months of negotiations, UK insurer Aviva has been given the go
ahead by policyholder advocate Clare Spottiswoode to proceed with a
reattribution offer to the one million policyholders in two of its
Norwich Union Life unit’s with-profits funds.
Under the offer, policyholders in Norwich Union’s CGNU Life and
CULAC funds will be able to choose whether to receive a cash
payment in return for giving up their right to receive any possible
future payouts from the funds’ inherited estates or to stay as they
are. In essence the inherited estate represents funds surplus to
realistic liabilities.
Go deeper with GlobalData
Aviva stressed that policyholders who reject the offer should
realise that sizeable distributions out of the inherited estates
are unlikely, especially in the next few years because of the
current economic climate.
If all policyholders accept the offer Aviva will pay £1 billion
($1.98 billion) out of its shareholder funds with payments ranging
from £400 to £3,500 per policyholder with an average of about
£1,000.
Together with another special bonus totalling £2.1 billion
announced in February, this would mean that some 70 percent of the
inherited estates’ value would have now been released to CGNU Life
and CULAC policyholders.
According to Aviva full acceptance of its offer would generate a
one-off embedded value profit of £225 million and a one-off
international financial reporting standards (IFRS) profit of £390
million.
Aviva reported an IFRS operating profit before tax of £1.233
billion for the six months to June 2008, up 7 percent compared with
the first half of 2007.
Described as an “excellent result” for policyholders and
shareholders by Aviva’s group chief executive Andrew Moss, Aviva’s
reattribution offer has not enjoyed universal approval.
Notable criticism came from Peter Vicary-Smith, CEO of Which?, a
consumer group that has lobbied for stricter regulation of with
profits funds by the Financial Services Authority (FSA).
“While most policyholders will probably welcome this payout, they
could have received more if the FSA had regulated this area
effectively,” said Vicary-Smith in a statement.
He was referring to a report by a Treasury Select Committee in
which the FSA’s approach to the protection of interests of with
profit policyholders was strongly criticised (See LII
225).
