2007 Bonus Declarations … So far

We are still in the early stages of the bonus season with many major life offices still to declare their bonus rates. What we have seen so far though is very encouraging with funds such as Friends Provident and Standard Life producing strong results and a mixed declaration from Clerical Medical and Norwich Union.

The returns on the underlying with-profits funds are being announced at around 5.5%. The amount though being allocated to bonus rates for 2007 is considerably higher. We have calculated that following the recent declaration Friends Provident policies have increased in value by an average of 11% over the past 12 months and Standard Life policies have increased by an average of 12 % over the same period.

The fact that growth is higher than the amount actually earned is a direct benefit of the with-profits smoothing concept. The simple logic is that returns to investors are smoothed to remove the extremes of market volatility, so in the good years some money is held back to subsidise the poorer years. Exactly what has happened this year.

The smoothing this year will have had very little impact on the strength of the reserves in both life offices. The chart below shows just how much both life offices' free assets have grown through the market recovery of the past few years and how they are well positioned to deliver future smoothing.

Growth in Free Assets (£'000)
	2004	2005	2006
Friends Provident	£1,086,311	£1,577,060	£2,117,475
Standard Life	£2,954,680	£4,172,409	£4,854,039

N.B. Figures are for the period following the introduction of FSA Realistic Reporting Rules and 2007 figures will be available in November 2008.

We expect that the declarations from the remaining major life offices which will follow over the next few weeks will show a similar pattern to those that have already declared.

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