Norwich Union earmarks pounds 750m for annuities
Wednesday 03 March 1999
The provision is the largest yet to be revealed in the life industry and reflects NU's exposure to a problem expected to cost the industry a total of pounds 10bn.
Annuity guarantees were for decades used to promote the sale of pension policies for the self-employed. They typically promised a saver an annual retirement income worth at least 12 per cent of the amount saved.
As long as long-term interest rates stayed in double figures - as they did for most of the past 30 years - insurers expected never to lose money on the guarantees.
But last year long-term interest rates plummeted to their lowest level since 1966, leaving a giant gap between what insurers had promised and what they could afford to fund. Many insurers are now reserving hundreds of millions of pounds to cover their exposure to the guarantees.
Richard Harvey, NU chief executive, disclosed the level of the provision for the first time yesterday, ending months of uncertainty over the scale of NU's exposure. He said the company had doubled the level of reserves after the fall in long-term interest rates last year.
"We have always reserved for guaranteed annuities - they are part of an overall business of offering guarantees within [NU]," he said.
The cost of the guarantees will be met from free reserves within the life fund of NU - 10 per cent owned by shareholders - slightly eroding the company's financial strength. NU's free asset ratio - the headline measure of financial strength - fell from 15 to 12.9 last year.
NU also said its shareholders, including 1.3 million policyholders who kept their shares when the insurer de-mutualised in 1997, will receive a 10 per cent rise in dividend to 12.8p a share.
The company turned in operating earnings up 11 per cent, boosted by a 6 per cent growth in new business worldwide. Mr Harvey said the company planned to raise general insurance premiums by 5 to 10 per cent in the coming year.
He added NU was on target to deliver pounds 30m a year in cost savings following its purchase of London & Edinburgh, the general insurer, last autumn.
- 1 Vladimir Putin says Russia will fight for the right of Palestinians to their own state
- 2 Ohio Democrat Teresa Fedor speaks out during abortion debate to reveal she has been raped – and is interrupted by laughter from Republicans
- 3 Germanwings plane crash: I have depression. That doesn't make me a psychopath
- 4 The West has it totally wrong on Lee Kuan Yew
- 5 The Gaza fisherman who built his own reef - and was shot dead there by an Israeli gunboat
Vladimir Putin says Russia will fight for the right of Palestinians to their own state
Ohio Democrat Teresa Fedor speaks out during abortion debate to reveal she has been raped – and is interrupted by laughter from Republicans
Germanwings plane crash: Investigators may have already found remains of suspected killer co-pilot Andreas Lubitz
Children take eight Isis captives to be beheaded in latest propaganda video
The battle for the Middle East's future begins in Yemen as Saudi Arabia jumps into the abyss
Ukip supporters are 55 or older, white and socially conservative, finds British Social Attitudes Report
JK Rowling responds to fan tweeting she 'can't see' Dumbledore being gay
Jeremy Clarkson sacked live: Alan Yentob 'wouldn't rule out' ex Top Gear host's BBC return
Street preacher quoting from the Bible fined for calling homosexuality an 'abomination'
Woman filmed launching racist tirade against men on the Tube for speaking in 'own lingo'
The West has it totally wrong on Lee Kuan Yew
iJobs Money & Business
Negotiable: Recruitment Genius: To provide a prompt, friendly and efficient se...
Negotiable: Recruitment Genius: You will be the first point of contact for all...
£18000 - £24000 per annum + benefits: Ashdown Group: HR, Payroll & Benefits Of...
£35000 - £38000 per annum + benefits : Ashdown Group: A highly successful, int...