asset Managers clearinvestment objectives and has put in place well-defined processesfor the management of life and pensions funds. The investmentteams' approach is risk-averse and aims to consistentlyout-perform relevant indices over the shorter-terms in line withspecific targets, leading to out-performance over time.

* based on an approximate money weighted average of policiesfrom Norwich Union, General Accident and Commercial Union


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


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 of twoelements: The value of units and final bonus.

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.


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 and finalbonus.

Guaranteed benefit (also known as sum insured): This isthe amount payable at the date of the claim (eg. 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 tobonus terms. For details relating to specific policies, you shouldrefer to the policy terms and conditions.


The following tables show comparative maturity payouts followingthe bonus declaration for the three main companies that now formpart 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 1.1.01Maturing 1.1.00Average rate of Inflation to December 2000
Effected 5 years ago:
Unit value£13,552£13,590
Final bonus£2,710£2,718
Total payout£16,262£16,308
Effected 10 years ago:
Unit value£20,191not applicable
Final bonus£8,077
Total payout£28,268

10 year personal pension

Maturing 1.1.01Maturing 1.1.00Average rate of Inflation to December 2000
Unit value£33,642£34,700
Final bonus£7,334£7,295
Total payout£40,976£41,995

Commercial Union

With profits bond

Maturing 1.1.01Maturing 1.1.00Average rate of Inflation to December 2000
Effected 5 years ago:
Unit value£12,927£13,079
Final bonus£2,198£2,616
Total payout£15,125£15,695
Effected 10 years ago:
Unit valuenot applicable yetnot applicable yet
Final bonus
Total payout

10 year personal pension

Maturing 1.1.01Maturing 1.1.00Average rate of Inflation to December 2000
Unit value£33,391£32,244
Final bonus£6,355£5,666
Total payout£39,746£37,910

Norwich Union Life & Pensions (NUL&P)

With profits bond

Maturing 1.1.01Maturing 1.1.00Average rate of Inflation to December 2000
Effected 5 years ago:
Unit value£12,769£12,950
Final bonus£2,426£3,238
Total payout£15,195£16,188
Effected 10 years ago:
Unit value£18,631£19,604
Final bonus£5,030£3,921
Total payout£23,661£23,525

10 year personal pension

Maturing 1.1.01Maturing 1.1.00Average rate of Inflation to December 2000
Unit value£31,926£32,831
Final bonus£7,371£7,861
Total payout£39,297£40,692

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.


CGU (including General Accident)

10 year endowment

Maturing 1.1.01Maturing 1.1.00Average rate of Inflation to December 2000
Guaranteed benefit£5,322£5,322
Regular bonus£2,525£2,721
Final bonus£1,098£1,448
Total payout£8,945£9,491

25 year endowment

Maturing 1.1.01Maturing 1.1.00Average rate of Inflation to December 2000
Guaranteed benefit£14,139£13,937
Regular bonus£30,288£31,703
Final bonus£60,864£71,199
Total payout£105,291£116,839


Commercial Union

10 year endowment

Maturing 1.1.01Maturing 1.1.00Average rate of Inflation to December 2000
Guaranteed benefit£5,361£5,361
Regular bonus£2,441£2,676
Final bonus£1,170£1,527
Total payout£8,972£9,564

25 year endowment

 Maturing 1.1.01Maturing 1.1.00Average rate of Inflation to December 2000
Guaranteed benefit£13,253£13,253
Regular bonus£52,328£55,058
Final bonus£36,725£39,620
Total payout£102,306£107,931


Norwich Union Life & Pensions (NUL&P)

10 year endowment

Maturing 1.1.01Maturing 1.1.00Average rate of Inflation to December 2000
Guaranteed benefit£5,533£5,533
Regular bonus£1,727£2,009
Final bonus£1,937£1,937
Total payout£9,197£9,479

25 year endowment

Maturing 1.1.01Maturing 1.1.00Average rate of Inflation to December 2000
Guaranteed benefit£14,260£14,260
Regular bonus£34,335£36,756
Final bonus£37,433£38,502
Total payout£86,028£89,518

The endowment policy examples above are based on a male aged 30next birthday, when the policy was started, for a monthly premiumof £50.

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 adjustment factor on encashments (except onmaturity or death) which will reduce what you get back from theunitised with-profits 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 is regulatedby the Personal Investment Authority and only advises on its ownproducts. All charging structures are applied to the product at thetime the policy was effected.

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