Mortgage Endowment Complaints

Prudential PLC
09 May 2006


For immediate release: 9 May 2006


PRUDENTIAL TO INTRODUCE DEADLINE FOR MORTGAGE ENDOWMENT COMPLAINTS



  • Customers to receive six months' notice of the final date by which they
    can make a complaint

  • Only 13 per cent of Prudential and 16 per cent of Scottish Amicable
    policies are currently projected to have a high risk of maturing with a
    shortfall

  • All Prudential policies and 95 per cent of Scottish Amicable policies
    maturing in 2005 met their target maturity values


Prudential UK is to introduce a deadline for both Prudential and Scottish
Amicable mortgage endowment complaints. Prudential will write to 110,000
mortgage endowment customers who have previously received 'red' letters
(alerting them to a high risk of a shortfall with their policy) to advise them
of its intention to introduce a deadline for endowment mis-selling complaints to
be registered. Customers will then have six months' notice to lodge a
mis-selling complaint.


Chief Executive, Prudential UK, Nick Prettejohn, said: 'Since 2000, we have
written regularly to all of our mortgage endowment policyholders to give them
details of their projected pay-out. Many of our customers will have seen their
letters go from 'red' to 'amber' or 'green' during this period due to the
outstanding performance of our life fund. In light of this, we believe that the
time is right to draw a line under this issue and for customers to resolve any
lingering concerns they may have.'


What this means for customers

  • Of the 110,000 'red letter' customers, 58,000 are Prudential endowment
    holders and 52,000 are Scottish Amicable.

  • Under current FSA rules, customers have three years to lodge a complaint
    from the date they receive their first 'red' letter indicating that there is
    a high risk their mortgage endowment may not achieve its projected final
    value.

  • Customers who received their first red letter three or more years ago
    will have six months from the date of the letter advising them of the
    introduction of the complaint deadline in which to make a complaint if they
    felt they were mis-sold their endowment. Almost all the 110,000 customers we
    are writing to fall within this category.

  • If customers received their first 'red' letter less than three years
    ago, the effective date of their deadline will be three years from the date
    of their original 'red' letter or six months from the date of the letter
    advising them of the introduction of the complaint deadline - whichever is
    the later. Only a very small number of the customers we are writing to fall
    within this category.


Current Status

  • Prudential has approximately 216,000 mortgage endowment policies in
    force. It stopped selling mortgage endowment policies in January 2001.

  • Scottish Amicable has approximately 501,000 plans in force but withdrew
    from the mortgage endowment market in April 2001.

  • Prudential's current approach to mortgage endowment time-barring only
    relates to policies originally sold directly by Prudential/Scottish
    Amicable. Some companies and financial advisers do enforce time limits for
    complaints. As a result, Prudential currently advises customers in
    re-projection letters to contact the company or financial adviser that sold
    them their policy to confirm the position.



Treating Mortgage Endowment Customers Fairly

During the last few years, Prudential has been at the forefront of introducing
initiatives to treat its customers fairly in relation to mortgage endowment
policies.

  • It was one of the first companies to colour-code re-projection letters2;

  • It introduced schemes such as Homeowner3 to enable customers to
    re-mortgage and thereby allow them to address shortfalls with their
    policies;

  • It stopped making payments to so-called ambulance chasers to ensure
    customers get the full benefit of the compensation they receive4;

  • Its complaints procedures are recognised as being one of the best in the
    industry; and

  • It is one of the very few companies who can demonstrate superior
    investment returns and mortgage endowment performance.


Nick Prettejohn said: 'We have a dedicated team of over 100 people in place to
deal with mortgage endowment complaints and the cost of maintaining this team
over the next ten years is anticipated to be approximately £20 million.
Therefore, we do not think that an open-ended complaints procedure for mortgage
endowments is fair for our 4.5 million with-profits policyholders who will have
to bear the brunt of this cost for many years to come and believe this is the
right time to introduce a deadline.'


