HOW RELIANCE MUTUAL'S WITH PROFIT BUSINESS HAS BUILT UP

Over the years, Reliance Mutual has acquired with profits business originally written by other companies. The main transactions involving with profits business were:

All the business of Burslem Mutual Assurance Society was acquired in 1962.

The Industrial Branch business of Nation Life Insurance Company was acquired in 1971.

All the business of Criterion Life Assurance limited was acquired in 2003 and transferred in to Reliance Mutual in 2004.

The business originally written by Time Assurance Society and Templeton Life Assurance Limited, which had been acquired by Family Assurance Friendly Society in 1994 was in turn transferred to Reliance Mutual in 2004.

In addition to these transactions involving with profits business, Reliance Mutual acquired The British Life Office Limited in 1958. We used British Life as a company to underwrite various types of without profits policies until 2004, when all its business was transferred into Reliance Mutual.

We acquired all the business of Eurolife Assurance Company Limited during 2005,and transferred this directly into Reliance Mutual at the time. None of this business is with profits.

In September 2006 we acquired the share capital of SEB Trygg Life (UK) Assurance Company. Initially we maintained this as a separate subsidiary company, having changed its name to RM Life Assurance Limited. In July 2007 we transferred this business, none of which is with profits, into Reliance Mutual.

In May 2007 we acquired the share capital of University Life Assurance Society from its current owner Equitable Life Assurance Society.  The majority of this business is with profits. In July 2007, we transferred this business into Reliance Mutual, at the same time as transferring the business of RM Life Assurance Limited.

Also in July 2007, we acquired all the business of Hearts of Oak Friendly Society, which we transferred directly into Reliance Mutual. Hearts of Oak is our largest acquisition to date, involving in excess of £300million managed on behalf of more than 60,000 policyholders.

With profits sub funds

Our with profits business is written in six sub funds. These each have separately identified assets, and are operated in slightly different ways.

Reliance Mutual With Profits Sub Fund (RM WPSF) contains all the business originally written by Reliance Mutual, British Life, Burslem Mutual, Nation Life, Templeton Life, Eurolife and SEB Trygg Life.  It also contains the without profits and unit linked business originally written by Criterion Life Assurance and Hearts of Oak Friendly Society, and the unit linked business originally written by Time Assurance.

With profits Sub Fund 2 (WPSF2) comprises the former Criterion Life Assurance with profits fund.

With profits Sub Fund 3 (WPSF3) comprises the former Time Assurance Ordinary Benefit with profits fund.

With profits Sub Fund 4 (WPSF4) comprises the former Time Assurance Retirement Annuity with profits fund.

With profits Sub Fund 5 (WPSF5) comprises the former University Life Assurance Society business.

With profits Sub Fund 6 (WPSF6) comprises the former Hearts of Oak Friendly Society with profits policies.

BONUS DECLARATION AT 31 DECEMBER 2007

Reliance Mutual with profits sub funds

Policies originally issued by Reliance Mutual

The following annual bonus rates are percentages applied to the original sum assured, with the exception of Reliance ordinary branch insurances where the rate is a percentage of the original sum assured plus attaching bonuses.

Policy type	Annual Bonus Rate %
Reliance ordinary branch whole of life and endowment insurances	2.00
Reliance industrial branch with profit policies	1.75
Reliance industrial branch mortuary bonus policies without regular cash bonuses	1.50
Reliance industrial branch mortuary bonus policies with regular cash bonuses	1.40

This table does not include contracts originally written by Burslem Mutual and Nation Life.

A final bonus (sometimes also called "terminal bonus") is paid on all with profits policies when they become claims on death or at maturity. An allowance is also made for final bonus within the calculation of surrender values. The amount of bonus is expressed as a percentage of the basic sum assured and attaching annual bonuses on the date of the claim. Final bonus rates are not guaranteed and may be altered at any time.

Different rates apply to ordinary and industrial branch business and to whole life and endowment assurance policies. The rates of final bonus depend on the year the policy commenced to share in profits, with longer duration policies receiving higher rates of bonus. Click here to view the detailed scales of final bonus which apply to death and maturity claims arising after 1 October 2008.

With Profits Sub Fund 2

Policies issued by Criterion Life Assurance Limited

Annual bonus

Life policies - For all premium paying policies, 55% of the sum of all premiums, other than those to cover special risks, paid since the last declaration of bonus in December 2006 are available as a cash benefit or may be converted to an annual bonus. For non-premium paying policies an equivalent premium is used.

Pension policies - For most premium paying group pension scheme policies, 55% of the sum of all premiums paid since December 2006 are converted to a annual bonus using a set mortality factor and interest rate. No bonus is paid on paid-up plans, although some contracts have a guaranteed increase in benefits each year.

Final bonus

Only paid on life with profits policies. The following rates apply with effect from 24 October 2008.

Pre 1 July 1975 policies: 60% of original sum assured plus attaching annual bonuses, increased by 10% for each complete 12 monthly period in force prior to 1 July 1975.

Post 1 July 1975 policies: 50% of original sum assured plus attaching annual bonuses.

With Profits Sub Fund 3

This fund contains the former Family Assurance Time OB with profits fund.

