With-profits bonus announcement 2008

Article date: 15 January 2008

David Barral, marketing director at Norwich Union, said: "The past year has been a rough ride in the markets for investors but it has been one that again has demonstrated the value of with-profits investments and should give confidence to customers. Stock markets have been volatile and UK commercial property has had a difficult time. Despite this backdrop with-profits has delivered by smoothing returns throughout this period.

"We are seeing the fifth consecutive year of positive returns with all policies increasing in value in 2007. Many final bonuses have increased and regular bonus rates are being maintained for new and existing customers. We were also able to remove market value reductions (MVRs) in mid-2007.

"With-profits sales have remained buoyant in 2007 as customers recognise the need for smoothing and guarantees as part of their overall portfolio. Returns have been good against cash and the broader stock market. We remain committed to providing competitive returns to both existing and new with-profits customers."

Figures at a glance:

  • The CGNU with-profit fund achieved an overall return of 5.4% before tax in a year of modest gains in shares and weak property performance
  • Bonuses totalling £1.5 billion added during 2007 for around 2.4 million customers
  • Many final bonus rates increased. For example, for bonds invested in 1995 the final bonus increased from 21% to 25% (mid year) and increased again to 28% from January
  • Policy values increased during the year:
    • Cash-in value for a £10,000 single contribution 10-year bond is £15,653 an increase in value of £994 during 2007
    • A 25-year £50 a month mortgage endowment maturing in 2008 will pay £45,911, £10,259 over the target amount with the policy increasing in value by £3,515 in 2007 (excluding premiums paid in 2007)
    • A 15-year £200 a month pension maturing in 2008 will pay £59,691 - with the policy increasing in value by £5,081 in 2007 (excluding premiums paid in 2007).

Figures for investment and policy returns relate to the CGNU with-profit fund only. Returns quoted assume the policies mature on 1 January 2008. Endowment example is for a 29 year old male at the outset of the policy.


Press office contacts:

Norwich Union Life press office: 01904 452617
Louise Soulsby - Out of hours 07800 699526
David Gwyer - Out of hours 07800 699508


  1. Investment returns and how customers money is invested
  2. Increase in customers' policy values during 2007
  3. How investment bond returns compare to cash
  4. Regular bonus rates for customers for 2008
  5. Investment markets overview 2007 and economic outlook for 2008
  6. Potential reattribution of the inherited estate of CGNU and CULAC funds
  7. General information and further facts and figures

1. Investment returns and how customers money is invested

We have seen a year of modest return on the CGNU and CULAC with-profit funds at 5.4% before tax. The comparable returns in 2006 and 2005 were 11.7% and 17.7% respectively (all before tax). The UK stock market improved only modestly with the FTSE 100 Index ending the year up 4% at 6457 - but still remains 6% below its peak at the end of 1999.

The return on the NULAP with-profit fund was 5.8% before tax, while the return on the Provident Mutual (PM) fund was 3.3% before tax. The PM figures reflect the higher proportion of assets invested in fixed interest investments. For those PM endowment policyholders who opted during 2005 to switch future investment returns to the CGNU with-profit fund, the return in 2007 was 5.4% before tax.

The investment return has been passed on to policyholders through an increase in the underlying value of their policies (known as asset share).

Investments in the CGNU with-profit fund at the end of 2007

The equity backing ratio (proportion in shares & property) is 72% at the end of 2007 (74% at the end of 2006). A significant EBR is important for long-term performance. The equity backing ratio of the CULAC fund is 72%, the NULAP fund is 71% and the Provident Mutual fund is 16%.

2. Increase in customers' policy values during 2007

Investment bond.

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

Mortgage endowment - 25 years.

* investments not switched to CGNU mid-2005.

Savings endowment - 25 years.

* 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 January 1983.

Pension policy - 15 years.

The above examples are based on a male, investing £200 a month for 15 years from January 1993 with the policy maturing at age 65, with a return of fund death benefit.

Further examples of payouts for conventional and unitised policies over different terms are available on request.

3. How investment bond returns compare to cash

Investment bond - 10 years. 

Examples based on a £10,000 single contribution made on 1 January 1998. The original investment plus Retail Price Index (RPI) would be £13,053. Returns are quoted net of basic rate tax.

The bank/building society savings account illustration is average UK savings account £2,500 + investment, net of tax for a basic rate taxpayer. Source: Morning Star. When comparing different types of investment and savings products you should bear in mind that access, tax treatment and risk to your money may differ.

4. Regular bonus rates for customers for 2008

Regular bonus rates have been held:

  • 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 and 2% for NULAP
  • Implicit charged pensions: 3.5% (CGNU & CULAC) and 2% NULAP

    (Implicit charged products mean that the annual management charge for the policy is deducted from the investment return before the annual bonus rate is set)

    (The different levels of bonus rates for the implicit and explicit (net of charges) policies reflects the level of guarantees built up in the different ranges of policies and the differing investment periods during which money has been invested)

Conventional policies:
Life, investment and pension policies for CGNU, CULAC, NULAP and PM policies, no changes to regular bonus rates. Regular bonus rates on the main policies range from 0% to 2%. These bonus rates reflect the level of valuable guarantees in the funds.

