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With Profits Update - Scottish Provident Ireland

Your Questions Answered – 13th July 2004
General
Q.1 When will you declare an annual bonus on With Profits policies
   
A.1

 

 

 

 

 Our priority is to use future growth from net investment returns to improve cash returns to policyholders
via reduced Market Value Reductions (MVRs) and early surrender reductions (ESRs) for surrendering policyholders and introducing or increasing terminal bonus for maturing policyholders.We are likely 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 SPI Fund (the "Fund") was likely to remain in a position to meet its increased liabilities.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.
   
Q.2 Over what timescale are you likely to reinstate annual bonuses?
   
A.2 This is really dependant on the performance of the investment markets, which we cannot predict.
   
Q.3 Why do you plan to reduce MVRs/ESRs and increase or introduce terminal bonus before declaring annual bonus?
   
A.3 Declaring annual bonuses increases the liabilities of the Fund disproportionately benefiting certain
classes of policyholder, whereas reducing MVRs/ESRs and increasing or introducing terminal bonus allows the Fund to provide all policyholders with a fairer share of available assets.
   
Q.4 What are the new terminal bonus rates?
   

A.4

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 Scottish Provident Ireland Unitised With Profits policies

Tranche year     TB rate


1996                 30%

1997                 15%

1998                 0%

1999                 0%

2000                 0%

2001                 0%

2002                 0%

2003                 2.5%

Scottish Provident Ireland Terminal Bonus Rates 2004 from 13/07/04 Conventional With Profits policies

Term

Commencement Year

Life RP (Endowment Assurance)

Life SP (Endowment Assurance)

Pensions (Regular Premium)

Pensions (Single Premium)

1

2003

0%

 

0%

0%

2

2002

0%

 

0%

0%

3

2001

0%

 

0%

0%

4

2000

0%

 

0%

0%

5

1999

0%

 

0%

0%

6

1998

2%

 

0%

6%

7

1997

4%

 

0%

12%

8

1996

6%

 

0%

18%

9

1995

8%

 

0%

24%

10

1994

10%

48%

0%

30%

11

1993

12%

 

3%

32%

12

1992

14%

 

6%

34%

13

1991

16%

 

9%

36%

14

1990

18%

 

12%

38%

15

1989

20%

 

15%

40%

16

1988

22%

 

15%

46%

17

1987

24%

 

15%

52%

18

1986

26%

 

15%

58%

19

1985

28%

 

15%

64%

20

1984

30%

 

15%

70%

21

1983

36%

 

16%

76%

22

1982

42%

 

17%

82%

23

1981

48%

 

18%

88%

24

1980

54%

 

19%

94%

25

1979

60%

 

20%

100%

26

1978

64%

 

27%

110%

27

1977

68%

 

34%

115%

28

1976

72%

 

41%

120%

29

1975

76%

 

48%

125%

30

1974

80%

 

55%

130%

31

1973

85%

 

55%

130%

32

1972

90%

 

55%

130%

33

1971

95%

 

55%

130%

34

1970

100%

 

55%

130%

35

1969

105%

 

55%

130%

36

1968

105%

 

55%

130%

37

1967

105%

 

55%

130%

38

1966

105%

 

55%

130%

39

1965

105%

 

55%

130%

40

1964

105%

 

55%

130%

41

1963

105%

 

55%

130%

42

1962

105%

 

55%

130%

43

1961

105%

 

55%

130%

 

1960 and earlier

105%

 

55%

130%
   
Q.5 Are all these changes to terminal bonus as a result of the FSA review of With Profits?
   
A.5




No, we have made these adjustments as part of our normal With Profits review process as well as taking into account the requirements for ‘realistic’ reporting. Almost half of the overall changes we’ve made are as a result of the ongoing management of the Fund. Our business as usual changes includes reductions for smoothing, half-year reviews, investment
returns, guarantees and other such factors.
   
Q.6 Has the UK Financial Services Authority (FSA) been fully involved throughout the process?
   
A.6

 

The FSA has been fully involved throughout the review process and is aware of the measures we have taken. As a result of the measures we've put in place the Fund fully complies with the new FSA regulatory requirements, which come into force shortly.
   
Q.7 Has the Irish Financial Services Regulatory Authority (IFSRA) been informed of the measures being introduced?
   
A.7 We have liased with IFSRA and they are aware of the measures being introduced.
   
Q.8 What is an MVR / ESR and why do you apply them?
   
A.8

 

 

 MVRs are reductions to the published value of units of unitised With Profits policies and may be charged when units are cashed in to reflect the actual investment return received by policies for the period over which they have been invested, compared to bonuses added. ESRs are applied on withdrawals / surrenders of conventional With Profits policies for the same purpose, that is, to reflect the actual investment return received for the period over which they have been invested, compared to bonuses added. We apply MVRs/ESRs to try and be fair to policyholders who stay in the Fund as well as those who leave. This also safeguards the long-term viability of the Fund and ensures appropriate payouts to policyholders who cash in their policies.
   
Q.9 How often will you monitor and review MVRs and ESRs?
   
A.9

 

 

We will continue to monitor the position of MVRs monthly. ESRs are also monitored on a regular basis. However not every monitoring exercise will lead to a change in the MVR/ESR scale and we don’t publish these scales. Individual quotations can be provided on request by e-mailing us at info@scotprov.ie or by
calling our Helpdesk (01 6399859), but please bear with us regarding turnaround times following this announcement.
   
