ReAssure Life Limited Policies invested in the unit linked funds of ReAssure Life Ltd (formerly known as Guardian Assurance Ltd) Consumer-Friendly Principles and Practices of Financial Management June 2016 This guide is for you if you have a policy invested in the unit-linked funds of ReAssure Life Ltd (formerly Guardian Assurance Ltd). If you have invested in Choices or Freedom unitised with profits funds then you should refer to our separate Consumer-Friendly Principles and Practices of Financial Management for unitised with profits policies. A copy is available to download from our website www.reassure.co.uk or by contacting us. 1 of 14
CONTENTS 1. What is this guide for? 2. Background to ReAssure Life Ltd and our unit-linked funds 3. What are unit-linked funds? 4. What do my premiums buy? 5. The value of our unit-linked funds 6. How do we work out the price of a unit in a fund? 7. Day to day expenses of running unit-linked funds 8. Taxation of unit-linked funds 9. Policy charges 10. What does my policy pay out? 11. Can I move between unit-linked funds? 12. Treating our customers fairly 13. What are the risks to my investment in unit-linked funds? 14. What discretion does the company have? 15. Other relevant issues Glossary 2 of 14
1. What is this guide for? This guide explains how our unitlinked funds work and our current approach to managing them. It also describes how we make sure we treat all customers fairly. If there are differences between your policy s terms and conditions and this guide, the terms and conditions will apply. If you require financial advice when you ve read this guide then you should contact your financial adviser. Please note that we can t give you any financial advice but if you would like more information about your policy, how we run our unit-linked funds or feel you need to make a complaint, please contact us at:- 2. Background to ReAssure Life Ltd ReAssure Life Ltd (formerly known as Guardian Assurance Ltd) can trace its history back to 1821 when the Guardian Fire and Life Company was formed. It is now owned by Swiss Re Life Capital Limited. Guardian Assurance Ltd started issuing unit-linked policies in the 1960s. ReAssure Ballam Road Lytham St Annes Lancashire FY8 4JZ Tel: Freephone 0800 980 6595 or +44 1253 708 710 (overseas) 3 of 14
3. What are unitlinked funds? A unit-linked fund is a pool of assets that allows you to combine your money with other customers. This allows you to invest in a much wider spread of investments than you could buy on your own. You share in the investment performance of the assets within the fund, along with other policyholders. Each fund is divided into units of equal value. The value, or price, of each unit is linked to the value of the assets in the fund, which can go down as well as up. The unit price determines how many units you get when you invest money in the fund and how much money you get back when your units are cashed in. The mix of assets held in a unitlinked fund varies from fund to fund. Each fund will have a specific investment objective, aligned to the risk appetite of the fund. We offer a range of unit-linked funds. Details of our different funds, their relative risk ratings and investment make-up can be found in our document Guardian Unit-Linked Funds: A Guide. A copy is available to download from our website or by contacting us. You can usually invest in more than one fund but the range available to you will depend on your policy. You may have a life insurance policy or a pension policy with us. In most respects our unit-linked funds are managed in the same way for both types of policy. 4 of 14
4. What do my premiums buy? Your premiums buy units in one or more of our unit-linked funds offered with your policy. A proportion of the premium will be used depending on the type of policy you have. This is known as the allocation rate. You will have decided which of our unitlinked funds you want the allocation to be made in. You can change the unit-linked funds your premiums are allocated in within the range available to your policy. The number of units allocated to some of our policies does not change, except by paying premiums or switching between unit-linked funds. Some policies (notably Freedom and Choices) deduct units to pay for policy benefits and policy charges, such as the monthly service charge. 5. The value of our unit-linked funds In order to treat customers fairly, we aim to use up-to-date values to value our unit-linked funds, drawing on quoted prices wherever possible. We calculate a value for most of the assets in our funds each day. There may be occasions or assets for which this is not possible but a value will still be determined using the most appropriate information available. We add the value of all assets within each fund to get a total asset value for the fund. Any income due is added to the value and any costs and taxes are deducted. The value of the fund also depends on whether it is expanding or contracting to make sure we allocate the costs of the fund fairly (see section 7 Day to day expenses of running unit-linked funds ). A fund is expanding when customers overall are buying more units than they are selling. Under these conditions, we normally value the assets at the current market price at which we could buy the underlying investments in the fund, allowing for charges and taxes. A fund is contracting when customers overall are selling more units than they are buying. Under these conditions, we normally value the assets at the current market price at which we could sell the underlying investments in the fund, allowing for charges and taxes. 5 of 14
6. How do we work out the price of a unit in a fund? The value of each unit is the value of the fund divided by the number of units in the fund. In the process, we allow for charges and rounding. Typically, the assets of our funds are valued at 12 noon each working day using current recognised market prices or values. We use these valuations to calculate the unit prices. For some funds, units are bought at the offer price and are sold at the bid price. The difference between the bid and offer price is known as the bid/offer spread. This difference contributes to our administration costs. The bid price is usually 5% less than the offer price. The price calculated is published overnight and available to you the following working day. This means that the price you see today is based on yesterday s market value. Please note, though, that we may delay the price available to you (see section 14 What discretion does the company have? ). 7. Day to day expenses of running unit-linked funds The day to day expenses of running a unit-linked fund are deducted from the fund valuation (for example custodian fees). In addition, an adjustment to the unit-linked fund price is made daily to take account of future dealing costs. Where the fund is expanding, an adjustment is made for the cost of future asset purchases. On the other hand, where the fund is contracting, an adjustment is made for the cost of selling assets. This adjustment is made so as to be as fair as possible to those who are buying new units, those who are selling units and those keeping their existing units. Annual management charge ( AMC ) Some of our costs are recovered by the annual management charges. We recover those costs by applying a factor to the unit price. 6 of 14
