Prudential UK with-profits bonus update

Prudential announced today that its strong with-profits fund has once again sheltered policyholders from the full impact of the extreme volatility seen in world markets and that it will make bonus payments totalling £2.8 billion (Note: £2.8 billion added to With-Profits policy values is split £1.3 billion Annual Bonus and £1.5 billion Final Bonus).

Annual bonus rates have been set at 3 per cent for most with-profits bond and personal pension policies and 2 per cent for Prudential sold annuity customers. This was possible due to the financial strength of the Fund and the consistently good underlying investment performance it has achieved over the medium to long-term, particularly when compared with many alternative investment options.

While the investment performance of Prudential's With-Profits Fund was not immune to the extreme market conditions seen in 2008, customers have benefited from the ‘smoothing' being applied to their policies which has reduced the full impact on claim values.

David Belsham, Chief Actuary at Prudential, said: "Prudential's with-profits has once again delivered what it said it would. Although investment markets have performed very poorly in 2008, our policyholders have been protected from the full impact of the market falls and will typically see a reduction of between 6 per cent and 10 per cent in their accumulating with-profits policy values. In such exceptional market conditions, this compares very well with many directly exposed investment options available to customers.

"It is important to remember that with-profits products are a medium to long-term investment and our with-profits customers have received strong annualised returns.

"Today's announcement reflects the consistent way in which we manage the Fund to ensure a fair approach to the setting of bonus rates. Our policyholders have benefited from the downside protection provided by our Fund which is supported by an Inherited Estate of £5.4 billion. It has never been more important to maintain the security and ongoing financial strength of the Fund for the benefit of our current and future policyholders."

What this means for customers

The strong long-term investment performance achieved by Prudential's With-Profits Fund has enabled the Company to provide customers with good annualised returns compared with many other investment options.

David Belsham continued: "We believe the bonuses announced today are prudent and will protect the ongoing interests of our current and future policyholders. Our overriding priority has always been to maintain the long-term financial security of the Fund and to continue to deliver strong performance for the benefit of our customers. The Fund has consistently outperformed the market and is providing our customers with good returns compared with many other investment options, especially during such challenging market conditions.

"We have seen a significant increase in sales of with-profits products at Prudential, reflecting the strength of our with-profits offering and an increasing demand for this type of product, especially when invested in an actively managed, well-run and financially strong fund."

Strength of Prudential's With-Profits Fund

Prudential's With-Profits Fund is the largest and one of the financially strongest in the UK, continuing to cover comfortably all its regulatory solvency requirements. The Fund is supported by an Inherited Estate estimated at £5.4 billion (as at 31 December 2008) which provides the working capital required to support the Fund for the long-term benefit of current and future policyholders.

This financial strength has enabled Prudential to add just under £25 billion to policy values for its with-profits customers between 1999 and 2009.

Strong With-Profits Sales Growth

Sales of with-profits bonds in 2008 were £98 million, an increase of 139 per cent on the prior year. This strong sales growth reflects the strength of Prudential UK's with-profits offering and an increasing demand for this type of product as consumers increasingly look to protect themselves from market downturns, especially when invested in an actively managed, well-run and financially strong fund.

Market Value Reductions

Prudential's approach to Market Value Reductions (MVR) remains unchanged although this is reviewed regularly in light of market conditions. Where applicable, it is calculated on a case-by-case basis. For those policies that have been held for more than five years and have an MVR-free withdrawal limit, the limit of £25,000 in any 12 month period remains unchanged.