Norwich Union - Reattribution

chromehorse

dunstonh wrote: »

Final bonuses can fluctuate (no more than a unit linked endowment in a balanced managed fund though). However, the bulk of the return potential is within the final bonus and not the annual bonus. So, if you dont include the area that is likely to be responsible for the bulk of the return, then the projections are going to flawed and inaccurate.

It is not unusual to get policies coming up to maturity showing a shortfall but on maturity paying a surplus because of the final bonus.

The projections work well with unit linked endowments but with conventional with profits they dont work well at all. They were never designed to issue projections and it shows. Unitised with profits is a bit better but where the final bonus is stripped out, it can still leave it flawed. There have been examples where the lower growth rate projection gives values which are lower than the guaranteed minimum maturity value (which is impossible).

Thanks very mch for the explanation. Do you know if NU have to ensure that the 'special bonus' from the pre-reattribution distribution continues to be separately identifiable? Or is there a risk that they simply scale down the annual and terminal bonuses to claw back the special bonus? Please excuse my cynicism.

alared

chromehorse wrote: »

Thanks very mch for the explanation. Do you know if NU have to ensure that the 'special bonus' from the pre-reattribution distribution continues to be separately identifiable? Or is there a risk that they simply scale down the annual and terminal bonuses to claw back the special bonus? Please excuse my cynicism.

I think you have every right to be cynical where any insurance company is concerned.
I wouldn`t be at all surprised if in fact this is what will happen.

Aviva,NU,CGNU have got all this money sloshing about and want to get their grubby little hands on some (most) of it.
They appoint a very respectable "trustee" to make sure the policy holders get a fair deal.
The mistake they made of course is that Claire Spottiswode is too good a "trustee" and now they`re trying to wriggle out of a fair settlement.

I thought from the very outset it would be too good to be true that we would actually get a straight forward lump sum of 10% of the value of the policy in CASH.
They want to pay three installments over three years and add the value to your policy by way of a special bonus.

Like you have pointed out these bonuses could be incorporated so you in fact end up with no extra amount added at all.

Or maybe I`m being too cynical.

ps: DAK what happens if you decide to turn down NU`s offer?

dunstonh

Thanks very mch for the explanation. Do you know if NU have to ensure that the 'special bonus' from the pre-reattribution distribution continues to be separately identifiable? Or is there a risk that they simply scale down the annual and terminal bonuses to claw back the special bonus? Please excuse my cynicism.

I dont think we will know until we look back in 10 years.

cynicism is not misplaced. The removal of the amber alert was done purely to get more cases time barred. The use of 4, 5 & 6% in projections instead of 4, 6 & 8% also pushes more policies into red alert status as well. All of which helps reduce their future liabilities.

If you look back on your endomwent statements you will see they change the projection rates used. I saw one today on a Dec 07 projection from NU that was 4,5 & 6 but had been 4, 6 & 8 before. Who gains from using a lower rate? NU.

Back on the subject, it must be difficult for NU. They have responsibilities to shareholders and customers and this issue is taking money from one and giving to the other whichever side you look at it. Its times like this that you wish the FSA had the balls to get involved. Thats what you want from a regulator. Deal with the big issues. Not the micromanagement of tiny non-issues.

M0neysav3r

Ok I'm really confused here.

Please excuse my ignorance as I am a Housewife and not a Financial / Mortgage Whizz!

I understand that my endowment will not pay out the amount it was supposed to but surely there is nothing that can be done about it? My policy was not mis-sold to me, I knew the risks involved before inception. So surely my only option is to keep paying? at least i'm getting the life cover benefit and it will pay me out something when it matures, luckily I do not need it to cover a mortgage as I switched to repayment many years ago.

I've had my NU Endowment since 1998 and I too received the letter of re-attribution and possibly payout but I still don't understand it after reading through the gumph they've sent.
What would happen if you took the money and what would happen if you didn't? Or is it still early days to ask these questions?

Thank you - And apologies if i've interrupted.

dunstonh

I understand that my endowment will not pay out the amount it was supposed to but surely there is nothing that can be done about it?

How do you know it wont?

I've had my NU Endowment since 1998

Again, that further re-enforces that you cannot possibly know if it will run short or not.

NU, reduced the projection rates to 4, 5 & 6%. If you are in the with profits fund, the projections do not usually include final bonus accrued to date and any mortgage promise value.

