MPs grill Prudential and Aviva on inherited estate

Prudential told MPs yesterday that it did not have excess capital in its with-profits fund to pay out as a special distribution to shareholders.

Nick Ainger, a member of the House of Commons Treasury Committee, pressed Nick Prettejohn, chief executive of Prudential UK and Europe, on whether £1.6bn of mis-selling costs charged to the fund could otherwise have been distributed to policyholders. Mr Prettejohn replied that the fund had no excess capital for a special distribution. "The only way we can deliver protection to policyholders... is by having a very strong inherited estate," he added. Whether the £1.6bn would have been deemed excess to be paid out was not clear-cut and policyholders as well as shareholders had benefited from profits and losses, he said.

Mr Prettejohn and Mark Hodges, the chief executive of Norwich Union, were up before MPs as part of the committee's inquiry into inherited estates – capital in a with-profits fund that is not needed to meet current and future obligations. Both insurers are considering whether to use shareholders' cash to buy out policyholders' interests in the funds and free up capital in what is know as a "reattribution".

Aviva, the owner of Norwich Union, has already announced a special distribution to policyholders of £2.1bn from two with-profits funds. The company has been embroiled in fractious negotiations with Clare Spottiswoode, the independent policyholder advocate, about buying out policyholders' interests for about two years. Aviva has grown increasingly frustrated with the process and has threatened to walk away but Ms Spottiswoode has kept the company hanging on. Its frustration with Ms Spottiswoode was evident in Mr Hodges' testimony to the committee. The Norwich Union boss told the committee that one of the big issues for Aviva was the time it was taking to bring negotiations to a conclusion. "We have a desire to bring [an offer] to policyholders as soon as possible."

Asked by Mark Todd, a committee member, whether the process had been good for Aviva's reputation, Mr Hodges said: "We have done absolutely the right thing in terms of the special distribution... In terms of the reattribution, time will tell."

John Thurso asked Mr Hodges whether an arbitrator deciding between the two positions could "break the log-jam". Mr Hodges said Aviva had made "very realistic assumptions" about new business and had little room for manoeuvre.

Prudential is behind Aviva in the process and has not yet appointed a policyholder advocate.

Mr Todd asked Mr Prettejohn if Prudential had learnt from Aviva's experience. Mr Prettejohn replied that Prudential had been "far too busy" with its own process, drawing laughter from the committee. He said Prudential would decide whether to go ahead by the middle of this year.

John McFall, the committee's chairman, told both insurers to hurry up with their decisions in the interests of policyholders. "From a distance we will be watching you," he concluded.