principles and practices of financial management. - Legal & General

PRINCIPLES AND PRACTICES OF FINANCIAL MANAGEMENT – REPORT ON COMPLIANCE FOR 20097Surrender values were reviewed so that payments to those leaving with profits, other than at contractualpoints, did not materially affect the interests of remaining with profits investors.Terms for new with profits policyholders can influence the benefits of existing policyholders, as theamount of new business, and the terms on which it is written, can affect the overall financial positionof the With Profits Fund. This area was reviewed by the Group Insurance Risk Committee.Judgements as to the level of support from the Inherited Estate for existing business, for example by limitingthe amount of transfer to shareholders, or expenses, deducted from policies when determining levels ofbenefits, were taken by the Society Board in advance of the main bonus investigation exercise, having regardto representations made to with profits policyholders.Exercise of discretion in the setting of investment policy used in the determination of investment returnsapplicable when setting policy benefits, and the split of asset mix between different groups of policies,is carried out by Group Investment and Market Risk Committee, referring to the Society Board whereappropriate. Assets in excess of those either taken into account in the assessment of policy benefits orbacking non-participating business were invested mainly in fixed interest securities in order to make theWith Profits Fund more resilient to falls in the value of investments. Partial hedges against falls in the valueof the With Profits Fund’s equities, corporate bonds and property holdings have also been established in theInherited Estate in order to further enhance the resilience of the capital position of the With Profits Fund.Independent assessmentThe Board asked Nick Dumbreck of Milliman to carry out an independent assessment of compliance with thePPFM and to report on how competing or conflicting rights and interests of policyholders and shareholdershave been addressed. The independent assessor has provided the following statement to be made availableto policyholders.“I have reviewed the management of the Society’s with profits business for the period 1 January 2009 to31 December 2009, including the bonus declaration as at 31 December 2009. On the basis of this review,I am satisfied that the Society complied with its PPFM during that period. I also consider that any competingor conflicting rights and interests of policyholders and shareholders were reasonably addressed.In giving this opinion I have relied upon both written and oral information provided by the Society. I havegenerally accepted the information reviewed without independent verification. In particular I have notchecked the application of various assumptions made, nor the accuracy of the calculations undertaken.I have assumed information provided to me is complete and that there are no significant decisions oractions on the management of with profits business which have not been disclosed to me.”REPORT FROM THE WITH PROFITS ACTUARY“I have been commissioned by the Board, consistent with requirements of FSA regulations, to report topolicyholders on whether the exercise of discretion has been reasonable and proportionate. This reporthas been prepared in accordance with the Board for Actuarial Standard’s Technical Actuarial Standard R:Reporting Actuarial Information.I have reviewed the management of the Legal & General Assurance Society’s With Profits business for theperiod from 1 January 2009 to 31 December 2009 inclusive, plus the bonus declaration as at 31 December2009, which was announced on 18 February 2010.The approach I have taken when reviewing discretion over this period has been to test whether in my viewthe exercise of discretion has been consistent with the approach set out in the Society’s PPFM and whethercompeting rights, interests and expectations have been appropriately addressed.I can confirm that, in my view, the exercise of discretion over this period has been consistent with the PPFMfor the reasons set out in the Board’s report to policyholders.In addition I believe competing rights, interests and expectations have been appropriately addressed forthe reasons set out in the Board’s report to policyholders.As a result of this analysis I am able to confirm that:In my judgement, the exercise of with profits discretion at the 18 February 2010 bonus declaration and overthe period 1 January 2009 to 31 December 2009 has taken into account the interests of the relevant groupsof policyholders in a reasonable and proportionate manner.”