With-profits fair treatment proposals

As part of its major review of the sector, the FSA issued CP207 “Treating with-profits policyholders fairly” in December. Under the proposals, which the regulator plans to implement on 31 March 2005, firms would be required to publish a target range around the policy’s unsmoothed asset share for payouts on maturity and surrender that would not vary more than a set percentage, within that target range, from those of comparable policies in the previous financial year. The asset share definition in COB 6.12.15R is the retrospective method consulted on in CP195 (August 2003); if relevant, “appropriate contributions from the experience of other business must be included” but firms that failed to comply with COB6.12 rules would not be permitted to deduct consequential losses as the FSA believes such a course would be unfair to policyholders. Market Value Reductions (MVRs) would apply only if the fund’s assets value had changed markedly or in the event that sizeable surrenders had occurred or were expected. Only directly attributable running costs would be chargeable to with-profits funds. If compensation was due to with-profits policyholders it would be paid first from an extant inherited estate and then from shareholders’ funds. If a surplus exceeded the amount needed for current and future business this would favour its distribution. In addition, policyholders would have to be told within 28 days of a fund closure and a run-off plan would have to be put forward to the regulator. With-profits policyholders would be represented by a “policyholder advocate” during reattribution negotiations to buy out their interest in an inherited estate.