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03/01/2005: "Updated index for: With-profits"

With-profits for the Sandler Suite: no way
The Treasury and the FSA are absolutely right to exclude any form of smoothed investment fund from the new generation of lightly-regulated products.

No future for with-profits
The first of two articles Stuart Fowler wrote for The Actuary magazine (June 2003), this explains the basic principles and shows up the flaws in how most people - including many actuaries - think about these.

Product safety claims don't hold water
Stuart Fowler's September 2004 FT article was prompted by Prudential's new smoothed investment bond - 'son of with-profits' - and looks at why most so-called low-risk products disappoint.

Life after with-profits
The second of two articles for The Actuary magazine (November 2003) argues there are better ways than with-profits 'smoothing' to deal with risk. Dynamic mass customisation of risk exposures for individuals, depending on their time horizon, is possible using modern technology. This is the quiet revolution that threatens the established gatherers and managers of retail investment pools, particularly life companies.

With-profits: broken contract
Chapter 9 of No Monkey Business in its entirety. Written in 2001, this basic explanation of with-profits investing is as valuable now as it was then.

Don't be bamboozled by smoothing operators
Stuart Fowler's FT article explaining why smoothing doesn't work - which means the relative risks of with-profits investing are misprepresented.

Why with-profits payouts will go on falling
This useful Norwich Union press briefing explains how total policy payouts are related to the underlying returns during the period held, how comparisons of maturing policy payouts in one period to an earlier period (like now compared with 6 months ago) are affected by the earliest returns dropping out as well as the latest returns and hence why further cuts in payouts are likely even with equities recovering.

Penrose and the fallacy of smoothing
Reforms of with-profits give the impression that there have been problems with financial accounting and governance but that their fundamental function, to reduce investors’ risk by smoothing market volatility, is not a problem.The Penrose Report on Equitable Life, by describing its smoothing decisions step by step over many years, demonstrates the arrogance and fallibility of any actuary trying to guess what markets and inflation will do.

Whither with-profits?
Stuart Fowler posted this feature on his book's predecessor website in 2002. The widespread collapse in consumer confidence in life companies that looked possible then has been avoided by a combination of massive sales of equities, a recovery in the market and additions to capital in shareholder-owned companies. The exposure to market risk remains high so it's still worth being scared.

With-profits without much hope
Stuart Fowler's FT article in September 2003 put the case for a voluntary winding up of with-profits funds: giving policyholders the right to switch into direct investments at asset share, without penalties. If life companies don't, they may find they have to do this later but at a time when their brand damage makes it unlikely they will keep the business in their own unit trusts.

Life in the with-profits trap
Stuart Fowler's Money Observer article in April 2002 explains the catch-22 of with-profits: anxious policyholders have to choose between staying or going but life companies conceal the information needed to make a rational choice.