Other charges and expenses These may include: taxes, duties and other charges associated with buying, selling, valuing or managing assets other expenses arising from our operation of the fund We may alter these charges if the cost of managing the fund changes. 8. Taxation of unitlinked funds Many of our unit-linked funds are subject to tax. In general, life funds are subject to UK corporation tax on certain elements of investment income and gains and can also be subject to overseas withholding taxes. Pension funds are not charged UK corporation tax but, like life funds, they are sometimes subject to overseas withholding taxes. Depending on their assets, funds may also suffer other taxes such as stamp duties. The overall aim when allowing for tax charges is to treat customers fairly. In order to achieve this we try to treat each fund on a standalone basis and make sure that the tax charges are shared fairly between different groups of policyholders. For life funds, we reduce the value of the fund to allow for the UK corporation tax the fund would be required to pay on investment income and capital gains on a standalone basis, allowing for any expected tax relief from expenses incurred by the fund. If a life fund has incurred tax losses and has scope to offset these losses against its taxable income and gains then we will adjust the tax charged to the fund accordingly. In addition, for both life and pension funds allowance is also made for any overseas withholding taxes and any other tax costs such as stamp duties. Tax law and HM Revenue and Customs practice may change and our practices will change in line with this. 9. Policy charges You must refer to your policy terms and conditions to understand what, if any, policy specific charges apply to you. The following types of charges may apply: Customer unit allocation The money you pay us buys units in your chosen unit-linked fund(s). We invest a proportion of your money, called your allocation rate. This could be more or less than 7 of 14
100%. Different policies have different approaches to rounding. Please consult our document The Principles and Practices of Financial Management. Your Guide to Investment In Our Unit-Linked Funds for further information, which is available on our website or by contacting us. Policy fees You may pay a one-off or regular fee, which is usually paid for by cancelling units. Units sold to meet these charges are subject to rounding. Initial and accumulation units Some policies may have initial units allocated for a specified period after the policy is taken out or following any increment. At a later date, accumulation units then start to be bought. One of the key differences between initial units and accumulation units is that initial units have a higher AMC. Consequently, the reduction factor applied for initial units is greater giving a lower unit price. 10. What does my policy pay out? The benefits payable under your policy will be defined within your policy s terms and conditions. In broad terms, the value of your 8 of 14 policy on a given date is the number of units within your policy multiplied by the bid price of those units on that date. This is only indicative of the value on a given date and is not a guarantee of any potential cash in value. If you have a pension policy you can't normally take your pension savings until age 55. It is however possible to transfer your pension savings to another provider at any time. You may choose to cash in your policy or transfer a pension policy to another provider. When we cash in your policy, we sell all the units you hold at the bid price. When your life policy reaches maturity or on earlier death, or you take your pension savings from your pension policy, we sell all the units you hold at the bid price. Your policy may have a guaranteed minimum benefit payable in place of the value of the units. A deduction may be made from the value of your policy if you have initial units. Your life policy may allow you to surrender some of the units and keep the policy going or to take a series of payments by cashing units automatically at regular intervals. We can delay cashing in your units if we believe that this will ensure
fairness between customers remaining in the fund and customers leaving the fund (see section 14 What discretion does the company have? ). The impact of tax on your financial position will depend on your individual circumstances and the type of policy held. You should contact your financial adviser for more information. 11. Can I move between unit-linked funds? Switching existing units held Most policies will allow you to switch your existing unit allocation between the unit-linked funds available to you. Switches are made on a bid to bid basis so that you do not lose out on the bid-offer spread (if it applies to your policy). If you want to move the value of your units into other funds, you can do this up to three times in any policy year without any charge. A charge may be made for more switches. If you switch, the unit prices used will normally be those published the working day after we have received your instruction, where the instruction is received before 11:30am. If the instruction is 9 of 14 received after 11:30am, we will use the unit prices published two working days after. Redirecting future premiums You can also change the unit-linked funds that your future premiums buy units in. We will accept your instruction to switch/redirect in writing and by fax. We will also accept signed written instructions that are emailed as an attached document but we will not accept an email alone. We will not accept a switch/re-direction instruction by telephone. 12. Treating our customers fairly Our Board of Directors are ultimately responsible for the management of our unit-linked funds. We have a team responsible for the day to day operational management of the funds. They make sure that the investment managers manage our funds in accordance with fund guidelines and that where discretion is applied it is done so fairly, in line with our practices and commitment to our customers as well as any regulatory requirements.
