Norwich Union's Sleight of Hand
It seems that Norwich Union is planning an interesting use of £150M of its inherited estate (orphan funds), which in theory are meant to be for the benefit of its policy holders.
Norwich plans to use £150M of £5BN surplus assets to pay for claims made against the company.
Currently Norwich Union is in the process of re attributing the funds to with-profits policyholders and shareholders, which is perfectly reasonable. However, Which? has warned that £150M has been designated to pay for past mis-selling.
It should be noted that the Financial Services Authority (FSA) does allow money in with-profits funds to be used in a number of ways, including settling compensations claims. It is considering a change in its regulations.
However, it seems to be rather "sharp practice" to use policy holders' money to pay for mis-selling perpetrated by the company that claims to be acting in the interest of the policy holders.
Which? is of the same opinion, and has quite rightly threatened to take the matter to court.
Norwich Union is negotiating the re attribution of the £5BN surplus, and also wants to use some of the money to finance business expansion; which also seems to me to be taking a liberty with policy holders' funds.
Dominic Lindley, financial policy adviser to Which?, is also claiming that billions of pounds of with-profits money has already been used by insurance companies to pay for the mis-selling of endowments and pensions.
What are the FSA doing about this?
Why do they sit on their hands and allow companies, such as Norwich Union, to get away with this?
Friday, January 11, 2008
Friday, January 04, 2008
The Reckoning
The Reckoning
As Neasa MacErlean writes in The Observer:
"One of the biggest financial scandals of the past 30 years reaches its climax in 2008 when thousands of endowment policies linked to mortgages start to mature. Endowment mortgages were sold in massive numbers from April 1983 and - since most home loans were set for 25 years - will start coming up for repayment by borrowers from April 2008."
Norwich Union describes 2008 as a peak year in terms of the numbers of endowments it has maturing, estimated to be about 90,000.
She offers some advice to those hapless endowment holders facing shortfalls, estimated to be on average between £10K to £35K, on their policies.
However, the only effective solution to this shameful scandal is for the life assurance companies to underwrite these useless underperforming products.
As Neasa MacErlean writes in The Observer:
"One of the biggest financial scandals of the past 30 years reaches its climax in 2008 when thousands of endowment policies linked to mortgages start to mature. Endowment mortgages were sold in massive numbers from April 1983 and - since most home loans were set for 25 years - will start coming up for repayment by borrowers from April 2008."
Norwich Union describes 2008 as a peak year in terms of the numbers of endowments it has maturing, estimated to be about 90,000.
She offers some advice to those hapless endowment holders facing shortfalls, estimated to be on average between £10K to £35K, on their policies.
However, the only effective solution to this shameful scandal is for the life assurance companies to underwrite these useless underperforming products.
Monday, December 10, 2007
Underwater
Underwater
Scotland on Sunday reports that two of the UK's largest endowment companies, Standard Life and Norwich, now have a staggering 1.4 million endowment policies underwater.
Guardian, which sold endowments for Nationwide, refused to take part in the survey. A spokeswoman for the company claimed that the omission was due to "an administrative oversight".
The report goes on to state that 90% of Norwich Union's 764,609 policyholders are now receiving red letters, while at Standard Life the proportion is 88%. At Friends Provident, 89% are in the red.
It's going to be a bleak Christmas for endowment policy holders.
Scotland on Sunday reports that two of the UK's largest endowment companies, Standard Life and Norwich, now have a staggering 1.4 million endowment policies underwater.
Guardian, which sold endowments for Nationwide, refused to take part in the survey. A spokeswoman for the company claimed that the omission was due to "an administrative oversight".
The report goes on to state that 90% of Norwich Union's 764,609 policyholders are now receiving red letters, while at Standard Life the proportion is 88%. At Friends Provident, 89% are in the red.
It's going to be a bleak Christmas for endowment policy holders.
Tuesday, November 27, 2007
Bleak News
Bleak News
Money Management's upcoming December issue survey shows a bleak outlook for those who hold endowment policies.
On average, a 25 year policy 10 years into its term needs to grow 6.9% per annum until the end of its term in order to meet its £50K sum assured.
The average 25 year policy 15 years into its term needs to grow 8.6%, while policies 20 years into their term need to grow an average of 8.2%.
Given the lousy levels of returns on most endowment policies, these required returns are very unlikely to be achieved and endowment holders can expect serious shortfalls when their policies mature.
Congratulations to the fund managers for doing such an "excellent" job of "managing" these policies, yet still being able to pay themselves a very nice management fee each year despite "managing" loss making policies.
