The Endowment Diary

The Endowment Diary


The Endowment Mis-selling Debacle - one of the UK's worst financial scandals

Sunday, January 09, 2005

Three Cheers for Liverpool Victoria

Three Cheers for Liverpool Victoria

Liverpool Victoria, the UK's largest friendly society, announced this week that all of its currently maturing mortgage endowment policies would receive a surplus on top of the mortgage amount covered.

In other words, those who hold endowment polices with Liverpool Victoria will receive a small profit over and above the mortgage.

Malcolm Berryman, Liverpool Victoria's group chief executive, said:

"The strong performance of our with-profits fund has ensured a surplus for all of our mortgage endowment policies that have matured or are currently maturing..In addition, our unconditional guarantee gives total peace of mind to our members for the future...."

Liverpool Victoria confirmed that none of its 6,000 mortgage endowment policyholders will suffer a shortfall, whatever happens to future investment returns.

It has made a financial provision to cover this guarantee, this will not have any adverse impact on future financial performance.

Now let us compare this excellent piece of news, with the dismal announcements made by the life assurance industry recently.
  • AXA has announced that it will be reducing their payouts

  • Standard Life will reduce its payouts to its 2.4M policy holders

  • The Actuarial Profession, the body which represents those who run with-profits funds, has warned that the majority of customers will face falls in value of their policies for several years to come
Now it is not unreasonable to ask, how is it that one company can actually generate a profit for its policy holders; whilst the others only seem to be able to generate losses for their hapless endowment policy holders?

After all, they have all faced the same declining stock market!

The answer lies in the manner in which the companies manage their funds. Liverpool Victoria were more cautious when it came to paying out vast annual bonuses, in years of high returns.

They understood the concept of "with profits", namely that the profits made in one year should be used to smooth returns in the years of poor performance.

Unfortunately, it seems that many other "big names" in the "profession" chose to go for big bonuses in order to attract customers.

Needless to say, famine follows feast; when the stock markets started to fall, and with it investment returns, these companies that had paid out super inflated bonuses had nothing left in the cupboard to smooth things over with in the lean years.

I would argue that, in addition to persuing these companies for "mis-selling" polices, people, the FSA and the Treasury Select Committee should be going after them for mismanaging the funds.

After all if one company can produce a surplus whilst operating in the exactly the same market, why couldn't the others?

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