L&G 2003 Bonus Announcement
Legal & General Group PLC
26 February 2004
26 February 2004
LEGAL & GENERAL ANNOUNCES 2003 BONUS RATES
==========================================
Legal & General today (February 26th) announced its 2003 bonus declaration.
Normal annual and interim bonus rates have been maintained for recent policies
but, generally, those that experienced the equity market falls of 2000 to 2002
will have seen their annual bonus rates fall.
The gross investment return earned on the assets backing participating
with-profits business** was 14% in 2003. Lower returns on fixed interest
securities, which resulted from a slight increase in long term interest rates,
tempered the strong returns on equities.
A 25 year with-profits endowment policy* maturing on 1 March 2004 will deliver a
nominal rate of return of nine per cent per annum - equivalent to a real rate of
return of 5.2 per cent per annum, while also providing valuable life cover.
Investment returns in 2003 were in excess of our longer-term expectations.
However the returns over 2000 to 2002 were well below longer-term expectations.
Smoothing means that this has not yet been fully reflected in bonus
declarations. For those whose investments have experienced the falls of 2002, we
anticipate a period of depressed bonus rates. This would be avoided if there is
a further, significant, recovery during 2004 followed by a period of good and
sustained investment returns over the longer term.
The gross investment returns earned on the assets backing participating
with-profits business** over the last five years have been:
1999 2000 2001 2002 2003
+17% +1% -7% -9% +14%
The asset mix** changed during 2003 as follows:
End 2003 End 2002
% %
Fixed Interest 31 30
Property 18 17
Equity Shares:
UK Shares 40 37
Non UK Shares 10 12
Unlisted Shares 1 2
Other Investments 0 2
*Maturity values and yields for a Legal & General with-profits endowment policy
taken out on 1/03/79 by a 29 year old male paying £50 per month.
**The asset mix refers to participating with-profits business in aggregate. The
asset mix and therefore investment return attributed to different types and
generations of policies may be different as it reflects the different product
designs, guarantees and representations made to policyholders.
Issued By:
John Morgan
Head of Public Relations
Tel: 020 7528 6213
Notes to editors:
-----------------
1. Peer Review:
---------------
Legal & General Assurance Society's bonus declaration process has been subject
to independent peer review.
2. Financial Strength
---------------------
Legal & General Assurance Society is one of the UK's highest rated companies for
financial strength. Three of the world's leading independent rating agencies,
Standard & Poor's, Moody's and A.M.Best, have recognised this.
3. With-profits Fund:
---------------------
Assets supporting non-linked with-profits business are approximately £20bn.
4. Bonus Policy:
----------------
In determining the amounts payable under with-profits policies the methods used
have the following aims.
• To treat all with-profits investors equitably
• To take account of the returns earned on the underlying investments
• To take account of the requirement to honour guarantees and options
already granted to investors.
• To smooth returns to investors so that some of the short-term
fluctuations in the value of the investments of the with-profits sub-fund are
not immediately reflected in payments.
• To incorporate some pooling and sharing of experience between
policyholders.
In order to treat different types and generations of with-profits investments
equitably the methods also aim to have regard to differences in product design,
such as differences in:
• The nature and extent of guarantees and options provided
• The types and value of risk benefits provided between different types
of product and different policies of the same type
• Taxation between products.
5. Total Cost of Bonuses in 2003: £465m (2002: £579m).
------------------------------------------------------
6. 'RAG' Status
---------------
The estimated RAG status of our mortgage endowment business at 31 December 2003:
Red - 55%, Amber - 20%, Green - 25%
7. Regulatory Notes:
--------------------
• Past performance is not necessarily a guide to future performance.
• Legal & General Assurance Society Limited is regulated by the
Financial Services Authority.
• Returns from with-profits contracts are dependent on bonuses. Future
bonus rates are not guaranteed.
• The surplus arose during a period when investment returns were high,
similar returns and therefore such large surpluses may not be available in
future years.
Appendix A
----------
2003 ENDOWMENT ASSURANCE BONUS DECLARATION
==========================================
ANNUAL (REVERSIONARY) BONUSES ON LIFE POLICIES
2003 2002
0.75 % of sum assured 1.00
1.25 % of existing bonus 1.75
PAYOUTS ON MATURING ENDOWMENT POLICIES
£50 per month
Maturing Yield % Maturing Yield %
01/03/04 (Real Return) 01/03/03 (Real Return)
£ £
25 Year Payout 53,333 9.0 59,047 9.7
(5.2) (5.6)
20 Year Payout 27,377 7.6 27,955 7.8
(4.3) (4.4)
15 Year Payout 14,144 5.8 14,459 6.0
(3.0) (3.2)
10 Year Payout 6,885 2.7 7,320 3.9
(0.3) (1.4)
PAYOUTS ON MATURING LOW COST ENDOWMENT POLICIES
£50 per month
Maturing Maturing
01/03/04 Yield % 01/03/03 Yield %
(Target sum) (Real Return) (Target sum) (Real Return)
£ £
25 Year Payout 52,397 8.9 58,014 9.6
(27,656) (5.2) (26,656) (5.4)
20 Year Payout 27,008 7.5 27,608 7.7
(22,299) (4.2) (20,713) (4.3)
15 Year Payout 14,286 5.9 14,552 6.1
(15,326) (3.2) (15,326) (3.3)
10 Year Payout 6,891 2.7 7,310 3.9
(7,374) (0.3) (7,798) (1.4)
Notes:
