L&G pays out pounds 160m bonus
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Your support makes all the difference.Legal & General, one of the UK's top life insurers, yesterday announced it is to pay a pounds 160m special bonus to its 1.4 million with-profits policyholders.
The one-off payment, worth about 30 per cent of the annual bonus normally paid to policyholders, follows a study of L&G's long-term fund which had with-profits assets of pounds 13.2bn at the end of 1994. Even after paying the special bonus and meeting all guaranteed benefits and expected future bonuses there was an excess of up to pounds 1.5bn in the fund.
L&G plans to continue to use most of this money as working capital for with-profits business. It also aims to change the rules to prevent future cross-funding for the with-profits part of the fund from other areas, including unit-linked policies, term assurance and annuities.
The pay-out to policyholders will add about pounds 900 to a 25-year policy maturing in December, where a pounds 30-a-month premium would already have led to a payout worth about pounds 61,400.
Shareholders will gain by an underpinning of the amount payable to them. They are expected to receive an additional pounds 18m this year as their share of the bonus pay-out, with their interest in the fund growing by about pounds 150m overall.
The company added that the change in rules, together with the increase in shareholders' interest, meant that it would be able to maintain a market- beating dividend policy.
The pay-out follows similar distributions from other insurers' "orphan funds", where both policyholders and shareholders have received pay-outs after the exact ownership of funds held by each company had been broken down.
The status of these funds followed the initial injection of capital into with-profits operations by shareholders, allowing bonuses to be paid out even in early years of those funds.
But David Prosser, group chief executive at L&G, said the bonus was not an orphan fund, and its pay-out simply followed a re-calculation of its value.Ownership of the surplus had always been known. He also denied the pay-out was part of L&G's defence against rumoured takeover plans.
Shares in the company rose 22p to 667p on the announcement.
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