Legal threat to Axa over orphan assets

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The Independent Online

The debate over orphan assets, and who owns them, could be nearing a solution. The majority of Axa Sun Life policy holders have decided to take a one-off payment, averaging £400, in return for surrendering any future claims to the £1.7bn sloshing around in the French insurer's coffers.

The debate over orphan assets, and who owns them, could be nearing a solution. The majority of Axa Sun Life policy holders have decided to take a one-off payment, averaging £400, in return for surrendering any future claims to the £1.7bn sloshing around in the French insurer's coffers.

But this decision - which will be confirmed tomorrow, the closing date for Axa's 660,000 qualifying customers to return their ballot forms if they agree - is being challenged by the Consumers' Association. The CA thinks Axa's offer is unfair, which is why the consumers' champion has offered to fight on behalf of policyholders for a better division of the spoils.

This fight will now have to be carried out in the High Court as enough policyholders have voted in favour of Axa's offer. By last Friday, more than 70 per cent had already demonstrated acceptance by returning their forms - a much higher proportion than the 35 per cent Axa needs in order to proceed. Now it has enough votes, it will submit the deal to the High Court for approval next month.

The whole issue of orphan assets - the funds built up by a life office from past policies which don't really belong to anyone - is a difficult one to settle. Axa is not alone: most life insurers have considerable orphan assets and are thought to be sitting on a total of £20bn. Prudential has an estimated £9bn, Legal & General £2.3bn, and CGNU £4bn, so the outcome of the Axa case may well dictate how they handle the disposal of their own assets. If Axa can prove a case for giving policyholders a one-off cash payment in return for giving up all future rights to its orphan assets, others could follow suit.

According to Treasury guidelines, orphan assets should be distributed on a 90:10 ratio - 90 per cent to policyholders and the remaining 10 per cent to shareholders. Calculations from the CA, which have been produced by accountancy firm KPMG, reveal that Axa policyholders will get as little as 35 per cent, according to current proposals.

The CA argues that policyholders should be entitled to most of these assets. It has undertaken to represent more than 500 unhappy policyholders in court and believes Axa should pay the legal costs of this challenge. But last Friday Axa announced that after receiving legal consultation it had decided not to foot the bill. "We are not minded to fund their [the CA's] legal costs as they have requested," says Phil Hickley of Axa. "We have not been able to get to the bottom of what areas they want to examine. It appears the Consumers' Association may be wanting to ask the court to fail to sanction this.

"We don't think it is in our interests that we should fund an organisation which is seeking to scupper the deal which the majority of our policyholders have voted in favour of."

Ashley Holmes, head of legal affairs at the Consumers' Association, has vowed to fight on, and will file an application for a court order for costs in the next few days.

The CA also intends to complain about the way Axa handled the balloting procedure. Those policyholders who do not return their forms and accept the £400 payment by tomorrow will get nothing - in the short term at least. Instead they will have to wait for what could be a lengthy legal battle before a solution is reached. And as the paperwork only allows policyholders to support the proposal, with no room for dissent, the CA believes it is unfair. The only option for dissenters is not to return their form. Those policyholders will not receive a payout in February and will not have their policies moved into the proposed new scheme.

Axa defends the balloting procedure. "A vote that is not cast is counted as a 'no' vote," says Mr Hickley. "By not electing to move their policies, [those policyholders] retain their rights to the distribution of the surplus, but we have said there will be no distributions before 2006.

"The likelihood of a distribution is remote, which is why the board was recommending that policies were elected in this arrangement."

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