Aviva, the UK's biggest insurer, has scrapped controversial plans to redistribute £1bn worth of orphan assets to around 1 million policyholders due to the sharp economic downturn.
The life insurer announced plans last July to offer its Norwich Union with-profits policyholders around £1,000 each for their share of inherited assets that either have not been claimed or cannot be designated to a specific policyholder. But because of stock market falls, Aviva has withdrawn the offer and is now undecided about whether to offer policyholders any windfall at all given that doing so would reduce the value of the estate in a tough climate and could anger shareholders.
Andrew Moss, group chief executive of Aviva, said: "The original offer did allow for normal market fluctuations, but not for changes of this magnitude. The bottom of the FTSE 100 range under which the payout was agreed was 5000 points, and that obviously hasn't happened."
Mr Moss refused to disclose how much the reattribution plan had cost Aviva to date, and denied that the company regretted pursuing the payout strategy in light of rival Prudential's decision to halt the redistribution of £8.7bn of orphan assets in June last year.
He added: "It is not certain that there will be a payment but we are working very hard to see if we can come up with a sensible offer. The value of the assets has changed, but I would look policyholders in the eye and say that we are working extremely hard on this. We need to get the terms right in this environment."
Mr Moss stressed that discussions with the policyholder advocate, Clare Spottiswoode, who represents the interests of those in the with-profits fund, are ongoing, and said he hoped for a conclusion to the process "within the next few months".
Ms Spottiswoode added: "The financial turmoil we have seen since we announced a reattribution deal in July 2008 has been unprecedented. Importantly, however, the company has opened discussions with us about how to keep the prospect of a reattribution offer alive.
"We are considering how we might be able to restructure the offer to move in line with the size of the estate at a point close to the time payments could be made. I am confident that we will succeed. It is very positive that even in these extraordinary times, the reattribution remains on the agenda."
However, consumer groups criticised the insurer for putting shareholders ahead of customers. Which? chief executive, Peter Vicary-Smith, said: "This news caps a miserable few months for Aviva's with-profits policyholders in which they've seen bonuses slashed and transfer penalties introduced. We must avoid a situation where policyholders take all the risk only for Aviva to get all the benefit from any upside in the value of the estate. At a time when Aviva is cutting the payout to policyholders it is all the more important it stops raiding the inherited estate to pay shareholders' tax bills, prop up a deficit in the staff pension scheme or pay for its own regulatory failings."
The announcement came as part of Aviva's interim results announcement which revealed the life company's highest ever life and pensions sales in the UK of £11.9bn in the year to 31 December 2008. Aviva's life and pensions sales totalled £36.3bn – 11 per cent up on the same period the year before. The group, which is in the process of rebranding almost all its subsidiaries, including Norwich Union, to the Aviva name, is due to publish its full-year results on 5 March.Reuse content