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Ringfencing of with-profits just for proprietary offices

The Sandler review has surprised the industry by recognising the value of with-profits and only requiring the ringfencing of funds by proprietary offices for the proposed simplified stakeholder suite of products.
But in a sign of what could follow, Norwich Union announced today it is considering the ringfencing of all its funds and reattribution its orphan assets valued at £5bn at the end of 2001. Other listed life companies say they have not yet decided whether to follow suite.
Despite recognising the value of the smoothing concept, the report is critical of current with profits. It says: &#34With-profits products also create inherent conflicts of interest in proprietary companies, particularly over the selection of investment opportunities. This situation creates a danger that the provider&#39s decision will benefit shareholders at the expense of policyholders.&#34
But it falls short of forcing the conversion of all funds to the 100/0 structure although Sandler says its other recommendations should be introduced across the board.
These include a clean with-profits regime where providers disclose current redemption and projected maturity values, proceeds on death and the unsmoothed asset share. Costs and terminology should also be standardised across the industry with an annual reports and restrictions on the use of MVAs.
Sandler also says proprietary offices should not use with-profits funds to finance other business.
Prudential UK chief executive Mark Wood says nothing in the proposals requires it to change what it is already doing.
AMP UK managing director Tom Fraser says: &#34I do not know yet if we are going to make our funds 100/0 yet but we have set money aside for this. I think a lot of providers will now decide to close existing with-profits funds and open up new ringfenced funds.&#34

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