Money Management's upcoming December issue survey shows a bleak outlook for those who hold endowment policies.
On average, a 25 year policy 10 years into its term needs to grow 6.9% per annum until the end of its term in order to meet its £50K sum assured.
The average 25 year policy 15 years into its term needs to grow 8.6%, while policies 20 years into their term need to grow an average of 8.2%.
Given the lousy levels of returns on most endowment policies, these required returns are very unlikely to be achieved and endowment holders can expect serious shortfalls when their policies mature.
Congratulations to the fund managers for doing such an "excellent" job of "managing" these policies, yet still being able to pay themselves a very nice management fee each year despite "managing" loss making policies.
Tuesday, November 06, 2007
L&G Increase Their Charges
L&G Increase Their Charges
Recently Legal and General, my endowment provider, wrote to me to inform me that my two endowment policies that I hold with them will most likely make a loss.
Using three projected returns, the 1987 policy (target £35000) will produce the following results:
-4% shortfall £5400
-6% shortfall £2700
-8% surplus £ 300
The 1991 policy (target £39700) will produce the following shortfalls:
-4% shortfall £10200
-6% shortfall £ 7500
-8% surplus £ 4600
I received another letter from them today, informing me of the following:
1 That they have changed the rules to give them the right to use fund managers other than Legal & General Investment Management Ltd, if they believe that it is necessary.
Don't they have confidence in their own management skills?
2 They are increasing the management fees for managing my policies. Seemingly they have compared their fees to other endowment providers, and feel that an increase is necessary!
The good news is that the new fees (after a search on the back of their letter, it seems that the fees are going up by 0.06% of the value of the investment per year) are, in the opinion of L&G, "highly competitive with typical market rates".
So that's alright then!
A couple of questions that have crossed my mind:
1 Why the hell are they raising the fees, when their "management" of my policies has produced losses?
2 Why are they charging more for their "management" services, when they have said that they may in fact use other fund managers?
Given the losses that my funds are projected to "yield", an increase in charges will simply make matters worse.
These endowment providers are very relaxed about changing the rules, when it suits them. Now is the time for them to change the rules to suit the hapless millions who own these useless, badly managed, costly and underperforming products.
Underwrite them!
Recently Legal and General, my endowment provider, wrote to me to inform me that my two endowment policies that I hold with them will most likely make a loss.
Using three projected returns, the 1987 policy (target £35000) will produce the following results:
-4% shortfall £5400
-6% shortfall £2700
-8% surplus £ 300
The 1991 policy (target £39700) will produce the following shortfalls:
-4% shortfall £10200
-6% shortfall £ 7500
-8% surplus £ 4600
I received another letter from them today, informing me of the following:
1 That they have changed the rules to give them the right to use fund managers other than Legal & General Investment Management Ltd, if they believe that it is necessary.
Don't they have confidence in their own management skills?
2 They are increasing the management fees for managing my policies. Seemingly they have compared their fees to other endowment providers, and feel that an increase is necessary!
The good news is that the new fees (after a search on the back of their letter, it seems that the fees are going up by 0.06% of the value of the investment per year) are, in the opinion of L&G, "highly competitive with typical market rates".
So that's alright then!
A couple of questions that have crossed my mind:
1 Why the hell are they raising the fees, when their "management" of my policies has produced losses?
2 Why are they charging more for their "management" services, when they have said that they may in fact use other fund managers?
Given the losses that my funds are projected to "yield", an increase in charges will simply make matters worse.
These endowment providers are very relaxed about changing the rules, when it suits them. Now is the time for them to change the rules to suit the hapless millions who own these useless, badly managed, costly and underperforming products.
Underwrite them!
Friday, October 19, 2007
Repayments
Repayments
There appears to be something of a sting in the tail for some long suffering endowment holders who make a successful mis-selling claim through the Financial Ombudsman Service (FOS), and then find that in fact their endowment policy recovers to leave no shortfall.
In the event that happens, the policy holder may have to repay money to their adviser.
A county court in Wales has ordered the claimant to pay back the sum of £1689, if their endowment manages to hit its original target of £13,000 in May 2010.
In September the FOS ordered retired independent financial adviser Eifion Hughes to pay the compensation to his client. However, Hughes refused to pay stating that the ombudsman had come to the wrong decision.
In an unpleasant irony, Hughes was then taken to court by the client who was being advised by an IFA acting as a claim-chaser.
The judge has upheld the complaint, but stipulated that the money would have to be paid back to the adviser on the policy's maturity if it reached above its expected value.