Prudential (including Scottish Amicable) paid out almost £40 million in mortgage
endowment compensation in 2005 and held a provision of almost £120 million as at
31 December 2005 to cover future claims.


Prudential and Scottish Amicable mortgage endowment customers have benefited
from the strength of Prudential and Scottish Amicable's with-profits funds which
delivered outstanding investment returns of 20 per cent and 19 per cent (before
tax and charges) respectively in 2005. As a result of this investment
performance, all Prudential customers with endowment policies maturing in 2005
met their target maturity values, with an average surplus of £2,200.
Approximately 95 per cent of Scottish Amicable policies maturing in 2005 were
also on target with average surpluses of £2,409. This strong investment
performance has also contributed to the continuing improvement in projected
pay-outs for Prudential's and Scottish Amicable's mortgage endowment policies.


Nick Prettejohn said: 'The strength of our with-profits fund means long-term
savers are reaping the benefits of our investment strategy. Due to the strong
performance of our life fund, we have seen a steadily improving picture for our
customers with the number of policies maturing with surpluses over the last few
years increasing.'


                                    - Ends -


The information contained in Prudential UK's press releases is intended solely
for journalists and should not be used by consumers to make financial decisions.
Full consumer product information can be found at www.pru.co.uk.



Media Enquiries:


Steve Colton          Tel: [phone]        Mob: [phone]

James Murray          Tel: [phone]        Mob: [phone]



Notes to Editors:


1.      Background to Prudential / Scottish Amicable mortgage endowments


Prudential

  • 12,000 policies matured in 2003, all of which met their target values.

  • 9,271 policies matured in 2004, all of which met their target values
    (the average surplus was £1,900).

  • 8,333 policies matured in 2005, all of which met their target values
    (the average surplus was £2,200).

  • We expect 10,049 policies to mature in 2006, all of which are expected
    to meet repayment targets. The expected average surplus is £3,300.


                      2006 (est)         2005          2004         2003


Green                  62%                51%            41%         24%

Amber                  25%                24%            29%         32%

                       87%                75%            70%         56%

Red                    13%                25%            30%         44%


Scottish Amicable

  • 19,000 Scottish Amicable mortgage endowments matured in 2003, of which
    2,700 did not meet their target amount (the average shortfall was £595).

  • 19,356 endowment policies matured in 2004 of which 17,238 (89 per cent)
    met their repayment targets, the average surplus being £2,900. Of the 2,118
    (11 per cent) that did not meet their target amount there was an average
    shortfall of £890.

  • 16,774 endowment policies matured in 2005 of which 15,959 (95 per cent)
    met their repayment targets, the average surplus being £2,409. Of the 815
    that did not meet their target amount there was an average shortfall of £49.

  • We expect 18,500 policies to mature in 2006 with an average surplus of
    £2,600. Of the 800 (4 per cent) policies that are not anticipated to meet
    their target amount, the average shortfall is expected to be around £700.


Note: The expected shortfall is based on a representative sample of policies and
depending on which policies actually mature, the actual shortfall may turn out
to be different. For example, in February 2005 we estimated the average
shortfall to be around £1,000 for policies maturing during 2005, whereas the
actual shortfall was only £49.


                           2006 (est)          2005         2004        2003

Green                       41%                 24%          16%         13%

Amber                       43%                 42%          31%         22%

                            84%                 66%          47%         35%

Red                         16%                 34%          53%         65%


2.      'Colour coding' re-projection letters

We have always made policyholders aware in their annual re-projection letters of
whether their policy has a potential shortfall. However, since September 2004 we
have made this even clearer by using red type-face in the introductory paragraph
of all letters to policyholders with a potential shortfall (i.e. in either the
Red or Amber categories).



