13 July 2004
With Profits Update – Scottish Provident Ireland
I’m writing to let you know that we’ve now concluded the review of the
SPI Fund (the "Fund") and discussions with the UK Financial Services
Authority on realistic reporting and capital requirements.
Please note that policies invested after 1 August 2001, which are invested in
the Scottish Mutual International Dublin With Profits Fund, are NOT affected by
the contents of this letter.
The outcome of this review is as follows:
- The Fund now fully meets the new UK regulatory requirements, which are
expected to come into force soon.
- The Fund is stable and in a well risk-managed capital position with a
statutory solvency margin, as at 31 May 2004, of 250% for Scottish Provident
Limited.
- We are now in a position to increase the target level of equities in the
Fund to 35% (excluding the hedge asset) – which is broadly in line with
industry averages. This will help us take advantage of potential stock
market growth - although our aim is still to produce steady returns with
moderate risk over the long term.
- There is now greater clarity on the future management of the Fund as
published in our updated Principles and Practices of Financial Management.
In arriving at these outcomes, Abbey has confirmed significant financial
support to With Profit Fund following from provisioning previously disclosed in
Abbey’s 2002 and 2003 year end accounts as a reserve against future risks. Our
hedging measures used over the last eighteen months have been extended and
improved, and will now be held within the Fund. This is to help protect against
negative movements in both the stock market and interest rates impacting fund
realistic solvency in the future.
We have reviewed terminal bonus and Market Value Reduction (MVR) / early
surrender reduction (ESR) levels established earlier this year and have made
adjustments to payouts, which now reflect the new realistic position of the
Fund. I’d now like to update you on what the review means for Scottish
Provident Ireland policyholders.
Scottish Provident Ireland Conventional With Profits Policies
For Scottish Provident Ireland Conventional With Profits policies we have
been able to make a small increase to terminal bonus levels for some longer term
policies, as well as improving some surrender values. Subject to positive net
investment returns, in the next few years, we hope to see improved payouts in
terminal bonus levels in priority to declaring an annual bonus.
Scottish Provident Ireland Unitised With Profits Policies
Our review concluded that we’ve been able to improve the general level of
MVRs for most Scottish Provident Ireland policies. MVRs will continue to be
reviewed regularly to reflect stock market conditions and other relevant
factors.
Going forward, our plan is to use future growth from net investment returns
to reduce MVRs/ESRs and increase terminal bonus levels, in priority to declaring
annual bonus. This allows us to pass on to the policyholder the benefits of
future net investment returns through improved bonuses on policy maturities or
higher values on surrender. This allows the Fund to provide all policyholders
with a fairer share of available assets.
We believe it is fairer to all policyholders to re-introduce annual bonuses
only after MVRs/ESRs have been substantially reduced, although this does not
necessarily mean that they would need to be completely removed. Before we would
apply annual bonus our investment managers would also have to be confident that
the investment outlook was stable and sustainable and that the Fund was likely
to remain in a position to meet its increased liabilities following an annual
bonus declaration.
At that stage we would also ensure that any payment of annual bonus was fair
to all policyholders and did not favour any one set of policyholders over
others.
We appreciate that this has been an uncertain time, however, we believe that
Abbey’s contribution along with the above measures will have a positive effect
on the Fund in the future. We can also assure you that any guarantees that apply
to your clients’ policies are not affected and currently there is no explicit
future annual charge against policy values for guarantees.
We have updated our Principles and Practices of Financial Management (PPFM)
to reflect the changes I have discussed. This remains the definitive document
which sets out how the Fund will be managed in the future. If you would like a
copy please visit our website at www.scotprov.ie,
e-mail us at info@scotprov.ie or call us
on 01 6399859.
Please read the ‘Your Questions Answered’ document attached and if you
have any further queries please contact us as above.
Yours faithfully
Anthony Haynes
Head of Intermediary Contact
Scottish Provident Ireland
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