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

5. Investment markets overview 2007 and economic outlook for 2008

Overview of 2007
2007 was volatile for stock markets at home and abroad. Global equities were boosted by the US Federal Reserve's (Fed) early decision to stop raising interest rates but in late February, plunging Chinese stock markets and rising defaults in the US sub-prime mortgage market sent shares across the globe tumbling. This correction quickly gave way to a three-and-a-half month equity market rally, which saw most major stock market indices testing all time highs.

This euphoria was fuelled by merger and acquisitions, share buy-backs and company earnings that were strong on both sides of the Atlantic. However, concerns about the US sub-prime mortgages market and the rising probability of a credit crunch dragged stocks significantly lower over the summer. Despite rate cuts and injections of money into the financial system, the credit crunch and problems in the US housing market made markets volatile.

Commercial property slowed significantly in 2007 following a significant rise in borrowing costs. This was a global phenomenon, though particularly marked in the UK and the Eurozone, and has been made worse by the impact of the credit crunch and fall-out from the US sub-prime mortgage crisis, which has increased the cost of borrowing.

Bonds performed poorly over the year as central banks raised lending rates to dampen growth and head off inflation. However, rising demand during summer's financial turmoil for assets traditionally seen as safe has helped bonds recover. The US Fed's decision to reduce interest rates from 5.25% to 4.75% gave bonds a boost.

Market Outlook for 2008
Turbulent markets during the second half of 2007, problems in the US housing market and increased costs of borrowing make less clear the outlook for 2008.

Norwich Union is broadly positive about the outlook for shares, especially as interest rate cuts in the United States and UK have boosted confidence that a recession will be avoided. Stock markets are likely to be volatile for some time yet.

Global economic growth is expected to slow during the first half of 2008 led by the slowing of the world's major developed economies. Output from several emerging markets is expected to remain relatively strong and the US Federal Reserve seems committed to doing all it can to ensure the US avoids a recession. Growth in the Eurozone is expected to be below 2%. In Japan, economic growth looks solid but the economy will be vulnerable to a global downturn.

The Bank of England is expected to cut interest rates but inflation remains a concern and may dictate the extent of how far rate cuts go. Large companies remain in relative good health but will find it tougher to maintain profit levels, and a period of lower economic growth in the UK looks likely.

The US is expected to avoid recession and the most likely scenario is a soft landing and potentially a rebound in growth, spurred by continued interest rate cuts. US housing will remain in trouble for some time but the rest of the US economy and corporate profitability remains in fairly good shape.

6. Potential reattribution of the inherited estate of CGNU and CULAC funds

Following clarification by the FSA about how life companies use their with-profits funds Norwich Union were able to announce the reattribution eligibility criteria agreed with Clare Spottiswoode, the Policyholder Advocate in December. The FSA's clarification clears the way to conclude negotiations with the Policyholder Advocate in the near future. Norwich Union will only proceed with the reattribution on the basis that it can make an offer that it believes is fair to both policyholders and shareholders. It is important to stress that customers will be completely free to choose whether or not to participate in any offer. If an offer is made to policyholders it is unlikely to be before spring 2008 and any subsequent payment to policyholders would be from summer 2008 at the earliest. It has always been stressed that timings on this complex transaction are indicative only.

7. General information and further facts and figures

Mortgage endowment shortfall status: Statistics for the mailing undertaken by Norwich Union in 2007 show the following status: 9.7% of policies on green and 90.3% of policies on red (previous 10.5% green, 89.5% red). NU no longer uses amber as a separate designation.

Mortgage endowment promise:
Norwich Union launched its mortgage endowment promise in 2000 to assist policyholders who, at the time of the announcement, were in a position of shortfall on their mortgage endowment. This promise was designed to help people make up the shortfall on a mortgage endowment policy when it matured and is needed to pay off the mortgage. The mortgage promise was conditional on the company earning a sufficient investment return on its free reserves.

The company has already committed around £1 billion of capital for future endowment shortfall assistance - underlining the strength of our with-profit funds. Norwich Union believes that its mortgage endowment promise remains fully viable under the current and improving market conditions and, as a result, is not under review. If market conditions were to change significantly in the future then the promise may be reviewed. Norwich Union has committed to its customers that if it was to review the promise, it will give policyholders at least three years notice of any proposed changes.

Notes to editors:
Norwich Union has approximately 2.4 million with-profit customers of which 0.9 million are endowments, 1 million are pensions and 0.5 million are investment bonds. At the end of December 2007, the total value of Norwich Union's with-profit funds was approximately £60 billion. (CGNU £16 billion, CULAC £16 billion, NULAP £25 billion, PM £3 billion).

Important notes: Future bonus rates are not guaranteed and may vary, as they depend on profits yet to be earned. Past performance is not a guide to the future. The value of investment linked funds can go down as well as up and is not guaranteed. The illustrative maturity amounts include periods of high inflation and high investment returns. We may apply a market value reduction on encashments, but not on most maturities and on all deaths, which will reduce what you get back from the unitised with-profit fund. Past performance is based on the charging structures applicable to the products at the time the policies were effected. Different charging structures apply to the current products.

About Norwich Union
Norwich Union is the UK's largest general insurer with a market share of around 15%, with a focus on insurance for individuals and small businesses.

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

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

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