IFAs are blaming Eagle Star's use of over-optimistic investment projections for 80 per cent of its mortgage endowment policyholders failing to be on target.
Its projections for the second quarter of 2002 show 59.4 per cent of endowments are red, facing a likely shortfall, 20.3 per cent amber, facing a possible shortfall, while only 20.3 per cent are green and on target. The figures are a significant deterioration over the first quarter of 2001 which showed 48 per cent red, 10 per cent amber and 42 per cent green. The company reviews policies annually on a rolling basis.
Allied Dunbar, which is also owned by Zurich Financial Services, has 51 per cent red, 28 per cent amber and 21 per cent green for Q2 2002.
Needanadviser.com director Ashley Clark says: “Eagle Star used higher projection rates on comparative tables and came out cheaper. But it will be the consumer rather than the company that will pay.”
Syndaxi principal Robert Reid says: “Eagle Star sold cheap low-cost endowments that anticipated very high levels of investment returns. This was driven by marketing concerns rather than actuarial ones.”
Zurich spokeswoman Erica Harper says: “We took our board's and actuaries' advice and set rates which we thought were achieveable. We have since adjusted those rates. But we do not know what is going to happen in the future -a paper loss might not translate into an actual loss.”