Pearl - Summary of changes to the proposals

Following discussions with the Financial Services Authority (FSA), we have made some changes in relation to the Scheme and Demutualisation Scheme in order to:

preserve NPLL SERP policyholders' right to a share in a potentially distributable 'estate'; and

ensure increased consultation and FSA non-objection prior to any future closure of the Pearl SERP Fund, or the adoption of different investment strategies for different groups of policies in NPLL.

The changes are summarised below. You need Adobe Acrobat Reader to view some of the linked files. You can obtain Adobe Acrobat Reader free from here.

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Summary of changes to the Scheme

A portion of the assets to be transferred from NPLL to Pearl will now be identified as a potentially distributable 'estate'. NPLL SERP policyholders will retain a right to the distribution of these assets, if the assets are not required to meet the cost of policy guarantees. However, we expect that all of this will be used to meet the cost of guarantees and therefore do not expect any of it to be distributable to policyholders. In order to effect this, changes have been made both to the Scheme and to the Pearl SERP Fund PPFM. The change is also covered in sections 4.4 to 4.8 of the Independent Expert's Supplementary Report.

The Scheme allows for the closure of the Pearl SERP Fund if, as a result of policyholders taking their benefits or leaving the fund, its value falls below a certain size, making it too small to be viable. If Pearl decides to close the SERP Fund, the policies in the fund will be converted to non-profit policies and Pearl must calculate the amount of surplus in the fund in order to determine policyholder entitlements. The Scheme has been amended to provide that Pearl must consult with the FSA regarding the calculation of the surplus and that Pearl can only go ahead with the closure of the fund if it has received written notice from the FSA that they don't object. This change is covered in Schedule 4 of the revised Scheme document and in sections 4.13 to 4.15 of the Independent Expert's Supplementary Report.

Summary of additional proposed changes to the Demutualisation Scheme

One of the changes already proposed to the Demutualisation Scheme was to allow NPLL to adopt different investment strategies for different groups of policies in NPLL. Any change to the future investment strategy would only be implemented following advice from the NPLL With-Profits Actuary and with the consent of the Supervisory Board, and following notification to the FSA.

A further change has now been proposed that would require NPLL to obtain written confirmation from the FSA that it doesn't object to the change in investment strategy, before the change is implemented. This amendment is included in Schedule 4 (part B, paragraphs 4 and 5) of the Demutualisation Scheme. It is also covered in sections 4.9 to 4.12 of the Independent Expert's Supplementary Report.