The Guardian - 15 December 2007

Norwich Union's 1.1 million with-profits policyholders are in line for windfall payouts of £2,000-a-head next summer - but Which? says the company is short-changing customers and payouts should be closer to £4,000. The total amount of "orphan assets" - money held in with-profits funds that is over and above that needed to pay out policies - is around £5bn, and this week the Financial Services Authority issued guidance on how it can be shared between policyholders and shareholders. But according to Which? the guidance amounts to a "smash and grab raid" in which NU's parent company, Aviva, will trouser a large slice of the cash. It calculates that policyholders could end up with just half what they would get if the assets were shared in the same 90% to policyholders 10% to shareholders ratio used in other payouts. It warns that NU will keep a large slice of the cash to finance expansion and settle tax bills, both normally paid for by shareholders. "Instead of treating customers fairly, the FSA rules allow NU to get away with a smash and grab raid on billions that should go to policyholders," says Which? chief executive Peter Vicary-Smith. "We will be exploring all legal avenues open to us." And that could hit the Prudential's plan to grab its own surplus assets - worth around £9bn or £1,750 for each with-profits policy.Clare Spottiswoode, the independent "policyholder advocate" appointed to look after policyholder rights, also believes the FSA rules favour insurance companies. She says: "The FSA response to my request for information on what can be done with this money is very disappointing. It unfairly favours shareholders over policyholders." Norwich Union will publish its surplus asset plans early next year. Policyholders will then vote, with payments likely early next summer.

An influential consumer body is threatening legal action over the plan by the leading insurer Aviva to redistribute £5bn in surplus assets from its with-profits fund. New advice from the main City watchdog yesterday could mean that shareholders benefit from the redistribution of funds at the expense of policyholders, according to Which? formerly the Consumers' Association. It says the proposals by Aviva, which trades under the Norwich Union banner, would be "the worst possible advert for the insurance industry at a time when confidence in the financial services industry is at an all-time low".Any legal action could postpone Prudential's plans for a £9bn raid on its own surplus assets. Aviva announced its intended reattribution of about £5bn in surplus assets, which had built up in its with-profits fund in October 2006, promising policyholders would get windfalls. These are likely to be paid next summer following a vote by policyholders early next year.But following guidance from the City watchdog, the Financial Services Authority, published yesterday, Which? believes policyholders would not get their fair share of the £5bn.Dominic Lindley, a policy adviser at Which?, said: "Norwich Union customers could only get around half of what they should from the pool - £2,000 instead of £4,000 on average. We want qualifying customers to get 90%, with the balance going to Aviva shareholders. Instead, the FSA says the money can be used for a variety of purposes such as paying tax, financing strategic investments, which ought to be financed with shareholder funds." The FSA guidance was sent to Clare Spottiswoode, the independent policyholder advocate who represents Aviva customers in the surplus assets handout. She asked the FSA to clarify what Aviva could and could not do with the surplus assets following the last reattribution by Axa in 2000. Since then the rules have changed - and the FSA has introduced the concept of "treating customers fairly".But Spottiswoode is "disappointed" with the FSA response. "This is very disappointing in that it largely maintains the status quo, which I believe unfairly favours shareholders over policyholders. Policyholders have an expectation that the estates will be used for their benefit. My job is to represent the interests of policyholders ... to achieve a fair incentive payment for them but the FSA ruling makes that more difficult."The FSA said: "Which? is plain wrong because all these assets belong to the insurer, not the policyholder. The 90% split for policyholders is for normal distributions, not special reattributions. Spottiswoode has her advocacy to do. We believe the rules we have created are fair to all concerned."Aviva "welcomed the FSA clarification of the rules".


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