Market Value Reductions (MVRs)
With Profits policies are designed to smooth out the highs and
lows of the stock markets. This means that in general when the
markets are low we pay out more than your investments have actually
earned, and when they are high we pay out less than they have
earned.
The amount we pay out is therefore less volatile than the stock
markets, which is an attractive feature of these policies.
This system works well and fairly in less turbulent conditions.
However when the markets fall heavily, as in late 2008
and early 2009, we have to ensure the amount we pay out to
policyholders who cash in their policies, make withdrawals or
switch out of the With Profits fund at this time is
not too high compared to the underlying value of the
investments.
We therefore apply a Market Value Reduction (MVR).
Policyholders who choose to cash in their policies or switch out of
the With Profits fund during these times, may receive less than the
normal smoothed cash value.
The lower cash value better reflects what their investments have
actually earned. If we took no action, the cost of this would fall
to our other policyholders who choose to remain invested in the
fund, which is unfair to them.
Wesleyan currently has no MVRs in place.
