AMP shuts £14bn Pearl fund to protect reserves

AMP is closing its £14bn Pearl with-profits fund in favour of a new style smoothed-managed fund to preserve capital that has ebbed away in falling stockmarkets.

The Australian insurer made the announcement after it reported a 25 per cent fall in first-half profits before tax, which it said was largely due to restructuring costs in the UK.

AMP, which owns Pearl, NPI and Henderson in the UK, has been hit by under-performing equities. "In the current environment it is prudent to maintain our financial reserves," said Paul Batchelor, the chief executive of AMP.

Mr Batchelor said closing the Pearl fund and opening a new fund would "facilitate the efficient use of capital and improve its regulatory capital position".

New AMP customers will now be offered a smoothed-managed fund, called a 100/0 fund, where 100 per cent of returns are used for policyholder bonuses.

Traditional with-profits funds, in which there is around £350bn invested in the UK, are managed on what is known as a 90/10 basis. Shareholders are entitled to 10 per cent of profits, and policyholder bonuses are paid with the rest. These funds have been criticised as opaque and giving an unfair deal to policyholders.

Ron Sandler, the former Lloyd's of London chief executive who was asked by the Treasury to investigate the with-profits industry, has recommended insurers adopt a 100/0 structure as a replacement to with-profits. Prudential is also considering setting up a new 100/0 fund.

AMP's move only affects new customers, but the group is looking at the possibility of converting the existing £14bn Pearl with-profits fund to the new structure. It has already had to pump £400m into its UK life insurance funds to keep them from breaching solvency requirements.

"The shift to more modern products, together with previously announced capital initiatives, will enable us to meet the minimum regulatory capital requirements for all our UK funds at FTSE levels several hundred points below current levels," Mr Batchelor said.

Last month AMP said it was to stop selling its Pearl with-profits bond and bonuses would be cut.