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What is a PPFM?PPFM stands for 'Principles and Practices of Financial Management'. It's a document that all with-profits insurers (including those that have closed their with-profits funds to new business) must produce and it describes how they run their with-profits business. Insurers must make their PPFM publicly available.Why do firms have to produce a PPFM?How much policyholders receive from their with-profits policies can be heavily influenced by an insurer's internal decisions and its use of discretion. However, these factors are not normally described in any detail. Producing and making available the PPFM will mean that policyholders, their advisers and market commentators are better able to understand how with-profits policies operate and what to expect from them. The PPFM should also enable insurers to control and manage their with-profits business better. The PPFM is expected to cover any issue that has, or may have, a significant impact on how a with-profits insurer runs its with-profits business. Those issues will include how the insurer decides its annual and final bonuses, how it forms its investment strategy, how it applies charges and expenses and how it manages its inherited estate (if any).What are Principles and what are Practices?The information in the PPFM must be divided into Principles and Practices. Principles are high-level statements that describe the insurer's long-term approach to the way it runs its with-profits business. These should not change often but, if they do, the insurer must give its with-profits policyholders at least three months written notice of the change. That notice might be given, for example, in the insurer's annual bonus statements. Practices are more specific statements which flow from the Principles. These describe how an insurer runs its with-profits business. Practices are expected to change more frequently than Principles to take account of changes in the business and the economy. An insurer must give its with-profits policyholders written notice of a change in its Practices, although that notice may be given after the change has occurred. That notice might also be given, for example, in the insurer's annual bonus statements. Requiring firms to disclose any changes in their Principles and Practices will ensure that policyholders are aware of material changes in their insurer's approach. It will also allow policyholders to review their financial arrangements in a more informed way.How will I know whether or not a company has followed its PPFM?Once a year, each with-profits firm must tell its with-profits policyholders whether, and to what extent, it has complied with its PPFM. That report must be made available to policyholders. Firms can choose how they do that. Some may choose to publish the report on their website. How do I get a copy of the PPFM? All firms' PPFMs will be available from 30 November 2004. From this date, you can ask a with-profits insurer for a copy of its PPFM. Some insurers might have more than one because they have a PPFM for each of their with-profits funds. Ask the insurer about which PPFM is most relevant to you. Insurers will provide a copy free of charge if you are already a with-profits policyholder with them. If you are not, they might ask you to pay a reasonable charge for a copy. Some firms may also choose to publish their PPFMs on their website. Will I understand the PPFM? The PPFM will be a lengthy and detailed document. If you don't understand what's in the PPFM, speak to the insurer or ask your adviser.
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