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NU pulls with-profits bond guarantee

Norwich Union is set to withdraw the inflation-proof guarantee on its with-profits bond from April 17.

The firm says that, while the option has been extremely popular, continued volatility and the uncertain outlook for stockmarkets has made it difficult to price the guarantee going forward.

Money Marketing revealed in January that NU was reviewing the profitability of the guarantee due to soaring costs.

Advisers estimate NU has 190,000 with-profits bondholders with the guarantee in its CGNU fund, with £6.3bn invested. Although the firm insists existing policyholders will be unaffected by the move.

NU introduced a 0.7 per cent guarantee charge in 2007, a year after the option was introduced. It moved from tracking the retail price index to the consumer price index in April 2008, when the RPI was higher.

Marketing director David Barral says the firm hopes to reintroduce a similar option when markets improve.

He says: “Credit spreads have just been so volatile that it makes it very, very difficult to price the guarantees so the sensible thing is to remove the option at the moment. We recognise how attractive guarantees are, especially in the current market, so advisers can expect to see more from us when markets stabilise but it is likely to be tranche-based because it gives us a little bit more control over the cost and means you can get a product out there that is highly attractive for both the client but at the same time is sustainable from a profitability point of view.”

Cazalet Consulting director Ned Cazalet says: “If these guarantees are amazingly good value for the customer you have to work out who is on the other side of the trade – someone is winning and someone is losing. Norwich Union was giving money away and I think they knew that all along.”

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