21st Feb 2006 07:01
Prudential PLC21 February 2006 Embargo: 07.00am Tuesday 21 February 2006 PRU DELIVERS EXCELLENT INCREASES FOR ITS 4.5m WITH-PROFITS CUSTOMERS • With-profits fund produces 20 per cent annual return in 2005, well ahead of its major rivals who have announced to date • Pru's investment performance stands 'head and shoulders above the rest' • With-profits payout values boosted by up to 18 per cent • With-profits annuities income increased by up to 11 per cent for the coming year • All Prudential endowments and an estimated 96 per cent of Scottish Amicable endowments forecast to meet repayment targets in 2006 • £2.5 billion added to policy values Prudential's 4.5 million with-profits customers are to receive increases of upto 18 per cent in their policy values after the investment giant's with-profitsfund delivered an exceptional annual return of 20 per cent (before tax andcharges) in 2005. The Pru's with-profits fund, which at £83 billion is the UK's largest, hassignificantly outperformed the FTSE-100 Total Return and FTSE All-Share TotalReturn indices over five and 10 years and outstripped competitor funds. Itsnearest major competitor delivered 17.7 per cent gross in 2005. For the second year running, Prudential has increased year-on-year payoutsacross the vast majority of policies and in doing so, has raised the benchmarksignificantly for the with-profits reporting season. Prudential has achieved this outstanding result due to its superior investmentperformance, its investment freedom which allows it to change the asset mix toreflect its views on markets, and its continued focus on maintaining thefinancial health of the with-profits fund. All of this adds up to anexceptionally strong with-profits fund. Ned Cazalet, Cazalet Consulting, and a leading industry commentator, said: "Looking at the nine larger with-profits funds (CGNU Life, Clerical Medical,Commercial Union, Friends Provident, Norwich Union, Prudential, Scottish Mutual,Scottish Widows and Standard Life) that have reported to date, the underlyinggross unsmoothed investment performance achieved by the Prudential's with-profitassets stands head and shoulders above everybody else - a 45 per cent cumulativereturn over the six calendar years from 2000 compared to an average of 20 percent for the rest. "Since 2000, with-profit fund assets have generally delivered better returnsthan equities. The 45 per cent return achieved by Prudential since the start ofthe decade compares to the 5 per cent total cumulative return clocked up by theFTSE All-Share index and -2.8 per cent outcome for the FTSE-100." Excellent increases in payout values Crucially for savers, Pru's investment success translates into increased payoutsfor all of its policies maturing in 2006 compared with their value 12 monthsago, demonstrating the attraction of holding on to long-term investments for thefull term. Policy values on Prudence Bond increased by up to 13 per cent compared with ayear ago while values on pensions rose by up to 18 per cent. Prudential believes this is a more significant measure for policyholders as itshows the return on their policies over the last year rather than making acomparison with a product maturing a year ago which is not relevant for nearlyall policyholders. Policies in 2006 show increases compared with their position a year ago of: • 10 year Prudence Bond (£10,000 single premium) up 12.7 per cent • 15 year Personal Pension (£200 per month regular premiums) up 12.4 per cent • 20 year Personal Pension (£200 per month regular premiums) up 18.3 per cent • 25 year With-Profits Mortgage Endowment (£50 per month regular premiums based on male aged 30 at start of contract) up 16.7 per cent for Prudential and 16.1 per cent for Scottish Amicable. Note: all figures are after deduction of tax (where relevant) and charges. Roger Ramsden, Executive Director, Prudential UK and Europe, said: "This is acontinuing and strong validation for the concept of an actively managed and wellrun with-profits fund which is delivering excellent returns for our investors. "Prudential savers are enjoying the returns we are providing as a reward formaintaining their investments through the turbulence and volatility of stockmarkets at the start of the decade. "We strongly believe that all with-profits funds are not the same and it'simportant that investors aren't led into bad investment decisions based onsweeping generalisations about the with-profits sector as a whole. "This excellent performance, should make those who have doubted with-profits asan investment method, think again. A strong office such as Prudential has provedthe worth of with-profits, demonstrating it has delivered solid and steadyreturns for all investors." Mortgage endowments Customers with mortgage endowments are also benefiting - all Prudentialendowments maturing this year will meet their repayment target as will anestimated 96 per cent of Scottish Amicable policies. The average surplus isexpected to be £3,300 and £2,600 respectively. The long-term outlook for maturing mortgage endowments is also improving with asignificant reduction in the number of customers who will see 'red' warningletters from Pru (down to 13 per cent) and Scottish Amicable (down to 16 percent). With-profits annuities With-profits annuities (WPA) have also performed strongly with annuities incomeincreased by up to 11 per cent for the coming year. WPA are invested in the with-profits fund and promise to pay retirees an incomefor the rest of their life. Crucially, WPA generate an income stream that hasthe potential to grow. By contrast a fixed level annuity will not rise, so aretiree will find that the value of their annuity is gradually reduced byinflation. Conventional annuity payments are backed by fixed-interest investments (mainlycorporate bonds), so when the yield on bonds falls - as it has recently - so doannuity rates. Conventional annuity rates are at their lowest for more than 30 years, and whilethese are essentially risk-free, savers who are considering a conventionalannuity now will be locking themselves into these relatively low rates. WPA, on the other hand, link the level of income to the performance of thewith-profits fund, which has a mix of assets that over the longer-term givesthem the prospect of income growth. The returns