# How the rating system works

The basis of John Chapman's rating system is the fact that charges rather than investment performance are the primary determinant of policyholder returns when buying a pension, mortgage or savings policy from a life insurance company.

Investment results are important, of course. However, the arithmetic of charges puts it into perspective. The charges reduce the overall yield of a policy by the equivalent of between 1 and 5 percentage points a year. For those cashed in early, the reduction in yield can be 10 per cent a year or more.

A simple analysis of a company's final performance - the cash delivered when a policy matures - is not the best way of measuring how good it is. As few as 30 per cent of investors may hold a policy to maturity, and it is vital to know what they will be paid should they pull out early.

Mr Chapman's rating system takes this into account, by rating companies on how much they pay back investors, or give in pension transfer value, in the early stages of a policy, part way through it and at maturity.

First, the system rates a company's past performance, based on the amount paid at the three stages. The same calculations are done again, based on the company's own projections of future payouts.

Since charges are the dominant factor, the projections assume that every company has the same investment performance. Variations in the results are therefore a short cut to showing the differences in charges at each stage. These sums are in the first three columns of the main mortgage table (facing page).

But Mr Chapman does not rely on a confusing array of numbers. Instead, he allocates a letter from A+, the best, down to C-, the worst. A company with an A+A+A+ rating is excellent at every stage. A rating of CAA or CCA means a policyholder will be treated badly on early surrender but well if the policy is kept to maturity. The letters are allocated by calculating how far a company deviates up or down from the midpoint of all the companies in the category.

The top handful of companies in the main and summary tables are those where good future projections are matched by past performance. In the rest of each table, the rankings are based on companies' projections of future charges alone.

John Chapman's pioneering methods for comparing performance between companies have been adopted by Money Marketing, the magazine for independent financial intermediaries, which asked KPMG to carry out detailed calculations for each company. Mr Chapman's analysis for The Independent uses these calculations.

Fuller performance tables for unit-linked and with-profits policies are available from Money Marketing Customer Services, St Giles House, 50 Poland Street, London W1V 4AX, for pounds 3.75 each inc p&p.

Suggested Topics
Sport

### Sherwood fits the bill for Crystal Palace

footballFormer Tottenham boss leads list of candidates to replace Neil Warnock
Arts and Entertainment

film
News

### Guess who's been named 'Briton of the year'

peopleHe has shaped British politics 'for good or ill'
News

news
PROMOTED VIDEO
News

i100
Travel

### From a football-themed property to a Facebook millionaire's desert resort

travelChic new hotels in 2015
Arts and Entertainment

### A guide to the best New Year's Eve parties

musicFour of Britain's top DJs give their verdict on how to party into 2015
Sport

### Who does your club need in the transfer window?

footballMost Premier League sides are after a striker, but here's a full run down of the ins and outs that could happen over the next month
Sport

football
News

### Unluckiest People of 2014

people... (and one very unlucky giraffe)
Arts and Entertainment

### The golden age of TV comedy is here

TV First US networks like HBO shook up drama - now it's comedy's turn
News

people
News

i100

Property search

### Where to look for returns in 2015: What will happen to stock markets?

The coming year is expected to provide opportunities for patient investors

### Pension mortgages: 'The advice I was given was wrong and now I face losing my home'

It's a tale of wrongdoing by financial professionals and buck-passing by the regulators. Simon Read talks to a man who took out a pension mortgage

### Simon Read: The point of having protection insurance? The right cover can help reduce your financial concerns at a time of extreme worry

In May Nicola Groves got a massive shock. The 45-year-old mother of two was told, bluntly, that she had breast cancer. "When I heard the words, 'You do have breast cancer and you are going to lose your breast', I felt as if time stood still," she says.

### Mark Dampier: Maybe boom, maybe bust, but we'll probably just muddle along

It's that time again when the media looks back over the past year and forward to the next. I am reminded of an old film, The Day the Earth Caught Fire (1961). Near the end of the film a newspaper prints two headlines – which one it uses will depend on whether the world is saved or doomed.

