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The FSA is proposing to restrict when firms can impose a market value reduction (MVR) on with-profits funds, in a consultation aimed at tightening rules to better protect policyholders.
It proposes to remove firms' ability to impose MVRs on the grounds of surrender volumes alone.
Instead, an MVR would only be applied where the face value of the policy is higher than the value of the underlying assets.
However, the FSA also proposes removing the requirement for the difference in value to be ‘significant' before an MVR can be applied.
It says if there is a high volume of surrenders, firms may need to be able to apply an MVR when the asset value is less, but not significantly less, than the face value of policies.
Elsewhere in the paper, the FSA proposes strengthening the requirement for any new business backed by the with-profits fund to deliver value to all with-profits policyholders, so writing new business has no negative impact on their interests.
The FSA may also require firms to have a plan to distribute any excess surplus fairly to policyholders, particularly where a firm experiences a significant fall in the amount of new business it is writing.
It also proposes tightening the requirement for boards and governing bodies to obtain independent advice on the management of the funds, by enhancing the role of the with-profits committee and the with-profits actuary.
The FSA is also looking into improving how firms identify and manage conflicts of interest affecting with-profits policyholders, and how they can improve the reattributions process.
Millions of UK investors rely on with-profits funds for their long-term financial security, but the investments have been hit by a growing barrage of criticism in recent years over poor performance.
There are 82 with-profits insurers and friendly societies with 114 funds. In 2009, 61 of these funds were closed and 53 were open.
At the end of 2009, there were approximately £330bn of assets under management in with-profits funds supporting about 25 million with-profits policies.
While asset levels have declined from £420bn in 2005 they are still significant as in 2009 with-profits funds paid a total of £7.2bn to policyholders.
Sheila Nicoll, FSA director of conduct policy, says: "The proposals focus on addressing practical issues where policyholders are not always getting the fair treatment that they deserve.
"This is not the end of our work on with-profits. We will publish further proposals before the end of 2011 to improve firms' communications with policyholders and we will continue to supervise the sector in an intensive way."
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MVR
That's good, because I fear that providers are taking advantage of the MVR now. For instance I notice that Aviva have declared a near 10% MVR on some WP bonds. Given that the stock market has seen a 70% increase in recent years, how can they warrant that?
Posted by: Mark Green
USELESS
This latest story merely underlines how the FSA are so out of touch of what has been happening in financial services. They have endless, pointless, meetings, trying to 'fix' issues which DON'T exist, but have failed to address the old MVR scam that DOES exist and has been happening for years and years. Shameful, but we're used to it.
Posted by: Keith Jayne
mvr
What the FSA, and seemingly most correspondents, know about 'with profits' or MVAs could be writ large on the back of a postage stamp. Why do you all fail to relate the collapse of the share market as an MVA. Is the FSA going to regulate the rate at which shares decrease in value? What of the OEIC position when such funds are illiquid, and a moretorium is imposed (an MVA). Are they too to be dealt with in the same way? I doubt it. In the 1970s 3 life companies collapsed , not with profit funds, annuity funds, and thousands of policy holders, investors, call them what you like, lost their savings because there were NO MVAs and no mechanism to impliment them. My with profit investors have been protected, and their investments have outperformed the stock market indices, only because misinformed or malicious or worse, commision hungry churners could not justify getting at their funds as happened in the mid 1970s. History can take a long time to repeat itself, but, the FSA AND MANY INDUSTRY COMMENTATORS,who fail to understand or merely ignore the historic facts should withdraw from comment or action until they have researched the facts fully. Uneducated, unqualified comment and action has already done more than enough damage. Terence P O'Halloran Chartered Financial Adviser.
Posted by: Terence Patrick O'Halloran
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FSA To Tighten MVR Rules
This is long overdue. They have been sleeping while this little scandal has been going on for years like they have over bank targeted high pressure and high commission insurance and investment sales to the general public. While at it they should also look into high early encashment penalties on contracts invested in funds other than With Profits. I suggest they start looking at Pearl/NPI and Clive Cowdery's new Resolution outfit.
Posted by: John Smyth