What happens if we make an error in valuing our funds or prices? We make every effort to work out our unit prices correctly. We have processes and controls in place to reduce the chance of errors and to find and correct errors if they happen. Should there be an error in a published unit price we would follow the Association of British Insurer s guidelines on how to deal with a unit pricing error. Any errors are usually small and have an insignificant effect on the value of the affected fund. We record, investigate and, where necessary, correct as soon as possible any errors, so that you do not lose out or profit from any mistake. What if you have a complaint? We are committed to looking after you as our customers. If you are not satisfied with any aspect of our service, please let us know and we will investigate. Details on how to make a complaint are available on our website or by contacting us. 13. What are the risks to my investment in unit-linked funds? The value of your unit-linked policy may go down as well as up, depending on the performance of the underlying assets and the effect of the charges made against either the unit-linked fund, the unit price or your policy. Important information if you hold units in one of our tracker funds We adopt a passive approach for a number of unit-linked funds. Passive funds track a market or benchmark index. This means that the investment managers invest in funds that track the benchmark for the relevant fund sector. Details of the range of funds including whether or not they are tracker funds and their benchmark are shown in the document Guardian Unit-Linked Funds: A Guide. This document is available on our website or by contacting us. The actual fund performance of the passive fund will not be identical to that of the benchmark; this difference is referred to as tracking error. There are many causes of tracking error, for example trading 10 of 14
costs incurred as a result of the requirement for the passive fund to rebalance its underlying investments to be consistent with the constituent asset holdings of the index. The impact can be either positive or negative depending on the underlying circumstances of the tracking error. Additionally, the performance of a fund that invests in more than one tracker fund will not be identical to that of the benchmark index. This difference can arise because the rebalancing of the benchmark fund and the underlying passive funds may not occur at the same time. The tracker funds we offer are currently all managed and monitored by external investment partners. The performance of the tracker funds against their benchmark is regularly monitored. It should be noted that tracking errors, or differences in performance compared to benchmark, are not ordinarily pricing errors that would lead to remediation but are functions of investing in tracker funds. Important information if you hold units in one of our Deposit funds Historically, the rates of return of our Deposit funds have been higher than their annual management charges (AMCs), so the unit prices haven t gone down. However, with money on deposit now earning substantially less than it used to, the returns may be less than the AMCs. This could cause the unit price and, therefore, the value of your Deposit units to fall. The Deposit funds are also exposed to a credit risk. If it is invested with an institution that fails to repay the investment then the fund would suffer a capital loss and the price would fall. The Deposit fund should not be viewed as a long-term investment and returns may not keep up with inflation. 11 of 14
14. What discretion does the company have? We try to make sure we use our experience and judgement to price our units in a way that is fair to everyone invested in a fund. Treating customers fairly is a key principle that we follow when exercising discretion in the management of our unit-linked funds. Your policy s terms and conditions describe the areas where we may use our discretion in managing our unit-linked funds, which includes how the underlying assets are valued, how charges are applied and how the published prices are calculated. We reserve the right to close a unitlinked fund to new unit allocations or to wind up a unit-linked fund and switch existing allocations to another unit-linked fund. Our aim would be to give you three months notice of such a change in writing, where practical, to allow you time to make an informed decision on what to do with your policy. interests of all our policyholders. We reserve the right to defer acting on instructions to cancel units (e.g. surrender, switch) for up to one month, typically. In the case of Property unit-linked funds, we may defer acting for up to six months. 15. Other relevant issues We no longer sell new policies but may issue new policies or accept additional payments from policyholders under the terms of some policies. Our document The Principles and Practices of Financial Management. Your Guide to Investment In Our Unit-Linked Funds is a more detailed guide to how we manage our unitlinked funds and is available on our website or by contacting us. In an emergency situation, our priority will be to protect the 12 of 14
Glossary Annual Management Charge (AMC ) This is the annual charge levied on funds to recover some of the costs we incur in managing the business. Asset A common term used to refer to investments. Examples would include authorised unit trusts, shares, fixed interest securities and cash. Stamp duty An administrative tax levied by government. UK Corporation Tax Tax payable by UK companies on their profits and investment returns. Capital gain A capital gain is made when an asset is sold for more than it was bought for (subject to any indexation relief available). Capital loss A capital loss is made when an asset is sold for less than it was bought for (subject to any indexation relief available). Investment income Investment income refers to proceeds arising from assets (for example dividends). Overseas withholding tax Tax levied on assets held offshore. 13 of 14
UL CFPPFM-June 2016 14 of 14 ReAssure Life Ltd Registered Office: Windsor House, Telford Centre, Telford, Shropshire, TF3 4NB. Registered in England No. 38921. ReAssure Life Ltd is authorised by the Prudential Regulation Authority and regulated by the Financial Conduct Authority and the Prudential Regulation Authority. Firm reference number 110858. Member of the Association of British Insurers.