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Fair shares regulation for MVRs

Insurers will have to ensure shareholders share the ups and downs of fund performance with with-profits policyholders under new FSA rules.

In October 2006, the FSA proposed moves to cut out any preferential treatment of shareholders over with-profits policyholders when MVRs are applied.

At present, insurers with 90/10 funds distribute 90 per cent of the upside of any returns on the funds to policyholders and 10 per cent to shareholders but there is no corresponding rule for when MVRs are applied and policyholders bear 100 per cent of the downside.

After consultation, the FSA has introduced a rule which applies to unitised with-profits policies in proprietary life companies to ensure shareholders bear 10 per cent of MVRs.

The FSA has deleted COB 6.12.51 to 6.12.53 as part of the changes and does not intend to apply the new rule retrospectively.

Bestinvest head of communications Justin Modray says: “It is a good move. If markets fall by 10 per cent, then shareholders will bear 1 per cent of the fall, which is more in the spirit of treating customers fairly.”

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