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Catch up with the latest press releases from LV=

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LV= With Profits Performance

Press release: 01/03/2010

Insurance, investment and pensions group LV= has announced its annual with-profits payouts and performance details.


  • The LV= with-profits fund made an investment return of 15.4% in 2009.

  • LV= mortgage endowments have performed well and a 20 year policy covering a £50,000 mortgage is currently paying a surplus of nearly £13,000. (For a male aged 30 next birthday at entry, the maturity value for a 20 year low cost mortgage endowment maturing on 1 March 2010 is £62,937.82.)

  • The LV= mortgage endowment guarantee also means that all LV= with-profits mortgage endowment policies paid to full term are guaranteed to meet any mortgage covered by the policy.

  • A £50 a month 25 year savings endowment policy maturing on 1 March 2010 will pay out £51,754, an annual yield of 8.8%. This is significantly higher than the equivalent payouts announced by major proprietary providers this year (see table below).

  • The payout from a LV= unitised with-profits Mutual Investment Bond taken out ten years ago has outperformed three comparable risk-profiled ABI sector investment types over this period.

  • Annual bonus rates on currently sold with-profits are increased on three products, held on five products and reduced on just one product (see table 2 in notes at end).

  • An estimated £76.3m in bonuses will be added to LV= with-profits policies.


John Perks, LV= customer solutions director said: "Despite exceptional volatility in equity markets in recent years, LV='s long term with-profits payouts continue to beat the returns from many comparable investments. The with-profits fund investment return of 15.4% last year is also a significant achievement. LV='s consistently strong performance in with-profits payouts compared with most other providers over many years shows the benefit of our financial strength as a mutual, with no corporate borrowings and no shareholders to pay."


LV= 25 year payout outperforms proprietary providers

Provider

25 year conventional with-profits payout (£50pm, male, 30nb)

LV= members better-off by

LV=

£51,754

Standard Life

£28,139

£23,615

+84%

Friends Provident

£29,966

£21,788

+73%

Legal & General

£34,486

£17,268

+50%

Aviva (CGNU fund)

£36,979

£14,775

+39%

An LV= policyholder with a maturing 25 year conventional with-profits endowment policy is also around £5,400 better off having held the policy for the full 25 years, than they would have been if they had surrendered their policy a year ago after 24 years' duration (this benefit takes into account the final year's premium payments). The 24 year surrender value at 1 March 2009, using consistent assumptions, would have been £45,825, compared with the 25 year value at 1 March 2010 of £51,754.


LV= with-profits bond outperforms comparable investments over 10 years

The 10 year surrender value of a LV= Mutual Investment Bond, with £10,000 invested on 31 December 1999, has outperformed the average of funds in three comparable risk profiled ABI sectors.

10 Years (as at 31/12/2009)

£ value

Equivalent annual rate of return

LV= Mutual Investment Bond

£13,386

3.0%

UK average Distribution Life Fund

£12,052

1.9%

UK average Cautious Managed Life Fund

£12,317

2.1%

UK average Balanced Life Fund

£11,267

1.2%

Source: Percentage return over 10 years for the three UK funds taken from Lipper, LV= then calculated the actual surrender values for a £10,000 lump sum invested on 31/12/1999.


Mortgage Endowment Guarantee

LV= provides an unconditional Mortgage Endowment Guarantee, meaning that all LV= with-profits mortgage endowment policies paid to full term are guaranteed to meet any mortgage amount covered by the policy.

Currently a 20 year mortgage endowment policy with a projected return of £50,000 is yielding a return of £62,937 - a surplus of nearly £13,000 - while a 15 year policy is achieving a surplus of £1,141.

Maturity values for mortgage-linked low cost endowments as at 1 March 2010

Policyholder: Male, aged 30 next birthday at entry

20 year endowment

Mortgage amount £50,000 Maturity value £62,937

Surplus £12,937

15 year endowment

Mortgage amount £50,000 Maturity value £51,141

Surplus £1,141


Equity Ratio and Free Asset Ratio

As at 31 December 2009, the LV= with-profits fund had 54% invested in equities, 15% in property, and 5% in venture funds i.e. 74% of the total was invested in assets with greater potential for long term growth.

The table below shows the LV= with-profits fund asset allocation both at the end of 2009 and at the end of February 2010. With further equity market volatility likely in the future, LV= has taken the opportunity in the last two months to crystallise previous equity gains and increase the weighting of fixed-interest investments in the fund.

Asset Class

Allocation

28 February 2010

31 December 2009

Equities

47.6%

53.8%

Property

13.7%

15.4%

Fixed interest

31.9%

22.2%

Venture funds

4.8%

5.1%

Cash/other

2.0%

3.5%

Total

100%

100%

The Free Asset Ratio is a common measure of the financial strength of life companies - the higher the Free Asset Ratio, the stronger the provider and the greater its ability to invest in longer term growth assets. At the end of 2008 the LV= with-profits fund had a realistic Free Asset Ratio of 19.2%, one of the highest in the industry, demonstrating the solid financial strength of LV= (source: Money Management, August 2009).


