Articles and Reports

London Finale for Nationwide Roadshow

The policyholders’ champion will be examining the whole with-profits industry, the London audience heard as the national roadshow reached its finale.
“There are some really big issues here,” Clare Spottiswoode told the audience at the Marriott Grosvenor Square hotel.
“In the past a lot of decisions have been taken by Directors on your behalf and it’s been quite difficult for people to get information.
“Part of this process will undoubtedly be to clarify the way with-profits policies are managed and run because without doing that we cannot make a decision about what is fair to you, about what the likely distributions are going to be in future and, therefore, what you should be offered in order to give up those rights.”
Clare also stressed that the negotiations with Norwich Union would be intense.
“There are a lot of people who say, “Well, this is easy; it’s just 90 per cent for policyholders, isn’t it?” But if we say “just 90 per cent” Norwich Union shareholders won’t do it. There is no way that Norwich Union shareholders will agree that’s a good deal for them.
“So the answer is not going to be 90/10. I can’t tell you how close it’s going to be to 90 now. In the AXA case it was about 30 per cent. I would sincerely hope we can do considerably better than that, but we don’t know at this point.”

What London asked Clare:

Q. My pension has done pretty badly over the last 10 years and I can’t really understand if I’m in a fund and I’ve done so badly how those funds should be distributed elsewhere
A. It is pretty standard life office practice to work out the returns on the policies from the premiums and the investment returns which have been generated on those policies. The reason there is an inherited estate and Norwich Union is able to decide now what it wants to do with it is that it’s not been used to subsidise policies where, unfortunately, the investment returns on the stock markets have not been as good as anybody might have liked. (John Jenkins, KPMG actuary advising Clare).
Q. Why should we accept this deal if we are not offered 90 per cent?
A. I think it is really important with this particular proposal is that you do not have to accept whatever this policy incentive payment is. So it is your choice. My job is to make that payment as big as possible so that I can go out with confidence and tell you that it’s a good deal for you to take and explain why – but you don’t have to take it.
Q. Why doesn’t the FSA require a distribution? What else can trigger a distribution?
A. The FSA now insists that if there is excess surplus then it must be distributed. However, it is the Directors of Norwich Union at the moment who decide when there is a surplus and how big it is through their own criteria. And one of the things I want to do in this process is change the burden to ask Directors not to act just on behalf of shareholders in making that decision. This industry has come a long way and the FSA has moved the rules along but we’ve a long way to go before we really achieve a policyholder-friendly set of decisions in the with-profits business.
Q. When have there been distributions in the past?
A. There have been instances of special bonuses where a company has decided that it has perhaps been under-declared for some reason in the past or some windfall has come along or there’s been some particularly higher returns over a short period that a company wants to distribute without setting expectations for what ongoing bonus rates will be. So there have been special 90/10 bonuses in perhaps half a dozen circumstances.
Q. How is your approach going to maximise the policyholders’ pot.? How will it be different to the AXA case?
A. The key thing is that there wasn’t a Policyholder Advocate for the AXA deal, so there was no one acting on behalf of policyholders specifically. Indeed, the judge in the AXA case, I understand, was really quite concerned about this – he said he was hearing from the Company and the Independent Expert but not the policyholders. What he did was specifically ask AXA to give some money to the Consumers’ Association to enable them to put up a case on behalf of policyholders.
So there is a really big difference to the AXA case to have someone who is actually arguing and thinking about the issue very clearly withy your interests in mind and nobody else’s. What I have to worry about is that we do the analysis properly, that we understand it and don’t miss things. We have got to perform a very high quality, professional job and we have got to explain it to you as well as we can and make sure it is very transparent. We’re here to do the best deal we can for you but I’ve got to make sure we do a deal and I can’t ignore the fact that Norwich Union has to be persuaded that it is good for shareholders too.
Q. Will you remember that not everybody has access to the internet?
A. The plans we have to communicate with you do include the internet. But we are also using a CD which we recorded to explain issues and a free-phone as well as an office which handles our mail. When it comes to the report we are going to produce that will be published in a variety of forms – a short summary sent to everybody plus a fuller executive summary, the full report plus appendices – as well as another CD containing interviews with the team. We do understand that not everybody has the internet. It is an important way of communicating but it’s not the only thing we use.
Q. If a small percentage of us don’t vote for the deal and a large percentage of us vote to take the money will that reduce the amount of money that the large percentage of us gets?
A. No. The offer will be fixed regardless of how many of you vote yes or no. All that happens is the inherited estate is divided.
Q. My policies are whole life policies and the proceeds of the policies are in trust. Does the money that will be generated for my policies go to the trustees?
A. It is likely to depend on the circumstances of your trust but it is probable that the trustees of your estate will be the ones to take the decision on the deal. And if they elect the reattribution then the cash will be paid into the trust for them to decide what to do with it.

Click here to download the powerpoint presentation from the roadshow »

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