Friends Provident has scrapped market value reductions on nearly all of its with-profits policies.
The firm says it reviewed its MVRs actively over 2009 to reflect changing investment conditions and has removed the charge from all policies except pensions which have a guaranteed regular bonus of 4 per cent.
But Friends says 95 per cent of with-profits clients have been sent red letters, meaning there is a high risk that their investment will not meet the target payout.
The company has increased with-profits payouts compared with last year and all regular bonuses have been maintained.
Friends says the with-profits produced a return of 9.3 per cent last year compared with Aviva’s with-profits fund performance of 6 per cent.
Chief actuary Andy Carr says: “Investment markets continued to be volatile in 2009, as they were for much of 2008, but staged a recovery in the second half of the year. Thanks to this, payouts for the majority of our policyholders have increased compared with last year.
“To illustrate this, the exper-ience of most policyholders will be that the cashable value of their plans will have increased by around 10 per cent in February 2010 compared with February 2009.
“The recovery in the second half of 2009 has also meant that market value reductions, reintroduced in October 2008, have now been removed on virtually all products.”
Hargreaves Lansdown pensions analyst Laith Khalaf says: “In the long term, there is a question mark over how well the Friends’ fund can do, given its small exposure to equities.”