### Money Insider: Supermarkets: the real challenger banks

The supermarket banks have always excelled at offering simple, no nonsense products, and savings accounts is another area in which they fare well

### Locals in Staffordshire to save hundreds after new council-backed project to install solar panels

The sun is shining on people who struggle to heat their homes and it’s thanks to a sense of community

### Simon Read: Give people struggling with debt some breathing space

Struggling people need help, understanding and forbearance, not ill-thought-out pronouncements

### Simon Read: Caught up in the scandal about leaks at the regulator

You won’t find me bashing the banks for the sake of it, but sadly they’ve deserved all the criticism that’s been sent their way in recent years

### Money alert: Stolen mobile phones

Gillian Guy, chief executive of Citizens Advice: 'The injustice of shock bills for crime victims must end. The Government must stand up for consumers and cap bills from lost or stolen phones at £50'

### Mark Dampier: A hot investment story is taking shape as India lets the light in

Stirring the pot: the Indian Government’s reforms of labour rules offer hope of a brighter future for businesses

### Bargain hunter: Whisk up those leftovers instead of just throwing them in the bin

Knight of the road, look out: you’ve got a new rival

### How to raise money for charity this Christmas

There are so many ways you can raise money - and awareness - for charity. Rob Griffin explains how easy it is to donate and reap financial rewards

### Simon Read: The Chancellor has stamped on an unfair tax. But will the delight of homebuyers mean misery for others?

Were you surprised by the sudden reform of the rules for stamp duty on property purchases? I certainly was. I've been calling for ages for a change in the tax to make it more fair – and, at a stroke, George Osborne did just that on Wednesday in his Autumn Statement.

### Best savings rates are not all they might seem

Consumers can sometimes think they are shopping around for a rewarding account when in one important aspect, writes Samantha Downes, they are not

### Gold-plated pensions – the key to retirement freedom?

With some people are weighing up whether they will be better off cashing in their final salary pension next spring, Samantha Downes asks the experts

##### Independent Dating
and

By clicking 'Search' you
are agreeing to our

### Selby Jennings: VP/SVP Credit Quant- NY- Investment Bank

Not specified: Selby Jennings: VP/SVP Credit Quant Top tier investment bank i...

### Selby Jennings: Quantitative Research | Equity | New York

Not specified: Selby Jennings: Quantitative Research | Global Equity | New Yor...

### Selby Jennings: SVP Model Validation

Not specified: Selby Jennings: SVP Model Validation This top tiered investment...

## Aren’t you glad you didn’t say that?

The worst wince-and-look-away quotes of the year

## Vanity project on a high-speed track to nowhere

France’s TGV network has become mired in controversy

## Sports Quiz of the Year

So, how closely were you paying attention during 2014?

## Alexander Armstrong on insulting Mary Berry and his love of 'Bargain Hunt'

From Armstrong and Miller to Pointless

## Sanchez helps Gunners hold on

Olivier Giroud's moment of madness nearly costs them

## Christmas without hope

Gaza fears grow that conflict with Israel will soon reignite

## The 'Black Museum'

After 150 years, you can finally visit Britain's grisliest museum

## No ho-ho-hos with Nick Frost's badass Santa

Doctor Who Christmas Special TV review

## Chilly Christmas

Swimmers dive into freezing British waters for charity

## Homeless Veterans appeal

In 2010, Sgt Gary Jamieson stepped on an IED in Afghanistan and lost his legs and an arm. He reveals what, and who, helped him to make a remarkable recovery

## 'Jilan killed herself in the bathroom. She cut her wrists and hanged herself'

Yazidi girls killing themselves to escape rape and imprisonment

## Ed Balls interview

'If I think about the deficit when I'm playing the piano, it all goes wrong'

## US stars in UK panto

From David Hasselhoff to Jerry Hall

## Grace Dent's Christmas Quiz

What are you – a festive curmudgeon or top of the tree?

## Nasa planning to build cloud cities in airships above Venus

Planet’s surface is inhospitable to humans but 30 miles above it is almost perfect