Traditional With Profits Policies

• Superior Guarantees

Guarantees attaching to investments are a crucial part of investment security that have been brought into sharper focus following equity market losses in recent years. In EGF the policy stock held has a substantially greater level of guarantees than the net asset value of the fund, even after deduction of all future premium liabilities. This is because all sums assured and bonuses attaching to traditional policies are transferred to the fund for the benefit of shareholders. By contrast unitised contracts have no such guarantees at outset, and are less likely to grow in value as time goes on.

• Stronger Performance Potential

Traditional policies can be bought at a discount to their underlying value in an active secondary market. A buying opportunity exists now because market valuations are based on the last declared bonus rates and these are at historically low levels with potential to increase appreciably.

• Greater Liquidity, free of MVRs

The secondary market in traditional with profits is important for other reasons too. It ensures that there is some liquidity in the asset, free of potentially devastating Market Value Reductions that can be applied and amended without warning to unitised with profits. In the investors eyes an MVR is a tax levied on investment proceeds and where the bond has already lost money; a tax on losses. The secondary market contributes to the lower volatility of traditional with profits and helps reduce market timing risk.

• Lower Volatility

Traditional policies tend to be much longer term than with profits bonds, with most policies bought by EGF having terms of 20 years or more. Because the time horizon is longer life offices are better able to smooth returns more effectively on traditional policies, making them substantially less volatile.

• Less Expensive

The shorter time horizon for with profits bonds means that there is less time over which costs can be recouped for establishing and running the policy, whereas traditional policies can be bought at a discount mid-term. This means that traditional policies can be bought after most of the expenses have come out of the contract, and in effect allow past performance to be bought at a discount.

• Diversification

EGF holds hundreds of policies in around 25 life offices at any one time, ensuring a well diversified portfolio aimed at optimising returns whilst controlling risk. Investment in a unitised contract, or even a selection of them, will not be able to afford such a high level of diversification.