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2001

Waiting for the Traffic Lights to Change

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Waiting for the Traffic Lights to Change

Just two months after the Financial Services Authority announced that 70% of the ten and a half million "traffic light" letters sent to endowment policy holders had failed to produce preventative action, things just got worse.

The traffic light letters, so called because they come with rankings of red, amber or green, are supposed to tell you how likely your endowment policy will be at achieving it’s intended target. Green should be okay, Amber is keep an eye on it and Red is "DO SOMETHING ABOUT IT NOW".

As the months have passed, more and more insurance companies, the providers of endowment policies, have been making it ever more costly to cash-in a policy - the last resort for those who feel enough is enough.

A couple of weeks ago Legal and General joined the ranks of those insurers who have upped the penalties they will charge if you want to cash in.

At the same time holders of with-profit bonds, another "safe investment" from insurance companies, are also attracting increased exit fees as more stockmarket-related no-risk investments come a cropper.

With the stockmarket hitting it’s lowest point for over four years, dragging down the biggest and smallest portfolios into the bargain, holders of endowment policies can brace themselves for the next round of traffic light letters.

Because the second round of letters are supposed to be sent out within three years of the first batch, those who received them back in April 2000 can look forward to something "interesting" in their letterbox next time around. How many Greens will have turned Amber and how many Ambers that have turned Red is anyone’s guess &ldots; but the signs are not good.

With few City experts willing to commit themselves on what will happen next as far as the stockmarket is concerned the only clues for those with endowment mortgages come form the financial advisers themselves.

For months now the chatter at industry meetings has been of a continued decline in endowment policy returns for some time to come. Even if the stockmarket received a strong upward push and dragged itself out of the current bear market, the drain of past bonuses paid to with-profits holders is such that the endowment providers have got to build up their reserves again. The result being poor performing endowment policies for a few years yet.

This ensures that anyone with an endowment policy can expect their traffic lights to have changed. And as we all know with traffic lights, they always stay red a lot longer than they stay green.

 

 

Published Monday September 24th 2001
 

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