The endowment itself may be performing at a rate higher than the top rate (as has been the case quite often with unit linked funds) but the projections use much lower example rates. The endowment may require 7% to hit target and may be achieving that. However, 7% isn't in the example rates and use or lower examples will automatically show a shortfall whether its on track or not. Projections themselves are not reliable enough to be used alone. You need to have the full data to decide if there is a chance of shortfall or not.

M0neysav3r

dunstonh wrote: »

How do you know it wont?

I don't 'know' it wont but from the information NU have sent there is a high chance that there will be a shortfall - Like you say too early to know for sure.

Do you know the answer to my question re the recent incentive payments?
Is there a choice take the money or not? and how does that affect your policy either way?

Thanking you for your advice.

chromehorse

dunstonh wrote: »

I dont think we will know until we look back in 10 years.

cynicism is not misplaced. The removal of the amber alert was done purely to get more cases time barred. The use of 4, 5 & 6% in projections instead of 4, 6 & 8% also pushes more policies into red alert status as well. All of which helps reduce their future liabilities.

If you look back on your endomwent statements you will see they change the projection rates used. I saw one today on a Dec 07 projection from NU that was 4,5 & 6 but had been 4, 6 & 8 before. Who gains from using a lower rate? NU.

Back on the subject, it must be difficult for NU. They have responsibilities to shareholders and customers and this issue is taking money from one and giving to the other whichever side you look at it. Its times like this that you wish the FSA had the balls to get involved. Thats what you want from a regulator. Deal with the big issues. Not the micromanagement of tiny non-issues.

My last statement and projection was 13 June 2007 and it quoted 4%;6%;8%.

I couldn't agree more about FSA :T - they set the framework and we shouldn't be surprised (dismayed, yes..but surprised - no) if they seek to maximise returns for shareholders within that framework. There's an interesting quote from Clare Spottisoode about the FSa's hand in all this - it comes from a recent interview in The Independent :-


"But she does not mince words about the FSA: "What we are trying to do
is encourage them to change their attitude and approach. I used to be
a gas regulator so I'm used to making sure you don't have conflicts
and cross subsidies. I'm used to making sure the industry works for UK
plc. The trouble with the FSA is they don't think of themselves as an
economic regulator the way I did."

She explains: "What you have to do is think about what companies do
and what incentives they have to operate in a certain way. If there is
an incentive to misbehave they will do so and it is up to you as the
regulator to make sure the incentive is not there. The FSA is not
doing that because it does not see itself as an economic regulator.
The trouble is the FSA seems to assume that competition is working
when it is not and will not intervene to sort it out. But it wouldn't
be difficult to sort out. You could write it one piece of paper."
A piece of paper that would say 90/10. End of debate"


This is spot on.... The FSA - the 'watchdog that didn't bark' - responded to the AXA inherited estate grand theft by introducing the Policyholder Advocate role which is unfortunately based on the notion of compromise. She can only comment on the reattribution proposals - she can't actually stop anything. She can stand and watch and explain to the poor victim exactly how they been conned. A sort of toothless guard-dog next to a bark-less watchdog.

Thanks dunston for the helpful commentary on the terminal bonus issue

dunstonh

My last statement and projection was 13 June 2007 and it quoted 4%;6%;8%.

I saw on last week that was dated Dec 07 and that was 4,5 6. They keep changing it which doesnt help. This one was showing a red shortfall but the guy had his old projections which also used 4, 6,8 in the past.

Have you looked back over old orphan estate distributions? Pearl was a good one. AMP bought pearl for around 1 billion and then was given permission to raid the orphan assets which netted around 1 billion. Effectively allowing AMP to use Pearl's money to buy Pearl. When things went bad on the markets, AMP had taken the very money that Pearl needed to remain solvent and continue trading and AMP only gave around 300million back. Not enough to remain open for new business but enough to cease new business and become a closed book.

The FSA has really made a right pigs ear of regulation. It hasnt served either the industry or the consumer well. On the retail advice side, we all know what the issues are that need looking at. Mainly bad advice from salesforces and low skilled advisers selling high commission products. The stats show IFAs have the lowest of all complaints at the FOS. Tied salesforces account for the most (pro rata). So, what does the FSA propose (under the RDR consultation)? Get rid of IFAs as we know them and remove the ability to complain to the FOS if you use a tied salesforce. Sure, that will reduce complaints but it doesnt solve the problem. It just sweeps it under the carpet.

chromehorse

M0neysav3r wrote: »

dunstonh wrote: »

How do you know it wont?

