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With-profits bonus announcement: July 2009

With-profits from Aviva – a solid choice in uncertain times

Over the past five years, a customer invested in the CGNU With-Profit Fund through an investment bond would have received 25.2% (or 4.6% per annum) net (for a basic rate taxpayer), outperforming:

o         the typical savings account (14.9%)

(Source: Moneyfacts average savings account, 90 days notice for investments of £10,000 or more)

o         the ABI Balanced Managed Fund average (12.9%)

o         the FTSE All-Share Index (19.7%) total return, including dividends reinvested.

(Source: Lipper Hindsight)

·          Regular bonus rates held on conventional policies and on unitised policies in Aviva Life & Pensions UK Ltd, Provident Mutual and CULAC funds.  Regular bonus rates on unitised policies in the CGNU fund have only been reduced by 0.75% (life contracts) and 0.5% (pension contracts).

·          Final bonus rates reduced from 1 July 2009. Despite this, with-profits bond payouts still outstrip returns from typical savings accounts, the ABI Balanced Managed Fund average and the FTSE All-Share index over 5 and 10 years.

·          Market Value Reductions (MVRs) reduced for the second time this year. 

·          86% of Aviva with-profits bond policyholders benefit from valuable policy guarantees

·          With-profits remain an attractive option for both advisers and customers; with sales in the 1st quarter of 2009 40% higher than the same period of 2008. 

Aviva’s with-profits funds continue to provide investors with steady, consistent returns.  Over five and ten years, an investment into a CGNU with-profits bond has provided better returns for our customers than the typical savings account, ABI Balanced Managed Fund average and the FTSE All-Share index (Past performance is not a guide to future performance).

Since January 2009, the world’s stock markets have remained turbulent but the smoothed returns from our with-profits funds continue to protect investors from the full impact of the downturn in the stock market, commercial property markets and falling interest rates.  Also, around 86% of our with-profits bond policyholders benefit from valuable policy guarantees. This year, 50,000 bond policies are eligible for a policy guarantee and more than 33,000 customers’ policies will reach their 10 year anniversary and become eligible to take advantage of an MVR-free guarantee.

As market leader, we are absolutely committed to with-profits and continue to offer our With-Profit Fund and With-Profit Income Fund.  We believe that the combination of attractive returns from relatively low risk funds continues to provide a very appealing option for both advisers and customers. This is highlighted by our strong with-profit sales in the last 12 months. 

Product Performance Highlights (in the CGNU With-Profit Fund at 1 July 2009):

         Onshore bond –  £10,000 invested in a bond* 10 years ago increased in value to £14,934 on 1 July  2009, giving an annual return of 4.1% and outperforming:

o         the average savings account** (£13,038)   

o         the ABI Balanced Managed Fund average (£10,364)

o         the FTSE All-Share Index (total return, dividends reinvested) (£10,117)

         Pensions - £200 a month invested in a pension over the past 15 years with a retirement date of 1 July 2009 has delivered an investment value of £51,647, giving an annual return of 4.6% gross and outperforming:

o         the average savings account** (£47,492)

o         the ABI Balanced Managed Fund average (£45,079)

o         the FTSE All-Share Index (total return, dividends reinvested) (£44,219)

         Endowments - a 25-year, £50 a month mortgage endowment maturing on 1 July 2009 has delivered an investment value of £38,776 - £3,124 above the target amount - this equates to an annual return of 6.9%.  In that time:

o         the average savings account** has returned £25,047

o         the ABI Balanced Managed Fund average has returned £27,641

o         the FTSE All-Share index (total return, dividends reinvested) has returned £40,146

The typical savings account returns include simulated past performance for the period 01/07/1984 to 31/10/1985 as actual figures not available. FTSE All-Share returns: past performance prior to 31/12/1985 does not include dividends as figures not available. FTSE capital return figures used instead.

         Offshore bonds – A 5 year payout, based on £100,000 invested on 1 July 2004 would be worth £125,984 without an MVR or £120,375 including an MVR (3.8% annual return). This outperforms:

o         the average savings account** (£118,843)

o         the IMA International Balanced Managed average (£116,412)

o         the FTSE All-Share Index (total return, dividends reinvested) (£119,686)

(Figures for the FTSE All-Share Index and IMA International Balanced Managed average do not take into account any charges)

   *invested through Portfolio Step Down option or equivalent product prior to 7 July 2003.

**Moneyfacts average savings account, 90 days notice, for investments of £10,000 and above.

Financial Strength

We have approximately £52 billion (as at 31 December 2008) under management in our with-profits funds, which are clearly acknowledged as being financially strong.  We are rated 5 star (‘excellent’) by AKG and AA- (‘very strong’) by Standard & Poor’s and this financial strength puts us in an excellent position to support guarantees, effectively smooth investment returns and survive downturns in the market.

Regular Bonus Rates

In the six months to 1 July 2009, the CGNU and CULAC funds recorded a decrease of 3.5%, Aviva Life & Pensions UK Ltd a decrease of 4.1% and the Provident Mutual fund a decrease of 0.8% (all figures are estimated and after tax). Regular bonus rates have been held on all conventional policies and Aviva Life & Pensions UK Ltd, CU and PM unitised policies. For CGNU unitised policies, regular bonus rates have only been reduced by 0.75% on life policies and 0.5% on pensions policies.

# Pensions & Life products are explicitly charged, the bonus rate is gross of the annual management charge.

* These are the regular bonus rates. For the With-Profit Income Fund there will also be an additional bonus that varies by year of purchase.

Final Bonus Rates

Although rates have been reduced from 1 July 2009, payouts still compare favourably against the typical savings account and the ABI Balanced Managed Fund average over similar periods.

These changes are part of the prudent management of the fund, creating a balance between paying out to customers today and ensuring future performance.

To see the effects of the bonus rate changes on all our products and existing business, and the July 2009 bonus rate tables, please visit our website at:

 www.aviva.co.uk/adviser/with-profits

Market Value Reductions (MVRs) Reduced

Market Value Reductions are being reduced for the second time this year.  From 1 July 2009, the average MVR is being reduced from 11% (as at 1 January 2009) to 10%.

MVRs are currently being applied on some unitised policies for those policyholders wishing to take money out of the fund.  The actual reduction applied will depend on the year the policy was taken out.  Market value reductions do not apply on maturity or on the death of the life assured.

Special Bonus Payments

In February 2008 we announced three special bonus payments for eligible customers.

         The first special bonus payment - 3.6% of the policy value at 1 January 2008 - was added to eligible policies in 2008.

         The 2009 special bonus payments are confirmed as 3.6% of policy value at 1 January 2009. These were added to unitised policies in January 2009 and will be added to conventional policies in December 2009.

         We can confirm that the third and final special bonus payment will be paid in 2010.

Protecting investors’ interests

Our customers are at the heart of everything we do and Aviva is committed to treating customers, as a group, fairly at all times. To support this, the With-Profits Committee brings independent expertise and oversight to ensure fairness in the process of with-profits decision-making.

The proportion in shares and property held in the CGNU With-Profit Fund was 48% as at 30 April 2009. This ratio has been actively managed down from 55% at the end of 2008. 

This ratio will continue to be actively managed and it is this management that has been a major factor in the fund outperforming other forms of investment in the longer term.

Further Information

For more details about our bonus announcement please take a look at the following items

§          GN07035 “With-profits mid-year bonus announcement 2009” (Your Aviva consultant will be able to provide you with a printed copy)

§          Press Release

§          Adviser Questions and Answers

WA07246 07/2009