Annuity Plan: Investment
The Annuity Plan has a low investment risk to the extent benefits (including declared bonuses) are guaranteed in full.
The Annuity Plan policyholder funds currently invest in long-term fixed interest bonds, equities and hedge funds. Nordben aims to invest an appropriate percentage of its assets in fixed interest bonds so that it can broadly secure the guarantees underlying the Plan.
Having prioritised covering these guarantees, the remaining funds are then invested to secure the best return for policyholders within an acceptable level of risk. Nordben currently invests the funds in a mixture of equities and hedge funds. The proportion of equity and hedge fund investments is determined with the aim of maximising returns relative to risk (due to the relatively low volatility and correlation over time of hedge funds compared to equities). A prudent approach to investing in hedge funds has been taken by limiting the proportion invested in such funds to date.
The bonus is determined having regard to price inflation for the period September to September in the relevant currency with the aim of providing an overall return of 2% above inflation. This is a target and not a guarantee, the bonus could be higher or lower than the target. The bonus target may change over time.
The annuity is increased by a bonus on 1
st January each year. The bonus is declared by the Board of Directors having regard to the advice of the Actuary. The bonus can be 0%. The bonus is not expected, necessarily, to remain at constant levels from year to year, as bonuses are determined having regard to price inflation for the period September to September in the currency of the annuity. This is a target and not a guarantee as the bonus could be higher or lower. . The bonus target may change over time.
We would like to draw your attention to the following risk factors.
Investment Strategy Risk Factors
Equity and Hedge Fund Investment
The currency funds investment strategy includes investment in equities and hedge funds. The proportion invested in equities and hedge funds is determined having regard to the guarantees made to policyholders in the currency fund, the term of the liabilities and yields available on fixed interest securities in the currency.
The equity and hedge fund investments are expected to generate higher returns than more secure investments (e.g. fixed interest securities) over the policy term but such higher returns are not guaranteed.
Bonuses will be affected by future equity and hedge fund returns.
Yields available on Fixed Interest Securities
The currency funds investment strategy includes investment in fixed interest securities. These investments aim to broadly secure the guarantees within the currency funds.
The percentage invested in fixed interest securities depends on the available yields. A reduction in yields generally increases the percentage of assets allocated to fixed interest securities and therefore restricts the currency funds freedom to invest in equities and hedge funds.
Bonuses will be affected by changing yields on fixed interest securities.
Policyholder Reserve Fund
The size of the policyholder reserve fund varies from currency to currency. The reserve funds smooth out the effects of fluctuations in the capital markets in which the currency funds are invested.
Nordben aims to maintain policyholder reserve funds at an appropriate level to reflect the currency funds liabilities and its investment strategy.
Bonuses will be affected by the size of the policyholder reserve funds.
Please refer to the bonus section for details on the bonus record and bonus regulations.