NU Response to Sandler Review
Aviva PLC
9 July 2002
NORWICH UNION RESPONSE TO PUBLICATION OF SANDLER REVIEW
Norwich Union, Aviva plc's UK life business and the UK's largest insurer,
today welcomed publication of the Sandler Review, which is aimed at closing
the savings gap in the UK and therefore increasing the size of the long-term
savings market. During the course of the Review, Norwich Union is pleased
to have worked closely with the Sandler team. The Review is very
comprehensive and needs detailed examination and consultation.
Norwich Union expects that its share of the UK long-term savings market will
grow profitably within an expanded market as consumers are encouraged to make
greater provision for their future financial well-being through improved
consumer education and a new range of simple products. It believes there will
be a continued 'flight to quality' as consumers select strong brands as their
choice of long-term savings provider. Norwich Union has doubled its share of
the UK life market over the past five years to approximately 12% and is
targeting a market share of 15% by the end of 2005.
Norwich Union is particularly pleased that:
* Consumer access to financial services products is to be widened through the
development of a new range of simple products. Norwich Union has supported
the idea of new products which would significantly widen access and could
be sold under a 'lighter touch' regulatory regime.
There is a clear need for a range of products that enable access to be
provided to the mass market at an affordable cost.
* Complex and overlapping regulation, which confuses consumers and increases
costs, is to be tackled. We are pleased that the Review recommends the
removal of overlapping regulation where both products and the advice
process are regulated. This will reduce distribution costs substantially.
However, we need to ensure that consumers receive sufficient protection.
* There is to be a major programme of consumer education. There needs to be
a major focus on stimulating informed consumer demand and a regulatory
environment that allows consumers to be encouraged to save.
* The value of with-profits investments to UK consumers has been recognised.
We agree with the desire for greater transparency and better customer
communications across the industry on with-profits policies and Norwich
Union is already at the forefront of the industry in these areas. Such
changes will greatly enhance the attractiveness of with-profits plans to
consumers.
Norwich Union remains committed to with-profits as a key investment choice
that has proved most suitable for the vast majority of customers who want
access to a low to medium risk investment option and to benefit from
investing in equities without the short term volatility of the stock
market.
* The cost of financial advice is to be made clearer. We are pleased the
Review recognises the value of advice, particularly independent advice.
We are also pleased that, in the proposals for remuneration, the Review
recognises that this remuneration can be contingent on a sale. This
overcomes a number of the weaknesses within the defined payment system
(DPS) under CP121 (the FSA's 'Reforming Polarisation' consultation paper).
However, we are concerned that any proposals remain practical and
cost-effective, and do not result in a reduction in the independent advice
sector. In addition, any changes must be made within a transitional period
and must be accompanied by a programme of consumer education.
* There is to be a simpler and easier tax regime. The recommendation
relating to tax requires detailed consideration.
We are concerned that there should be a level playing field across all
sectors of the industry, both in terms of personal taxation and corporate
taxation. The regulatory regime and requirements for regulatory capital
need to be consistent across unit trusts, investment trusts, Open Ended
Investment Companies (OEICS) and life companies.
With-Profits Business
It has been proposed that with-profits business should operate on the basis
of 'charges less expenses', also called a 100:0 basis. Whilst we believe
that there is nothing intrinsically wrong in operating a 90:10 basis, we
are confident that there is value in both methods. Norwich Union already
has considerable experience of operating on a 100:0 basis, for example,
all of our with-profits stakeholder pensions business operates in this way
as does some of Norwich Union's existing with-profits investment bonds
business.
Under Sandler's proposals, some future with-profits new business would be
offered on a 100:0 basis, although in the shorter term, all relevant Norwich
Union products would continue to be marketed on a 90:10 basis.
The impact on new business margins is unclear at this early stage and the
actual effects on financial results will be determined by a number of
factors, including product mix, distribution costs, efficiency gains,
improving volumes and competitive forces. However, Norwich Union estimates
that if this change had occurred in 2001 then based, on our new business
and distribution mix, the average margin achieved on the UK life and pensions
business would have been reduced by no more than five percentage points.
Levels of absolute profitability will benefit from targeting an increased
market share in what Norwich Union sees as an expanding UK long-term savings
market.
In addition, Norwich Union believes that these proposals could lead to
a reattribution of the inherited estate (see Notes to Editors) being in
the interests of policyholders and shareholders, and will pursue the
investigation of this. This process would require approval by the courts,
regulators and other experts, which Norwich Union would hope to have
been completed by the end of 2004. The inherited estate was estimated
to be £5 billion at 31 December 2001.
Philip Scott, Chief Executive of Norwich Union Life, commented:
'The objective of the Sandler Review is to close the savings gap in the
UK and this brings with it a significant growth opportunity for us.
'Consumers will benefit from new, simple, low-cost products which are
easily accessible and can be sold within a 'lighter-touch' regulatory
regime. They will seek companies such as Norwich Union with strong brands
and financial strength with whom to entrust their savings.
'We have the size and scale to produce low-cost products efficiently and
at a profit. Our growth in market share over the past five years demonstrates
our ability to grow in a changing market environment. With products available
through a range of distribution channels, we are well-placed to take a
growing share of a growing market.'
Enquiries:
Analysts / Investors:
Steve Riley, Investor Relations Director +44 (0)20 7662 8115
Media:
James Evans, Head of Media Relations, Norwich Union Life +44 (0)1904 452791
Hayley Stimpson, Director of External Affairs, Aviva plc +44 (0)20 7662 7544
Alex Child-Villiers, Financial Dynamics +44 (0)20 7269 7107
NOTES TO EDITORS
The inherited estate, held within the main with-profits funds, consists
of free reserves that do not form part of policyholders' reasonable
expectations, and that are unlikely to be distributed to existing
with-profits policyholders. A reattribution of the inherited estate is an
exercise where shareholders offer to buy out the interests of existing
policyholders now, in return for ownership and eventual distribution of the
estate in the future.
Norwich Union is the UK's largest insurer. It is the UK's largest provider
of life, pensions and investment products and one of the leading IFA
providers. IFAs provide around 75% of the company's long-term savings
business. Norwich Union has strategic alliances with building societies
and other leading UK brand names including Tesco Personal Finance and
The Royal Bank of Scotland Group. Norwich Union is part of Aviva plc.
Aviva plc is the UK's largest insurance group, one of the top-five
life insurers in Europe and has substantial positions in other markets
around the world. Aviva is the world's seventh-largest insurer based
on worldwide gross written premiums.
Norwich Union's news releases are available on the Aviva plc website at
www.aviva.com
A selection of images are available from the Norwich Union Newscast site at
www.Newscast.co.uk
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