The annual and final bonus rates are percentages applied to the original sum assured plus attaching annual bonuses. The annual bonus has been declared in respect of the year 2007. The final bonus applies to all with profits policies other than deferred annuities and are valid from 1 March 2008.

Policy type	Annual Bonus Rate %	Final Bonus Rate %
Low cost and flexible endowment assurances	3.75	36.0
Adaptaplan	4.75	36.0
Other whole life and endowment assurances	3.25	36.0

With Profits Sub Fund 4

This fund contains the former Family Assurance Time RA with profits fund.

Both the annual and final bonus rates are percentages applied to the annuity plus attaching bonuses for deferred annuities.  The annual bonus has been declared in respect of the year 2007.  The final bonus applies to policies commencing to pay a pension from 1 March 2008.

Policy type	Annual Bonus Rate %	Final Bonus Rate %
Regular premium deferred annuities (series 1)	1.00	30.50
Single premium deferred annuities (series 1)	1.25	38.00
Deferred annuities (series 2)	1.00	30.50

When deferred annuities commence being paid, the proportion of the annuity represented by the final bonus remains a non-guaranteed amount, and may be varied from year to year. For 2008, no variation will be made in these amounts.

With Profits Sub Fund 5

This fund contains the former University Life Assurance with profits fund.

There is no annual bonus declared on these policies in respect of the year 2007.  The rate of final bonus depends on the year the policy commenced to share in profits, with longer duration policies receiving higher rates of bonus.   Click here to view the detailed scales of bonus which apply to claims on or after 24 October 2008.

With Profits Sub Fund 6

This fund contains the former Hearts of Oak Friendly Society with profits fund.

Click here for details of the revised non-guaranteed annual bonuses including rates declared in respect of 2007, and final bonus rates.  The final bonus rates are applicable from 1st February 2008.

Click here for details of the circular sent by the Hearts of Oak Board explaining the changes resulting from the transfer to Reliance Mutual.

FREQUENTLY ASKED QUESTIONS

What is a bonus?

They are additions to the benefits that are paid under the policy and are the way in which your policy shares in the profits of Reliance Mutual.

They can either be annual (reversionary) bonuses or final (terminal) bonuses.

A reversionary bonus may be added to the policy annually. Once added it cannot be withdrawn. However future bonus rates are not guaranteed and can be changed or removed at any time.

The annual bonuses will be paid in full on the maturity or normal retirement date of your policy or on earlier death. However, you may not receive all annual bonuses that have been added unless you continue paying premiums and do not alter your policy.

A final bonus is an additional bonus which may be paid on termination of the policy due to death or maturity. The amount is determined when the event occurs. This bonus is not guaranteed and can be changed or removed at any time.

Is there any difference between bonuses on life and pensions policies?

Annual and final bonuses attaching to pensions policies are paid in the same manner as the basic benefit, that is as an addition to the basic guaranteed pension.

Life assurance policies receive the guaranteed sum assured together with all annual and final bonuses in cash when a claim arises.

How much bonus will I receive?

The amount declared depends on the progress of the underlying fund in which premiums are invested. This depends mainly on the returns earned from the assets in which the fund is invested. Profits from all the business written in the fund are available to be distributed as bonuses.

In setting bonus rates, returns are smoothed so that part of the short-term fluctuations in investment values are not reflected in payments. The aim is that policy benefits and underlying asset values will be broadly similar over the long-term.

The amount of total annual bonuses accumulated so far is shown on your bonus statement. Bonus statements are issued in March each year for most policies.

How does this year's bonus compare with last year's?

For all sub funds annual bonus rates are the same as last year.  Annual bonuses had been set to zero in WPSF5 and WPSF6 before these businesses were acquired by Reliance Mutual.  Unless there are significant changes in the investment returns available from fixed interest securities, it is unlikely that annual bonus will change in future years.

Final bonuses are used to determine the overall level of policy payouts.

In RM WPSF policy payouts have generally fallen by 10% compared with a similar policy maturing last year.  This is a consequence of the poor performance of equity markets during 2007, and this sub fund has significant exposure to equity investments.  Nevertheless, comparative market surveys show RM WPSF as providing some of the best with profits returns in the market.

In WPSF2, 3, 4 and 5 it has been possible to increase final bonus rates, and thus policy payouts all show increases compared with equivalent contracts last year.  These sub funds are running down and the surpluses are being distributed to policyholders.

In WPSF6 the fund was in a poor financial state when it was acquired by Reliance Mutual last year.  The transfer of business has done much to stabilize the fund and its outlook for the future, but it has been necessary to make reductions in final bonus rates this year.  A detailed explanation is being sent to policyholders with the annual notification of bonuses.

Future annual bonuses and all final bonuses are not guaranteed and the rates may be changed without notice.

Where is my money invested?

Your premiums are combined with those from all the other policyholders in your sub fund and are invested in a wide range of securities including:

• UK shares
• Overseas shares
• Fixed interest securities
• Property
• Cash deposits

I have never received an annual notification of bonuses.

Industrial Branch policyholders do not currently receive annual bonus statements. The main contact has traditionally been between the agent who calls at the door to collect premiums, and thus is able to answer questions face to face. The nature of this operation is changing, and we are giving consideration to sending bonus information by post at some time in the future.