The Endowment Diary

The Endowment Diary


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

Tuesday, January 23, 2007

Insurers Cash Grab

Insurers Cash Grab

Aviva and Prudential are planning to divert billions of pounds of surplus cash in their with-profits funds to shareholders, despite the fact that those who hold endowments, bonds and pensions are suffering lousy returns.

Aviva own Norwich Union, which recently warned 90% of its endowment policy holders to expect shortfalls on their policies. Aviva wants to pass a large part of the £4BN of inherited estate, in its Commercial Union Life and CGNU Life with-profits funds, to shareholders in 2008.

It is estimated that 1.4m policyholders will each received several hundreds of pounds of compensation. However, Which? believes that they are entitled to over £2K.

Doug Taylor at Which is quoted in The Times as saying:

"The fair solution would be to give 90% to policyholders and 10% to shareholders, even if this is not Norwich Union's preferred result."

Patrick Connolly at JS&P Towry Law, said:

"Norwich Union doesn't want to release the funds to benefit policyholders but because it wants to use them to support the business and boost shareholders' profits."

Prudential also wants to pass on £9BN billion from the inherited estate to shareholders.

These moves are expected to encourage other insurers to do the same, in order to prop up their share prices and to keep the shareholders quiet and subservient.

David Riddington, a senior actuary for Norwich Union, said:

"The inherited estate is legally owned by the company and its shareholders, so policyholders don't have any rights as such. Payments to customers are likely to be comparatively modest."

Ian Allison at Brunel Franklin, said:

"We are astonished that Norwich Union sees fit to attribute some of its surplus to shareholders while many endowment victims' finances remain in tatters."

Clare Spottiswoode has been appointed as "policyholder advocate", by Norwich.

The Policyholder Advocate is the representative for all the eligible with-profits policyholders of a company that is considering a reattribution of inherited estates.

The Policyholder Advocate's key job is to negotiate the size of any incentive to withy-profits policyholders to give up their rights to any possible future distribution from the inherited estate.

Details about Spottiswoode can be found on the website

The outcome of these two moves will impact the rest of the industry, and the finances of the long suffering endowment policy holders.

Friday, January 12, 2007

Norwich Issues Red Alert

Norwich Issues Red Alert

Norwich Union has given its hapless endowment policy holders an unwelcome New Year present, by categorising nearly 90% of its 750,000 mortgage endowments as being in the "Red" category.

The red alert means that policyholders need to take urgent action, to avoid shortfalls on their home loans.

Norwich Union stated that 89.5% of endowment holders had been placed in the 'red' category, this is a staggering rise of 72% from last year.

Last year Norwich Union categorised 7% of its endowment policyholders as green and 21% amber.

David Riddington, senior actuary for Norwich Union, said:

"We didn't think amber was adding a lot. What we want, and what the FSA wants, is if people aren't on green, they should really think about the position they're in and decide whether to take action.

What happened with the amber is it perhaps lulled people into not doing anything, so this is a way to get people to at least sit up and take notice

A fair and honest point, in my view, which in effect makes a mockery of the FSA's three coloured traffic light system.

The average shortfall projected by Norwich Union for 2007 is £1,400.

As I keep repeating, all of this heartache, wasted time and money could be avoided if the life assurance industry "bit the bullet" and underwrote these useless underperforming products.

Thursday, January 11, 2007

The Manx Black Hole

The Manx Black Hole

Those of you in the UK with underperforming endowment mortgages, who feel that they have been given the wrong end of a very unpleasant stick, should spare a thought for those endowment mortgage holders resident in the Isle of Man.

Reports from the Isle of Man indicate that there is a legislative black hole there, relating to the mis-selling of investment products.

A discrepancy in legislation has been highlighted, which means that the Manx ombudsman's power only applies to policies sold after April 20 1999, some 11 years later than the UK.

What a mess!