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Interview with Nick Dumbreck, Independent Expert
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The interview lasts about ten minutes.
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Interview Transcript
JH Hello I’m Jonathan Haslam and today I am joined by Nick Dumbreck who is the independent expert in the case of Norwich Union’s proposed reattribution of two of its with profits funds.
JH Nick is also a consulting actuary with the leading consultancy firm Watson Wyatt and is also the President of the Institute of Actuaries and has been a leading practitioner for many years. Nick, I wonder if you could first help us by explaining a little bit more about the general work of actuaries because I guess that most policyholders are not going to be that familiar with what you and your colleagues do.
ND Yes, most actuaries spend their time dealing with the financial aspects of insurance and pensions and that will include pricing the products that will include quantifying the liabilities and the capital requirements. And it will also including dealing with distribution of surplus in a with-profits fund.
JH It looks like it is quite a technical job, involving a lot of mathematics and a lot of statistics and projections. Would that be fair to say?
ND That is certainly right. Yes.
JH Now within the Norwich Union proposed reattribution you are the designated Independent Expert. Your appointment is approved by the Financial Services Authority, so how would you explain your particular role because this is going to be technical and specific. What is it that you have to do within the role of the Independent Expert?
ND Well, essentially my job is to review the proposals in detail and prepare a report to the High Court, who will have to decide in due course whether or not to approve the scheme. There are two main aspects of that I will be concerned to make sure to comment on. The implications of the proposals for the security of policyholder benefits and also on policyholders’ benefit expectations, particularly for with-profit policies, if the scheme goes ahead, compared with those that they have at the moment, both for policyholders who accept the incentive payment and those who choose not to.
JH So when you talk about benefit expectations let’s be clear here, you are talking about the way in which they might be able to earn bonuses in the future.
ND Yes, the expected level of bonuses which will be influenced by things like asset allocation, expense charges and other aspects of the management of the with-profits fund.
JH You say that you have clear priorities where would they lie in terms of… how can I put it… the headline items in your report. What would you say would be the three most important things that you have to cover?
ND Well, I think that the particular areas that I will be concerned about are the arrangements for managing the combined with profits fund of CGNU and CULAC and, in particular, for dealing with any potential conflicts of interest between the policyholders and the shareholders. In any with-profit funds it is important to have a certain amount of flexibility, so it is not possible to tie down indefinitely the arrangements for managing the fund. But I do need to be satisfied that there are adequate governance arrangements in place for dealing with any changes that may be required in the future.
JH Right. So that would involve something which I believe is called a With- Profits Committee which has a responsibility for these funds. So you would have to look at it and satisfy yourself about its strength and independence?
DH Yes, its independence and whether or not it is given enough information to make decisions on behalf of policyholders when changes are needed.
JH You must have been working at this for sometime and presumably you have a team of supporters to assist you. It is a big task, it is a huge company Norwich Union, they have had a lot of people working at it. What has been the background and how have you got to this point?
DH It is certainly a very complex scheme and that means that there has been a lot of work in reviewing it. I have a small team assisting me. We don’t have to do any of the calculations. Norwich Union does those and if I need to see particular projections or particular calculations, then I’ll ask Norwich Union to do those for me. But ultimately it is my responsibility to make sure that the information on which I base my report is accurate and complete.
JH Now we are in somewhat new territory because the last reattribution was undertaken by AXA. Since then there has been a review of the with-profits industry, there have been some revised rules which have been brought in, not least one of them which provides for a Policyholder Advocate and, of course, in this case that’s Clare Spottiswoode. What sort of relationship issues do you have with the Financial Services Authority and also with the Policyholder Advocate? Do you work on your own in isolation or are you closely entwined with their activities?
ND Well, I think that we have all got our own specific roles in the project. I guess the Policyholder Advocate is mainly concerned with negotiating the level of the incentive payment on behalf of the policyholders. I am more concerned with the management of the with-profits funds and the business going forward following any reattribution. And the FSA is really concerned with both aspects. There is certainly some overlap between what we are all doing but I think that that is quite a good thing. I think that re-enforces the protection for policyholders in the whole arrangement.
JH If you see something that you don’t like in this preparatory work that you are doing, how do you address that? Does Norwich Union say, ‘fine we can have a disagreement about it’ or do they say, ‘the Independent Expert is not satisfied with this aspect, we must go away and change it.’ Could you say a little more about that sort of scrutiny before your report actually gets written or before it goes to the court.
ND Yes, certainly. I don’t have to approve the scheme, that is the court’s job, but I do have to report on what I think the implications of the scheme will be. What I will do is draft a section of the report dealing with a particular issue and if that is critical of the proposals in any way, the company can then decide whether they are happy to leave things as they are or whether they would like to make changes to the scheme in order to secure a rather more favourable opinion.
JH And this is obviously a very long running exercise. We have had Clare Spottiswoode who was nominated as the Policyholder Advocate back in February of 2006, although formally appointed, of course, in November of 2006. You have been working at it for the same length of time?
ND Well,I think probably since the middle of 2005 in fact. It has been going on for quite a long time although the project, I guess, has gained momentum in the last year or so.
JH And we should of course make clear that Norwich Union themselves still haven’t finally committed, they don’t have to do that at this point, it is still a project which they are proposing. They have obviously taken a lot of time to work it out.
Now I just want to ask you, your report will go to the High Court, you have your overall responsibilities to comment on the scheme. For policyholders, can your report help them? Is it going to be enormously technical, is there anything that you can do in order to help them understand and appreciate which would help them in their decisions assuming that a deal goes ahead. What is it that you can do to help them?
ND Well, the report is certainly pretty long, it is not intended to be too technical because obviously the court won’t understand it if it is very technically worded. But I am not expecting that the majority of policyholders will read the whole of my report. I am producing an executive summary of the report and the intention is that will be included in the material that is sent to policy holders. I will aim as far I can to make that a user friendly document so that policyholders can at least appreciate the main implications for the proposals for them.
JH It seems to me that since the last reattribution with AXA quite a lot more information has gone, or is potentially able to go, to policyholders. Do you think that the whole process has developed in a helpful way?
ND I think it has. Obviously this is the first time the policyholder advocate role has been used and we will have to wait and see how it works over the next few months. But I think that this is a positive development for policyholders. I think there are greater protections for them in not only having the independent expert but the policyholder advocate and the FSA all looking at the proposals from the policyholders’ point of view.
JH There may be people who don’t want to accept a payment if it is offered. Now they would stay in a separate fund, is it fair to say that you look at the implications for those who stay in a separate fund as closely as you do for those who accept a payment and move into a different arrangement with Norwich Union?
ND Yes, absolutely and one of the reasons why the report is quite long is that it is necessary to look at the implications for each separate group of policyholders individually and certainly it is absolutely as important to be clear about the implications for the non-electing policyholders as those who choose to accept the incentive payment.
JH Nick Dumbreck, I hope that we will be able to come back to you and speak to you on another occasion as this proposed reattribution develops. But in the meantime, thank you very much indeed.
ND Thank you, my pleasure.
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