Merger of the Scottish Amicable Insurance Fund with the Prudential With-Profits Sub Fund


On 1 April 2021, the Scottish Amicable Insurance Fund (SAIF) merged with the Prudential’s With-Profits Sub Fund (WPSF). The WPSF is the Prudential Assurance Company (PAC) Ltd’s largest with-profits fund.

When the Scottish Amicable Life Assurance Society’s business was transferred to PAC in 1997, the Scheme which enabled this transfer, contained provisions for the SAIF to be merged with the WPSF when the SAIF’s assets fell below a specified level, known as the Threshold. Projections in early 2021 indicated that the Threshold is expected to be reached in 2024. The Scheme also permitted the SAIF to be merged with the WPSF before the Threshold is reached (an “Early Merger”).

The PAC and Scottish Amicable Boards approved the early merger of the funds having carefully considered the interests of all its policyholders throughout the development of the proposals. On the basis of all available information, the early merger was considered to be beneficial to the SAIF with-profits policyholders compared to a merger when the Threshold is reached, and was not expected to have an adverse effect on Prudential's other policyholders. Merging the funds early provides continuing security and additional certainty for the SAIF policyholders, while ensuring a fair distribution of the SAIF surplus assets. Our regulators were kept informed throughout the merger process.

 

2021 Bonus Announcement 

Following the 2021 bonus announcement, SAIF With-Profits contracts typically saw a year-on-year increase in plan values in the range of 6% to 9%, though some contracts saw lower or higher percentages.

The 2021 SAIF bonus rates include the updated policy enhancement in relation to surplus assets in the SAIF fund. The enhancement increased from 7.5% to 13.3% based on the SAIF merging with the WPSF on 1 April 2021. This enhancement is being reviewed for the final time following the merger.

Final bonus rates may vary and are not guaranteed. The value of a with-profits plan depends on how much profit the fund makes and the resulting bonus rates applicable at that time. You may want to seek independent financial advice before making any decision to cash-in your plan. If you don’t have a financial adviser you can go to unbiased.co.uk to find one in your area.

The policy enhancement applied from 1 April 2020 of 7.5% was calculated based on the position of the fund during 2019. Although financial conditions were volatile over 2020, additional surplus has emerged within the SAIF fund since the time of the previous assessment. This surplus arose due to changes in market conditions and a review of the SAIF balance sheet to ensure the distribution of surplus reflects the most accurate view available at 31 December 2020. The increase in surplus over 2020, coupled with the reducing number of policies (as set out in question 2 of the FAQs) over which it’s distributed, has led to the increase in the policy enhancement.

A number of other factors affect final bonus rates and these will continue to vary, meaning the final bonus is not guaranteed. Our Customer-Friendly Principles and Practices of Financial Management contains more information on these other factors and is available at pru.co.uk/ funds/ppfm

The SAIF was closed to new business in 1997 and since that point the surplus assets over the liabilities have been used to provide enhancements to pay-outs to SAIF with-profits policies.

As a result of being closed to new business, the SAIF was reducing in size so the volatility to which it was exposed was increasing. An Early Merger provided certainty in respect of the share of the surplus assets of the SAIF that will be received by with-profits policies as enhancements to their pay-outs. It mitigated the risk of additional volatility that policyholders were exposed to sooner than would have been the case if the merger had only been implemented when the Threshold was reached.

In addition, while the funds had similar investment strategies, the SAIF historically had a slightly more conservative strategy than the WPSF due to the different risk profiles of the funds. This resulted in slightly lower long-term returns for SAIF relative to the WPSF. As a result of the merger, SAIF policies have the same higher risk investment strategy as the WPSF which is expected to result in slightly higher overall long-term returns. However, future investment performance cannot be guaranteed.

Prudential carefully considered the interests of all its policyholders throughout the development of the proposals for the Merger. In November 2020, the Court consented to the amendment of certain provisions of the Scheme which relate to the merger of the SAIF with the WPSF.  Details can be found at pru.co.uk/salaschanges

The process for implementing the Early Merger contained a number of safeguards that together ensured that the interests of all Prudential policyholders were protected. On the basis of all available information, Prudential considered that the Early Merger was beneficial to the SAIF with-profits policyholders compared to a merger when the Threshold was reached, and was not expected to have an adverse effect on Prudential's other policyholders. Merging the funds early provided continuing security and additional certainty for the SAIF policyholders, while ensuring a fair distribution of the surplus assets.

Although the Scottish Amicable Board has ceased to exist following the SAIF merger with the WPSF, the SAIF policyholders will still benefit from significant protections available under Prudential's governance processes.

Prudential's management of the SAIF with-profits policies will continue to be overseen by its With-Profits Committee and With-Profits Actuary.

In addition, as a regulated insurance company, Prudential will continue to be subject to supervision by the regulators, including in relation to the management of its business.

Related Documents

In November and December 2020, we sent letters to affected SAIF customers. You can download copies of an example letter, Frequently Asked Questions, and reports here:

With-Profits Letter specific to individual policyholders who have a with-profits policy.

Non-Profits Letter specific to individual policyholders who have a non-profits policy.

Frequently Asked Questions (FAQs) sent with the With-Profits letter, providing you with more information if you need it.

Actuarial Reports submitted to the Court in 2020

A statement of the conclusions of each of the Prudential’s Chief Actuary and With-Profits Actuary and of the Monitoring Actuary provided to the Scottish Court in 2020 can be obtained here.

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