The U.K.'s Prudential will consider hedging a capital-guaranteed offshoot of its multi-asset life fund, if it sees a sizeable jump in assets under management. But Hugh McKee, savings and investments director at the firm in Sterling, Scotland, explained this will depend on U.K. investors regaining confidence in this type of life fund, known as with-profits in the U.K., which have seen high-profile losses at other life companies in recent years (DW, 1/21/04).
"If we get back to the heady days of selling GBP2 billion in life bonds, it might be time to rethink [hedging the guarantee]," he noted. Since launch in September, PruFund has attracted GBP15 million (USD27.5 million) in assets under management and although McKee expects the capital-guaranteed spin-off fund to boost this, he does not expect it to return the fund to the GBP2 billion level which would call for hedging. This would require a considerable increase in investor appetite for with-profits, which could be a matter of years, he noted.
Prudential will start charging 0.5% a year for the insurance from August, which is expected to cover the cost of the guarantee for the life company. When assets under management do pick up, McKee said Prudential would likely look at capital protection through CPPI as it is already familiar with the mechanism.
