LV= with-profits bonds healthy investment for low-risk investors

LV= has published an analysis of with-profits bond policyholder value, based on an independent report produced by leading financial risk consultancy Barrie & Hibbert.

The analysis compares a representative sample of with-profits bond policies against a range of investment alternatives. The resulting report shows that LV= policies continue to offer significant value to existing bond holders, in comparison with this range of alternative investments.

Barrie & Hibbert used detailed information about the with-profits fund management principles and practices of LV=, with policy-specific data on a sample of LV= bonds to create models for the payout value of an individual customer’s with-profits investment at key five and ten year points. Each bond model was then put through 1,000 economic scenarios to measure its risk profile and expected return, and then compared this with the performance of four alternative portfolios: Cash, Cautious, Balanced and Equity.

In commissioning this analysis, LV= was keen to help advisers answer the following key questions for clients who hold one or more LV= with-profits bonds:

Does the bond still meet the customer’s needs?

Is the risk profile of the with-profits bond consistent with that of the bondholder?

Are there any alternative investment options which may be more appropriate; in particular do any of the alternative investment options considered offer better ‘value’ to the customer?

Stuart Tragheim, Director, Intermediary Business at LV= said: “We are confident about our investment approach and proud of our track record, so we approached a leading independent firm of analysts to investigate whether bondholders could generate a better return elsewhere without incurring any additional risk. We will be communicating the conclusions of this analysis to professional advisers to help them with investment reviews for their clients.”

Philip Mowbray at Barrie & Hibbert said, “The FSA’s principles of Treating Customers Fairly make it more important than ever for providers to communicate with customers about the ongoing risk profile and value of their products. In the area of with-profits, the FSA is sensitive to the fact that for some policyholders, a product bought several years ago may no longer be the most appropriate for them. LV= has used advanced modelling methods to review the ongoing appropriateness of their existing with-profits bonds. Our modelling methodology assesses the risk profile and expected return for individual with-profits bonds.”

Tragheim concluded: “We believe that a decade of surging stockmarkets caused savers, advisers, and even providers themselves, to rebase their expectations of with-profits returns given the risk profile of the product. Barrie & Hibbert’s analysis shows that compared with alternative investment options with a similar risk profile, our range of with-profits bonds could continue to offer customers exceptional value for money.”