PPFM changes – notification to policyholders.

We have updated the PPFM for the Long Term Business Fund for the following reasons:

• We hold assets in the fund in excess of those we need to meet the liabilities of the fund. These excess assets are known as the working capital of the fund. We have recently enhanced the security of the fund by investing such assets in UK Government fixed-interest securities (known as gilts).
• We currently hold a separate shareholder-owned fund (the General Reserve) outside the Long Term Business Fund which, if available, may be used in exceptional circumstances to help meet the Long Term Business Fund’s solvency requirements. We recently assessed the level of risks within the Long Term Business Fund and this showed that the fund was expected to remain strong under a wide range of future financial and other conditions. Therefore our Board, with the agreement of the FSA, decided to reduce the size of the General Reserve by £117m to a new level of £200m. The General Reserve could be reduced further or removed altogether, subject to our Board ensuring that with-profits policyholders are treated fairly
• We’ve introduced some actions which our Board may decide to take in exceptional circumstances to protect the strength of the fund. These actions include reducing the proportion of riskier assets held for accumulating with-profits business as well as reductions to future annual bonuses for such business.