Hughes is quoted in The Herald as saying:
"At last this appears to be a victory for common sense. If the client loses out and it is the adviser's fault, he should pay out, but if there is no loss and perhaps even an extra gain, why should the adviser have to offer them money? Natural justice has won the day."
Evan Owen, chairman of the IFA Defence Union, said:
"It is refreshing to see the people who administer the law of the land reaching such conclusions. Let us hope that Lord Hunt takes this view on board as part of his review."
Quite right too!
As to whether many endowment polices will actually meet their targets, is open to conjecture. I can personally state that the two polices I hold with legal & General look very unlikely to get anywhere near their target.
It is also reported that almost 90% of Standard Life mortgage endowments are still highly unlikely to meet their targets.
However, I would also note that to some extent the IFA's (unless they were proven to be negligent) should not be the target of policy holders' wrath.
These lousy products were sold in the same manner as cars, TV's and other consumer products. Their sole purpose being to pay off the mortgage.
As a result of hidden/excess charges, lousy management and misrepresentation of the prospects by the funds themselves, they are massively underperfomring.
They are not fit for purpose.
It should not be the IFA's that are targeted, but the fund managers. The only solution to this shameful scandal is for the fund mangers to underwrite their useless, badly managed, products.
There appears to be something of a sting in the tail for some long suffering endowment holders who make a successful mis-selling claim through the Financial Ombudsman Service (FOS), and then find that in fact their endowment policy recovers to leave no shortfall.
In the event that happens, the policy holder may have to repay money to their adviser.
A county court in Wales has ordered the claimant to pay back the sum of £1689, if their endowment manages to hit its original target of £13,000 in May 2010.
In September the FOS ordered retired independent financial adviser Eifion Hughes to pay the compensation to his client. However, Hughes refused to pay stating that the ombudsman had come to the wrong decision.
In an unpleasant irony, Hughes was then taken to court by the client who was being advised by an IFA acting as a claim-chaser.
The judge has upheld the complaint, but stipulated that the money would have to be paid back to the adviser on the policy's maturity if it reached above its expected value.
Hughes is quoted in The Herald as saying:
"At last this appears to be a victory for common sense. If the client loses out and it is the adviser's fault, he should pay out, but if there is no loss and perhaps even an extra gain, why should the adviser have to offer them money? Natural justice has won the day."
Evan Owen, chairman of the IFA Defence Union, said:
"It is refreshing to see the people who administer the law of the land reaching such conclusions. Let us hope that Lord Hunt takes this view on board as part of his review."
Quite right too!
As to whether many endowment polices will actually meet their targets, is open to conjecture. I can personally state that the two polices I hold with legal & General look very unlikely to get anywhere near their target.
It is also reported that almost 90% of Standard Life mortgage endowments are still highly unlikely to meet their targets.
However, I would also note that to some extent the IFA's (unless they were proven to be negligent) should not be the target of policy holders' wrath.
These lousy products were sold in the same manner as cars, TV's and other consumer products. Their sole purpose being to pay off the mortgage.
As a result of hidden/excess charges, lousy management and misrepresentation of the prospects by the funds themselves, they are massively underperfomring.
They are not fit for purpose.
It should not be the IFA's that are targeted, but the fund managers. The only solution to this shameful scandal is for the fund mangers to underwrite their useless, badly managed, products.
Monday, October 08, 2007
Useless
Useless
Much like the depressing inevitability of the return of an unloved season I received two red warning letters from my endowment provider, Legal & General (L&G), the other day. I am the "proud" owner of two endowment policies taken out with Legal & General, one in 1987 and the other in 1991.
Needless to say, neither are on target to reach their objective (ie to pay off my mortgage).
Legal & General claim, using three projected returns, that the 1987 policy (target £35000) will produce the following results:
-4% shortfall £5400
-6% shortfall £2700
-8% surplus £ 300
The 1991 policy (target £39700) will produce the following shortfalls:
-4% shortfall £10200
-6% shortfall £ 7500
-8% surplus £ 4600
Hardly a "stellar" performance is it?
The question remains though, how is it that some endowment companies have been able to manage their funds sufficiently well so as not to produce a shortfall whilst Legal & General haven't?
Much like the depressing inevitability of the return of an unloved season I received two red warning letters from my endowment provider, Legal & General (L&G), the other day. I am the "proud" owner of two endowment policies taken out with Legal & General, one in 1987 and the other in 1991.
Needless to say, neither are on target to reach their objective (ie to pay off my mortgage).