I don't 'know' it wont but from the information NU have sent there is a high chance that there will be a shortfall - Like you say too early to know for sure.

Do you know the answer to my question re the recent incentive payments?
Is there a choice take the money or not? and how does that affect your policy either way?

Thanking you for your advice.

Distribution bonuses - additions to policies and not cash - are unilaterally decided by NU. There's a huge fuss over their vindictive phasing plans - Which? believe that 40-50k people will lose out because NU set a new eligibility date (Jan 2008) and are phasing the bonuses over 3 years. If you're affected you should write to MOnagu at NU and FSA and your MP - model letters can be found at

http://groups.google.co.uk/group/norwich-union-policyholder-reattribution?hl=en

Incentive payments - these will be cash but only for those amongst the 1.1m policyholders who vote 'yes' to the NU proposals. No-one knows what they'll be but we understand that NU plan to spend £0.7Bn on these payments (source Keefe Bruyette & Woods, Feb 2008) in return for which they will grab £2.4Bn. A bit like someone coming up to you and saying 'I have £240 of YOUR money, I'll give you £70 for it'

FSA made the rules up and their take (Dec 2007 letter to Clare Spottiswoode) is that policyholders have to weigh up getting nothing (for ever) if NU decide to sit on their hands and never distribute the money; against a cash payment now. It's disgusting :mad: but FSA rules allow it.

chromehorse

dunstonh wrote: »

Have you looked back over old orphan estate distributions? Pearl was a good one. AMP bought pearl for around 1 billion and then was given permission to raid the orphan assets which netted around 1 billion. Effectively allowing AMP to use Pearl's money to buy Pearl. When things went bad on the markets, AMP had taken the very money that Pearl needed to remain solvent and continue trading and AMP only gave around 300million back. Not enough to remain open for new business but enough to cease new business and become a closed book..

That's appalling - but why am I not surprised?


Standard Life have been distributing over the last 2 years I think :-

Standard delivers second windfall
By Sophie Brodie
Last Updated: 12:51am BST 01/08/2007

Standard Life policyholders are to benefit from another windfall just
a year after receiving cash and shares from the insurer when it
demutualised and listed on the stock exchange.

For the first time, Standard Life is to return part of its so-called
"inherited estate" - a surplus that has accumulated over the years as
a safeguard against a market downturn.

If crisis hits Standard's £40bn policyholder fund, it has recourse to
the estate and, when that runs out, to shareholders.

When Standard demutualised, it ring-fenced the estate's fund. At the
time it was estimated to be worth about £800m. However, chief
executive Trevor Matthews said yesterday that had risen to £1.3bn
thanks to "lots of things including financial engineering that matched
assets with liabilities".

In February, he promised to increase payouts on all types of policy
thanks to the rising stock market, but warned "with-profits" annual
bonus would remain the same as last year.

Now a small part of the fund is to be returned in the form of payments
to "with-profits" policyholders who cash in their endowment or pension
policies, or whose policies mature, in the next 12 months. They must
have held their policy since before the society demutualised on July
10 and still hold their investment as of yesterday.

Unitised policyholders, Standard Life Healthcare and Bank customers do
not qualify.

With-profits policyholders pay an agreed sum into a fund for a
sustained period, for example 25 years, and receive annual bonuses and
a large lump sum when their policy expires. The policies are designed
as a hedge against stock market volatility.

While policyholders must cash out of their policies to benefit from
the windfall, the longer they stay in the more they can expect from
the inherited estate, Mr Matthews said.

In recent years, bonuses have been slashed following disastrous
investment decisions by the industry. In 2004, insurers were forced by
regulators to hold more of their capital in bonds and so missed some
of the equity upswing in the recent bull market.

Mr Matthews said the company had moved on from that period and with-
profits funds were in "good shape". The group has since increased its
exposure to equities to about 74pc (for its largest fund), well above
the 60pc allocation that was typical in 2004.

Standard declined to say what percentage of the estate will be
distributed, but offered examples. Someone who holds a 25-year
endowment policy into which they had paid £50 a month could expect to
receive around £183 extra from the inherited estate if their policy
matured yesterday at a value of £39,301.
Standard Life is to review the estate every six months and may return
more funds, but to policyholders only.