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With-profit returns for 2012 offer some positive news for policy holders…

“Legal & General, Prudential and Friends Life with-profit returns for 2012 offer some positive news for policy holders, although payouts still falling…”

Legal & General announced new bonus rates on 21st February 2013 for conventional with-profit endowment policies.

Reporting an investment return of 10.6% (gross) for the past 12 months, Tim Sheldon, with-profits actuary enthused: “The strong investment return generated for Legal & General’s with-profits customers in 2012 demonstrates the benefits of investing with a leading with-profits provider. Our active management of risk and a balanced asset mix are key reasons for our with-profits fund outperforming many of our competitors. This year's results have produced double digit returns, demonstrating the advantage of the freedom to capitalise on opportunities to boost investment returns for our policyholders”.

However, typical1 endowment pay-outs quoted by Legal & General are now £30,789, down from their quoted equivalent figure of £33,601 in March 2012. As pointed out by the company, the returns for maturing policies are still ahead of inflation.

Prudential have also joined the mêlée of Life Offices declaring bonus rates for the coming year. Stability and consistency appear to be the watchwords from Prudential Chief Actuary, David Belsham declaring: “Our approach to setting bonus rates – based on prudence, consistency and fairness – has remained dependable year after year. It has continued to provide a high degree of assurance to our customers during the uncertain market conditions of recent years, and has enabled us to deliver strong annualised returns for our customers over the medium to long-term”.

The company reported a return on their main with-profit fund of 10.5% (gross) for the past 12 months. Prudential quote typical1 endowment pay-outs this year of £32,258, down from their quoted figure of £33,679 in May 2012. The pay-outs for the Scottish Amicable brand are also quoted to have reduced from £35,523 last year to £32,931.

Friends Life declared new bonus rates for conventional with-profit endowment policies on 15th February 2013. Friends Life with-profits actuary Mike Kipling says: “2012 was a mixed year for financial markets, with world stock markets generally performing reasonably well, corporate bonds performing well and other investments such as some property investments and gilts faring less well”.

According to Friend’s Life, there are some 812,000 policyholders currently within the overall with-profit fund, which is divided into policies written pre-demutualisation (July 2001) and those written after that date. These separate cohorts (or “pots”) returned 8.5% and 9.7% (Gross) respectively for 2012.

Surrenda-link believes the enhanced performance on the post demutualisation cohort is almost certainly down to its higher targeted equity holdings (55% compared to 45% for pre demutualisation). This is in line with Surrenda-link’s expectations on how the asset mix of the with-profits fund will progress toward a greater exposure to fixed interest holdings as policies approach maturity.

Alec Taylor mused, “It is certainly excellent news that these Life Offices have achieved the high with-profit returns during 2012. However, it is disappointing that the maturity payouts continue to fall, which will no doubt cause more pain for policy holders…especially those relying upon their endowment to repay the capital on their mortgage. Longer dated policies from these particular Life Offices remain very attractive to secondary investors who may pay considerably more than the Life Office surrender value for these types of policy.”

For more information on how Surrenda-link can help you to realise additional value from your endowment, please call 0800 919 021.

1 Typical endowment policy is based on a male non-smoker aged 29 at entry, for a policy term of 25 years.

Prudential Bonus Declarations


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