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Threat of MVAs as markets plummet

The dismal performance of world stockmarkets could lead to many life offices following Equitable Life&#39s lead in imposing market value adjusters.

Equitable has increased its MVA from 10 per cent to 15 per cent, blaming the fall in the FTSE. The penalty was introduced to stop an exodus when it closed to new business in December.

Industry experts believe many providers, particularly smaller life offices without a parent company, will be forced to introduce MVAs to limit damage to the long-term funds.

Terminal bonuses could also be reviewed. Unitised with-profits business is considered the most vulnerable to the stockmarket fall because transfers are easier to execute.

Royal & Sun Alliance IFA personal business leader Mark Edwards says: “We have not changed our system of applying a monthly model. But everyone is concerned and keeping a very close eye on the situation. There may be a point where we start applying more universal MVAs but we are not panicking.”

Scottish Life head of communications Alasdair Buch anan says: “Companies will be looking at revising their terminal bonus rates. All with-profits offices will be reviewing the situation and making a decision. Unitised with-profits business is under the most immediate pressure.”

Cazalet Financial Consulting principal Ned Cazalet says: “Equitable Life is more exposed than others because its solvency is so stretched. If these stockmarket conditions persist, life offices will have to apply an MVA. Given financial strength has diminished significantly over 15 months, many others will be looking at it.”

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