Norwich Union is considering bringing in a charge for guarantees on its NU life & pensions with-profits fund to allow it to increase its equity backing ratio and avoid closing it.
NU says it expects a number of life offices to follow suit as the only serious way to increase equity exposure under the new FSA realistic reporting regime.
In January, Standard Life introduced charges from 0.25 per cent to 0.75 per cent across existing and future business on its with-profits policies to increase investment flexibility.
NU says charging for guarantees would mean it would be able to run the NUL&P fund to recovery rather than have to close it. It will make an announcement as to whether it feels this is in policyholders' interests on April 30.
The NUL&P fund has an equity backing ratio of 52 per cent which compares favour-ably with most of the UK with-profits sector although the fund has a below industry average risk capital margin coverage ratio of only 1.6.
NU says charging for guarantees would give it greater flexibility to invest in equities and could increase the long-term prospects of the fund.
Chief actuary Mike Urmston says: “We are considering guarantee charges on the NUL&P fund. We would rather run it to recovery than to close and charging for guarantees would allow us to do that.”
Independent insurance analyst Ned Cazalet says: “I would not be surprised if a lot of other big names as well as not so big names will start to charge for guarantees. People should bear in mind that there is a lot of negotiation still to go so come the 2004 year-end results, the effects of the realistic reporting regime will be more extensive.”