Norwich Union Raises Bonus Rates for Long-Term Savers after Strong Returns

Norwich Union announced yesterday that it was increasing the final bonus rates for the majority of its with-profits customers, following a strong return of nearly 18% in its main with-profits fund during 2005. The group attributed the high return to its investment strategy, which saw 72% of its main fund held in shares and property. This move comes after the group increased regular bonus rates for some policies and reduced penalties for early withdrawals. The decision affects over 72% of mortgage endowment customers, who will see a 12% increase in policy value over the past year, with post-tax investment returns of 16% passed on to customers.

Key Takeaways:

• Norwich Union is increasing the final bonus rates for the majority of its with-profits customers, except those with guarantees on their policies where the guarantee is higher than the assets backing the policy.
• The strong return of nearly 18% in the main with-profits fund during 2005 was attributed to the high proportion of funds held in shares and property, at 72%.
• The group increased regular bonus rates on some policies and reduced penalties for early withdrawals in previous announcements.
• A CGNU mortgage endowment policy paying in £50 per month over 25 years would now result in a final payout of £50,295 if the policy matured this year, 66% above the target sum.
• Despite the increase, the final payout is still 9% lower than if the policy had matured last year due to different investment returns during the policy term.
• 72% of mortgage endowment customers have been sent 'red letters' warning them that their policies are unlikely to be big enough to pay off their mortgage when they matured, while 21% have been sent 'amber letters' saying the policies may not reach their target sum.
• Norwich Union has set aside over £1bn to cover policy shortfalls and encourages customers to review their policies.

Statistics:

• 72% of Norwich Union's main with-profits fund was held in shares and property.
• The main with-profits fund returned nearly 18% during 2005.
• 16% post-tax investment returns were passed on to customers over the past year.
• £1bn has been set aside by Norwich Union to cover policy shortfalls.
• 72% of mortgage endowment customers have been sent 'red letters'.
• 21% of mortgage endowment customers have been sent 'amber letters'.

Sources:

• Norwich Union - press release announcing bonus rate increases.
• BBC News - "Mortgage endowments: what to do"