Following the news that AMP will be restructuring their UK operations, worrying news has been released for NPI and Pearl Assurance with profits policyholders.
AMP have announced that the with profits funds for both NPI and Pearl Assurance will have their exposure to equities (stocks and shares) dramatically reduced. The object of the change will be to reduce the risk associated with their products. By reducing the equity exposure, these two funds will be focussed more on property and fixed interest investments, thereby reducing the opportunity for significant profits, should the stock market continue to move upwards. This will obviously have a knock on effect for policyholder bonuses over the coming years.
This news has prompted other insurance companies to state their own positions. Standard Life has confirmed they intend to remain in equities, with 53% of their with profits fund currently invested in that area. Scottish Equitable on the other hand has reduced their equity exposure from 45% three years ago to just 4.5% now. Scottish Widows currently has 32% of the with profits fund in equity investments but intends to increase this as the stock market improves.
Our View
With profits funds generally have exposure to equities and the stock market to produce growing returns over the longer term. To even out the risk of the stock market ups and downs, other investments such as property, cash and fixed interest investments are also used.
By removing the majority of equity investments, AMP has significantly reduced the opportunity for a wide spread of growth over the long term. The result of this could mean bonuses for policyholders becoming less attractive over the years when compared to other types of policy.
However, the lower the equity exposure, the lower the level of risk within the fund. Although returns may be less, having less equity exposure could make these new style with profits policies more attractive to cautious investors.
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