Legal & General claim, using three projected returns, that the 1987 policy (target £35000) will produce the following results:
-4% shortfall £5400
-6% shortfall £2700
-8% surplus £ 300
The 1991 policy (target £39700) will produce the following shortfalls:
-4% shortfall £10200
-6% shortfall £ 7500
-8% surplus £ 4600
Hardly a "stellar" performance is it?
The question remains though, how is it that some endowment companies have been able to manage their funds sufficiently well so as not to produce a shortfall whilst Legal & General haven't?
Tuesday, September 18, 2007
The Curate's Egg
The Curate's Egg
The Telegraph reports that around 260,000 extra mortgage endowment holders have seen their policies meet their targets in the past year.
It seems that buoyant stock market has helped some policies recover their lost ground over the past few years. However, as to whether a particular policy that had previously been deemed to fail to meet target will now hit target very much depends on a number of variables; not least the quality of the company that is managing the endowment policy.
The Telegraph notes that, eg:
"Prudential's fund has been strong. The proportion of its policies that are red has significantly reduced over that period too. In 2003, 44 per cent of its policies were flagged up as red, now the figure is 15 per cent of the remaining 201,000 policies.
To date none of the Prudential's policies has failed to pay out the full target amount."
Those with Scottish Amicable have also seen an improvement. In 2003, Scottish Amicable had 65% of its policies listed as red, this figure now stands at 10%.
However, those who hold Legal and General policies have not been so fortunate. In 2004 over 55% of its policies were expected to fail to meet their repayment value. The figure now stands at 40%.
Standard Life is even worse, as it has seen its red policies rise from 86% to 88%.
As can be seen from the above, the performance is very much dependent on the "quality" of the fund managers.
The Telegraph reports that around 260,000 extra mortgage endowment holders have seen their policies meet their targets in the past year.
It seems that buoyant stock market has helped some policies recover their lost ground over the past few years. However, as to whether a particular policy that had previously been deemed to fail to meet target will now hit target very much depends on a number of variables; not least the quality of the company that is managing the endowment policy.
The Telegraph notes that, eg:
"Prudential's fund has been strong. The proportion of its policies that are red has significantly reduced over that period too. In 2003, 44 per cent of its policies were flagged up as red, now the figure is 15 per cent of the remaining 201,000 policies.
To date none of the Prudential's policies has failed to pay out the full target amount."
Those with Scottish Amicable have also seen an improvement. In 2003, Scottish Amicable had 65% of its policies listed as red, this figure now stands at 10%.
However, those who hold Legal and General policies have not been so fortunate. In 2004 over 55% of its policies were expected to fail to meet their repayment value. The figure now stands at 40%.
Standard Life is even worse, as it has seen its red policies rise from 86% to 88%.
As can be seen from the above, the performance is very much dependent on the "quality" of the fund managers.
Friday, August 31, 2007
The Lautro 12
The Lautro 12
The recently published shameful case of the so called "Lautro 12", appears to be causing more than a few ripples in the financial services industry.
It seems that the knock on effect of the "Lautro 12" is that many Independent Financial Advisers (IFAs) may have paid out too much compensation for mortgage endowment complaints.
Needless to say, if this were to be the case, they may themselves be entitled to financial compensation from the endowment providers.
The Lautro 12 were found to have mispriced Lautro premiums, which lead them to give their hapless customers unrealistically high maturity figures between 1988 and 1994.
Other providers have also mispriced projections but, unlike the 12, have not necessarily paid any consumer redress.
OAC Actuaries and Consultants chief executive, Roger Grenville-Jones, said:
"Where compensation for misselling has been paid, the amount of compensation is automatically increased to adjust for the policy being too small, at the expense of the firm paying the compensation, but only up to the present time."
Whilst the extra sums that advisers have had to pay out due to mispricing by providers is difficult to estimate, it is estimated that approximately £83M has been paid out in compensation for endowment misselling.
Compliance expert Adam Samuel said:
"Under-pricing will have reduced surrender values which are deducted from the amount required to repay the loan and other extra costs to produce the compensation amount.
If the insurers had set the premiums correctly, the surrender value would be higher and this would have brought down the compensation."
Shakespeare Putsman LLP partner Gareth Fatchett said:
"We have had a positive opinion from specialist counsel about taking action on behalf of advisers. It is arguable that redress by IFAs could be reclaimed against providers who are shown to have used incorrect charging assumptions. Potentially, this creates a whole raft of claims from IFA firms who have paid redress needlessly."