3.      Homeowner scheme

Research suggests that many people are still paying the higher standard variable
rate of interest on their mortgage loans. There may be an opportunity for
customers to re-mortgage and thereby release monies to put towards making up
their shortfall. Following a pilot exercise, we launched a full re-mortgage
offering with Halifax in August 2005 (all Halifax's mortgage products are
available). The Halifax mortgage offering allows customers to alter the split of
their mortgage between repayment and interest only in future should the
projected maturity value of their plan rise or fall. Over a 12-week period
through to mid-November 2005, we wrote to 182,000 customers projected to be most
at risk (i.e. those red/amber customers with a shortfall of over £1,000 and more
than two years to go before maturity) outlining this as an option and giving
them details of how to find out more about the scheme. Although Prudential has
targeted 'higher risk' customers, this option is available to all our customers.
Prudential does not receive any fees/commission from Halifax for any
re-mortgages.


4.      Third Party Complaint Handling Companies

In 2005, we wrote to third party complaint handling companies informing them
that all payments due as a result of settling endowment complaints would be made
direct to the customer. Where Prudential was dealing with complaints received
via third parties at the time we made this move, we explained that compensation
would still be paid to the customer's lender or the customer direct (who would
then have to pay the third party complaint handler for their services).


We wrote to any new complainants using a third-party to tell them that they
could lodge a complaint direct and thereby benefit from the full compensation
due to them without having to give up part of this to a complaint handler. This
move was designed to save customers an average 25 per cent of any pay-out that
is normally clawed back by outside firms.



About Prudential


Prudential plc is a leading international financial services group, providing
retail financial services and fund management in its chosen markets: the United
Kingdom, the United States, Asia and continental Europe.


Prudential has been writing life insurance in the United Kingdom for over 150
years and has had the largest long-term fund in the United Kingdom for over a
century. Today, Prudential has over 16 million customers worldwide and over £234
billion (as of 31 December 2005) of funds under management.


In the United Kingdom Prudential is a leading life and pensions provider
offering a range of retail financial products. M&G is Prudential's UK & European
Fund Manager, with around £149 billion of funds under management (as of 31
December 2005). Jackson National Life, acquired by Prudential in 1986, is a
leading provider of long-term savings and retirement products to retail and
institutional customers throughout the United States. Egg provides banking,
insurance and investment products through its internet site www.egg.com.


Prudential is the leading European-based life insurer in Asia with operations in
12 markets as well as funds management businesses in nine of those 12 markets.


*Prudential plc, a company incorporated and with its principal place of business
in the United Kingdom, and its affiliated companies constitute one of the
world's leading financial services groups. It provides insurance and financial
services directly and through its subsidiaries and affiliates throughout the
world. It has been in existence for over 150 years and has £234 billion in
assets under management, (as at 31 December 2005). Prudential plc is not
affiliated in any manner with Prudential Financial, Inc, a company whose
principal place of business is in the United States of America.


Forward-Looking Statements

This statement may contain certain 'forward-looking statements' with respect to
certain of Prudential's plans and its current goals and expectations relating to
its future financial condition, performance, results, strategy and objectives.
Statements containing the words 'believes', 'intends', 'expects', 'plans',
'seeks' and 'anticipates', and words of similar meaning, are forward-looking. By
their nature, all forward-looking statements involve risk and uncertainty
because they relate to future events and circumstances which are beyond
Prudential's control including among other things, UK domestic and global
economic and business conditions, market related risks such as fluctuations in
interest rates and exchange rates, and the performance of financial markets
generally; the policies and actions of regulatory authorities, the impact of
competition, inflation, and deflation; experience in particular with regard to
mortality and morbidity trends, lapse rates and policy renewal rates; the
timing, impact and other uncertainties of future acquisitions or combinations
within relevant industries; and the impact of changes in capital, solvency or
accounting standards, and tax and other legislation and regulations in the
jurisdictions in which Prudential and its affiliates operate. This may for
example result in changes to assumptions used for determining results of
operations or re-estimations of reserves for future policy benefits. As a
result, Prudential's actual future financial condition, performance and results
may differ materially from the plans, goals, and expectations set forth in
Prudential's forward-looking statements. Prudential undertakes no obligation to
update the forward-looking statements contained in this statement or any other
forward-looking statements it may make.


                      This information is provided by RNS
            The company news service from the London Stock Exchange