Prudential, Britain's second-largest listed life insurer and owner of the largest with-profits fund in Britain, has seen the fund's investment return increase by 13.4% last year. The figure easily outperforms the 11.25% rise in the benchmark FTSE 100 index over the same time period and resulted in the fund's growth in value by GBP2.2 billion to stand at a total of GBP73 billion.
Prudential has been hit hard by the decline in popularity of with-profits products and had seen new business levels fall substantially as what was once one of its key investment products fell out of favor with investors. However, the company's decision to switch its with-profits fund into bonds ahead of the equity bear market has allowed it to safeguard the fund, which has shown strong investment returns in the last two years. Following several years of bonus cuts by with-profits providers, Prudential's announcement brings sorely needed positive news for investors.
The company's strong with-profits investment returns have demonstrated that, despite the large amount of negative publicity and declining sales that have adversely affected with-profits policies in recent times, the actual with-profit product itself is still a fundamentally strong one. Although issues regarding the product's complexity and opacity still exist, this should hopefully be addressed by the introduction of new independent committees to oversee with-profits funds in line with new FSA regulation.
While the product is unlikely to ever again reach the level of popularity seen prior to 2002, continued good news such as this will go a long way to restoring investors' long lost confidence and drive further investment in Prudential's clearly successful fund.
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