The UK insurance industry is the largest in Europe and the third largest in the world with investment holdings valued at £1,480bn in 2006, of which with-profits assets account for some £423bn assets invested.
Due to the long-term nature of with-profit contracts and the high level of discretion retained by life insurers in respect of investments and bonuses, the governance of with-profits funds is of considerable importance.
Starting in April 2004 the UK Financial Services Authority (FSA) has required each firm undertaking with-profits business to prepare and publish Principles and Practices of Financial Management (PPFM). PPFMs document how a firm manages its with-profits funds.
In January 2006 the FSA required firms to publish consumer friendly versions of PPFMs.
Furthermore an annual report for policyholders has to be produced confirming compliance with PPFMs.
This report is reviewed by the with-profits actuary who also makes a report to policyholders.
An independent input is required and is usually undertaken by an established with-profits committee or an independent reviewer.