from these investments are paidto annuitants as bonuses, which may vary from year-to-year. Bonuses are designedto smooth the ups and downs of the investment markets. WPA can also provide an attractive alternative to conventional annuities thatare linked to inflation. Although incomes from inflation-linked annuities areguaranteed to rise in line with the Retail Price Index, the starting incomes areusually lower. Annual bonus rates Annual bonus rates are being maintained on all policies. When we decide on therate of the annual bonus, the main thing we consider is the return we expect ourinvestments to earn in the future. We hold some of this return back to enableus to pay final bonuses and maintain a flexible investment strategy. We target annual bonuses to be a prudent proportion of the expected long-termfuture investment return (net of tax where relevant, and charges), and we aim tochange the annual bonus rates only gradually. For the with-profits fund ourexpected long-term future investment return is around 8 per cent p.a. gross. So, annual bonuses look forward and final bonuses look back. Therefore, it'sthe final bonus that takes into account the actual investment return over theterm of the policy and it's this element of the overall return that is mostlikely to change year-on-year. With-Profits Committee Prudential established its independent With-Profits Committee - one of the firstcompanies to do so - in January 2005 and the members have overseen the approachto, and setting of, the 2006 declaration. Committee members are Andreas Whittam Smith, First Church Estates Commissionerand founding editor of The Independent newspaper; Michael Arnold, Head of theLife Practice at Milliman; and Jeremy Goford, a past President of the Instituteof Actuaries. The Committee assesses how the company balances the rights and interests ofpolicyholders and shareholders in relation to its with-profits funds, andwhether Prudential complies with its Principles and Practices of FinancialManagement. Full details of Prudential's 2006 bonus announcement can be downloaded from: • www.pru.co.uk/presscentre • www.headlinemoney.co.uk Or contact the Pru UK press office on: James Murray Tel:0207 150 2203 Mobile: 07810 181757Anthony Frost Tel:0207 150 3001 Mobile: 07886 967649Steve Colton Tel:0207 150 3136 Mobile: 07771 531525Darragh Leeson Tel:0207 150 2600 Mobile: 07801 856011 The information contained in Prudential UK's press releases is intended solelyfor journalists and should not be used by consumers to make financial decisions.Full consumer product information can be found at www.pru.co.uk About Prudential Prudential plc is a leading international financial services group, providingretail financial services and fund management in its chosen markets: the UnitedKingdom, the United States, Asia and continental Europe. Prudential has been writing life insurance in the United Kingdom for over 150years and has had the largest long-term fund in the United Kingdom for over acentury. Today, Prudential has over 16 million customers worldwide and over £214billion (as of 30 June 2005) of funds under management. In the United Kingdom Prudential is a leading life and pensions provideroffering a range of retail financial products. M&G is Prudential's UK &European Fund Manager, with around £126 billion of funds under management.Jackson National Life, acquired by Prudential in 1986, is a leading provider oflong-term savings and retirement products to retail and institutional customersthroughout the United States. Egg plc, in which Prudential has a 78 per centshareholding, provides banking, insurance and investment products through itsinternet site www.egg.com. Prudential is the leading European-based life insurer in Asia with operations in12 countries. *Prudential plc, a company incorporated and with its principal place of businessin the United Kingdom, and its affiliated companies constitute one of theworld's leading financial services groups. It provides insurance and financialservices directly and through its subsidiaries and affiliates throughout theworld. It has been in existence for over 150 years and has £214 billion inassets under management, (as at 30 June 2005). Prudential plc is not affiliatedin any manner with Prudential Financial, Inc, a company whose principal place ofbusiness is in the United States of America. Forward-Looking Statements This statement may contain certain "forward-looking statements" with respect tocertain of Prudential's plans and its current goals and expectations relating toits future financial condition, performance, results, strategy and objectives.Statements containing the words "believes", "intends", "expects", "plans", "seeks" and "anticipates", and words of similar meaning, are forward-looking. Bytheir nature, all forward-looking statements involve risk and uncertaintybecause they relate to future events and circumstances which are beyondPrudential's control including among other things, UK domestic and globaleconomic and business conditions, market related risks such as fluctuations ininterest rates and exchange rates, and the performance of financial marketsgenerally; the policies and actions of regulatory authorities, the impact ofcompetition, inflation, and deflation; experience in particular with regard tomortality and morbidity trends, lapse rates and policy renewal rates; thetiming, impact and other uncertainties of future acquisitions or combinationswithin relevant industries; and the impact of changes in capital, solvency oraccounting standards, and tax and other legislation and regulations in thejurisdictions in which Prudential and its affiliates operate. This may forexample result in changes to assumptions used for determining results ofoperations or re-estimations of reserves for future policy benefits. As aresult, Prudential's actual future financial condition, performance and resultsmay differ materially from the plans, goals, and expectations set forth inPrudential's forward-looking statements. Prudential undertakes no obligation toupdate the forward-looking statements contained in this statement or any otherforward-looking statements it may make. This information is provided by RNS The company news service from the London Stock ExchangeRelated Shares:
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