By offering a guarantee to new investors, Norwich Union is reinforcing its commitment to the with-profits market. In light of the speculation regarding Standard and the negative press sentiment concerning with-profits in general, this is a very defiant and bold move.
The guarantee ensures that, after five years, the minimum that investors will receive is their initial capital investment. If their investment has grown over the five years, they will be able to encash their policy – which may be subject to a market value reduction – but the payout will never be lower then the initial premium.
It is available for income seekers too but any encashment value will have the withdrawals over the five-year period deducted from the original capital value. At the end of the five years, investors will get the option to roll over for a further five years, switch into one of NU's other unit-linked funds or encash their policy.
Not only is NU implying that it is optimistic for the markets over the forthcoming years but also that it has the financial resources in place to meet the guarantee, even if it has called it wrong and the markets underperform over the period.
NU is targeting 10,000 new investments into its WP fund by the end of the year. Although I am sure this is figure is achievable, I doubt that this offer will attract numerous new investors as many WP investors have become disillusioned due to falling bonus rates and high MVRs. However, I believe the guarantee will appeal to existing investors and/or investors who understand and are comfortable with the concept of with-profits.
Ben Willis is an investment analyst with Chartwell Investment