A Zombie Fund (more formally known as a closed fund) is a colloquial expression for a with-profits life insurance fund which is closed to new business. So it is running off its portfolio of insurance liabilities, until the final policy matures, which may be many years into the future, but not issuing new policies.
Some critics have argued that investment performance falls once a fund closes. Reasons for this may include:
- the fund may have been in a weak financial position at the time of its closure.
- compared to open funds, the fund will almost certainly invest a greater proportion of its assets in fixed interest securities as opposed to more exciting asset classes such as equities (this may turn out to be an advantage with the benefit of hindsight).
- because it is not marketing new policies, it has no incentive to deal generously with policies that are maturing now in order to appear attractive to new policyholders.
As against this, it is in a more favourable position compared to open funds because it is not incurring marketing expenses.
In some cases, closed funds will at some point merge with other life insurance funds, or be transferred to another company, in order to achieve economies of scale.
Closed funds can attract negative coverage, as in the case of Resolution plc.
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