Q.10 Have all types of policies been treated the same?
   
A.10 Within the Funds, different policies have different contractual terms. The overall result of the review is designed to be fair to all policyholders and at the same time honour contractual obligations.
   
Q.11 Are guarantees affected?
   
A.11 Any guarantees that a policyholder has will not be affected, provided regular premiums are paid. The policy documentation will detail any guarantees that apply.
   
Q.12 What happens if my client wants to take their money out?
   
A.12 If your client is thinking of withdrawing part or all of their investment, please bear in mind that s/he may get back less money than s/he paid in. This is because of an MVR / ESR that is likely to be applied on some withdrawals from the Fund. Levels of MVR and ESR can change at any time. You should also bear in mind that your client may have valuable guarantees that may not operate and be lost if he withdraws his money now.
   
Q.13 Why are we making changes to the With Profit Funds now?
   
A.13 There are two main reasons

  • Stock market performance over the last few years has reduced the value of the Fund

  • The new FSA ‘realistic’ reporting requirements

    • Having made these changes, the Fund is now expected to remain in a stable position for the future

    Managing the Fund
       
    Q.14 What type of support is Abbey providing?
       
    A.14 As provided for in Abbey’s 2002 and 2003 year-end accounts Abbey is making available a fixed amount going forward to the Fund as a reserve against future risks.
       
    Q.15 How much is Abbey paying?
       
    A.15

     

     

    		 £220 million was injected into Scottish Provident Limited by Abbey in 2003. A contingent loan made pursuant to the 2001 Scottish Provident scheme is being unwound in accordance with the scheme and replaced with new financial support arrangements appropriate to the new regulatory framework. With this support the Fund is now stable and we do not anticipate any requirements for further financial support to the Fund from Abbey in the future.
       
    Q.16 Why are policyholder benefits impacted?
       
    A.16 Abbey is contributing a considerable amount of capital to Scottish Provident, balancing the interests of policyholders with the interests of Abbey's shareholders. The contribution will ensure that reductions in policyholder benefits are minimised, despite the downturn in the markets. The FSA has agreed that Abbey's contribution represents a fair assessment of its regulatory responsibilities towards the policyholders of Scottish Provident.
       
    Q.17 How is the Abbey money to be used?
       
    A.17 Abbey's contribution will form a reserve, owned by Abbey, which can be drawn on by the Fund in the future on a rainy day, i.e. if risks turn out worse than expected.
       
    Q.18 Do you intend to start charging for guarantees?
       
    A.18

     

    		 With the increased cost of covering policy guarantees, some other life companies have applied a future annual charge against individual policies to cover these guarantees. Although we reserve the right to do so in the future, we have not applied a future charge against individual policies for such guarantees at present.
       
    Q.19 What is the new equity content for With Profits?
       
    A.19

     

    		 The Fund’s new target equity content is 35%. This excludes the hedge asset which is being purchased by the Fund and used to help protect the Fund’s guarantee liabilities against negative movements in the stock markets and interest rates in the future.
       
    Q.20 What was the equity content previously?
       
    A.20 The previous equity content at 31st May 2004 was 24%.
       
    Q.21 What is a hedge?
       
    A.21 A hedge is a tool we use to reduce risk in the Fund. This helps to protect against negative movements in both the stock market and interest rates in the future. We have been using hedging tools to support With Profits for the last 18 months. As part of the review we have amended and extended our hedge, which now operates from within the Fund.

    Principles and Practices of Financial Management (PPFM)
       
    Q.22 Why have you updated your PPFM?
       
    A.22 We are altering some of our Practices and need to bring the PPFM into line with the new Practices as a result of this review.
       
    Q.23 What changes have been made to the PPFM?
       
    A.23 There are no changes to any of the Principles.The following general changes to Practices have been made:
    • We have removed reference to discussion with the FSA and to updating the PPFM in 2004. The discussions are complete and the changes are being implemented
    • The Fund has as a result of recent changes been brought back into a balanced position
    • We have explained more about the use of hedges to reduce the future volatility in the Fund and to cover guarantee costs
    • The investment section has been revised to allow for the higher target equity content and the use of the hedges
    • The explanation of how the Fund will deal with guarantee costs has been expanded and now includes the use of hedges
    • The section on future financial responsibilities of shareholders and policyholders has been rewritten to reflect the changes made to the support mechanisms for the Fund
       
    Q.24 How can I get hold of the PPFM?
       
    A.24 Please e-mail us at info@scotprov.ie, or visit our website at www.scotprov.ie.
       
    Q.25 Will you be writing to policyholders?
       
    A.25 We will not be writing direct to policyholders. We are writing to all intermediaries who can advise their clients accordingly.
       
    Q.26 Will you need to write to me again?
       
    A.26 As we have finalised our With Profits review we will not need to write to you again specifically on this subject. We will continue to communicate with you in the normal way, for example, through bonus notice communications and annual statements.
       
    Q.27 How can I get more information?
       
    A.27

    Visit our website on www.scotprov.ie., e-mail us at info@scotprov.ie contact our Helpdesk on 01 6399859.

     
     


    Phoenix Life Limited, trading as Phoenix Ireland, is authorised by the Prudential Regulation Authority and regulated by the Financial Conduct Authority and the Prudential Regulation Authority in the United Kingdom and is regulated by the Central Bank of Ireland for conduct of business rules.