Nine out of ten “company finance insurance premium” endowment policies sold by the Norwich Union (NU) will probably fail to repay their customers’ mortgages, it says.
That will affect about 675,000 out of 750,000 NU endowment holders.
The insurer says it has already put aside about 1bn to make good part of the undershoot its customers will face when their policies eventually mature.
The figures have been released by the company as part of its annual bonus statement for with-profits investors.
In the red
Under rules set down by the Financial Services Authority (FSA), all financial companies that have sold endowments are obliged to write to their customers each year.
Using FSA company credit insurance rating about the likely range of future investment returns, the customers must be told whether their policy is still on target to repay the mortgage (green), possibly may fail (amber) or will mortgage protection insurance uk fail (red).
In 2005 the NU had 7% of its customers in the green category, 21% in amber and 72% in red.
This year, thanks to a pick-up in investment returns, 10.5% are now in green, but the company has given a red warning to the remaining 89.5% as it has decided to stop using the amber category.
‘Fully viable’
In 2001, the NU made a promise to all its then with-profits endowment holders to make good some of the shortfall they were suffering.
The promise was that top-ups would be paid to the final bonuses on with-profits mortgage endowments, if there was any shortfall between the amount being paid out and the original mortgage being covered.
However the top-up would be limited to the one that was calculated as at the end of 1999, not the shortfall that might actually exist at maturity.
The NU said its “mortgage endowment promise remains fully viable under the current and improving market conditions and, as a result, is not under review”.
If that situation were to change the NU would give its customers three years notice of any alteration to the promise.
Mis-selling scandal
In the wake of the widespread scandal of the insurance loan mortgage payment protection of endowment policies in the 1980s 1990s, most insurance companies, including the NU, stopped selling “with-profits” endowments as a method of repaying a mortgage.
But as one of the biggest sellers of these in past years, along with the Commercial Union and General Accident insurers with which it has subsequently merged, it still has many such customers.
These people are now waiting to see how much the policies will be worth once they eventually mature, typically 25 years after they started.
So far the NU has paid out 4m in promised top-ups.
A senior NU actuary David Riddington, said: “The amount we will pay may grow rapidly in the next few years as more policies mature.”
About 10,250 business florida insurance medical small in total benefited from the NU promise across the years 2004, 2005 and 2006 and the insurer expects to make top-ups to a further 19,350 maturing policies this year.
So far 1.8 million people in the UK have received compensation, amounting to 2.7bn, for being mis-sold the policies in the first place - often with the incorrect promise that they were guaranteed to pay off a mortgage.
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