It certainly looks as though the credit crunch is taking its toll on the "with profit funds" generally, and has dispelled the myth of smoothing being the mechanism of holding back profits from the good days and paying out in the bad days, thereby producing over a 25 year period a similar return for all policyholders. Good in theory no doubt, so what has happened do we think?
Obviously, assurance companies such as the Prudential and the like, with more than 50% of their "with profit" funds invested in equities have not escaped from the fallout in the stock markets of the world, nor the property market collapse both commercial and residential, but surely a lot of the downside could have been mitigated with the clever use of financial instruments like future options etc., and furthermore how have they used their positive cash flow derived from millions of premiums flowing into their coffers on a daily basis.
A recent article published on the BBC showed cash on deposit since the year 2000 out performed share investments so why bother to pay dearly for investment know how particularly when a quick internet trawl to Northern Rock (Goverment backed) would yield 6%.
Do we expect too much therefore from our Insurance Companies despite providing valuable protection cover, and the answer may well turn out to be a definite MAYBE which is a subject we will re-visit at some future date.