Friends set to join other insurers in raising exit charges

Friends provident is set to become the latest insurer to increase the exit penalty customers must pay to release their funds before their maturity date.

Friends provident is set to become the latest insurer to increase the exit penalty customers must pay to release their funds before their maturity date.

The group, which demutualised and listed on the Stock Exchange in July, says it is "quite possible" that the penalty, known as a market value adjuster (MVA), will be raised from its current level of 5 per cent. Keith Satchell, chief executive of Friends, said: "Clearly in the light of current market conditions, it is certainly being looked at."

The move would bring Friends in line with most major insurers, which have increased their MVAs to around 10 per cent. Equitable Life hiked its MVA from 7.5 per cent to 10 per cent last week after further turmoil in the markets. Others to introduce higher MVAs include Scottish Equitable and Legal & General.

While MVAs are unpopular with policyholders, the industry thinks they are prudent readjustments of the value of customers' policies to be in line with the fall in the underlying value of their stock market investments.

If Friends increased its MVA, it would be likely to apply it on a case-by-case basis, aimed mainly at customers whose policies are less than two years old. This is because these investments have fallen across the market by an average of 5 per cent.

Friends, which gains a place in the FTSE 100 next week, wants to grow aggressively. The company's new business fell 12 per cent in the first half of the year, due to brokers' unwillingness to use it while it was going through its demutualisation and because its credit rating was hampered by its lack of access to capital. The group, which raised £1.5bn as part of its flotation, now has a credit rating more in line with other major insurers, and predicts it will take on more business in the second half of the year.

For it to do so prudently, it may well decide to hike up the exit penalty on its funds, to make sure that pay-outs to customers match the value of their assets.