Setting new standards - Friends Life

DIRECTORS’ REPORT
CORPORATE GOVERNANCE REPORTS
The With-Profits Committees (WPCs) of
the Life and Pensions operating companies
Purpose and terms of reference
The purpose of the WPCs is to bring independent judgment to
(i) the assessment of compliance of each Life and Pensions
operating company with its published Principles and Practices of
Financial Management (PPFM), and (ii) how any competing or
conflicting rights and interests of policyholders and, if applicable,
shareholders have been addressed. In neither case does this take
away any responsibility or accountability from the boards of the
relevant companies. This purpose is reflected in each WPC’s
written terms of reference which are published on the Company’s
website and are subject to annual review by the WPCs. The last
review was carried out in June 2006 when the WPCs concluded
that the existing terms of reference for the committees remained
appropriate.
Membership and operations
The WPCs are chaired by one of the Company’s independent nonexecutive
directors, currently Alison Carnwath. The other members
are Peter Nowell (independent external member) and Graham
Aslet (former director and Appointed Actuary). All three served
throughout the year. During the year, the WPCs reviewed their
operations and level of activities against peer practice and were
satisfied with the current governance and the infrastructure that
were in place to ensure effective discharge of their role.
Activities and work of the WPCs
The WPCs met four times during 2006, with all members present
on every occasion.
During the year, the WPCs reviewed the changes made to the Life
& Pensions operating companies’ published PPFMs and the
consumer friendly With-Profits Summaries, and the main areas of
discretion allowed by the PPFMs. In particular, they reviewed the
appropriateness of a change in the mix of assets backing the FPLP
With-Profits Fund, removal of Market Value Reduction factors, the
basis used for determining surrender values, the principles
underlying the bonus declarations for FPLP and FPLA made in
January and July 2006 and January 2007 and the principles by
which benefits are shared among policyholders within the Closed
Fund of FPLA.
The WPCs also reviewed the content and quality of communications
to policyholders, including the With-Profits Actuary’s report on the
use of discretion in the management of with-profits business and
the board report to policyholders. A process was in place to ensure
that the WPCs saw any correspondence that had been sent by
policyholders to the WPCs or any of its members and the
responses.
A number of special projects, which potentially affected the
interests of both with-profits policyholders and shareholders, were
undertaken during the year. The most important of these projects
were (i) the investigation into a smoothing methodology for FPLP
with-profits funds to ensure that surrender values for policies in
payment would not fall significantly on a change in basis and (ii)
development of the Closed Fund Run-off Plan for FPLA.
Additionally, management also kept the WPCs informed, on a
timely basis, of the following reports and issues during the year:
• approach to alternative investments for the FPLP With-Profits
Fund;
• actuarial valuation reports and individual capital assessment
results of the Life and Pension subsidiaries;
• comparative analysis of the With-Profits Fund performance; and
• initiatives in promoting ‘Treating Customers Fairly’.
The WPCs reviewed these and other proposals in accordance with
their terms of reference, assessed and confirmed that the
proposals were in compliance with the appropriate PPFM and,
effectively, treated customers fairly. Any issues arising from these
reviews were debated within the WPCs and, in some cases, the
WPCs have made recommendations to the Life & Pensions
operating companies’ boards that resulted in changes being made
by the boards to the original proposals.
For the Board
Alison Carnwath
Chairman, With-Profits Committees
19 March 2007
Friends Provident Annual Report & Accounts 2006 59