Transparent With-Profits — Freedom with Publicity

With-profits business has flourished for over a century as a means of providing access to equity-type investment whilst smoothing the volatility risk. Today's world demands greater transparency, and with-profits has come under increasing criticism in this regard. The Working Party concludes that it remains good value as an investment vehicle and suggests how its transparency can be significantly improved. The paper first analyses the characteristics of with-profits, which it notes has been permitted for stakeholder pensions. It then analyses the various criticisms of with-profits and considers how they can be rebutted without destroying its essential nature, pre-supposing the implementation of the Association of British Insurers' (ABI) Raising Standards scheme. The paper concludes that greater transparency is both necessary for rebuttal and also achievable without destroying the with-profits concept, to this end proposing a model for the internal analysis of identified classes of with-profits business and the inclusion of specified additional information in the statutory returns to the regulators. It also proposes that policyholders be given slightly more information than is specified under Raising Standards. Finally the paper analyses the implications for the life assurance industry, which it considers acceptable.