With-Profits Guarantees Provide Valuable Stability in a Volatile Market Print E-mail

TEP - 30 September 2008

With the worldwide financial turmoil reaching new levels, investors are right to be bracing themselves for further market volatility in the months to come. In this environment, with-profits continue to provide a haven for investors with high levels of capital guarantee and the insulation of with-profits smoothing.  

At the start of the month Norwich Union announced bonus cuts following the market turmoil during the first half of the year. With average policy values falling by just 5% however (a lot less than markets have fallen this year) this is a good example of with-profits smoothing in action. Following Norwich Union's declaration, Prudential announced that they were using their substantial inherited estate to smooth returns and so maintain terminal bonuses. Prudential do not usually make an interim bonus declaration during the summer and they have chosen to stand by this strategy in spite of market conditions. This sign of financial strength is good news for TEP investors.

Meanwhile, Pearl has been reviewing its closed with-profits funds to boost returns. It has started by increasing the equity backing ratio of the National Provident Life fund and group chief executive Paul Moss said they were looking at how to revitalise their other funds.

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