SECOND-HAND endowment policies can be a good investment for people anticipating future capital needs in Britain, but actuaries warn that the secondary market in these policies has become overheated, inflating prices and yield projections.
Britain's Institute of Actuaries has publicly urged the Personal Investment Authority, which regulates retail financial services, to investigate whether investors might be paying too much for second-hand policies based on unrealistic expectations of their returns.
At the end of last year, the actuaries issued a report concluding few bargains were to be had in the secondary market, and in July the group repeated its warning, suggesting second-hand policies were overpriced by as much as 20 per cent.
Robert Franks, international sales director of Securitised Endowment Contracts (SEC), the largest market-maker for with-profits endowment policies, acknowledged last week during a visit to Hong Kong that competitive pressures were boosting prices.
'We're not prepared to overpay to buy stock,' he said. '[But] our competitors may have overpaid to acquire stock to outbid us in order to buy policies and offer them as market share to our distributors.' Mr Franks said SEC generally paid a policyholder 10 per cent to 20 per cent more than the insurance company would offer as surrender value. In some cases, he said, SEC's offer might rise to 30 per cent over surrender value.
SEC managing director Max Rosen has said that some policyholders are getting from 40 per cent to 60 per cent more than they could expect from their insurers.