I have a With Profits Bond with Liverpool Victoria who are currently imposing a Market Value Reduction (MVR) of approximately 23 per cent. The worrying thing is that the MVR can be applied indefinitely and is completely opaque ie there is no way I can predict or calculate the figure. I am just about to complain to the Financial Ombudsman on the grounds that having an MVR which can be applied indefinitely is beyond my reasonable expectation. I do not expect to win my case but would be interested to hear from others who have experienced similar problems.
I guess by 'can be applied indefinitely' you mean that there is no set 'maturity date' at which there is a guarantee that an MVR will not be applied.
There is no point complaining to the Ombudsman if the terms of the contract you entered into allow the insurer to apply an MVR on that basis. Some policies may have a "no MVR" guarantee at a specific date but there is no requirement for there to be any such guarantee.
The point to remember is that an MVR is not a "loss" an "penalty" or a "charge". It is an adjustment to bring the value of a policy in line with the actual investment performance achieved. The policy payout after the MVR has been deducted should reflect a "fair value" allowing for the actual returns on the underlying investments.
Historically, terminal bonuses have been added to policies on surrender when the underlying investment returns have exceeded the regular bonuses already added to the policy. Similarly, an MVR is applied when the bonuses already added to the policy have exceeded the underlying investment return.
As a (totally hypothetical) example, a with-profit investment made in November 2000 may have had bonuses of 5% per annum so a £1000 investment may have a current face value of 1000 * 1.05^3 = £1157. However, the underlying investment will include an element of equities, which have significantly reduced in value since 2000 and the return on the underlying assets may actually be negative over those three years. If the overall return over the three years was -11%, the true value of the £1000 would now be £890. A 23% MVR applied to the £1157 brings it down to around the true value.
If the investment was surrendered and the insurer paid out the full £1157, the policyholder would be getting a subsidy from the other with-profit policyholders. Consequently, in favourable investment conditions, you might expect to do marginally better from a contract without a "no MVR" guarantee as the insurer will not be needing to hold back some of your investment returns to subsdise other policyholders in less favourable times.
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