Good news for PruBond policyholders as Prudential holds bonus rates

Prudential, one of the UK’s leading with-profits providers, today kicked off the withprofits bonus season early with good news for its PruBond policyholders. For the fifth consecutive year, it is maintaining the annual bonus rate paid on its Prudence Bond plans at 3.25 per cent per annum. The annual bonus will be applied from 01 March 2007.

This translates into an overall total return on premiums invested from 01 March 2006 onwards of 5 per cent per annum net of fund tax and charges. This includes the final bonus of 1.75 per cent per annum, which was announced as part of the 2006 full bonus declaration.

The PruBond final bonus for 2007, as well as the bonus rates applying to Prudential’s full range of with-profits based policies, will be announced at the end of February 2007 following the completion of the full year-end valuation.

David Belsham, Actuarial Director, Prudential UK and Europe, said: “The concept of with-profits with a strong office such as Prudential has proved its worth during volatile investment conditions.

“We continue to believe with-profits has a sound future with the potential to deliver solid and steady returns for all investors. PruBond’s 300,000 customers can now plan ahead for 2007 safe in the knowledge that the annual bonus is 3.25 per cent – which is also likely to be supplemented with a final bonus.”

PruBond has outperformed all the other investment types listed above over a 10-year period. It not only outperforms other investment types which pose a similar level of risk to the investor (for instance an average balanced managed fund), but it also compares well against investment types where the investor might be expected to take greater risk (for instance the UK all-companies life fund, where at least 80 per cent is invested in equities).

The benefits to policyholders of diversified investment

PruBond is invested in the Prudential with-profits fund which invests in a range of assets including property, shares and fixed interest securities. The size of the fund and the substantial investment resources of Prudential enable it to generate a high degree of diversification both across and within the different investment markets. Diversification is important because the unexpected can, and often does, happen and a wide range of investments helps to protect the total fund against weakness in any one particular market sector or company.

A breakdown of the different asset classes in Prudential’s life fund is as follows:

Martin Brookes, Director of Portfolio Management at Prudential, said: “PruBond’s performance is exceptional against other balanced managed funds and other withprofits funds. Lift the bonnet and this is a highly sophisticated fund with multi-asset backing and active fund management. Investors get a level of investment diversity across a range of assets and markets that most other multi-asset funds can’t match. “Our size and financial strength sets us apart from the majority of other with-profits funds. It is pivotal in allowing us to invest in risk assets as well as to diversify into alternative assets such as hedge funds, infrastructure and others – whereas other multiasset funds just don’t have the financial strength or the resources to invest in these areas. This capability has contributed to Pru’s outstanding performance at a lower level of risk than many other multi-asset funds.”

Strength of Prudential’s with-profits fund

Prudential’s with-profits fund has been recognised as one of the UK’s strongest performers by respected commentators including Cazalet Consulting. Earlier this year, Ned Cazalet said: “The Pru’s WP fund has turned in a dazzling performance over the past few years. On the investment front, the Pru has got some big market calls right, and its tactical asset allocation decisions have paid off big time, leading to massive investment outperformance relative to its peers, with the knock-on effect showing up in its market-bucking bonus payments.”

In July 2006 Prudential retained its top ranking in the WM Life Fund Survey. The Prudential with-profits fund took the top spot with a 20 per cent return for 2005 making it the best performing fund in the WM UK Life Fund Universe. The WM Life Fund Survey is compiled on a quarterly and annual basis by WM, the independent fund-performance service provider. This ranking consolidates the superior position achieved in previous years, with Prudential retaining its top spot over 10 years.

The success of the with-profits fund performance is attributed to asset management and stock selection combined with an active management philosophy. Prudential’s inhouse investment team – the Portfolio Management Group (PMG) – manages the withprofits life fund.

With-profits and PruBond factfile

Prudential has the largest with-profits fund in the UK with assets of over £69 billion (as at end June 2006)

PruBond policies account for approximately £11.6 billion of Prudential’s withprofits fund

With-profits is a medium to long-term investment vehicle which aims to pay returns to investors in excess of deposit rates with less short-term volatility than that normally associated with a direct investment in stock markets

Investors in PruBond can currently choose to take up to 5 per cent income per year with no Market Value Reduction (MVR) and with tax deferred