Investment strategy

LV='s aim is to generate strong returns over the long term for with-profits members, therefore relatively high investment holdings are maintained in equities and property. LV= believes these growth assets are likely to produce better returns over the long term than fixed interest investments. With-profits are long term products and this investment strategy should therefore pay off over the long term for policyholders, as LV='s historical payout performance compared with most other providers shows.


Notes:

1. With-Profits Final Bonus Rates and Payouts 2010

Conventional with-profits

Policy duration

Policy Description

Payout

Final Bonus Rate

Equivalent annual rate of return over the full term

25 yearsa

Ordinary Branch Endowment

£51,754.00

72.6%

8.8%

25 yearsb

Industrial Branch Endowment

£4,950.61

74.9%

8.0%

15 yearsc

Pension Policy

£62,231.60

0.0%

6.9%

Notes:
a: Regular premium £50 per month, male aged 30 next birthday at entry.
b: Regular premium £5 per four week period, male aged 30 next birthday at entry.
c: Regular premium £200 per month, male retiring at age 65.
The effective calculation date is 01/03/2010, and the policy durations are exact.

Unitised with-profits

Policy duration

Policy Description

Payout

Final Bonus Rate*

Equivalent annual rate of return over the full term

10 yearsa

Endowment

£6,500.34

6.1%

1.6%

10 yearsb

Pension Policy

£28,237.09

0.0%

3.2%

Notes:
a: Regular premium £50 per month, male aged 30 next birthday at entry.
b: Regular premium £200 per month, male retiring at age 65.
Final bonuses are determined for each unitised policy individually.
The effective calculation date is 01/03/2010, and the policy durations are exact.

Unitised with-profits bonds

Policy duration

Policy Description

Surrender value as at 1 March 2010

Surrender value a year ago

Effective return over the year

1 yeara

No Product Available

n/a

n/a

n/a

2 yearsa

With-Profits Growth Bond

£10,231.52

£9,301.41

10.0%

3 yearsa

With-Profits Growth Bond

£11,586.39

£10,218.97

13.4%

4 yearsa

With-Profits Growth Bond

£12,903.59

£11,571.94

11.5%

5 yearsa

With-Profits Growth Bond

£14,130.39

£12,887.30

9.6%

10 yearsa,b

With-Profits Growth Bond

£15,599.89

£13,639.24

14.4%

Notes:
a: Single premium £10,000, male aged 30 exact at entry.
b: Final bonuses are determined for each unitised policy individually.
The effective calculation date is 01/03/2010, and the policy durations are exact.


2. Annual Bonus Rates on Currently Sold Products

Product

Bonus rate 2009

Bonus rate 2008

With-Profits Pension Annuity (WPPA) – Series 3 (2007 entry year)

0.90% pa

1.40% pa

With-Profits Pension Annuity (WPPA) – Series 3 & 4 (2008 entry year)

1.70% pa

0.00% pa

With-Profits Pension Annuity (WPPA) - Series 3 & 4 (2009, 2010 entry years)

2.50% pa

0.00% pa

With-Profits Income Bond

3.25% pa

3.00% pa

Tax Free Savings Plan

2.75% pa

2.75% pa

With-Profits Growth Bond, MAX

1.75% pa

1.75% pa

Personal Pensions

2.50% pa

2.50% pa

Life ISA

1.00% pa

1.00% pa

Flexible Savings Plan - Series 2

2.25% pa

2.25% pa

Note:
The above bonus rates are effective from 01/03/2010, except for the WPPA where the rate is effective from 01/02/2010.


3. How Bonus Rates are Determined

LV= is committed to managing annual and final bonuses so that policyholders receive a fair return, whether at policy maturity or when surrendering earlier.

Unitised with-profits

The Principles & Practices of Financial Management from LV= state that the unitised with-profits annual bonus rate is targeted at 50% of the expected future investment return, less tax and charges. Paying higher annual bonuses would restrict levels of equity investment and would be likely to damage longer term returns.

Conventional with-profits

Annual bonuses are set taking into account current and prospective gilt yields for the average outstanding term of the policies and bonuses previously added. Annual bonuses add to policy guarantees, which then need to be matched by fixed interest investments. Therefore, higher annual bonuses would restrict levels of equity investment and would be likely to damage longer term returns.

It is important to remember that past performance is not a guarantee of future returns as these depend on bonuses yet to be declared.


LV=

LV= is a trademark of Liverpool Victoria Friendly Society Limited (LVFS) and LV= is a trading style of the Liverpool Victoria group of companies. The new LV= brand identity was launched in March 2007.

LV= employs over 3,800 people, serves more than 3.8m customers and members, and manages around £7.7bn on their behalf. We are also the UK's largest friendly society (Association of Friendly Societies Key Statistics 2009, Total Net Assets) and a leading mutual financial services provider.

Liverpool Victoria Friendly Society Limited is authorised and regulated by the Financial Services Authority and entered on the Financial Services Authority Register No. 110035. LVFS is a member of the ABI, AMI, AFS and ILAG. Registered address: County Gates, Bournemouth BH1 2NF.