Man from the Pru to seek £8bn windfall

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The Independent Online

Prudential is set to make a renewed attempt to get its hands on part of the insurer's vast pool of unclaimed so-called "orphan" assets locked up within its £80bn with-profits life insurance funds.

The attempt will be launched within the next 12 to 18 months and forms part of a strategic review of the business set in train by UK head Nick Prettejohn, the former chief executive of Lloyd's of London. Mr Prettejohn was brought in earlier this year by Prudential's chief executive, Mark Tucker, to replace Mark Wood.

The first step would be the appointment of a policyholder advocate. Under rules administered by the Financial Services Authority, insurers seeking to unlock orphan assets are required to make such an appointment in order that the interests of policyholders are represented.

Prudential has been watching the progress of rival Aviva, which is attempting to unlock £4bn of orphan assets held within its with-profits life insurance funds. Aviva, the owner of Norwich Union, has appointed the former gas regulator Clare Spottiswoode to represent policyholders' interests, on an annual salary of £250,000.

Prudential is thought to have some £8bn of unclaimed funds locked up in its with-profits business. The ownership of orphan assets is unclear, because they consist of surplus funds built up over many years. They derive from stock market returns over and above what is required to meet payouts to policyholders, as well as unclaimed life policies, many of which date from decades in the past.

Prudential has wanted to find a way of dividing up the assets for years. Mr Prettejohn is thought to be keen to kickstart a formal process with the Financial Services Authority.

Prudential is likely to seek an "attribution" of the assets rather than a distribution. While the capital would probably remain within the fund, an attribution would define who owns what. Even though Prudential's cut would be held to ensure that guarantees made to policyholders can be met in the event of a stock market crash, it would free up cash elsewhere in the business to fund acquisitions, pay dividends or buy back shares.

The strategic review was set up with the aim of improving the performance of the UK business, which Mr Tucker believes could do much better. Industry sources dismissed recent talk that the company might seek to sell the business to a rival or vulture fund, that run off closed life insurance business. "The Prudential without a UK business would be a nonsense," said one source. "It still makes the business a lot of money and there is no point in selling it."

Orphan assets have proved controversial in the insurance industry. In law, the funds are technically the property of the insurance company. However, normal distributions from with-profits funds are shared, with policyholders taking 90 per cent and shareholders receiving 10 per cent.

Typically when the unclaimed "orphan" funds are divided up, insurance companies offer policyholders a sum to forgo any rights they might have to the money.

Axa was the last insurance group to unlock its estate, which sparked a messy battle with the Consumers' Association, now Which? That resulted in a change to the rules, requiring companies to appoint independent policyholder advocates before pushing ahead with reattributions.

Aviva is not expected to make a final decision until next autumn on whether to go ahead with its reattribution scheme. Some 1.1 million policyholders are potentially eligible for a share of the funds.

Citigroup bid for internet bank Egg rebuffed

Prudential has rejected a "speculative" offer for Egg, its internet banking operation. The offer, thought to be from the American financial services group Citigroup, came in the form of a preliminary approach to Pru. "It was clear that it was speculative and conditional and not in our shareholders' interests to pursue further," a spokesman said.

Egg's fortunes within the Pru group have fluctuated since its £1.3bn flotation in 2000. The insurer retained a 79 per cent stake in the company, which was initially regarded as one of the success stories of the dotcom boom. However, Egg's attempts to expand into France plunged the bank into losses and the insurer tried to sell it in 2004, though it was unable to secure a sufficiently attractive offer.

Pru chief executive Mark Tucker yesterday denied that the bank was back on the market.