LV= With Profits Performance

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• With-profits fund return of 5.7% achieved in 2007.
• Market Value Reductions (MVRs) only apply to a small number of with-profits bonds taken out over a nine month period in 2000-2001.
• Latest Cazalet Consulting With-Profits ratings give LV= ten out of ten for financial strength, investment freedom and flexibility, and bonus paying ability.
• £21,000 surplus currently being paid on a maturing 20 year £50,000 mortgage endowment policy. Unequivocal mortgage endowment guarantee maintained.
• An estimated £100m in bonuses to be added to with-profits policies.
• Effective return over the year of 9.9% for a 10-year life policy and 12.5% for a 25-year life policy.
• A £50 a month 10-year policy maturing 1st March 2008 will pay out £7,396, and a 25-year policy will pay out £61,625.
• 25 year payouts are higher than major proprietary firms (see table below).
• With-profits pension annuity top-up bonus rates increased.

Ian Blanchard, With-Profits Actuary for LV= said: "The achievement of a 5.7% fund return over 2007 is a very creditable performance, and has enabled us to add a smoothed return of over 12% to our traditional with-profits policies. We are also delighted to provide all of our mortgage endowment policyholders with the peace of mind of knowing that any mortgage amount covered by their policy will be paid off. As a mutual organisation, with no shareholders to pay, providing this kind of added value benefit to our members comes naturally to us.

"So far in 2008 the equity markets have been extremely volatile, with one of the largest FTSE-100 one day falls on record. Our policyholders can rest assured that because we smooth investment returns – a key feature of with-profits – much of these day-to-day fluctuations will be ironed out. In fact, thanks to the more positive equity performance of recent years, if returns were flat over the next two years, our with-profits policyholders would still have positive annual returns added to their policies during 2008 and 2009."

The UK's largest Friendly Society* LV= provides an unconditional Mortgage Endowment Guarantee (originally made in 2000) which means that all with-profits mortgage endowment policies paid to full term are guaranteed to meet any mortgage amount covered by the policy.

Currently a 20 year endowment policy for a £50,000 mortgage is yielding £71,388, a £21,388 surplus, whilst a 15 year policy is achieving a £5,136 surplus.

LV= outperforms proprietary providers: LV= policyholders with maturing 25-year conventional with-profits life policies are at least £14,580 (31%) better off than similar policyholders with the major proprietary with-profits providers who have announced their bonus declarations so far this year.

WPPAs give annuitants potential for increases to income via regular bonuses, and also top-up bonuses which are not fixed. LV= has recently increased all of its WPPA top-up bonuses.

The LV= with-profits fund was rated ten out of ten in the Cazalet Consulting With-Profits Ratings 2007 and has experienced another strong year of performance, underpinned by active management and the significant exposure to UK and global equities that the society's level of financial strength allows.

As at 31st December 2007, the LV= with-profits fund had a 60.5% investment in equities and a further 14.6% in property i.e. over 75% in growth assets. At the end of 2006 the fund had a realistic Free Asset Ratio of 19.7% compared with an industry average of 5.9% (Source: Ernst & Young Capital & Solvency Review 2006, which is the latest such review available).

Market Value Reductions (MVRs) apply to only a small number of with-profits bonds taken out over a nine month period in 2000-2001. The maximum MVR applying is a 2.1% reduction in value. In addition, terminal bonuses on with-profits bonds have been increased, with a 10-year bond paying a terminal bonus of 33%.

The surrender value of a LV= Flexible Investment Bond invested on 31st December 1997 outperformed the average of funds in three comparable ABI sectors, with comparable risk profiles, over each of the last three years.

Notes to table: Lump sum of £10,000 invested at 31/12/1997. Surrender values shown. Source: Lipper Hindsight.

*Association of Friendly Societies Yearbook 2006/2007. Total Net Assets.

With-profits fund asset allocation

a: Regular premium £50 per month, male aged 30 next birthday at entry.
b: Regular premium £5 per four week period, male aged 30 next birthday at entry.
c: Regular premium £200 per month, male retiring at age 65.
d: Single premium £10,000, male aged 30 exact at entry.
e: £10,000 Premiums paid during the last year
The effective returns in the table above allow for the premiums paid over the last year.

a: Regular premium £50 per month, male aged 30 next birthday at entry.
b: Regular premium £5 per four week period, male aged 30 next birthday at entry.
c: Regular premium £200 per month, male retiring at age 65.
d: Single premium £10,000, male aged 30 exact at entry.

The above bonus rates are effective from 01/03/2008, except for the WPPA where the rate is effective from 01/02/2008

The above products are closed to new business.

LV= is committed to managing annual and final bonuses so that policyholders receive a fair return, whether at policy maturity or when surrendering earlier.

The Principles & Practices of Financial Management from LV= state that the unitised with-profits annual bonus rate is targeted at 50% of the expected future investment return, less tax and charges. Paying higher annual bonuses would restrict levels of equity investment and would be likely to damage longer term returns.

Annual bonuses are set taking into account current and prospective gilt yields for the average outstanding term of the policies and bonuses previously added. Annual bonuses add to policy guarantees, which then need to be matched by fixed interest investments.  Therefore, higher annual bonuses would restrict levels of equity investment and would be likely to damage longer term returns.