Jan
7
Annual bonuses paid on with-profits policies by insurance companies are expected to be cut with long term policies, in particular the 25-year mortgage endowments, most likely to be hit, the Faculty and Institute of Actuaries have warned.
The warning has been made as the life assurers start declaring the annual bonuses their policyholders will receive in respect of 2004. Whilst those with shorter term policies may be over the worst, i.e. those with durations of 10 years or less, it is those with with-profit endowments intended to pay off their mortgage that are most likely to see reduced bonuses for some time yet.
“Policyholders are seeing the results of lower returns in terms of reduced bonuses now and, in all likelihood, for several years to come”, said Nigel Masters, Chairman of the Actuarial Profession’s Life Board. “This is a reflection of the lower returns available from stockmarkets and other investments around the world”.
Which means investors thinking that there will be a return to the high bonus payouts of the late 1990s will be disappointed. The combination of low yields on government bonds and declining stock market from 2000 to 2003 mean a reduced pay out for policyholders.
In addition, the sale of equities forced on insurers during 2002 and 2003 so that they could comply with the FSA’s strict solvency requirements meant that when stockmarkets did rise they did not reap the full benefit of that rise.
The smoothing process of with profits policies designed to protect investors form volatility, and which enabled them to receive bonuses during the stockmarket’s persistent decline, means that even if stockmarkets continue to improve, bonuses will maintain their very low levels for some time yet.