1. The examples assume a male aged 29 paying a premium of £50 per month.
2. The 'real rate of return' represents the yield obtained in excess of
the return earned if the premiums had grown in line with the RPI (increase in
RPI for the period December 2003 to March 2004 remains at the same level as
December 2003).
Appendix B
----------
2003 UNITISED WITH-PROFITS BONUS DECLARATION
============================================
The figures in the table are the declared running yields and interim running
yields for premiums paid in recent years.
SINGLE PREMIUM LIFE POLICIES (CURRENT SERIES)
With-profits Income Bond
------------------------
Date of Investment 2003 2003 2004
Interim Declared Current interim
running yield running yield running yield
2003 Q1 5.00% 5.00% 5.00%
2003 Q2 4.75% 4.75% 4.75%
2003 Q3 4.75% 4.75% 4.75%
2003 Q4 4.75% 4.75% 4.75%
2004 Q1 - - 4.75%
With-profits Growth Bond
------------------------
Date of Investment 2003 2003 2004
Interim Declared Current interim
running yield running yield running yield
2003 Q1 4.00% 4.00% 4.00%
2003 Q2 3.50% 3.50% 3.50%
2003 Q3 3.50% 3.50% 3.50%
2003 Q4 3.50% 3.50% 3.50%
2004 Q1 - - 3.50%
REGULAR PREMIUM LIFE POLICIES (LATEST CONTRACT VERSIONS)
Flexible Mortgage Plan (Higher rates apply to some earlier versions of the Plan)
--------------------------------------------------------------------------------
Date of premium 2003 2003 2004
Payment Interim Declared Current interim
running yield running yield running yield
2002 3.25% 3.25% 3.25%
2003 3.75% 3.75% 3.75%
2004 - - 3.75%
Savings Plan (Higher rates apply to some earlier versions of the Plan)
----------------------------------------------------------------------
Date of premium 2003 2003 2004
Payment Interim Declared Current interim
running yield running yield running yield
2002 2.80% 2.80% 2.60%
2003 3.10% 3.10% 3.10%
2004 - - 3.10%
REGULAR PREMIUM PENSION POLICIES
Personal Pension Plan (accumulation units) - not single charge
--------------------------------------------------------------
Date of premium 2003 2003 2004
Payment Interim Declared Current interim
running yield running yield running yield
2002 3.50% 3.50% 3.25%
2003 4.50% 4.50% 4.50%
2004 - - 4.50%
Personal Pension Plan (accumulation units) - explicit charge
------------------------------------------------------------
Date of premium 2003 2003 2004
Payment Interim Declared Current interim
running yield running yield running yield
2002 4.25% 4.25% 4.00%
2003 5.25% 5.25% 5.25%
2004 - - 5.25%
Notes:
For many of Legal & General's Unitised with-profits policies growth comes from
the addition of a 'contractual addition' and the addition of bonuses. Both
depend upon when the premiums were paid and can vary from year to year. Where
Unitised with-profits policies do not attract a contractual addition the annual
bonuses have been correspondingly higher.
Each year a normal, annual bonus, is declared for the previous year and the sum
of the normal annual bonus and any contractual addition is called the 'Running
Yield'. An interim bonus rate, which is not guaranteed and which can be changed
without notice is also declared and applies in respect of the current year for
any claims. 'Interim Running Yield' is the sum of interim bonus and any
contractual addition. NB: the annual bonus rates declared for 2004 may be
different from the interim rates.
Terminal (Final) bonus may also be paid in the event of claim. Terminal bonus
rates are not guaranteed and can be changed without notice. For with-profit
Income Bonds the total return comes through the addition of annual bonuses and
there is no terminal bonus.
The Unitised With-profits terminal bonus rates, which range from 0% to 5.75% per
annum, also depend on the policy type and when the premiums were paid.
Legal & General reserves the right in certain investment conditions to reduce
the amount payable on surrender or switch by the application of a Market Value
Reduction Factor.
Further examples of bonus rates applicable to premiums paid in other years can
be obtained from Legal & General.
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