IFA Defence Union chairman Evan Owen sums this disgraceful farce very neatly:
"IFAs should not have had to waste time defending complaints, paying case fees triggered by false shortfalls and forking out compensation that others were responsible for. The providers must be held to account."
As this site has noted many times, the failure of these useless policies is down to their bad design; ie they were not fit for purpose. On that basis alone, it is most assuredly the endowment providers' responsibility to clear this mess up.
As I have noted many times before, were they to agree to underwrite these failed products that they foisted on an unsuspecting generation of house buyers, much of the distress being endured by their hapless customers and IFAs (unfairly caught in the middle) could have been avoided.
Anyone care to take any bets as to whether the endowment providers will "step up to the plate" and admit their responsibility?
The recently published shameful case of the so called "Lautro 12", appears to be causing more than a few ripples in the financial services industry.
It seems that the knock on effect of the "Lautro 12" is that many Independent Financial Advisers (IFAs) may have paid out too much compensation for mortgage endowment complaints.
Needless to say, if this were to be the case, they may themselves be entitled to financial compensation from the endowment providers.
The Lautro 12 were found to have mispriced Lautro premiums, which lead them to give their hapless customers unrealistically high maturity figures between 1988 and 1994.
Other providers have also mispriced projections but, unlike the 12, have not necessarily paid any consumer redress.
OAC Actuaries and Consultants chief executive, Roger Grenville-Jones, said:
"Where compensation for misselling has been paid, the amount of compensation is automatically increased to adjust for the policy being too small, at the expense of the firm paying the compensation, but only up to the present time."
Whilst the extra sums that advisers have had to pay out due to mispricing by providers is difficult to estimate, it is estimated that approximately £83M has been paid out in compensation for endowment misselling.
Compliance expert Adam Samuel said:
"Under-pricing will have reduced surrender values which are deducted from the amount required to repay the loan and other extra costs to produce the compensation amount.
If the insurers had set the premiums correctly, the surrender value would be higher and this would have brought down the compensation."
Shakespeare Putsman LLP partner Gareth Fatchett said:
"We have had a positive opinion from specialist counsel about taking action on behalf of advisers. It is arguable that redress by IFAs could be reclaimed against providers who are shown to have used incorrect charging assumptions. Potentially, this creates a whole raft of claims from IFA firms who have paid redress needlessly."
IFA Defence Union chairman Evan Owen sums this disgraceful farce very neatly:
"IFAs should not have had to waste time defending complaints, paying case fees triggered by false shortfalls and forking out compensation that others were responsible for. The providers must be held to account."
As this site has noted many times, the failure of these useless policies is down to their bad design; ie they were not fit for purpose. On that basis alone, it is most assuredly the endowment providers' responsibility to clear this mess up.
As I have noted many times before, were they to agree to underwrite these failed products that they foisted on an unsuspecting generation of house buyers, much of the distress being endured by their hapless customers and IFAs (unfairly caught in the middle) could have been avoided.
Anyone care to take any bets as to whether the endowment providers will "step up to the plate" and admit their responsibility?
Thursday, August 30, 2007
A Bumper Year
A Bumper Year
I received my 2006 with profits statement from my endowment provider (Legal & General) yesterday. Imagine my delight when I read the following in the covering note:
"We're pleased to be able to tell you that the investments underlying your policies have performed well during 2006 generating a return of 12% (before tax and charges) over the year."
Splendid!
Unfortunately, on delving deeper into the document I saw that the actual portion of that 12% allocated to me (re annual bonus rate applied to existing bonus and annual bonus rate applied to basic sum assured) was a less than staggering 2%.
The reason for this disparity?
I wonder why L&G don't disclose their charges in this this document?
What a joke!
I received my 2006 with profits statement from my endowment provider (Legal & General) yesterday. Imagine my delight when I read the following in the covering note:
"We're pleased to be able to tell you that the investments underlying your policies have performed well during 2006 generating a return of 12% (before tax and charges) over the year."
Splendid!
Unfortunately, on delving deeper into the document I saw that the actual portion of that 12% allocated to me (re annual bonus rate applied to existing bonus and annual bonus rate applied to basic sum assured) was a less than staggering 2%.
The reason for this disparity?
- Tax, fair enough, that takes the 12% down to 11% according to L&G
- Charges, which are not disclosed
- Smoothing, to ensure that "short term fluctuations" in the value of investments are not immediately reflected in payouts
I wonder why L&G don't disclose their charges in this this document?
What a joke!
Subscribe to:
Posts (Atom)