Annual Report and Accounts 2007

Corporate Governance

With-Profits Committee

The With-Profits Committees (WPCs) were set up in December 2003. While these are committees of the boards of the life and pensions operating companies and not the Company, the Board of the Company appoints the chairman of the WPCs from amongst the independent directors of the Company.

Purpose and terms of reference

The purpose of the WPCs is to bring some independent judgement to:

  • the assessment of compliance for each life and pensions operating company with its published Principles and Practices of Financial Management (PPFM); and
  • how any competing or conflicting rights and interests of policyholders and, if applicable, shareholders have been addressed.

In neither case does this take away any responsibility or accountability from the boards of the relevant companies. This purpose is reflected in each WPC's written terms of reference which are published on the Company's website and are subject to annual review by the WPCs. The last review was carried out in May 2007 when the WPCs concluded that the existing terms of reference for the committees remained appropriate.

Membership and operations

On 1 November 2007, Sir Mervyn Pedelty was appointed Chairman of the WPCs replacing Alison Carnwath, who had resigned as Chairman and member. The other members are Peter Nowell (independent member) and Graham Aslet (former director and Appointed Actuary), both of whom have served throughout the year.

During the year, the WPCs evaluated their own effectiveness with reference to a number of questions on their operation, communications with With-Profits policyholders and general governance. The WPCs were satisfied with the current governance arrangements and the infrastructure that were in place to ensure effective discharge of their role. However, in order to strengthen membership of the WPCs, the Nomination Committee of the Board was requested to seek to recruit an additional independent member to the WPCs during 2008. Also, it was agreed that the WPCs visit the Customer Services centre in Salisbury from time to time in order to have a direct experience of customers' concerns and issues. All members of the WPCs visited the Customer Services centre in Salisbury in December and gained an insight into some of the common issues raised by With-Profits customers.

Activities and work of the WPCs

The WPCs met four times during 2007, with all members present on every occasion.

During the year, the WPCs reviewed the changes made to one of the operating companies' published PPFM documents and all the customer friendly versions (With-Profits Summaries) and the main areas of discretion allowed by the PPFMs. In particular, they reviewed:

  • compliance with target ranges and the sampling methodology used;
  • the principles underlying the bonus declarations for FPLP and Friends Provident Life Assurance Limited (FPLA) made in July 2007 and January 2008;
  • charges for guarantees;
  • proposals for risk-based investment mandates;
  • Equity Backing Ratio for the FPLP With-Profits Fund;
  • the With-Profits Actuary's internal report on the use of discretion in the management of With-Profits business; and
  • the content and quality of communications to policyholders, including the board and With-Profits Actuary's published reports on the use of discretion in the management of With-Profits business.

A process was in place to ensure that the WPCs saw any correspondence that had been sent by policyholders to the WPCs or any of its members together with any actions taken. Members were also kept informed by the With-Profits Actuary on topics with which they should be conversant.

Additionally, management kept the WPCs informed, on a timely basis, of the following reports and issues during the year:

  • update on the FPLA Closed Fund Run-off Plan;
  • the investment performance and share buy-backs of the F&C Commercial Property Trust in which the With-Profits Funds have an interest in excess of 30%;
  • alternative approaches to management of the With-Profits Funds;
  • approach to alternative investments for the FPLP With-Profits Fund;
  • actuarial valuation reports, investment reports and individual capital assessment results of the life and pensions operating companies;
  • compliance with the Scheme of Demutualisation and PPFMs;
  • comparative analysis of With-Profits Fund performance;
  • customer feedback; and
  • Financial Services Consumer Panel report 'Are customers in closed life funds being treated fairly?'

The WPCs reviewed these and other reports in accordance with their terms of reference, assessed and confirmed that any proposals were in compliance with the appropriate PPFM and, effectively, treated customers fairly. Any issues arising were debated within the WPCs and, in some cases, the WPCs have made recommendations to the life and pensions operating companies' boards that resulted in changes being made to the original proposals.

On behalf of the Board

Sir Mervyn Pedelty
Chairman, With-Profits Committees
18 March 2008