Bonus Season

It is here again – the time of year when with profits insurers declare bonuses.

About two years ago, the Financial Services Authority (FSA) issued a consultation paper, ‘Protecting with profits policyholders’. The title reflected the FSA’s concerns about the operation of with profits business.

Thirteen months later, in March 2012, the FSA published new rules and guidance. The current bonus season is therefore the first where the FSA’s revised regime takes effect. While investment conditions in 2012 were generally better than in 2011, this year’s bonus rates are unlikely to be much better than last year’s.

All with profits insurers are facing the issue of historically low yields on the government bonds and other fixed interest securities, which form a large part (or sometimes all) of their with profits funds.

Low income returns generally mean low regular bonuses, but you should not automatically assume that it is not worth holding onto any with profits policies you have. There is no substitute for a policy by policy assessment, given the huge variations between both contracts and providers.

We can undertake such a review and supply an analysis of your options. Only then can you decide whether the low bonus rates are not as bad news as they appear.