Norwich Union imposes MVR exit penalties on with profits
Norwich Union have announced they will introduce exit penalties in the form of Market Value Reductions for with profits policyholders.
As an example of how quickly situations now turn in the financial sector, Norwich Union said only a month ago that they were not introducing MVR’s. Norwich Union blame significant falls in value of equity markets, commercial property and corporate bonds for this change. Penalties of between 13 and 22 percent will affect customers with unitised with-profits policies who wish to make a partial or total withdrawal from the CGNU, NULAP and CULAC funds.
Norwich Union’s John Lister said the introduction of MVR’s is an example of “prudent management of the fund in extreme market conditions”. He explained that “MVRs are a mechanism to ensure that those policyholders leaving or wishing to take money out of the fund do not take more than their fair share of the fund at the expense of those policyholders who remain”. This is the same argument given for bonus rate cuts last month when it was felt MVR’s were not required.
The extent of the MVR applied to the year units were bought is shown in the following table:
| Year units purchased | Average MVR rate – 21/10/2008 |
| 2001 | 13% |
| 2008 | 13% |
| 2002 | 15% |
| 1996-1999, 2004-2006 | 16% |
| 1995 | 17% |
| 1988, 2007 | 18% |
| 1990,1994, 2003 | 19% |
| 1989, 2000 | 20% |
| 1991, 1993 | 21% |
| 1992 | 22% |
To explain MVR’s, Norwich Union gave the following example of three investors each paying £10,000 into a fund so the total with profits Fund is worth £30,000. If markets fall by 10 percent the funds value falls to £27,000. With no MVR if one of the investors withdraws £10,000 only £17,000 would be left in the fund to share between the remaining two investors “The investor who encashed his policy early would take more than his fair share of the fund.”
Many investors may be wondering just how fair some with profits really are.
