By Ben Marquand All 1.4 million Norwich Union endowment policyholders have received a promise...
By Ben Marquand
All 1.4 million Norwich Union endowment policyholders have received a promise that they will not be liable for any potential shortfalls should their policy fail to meet its target at maturity.
However, the promise only applies if the funds achieve at least 6% growth a year. The main beneficiaries will be the 53,000 policyholders who received a 'red' warning letter last year explaining that their endowment policy is at serious risk of failing to pay off their mortgage. Another 433,000 received an 'amber' letter warning of a potential shortfall. Now all NU policyholders are to be sent a further 'green' letter notifying that their policies are still on track.
The decision could cost the company around £60m, which is around 1.5% of its £4bn free reserves, and follows similar promises by CGU prior to the merger, and Standard Life last year.
John Lister, deputy actuary at Norwich Union, said: "From a customer point of view I hope others will follow. Some companies will be able to afford to do this depending on the size of their assets, but this is just one of the benefits of purchasing from a large, economically sound group."
The guarantee is likely to offer policyholders some comfort as endowment funds continue to suffer. Friends Provident has recently reported a cut on both annual and terminal bonuses blaming low inflation, low interest rates and poor performance on the stock market.
Last year, Norwich Union reported almost zero investment returns on its with-profits fund, contrasting with around 18% in 1999, and as a consequence it has cut pay-outs by around 4%.
Despite this, Lister said that the company still had confidence in the balance of its investments, and that it will attain its target growth of over 6%, because over the last 25 years it has achieved an average of over 12% growth a year. He added: "Although we did not do well with our investment returns in 2000 we are not changing our asset mix."
