Payments averaging £1,000 are to be offered to one million policyholders in two of Norwich Union Life's with-profit funds, insurer Aviva said today.
The move to free up surplus assets in the company's life funds means around 700,000 people can expect to receive between £400 and £1,000 if they accept the offer, while a further 220,000 will get between £1,000 and £3,500.
Eligible policyholders will learn the level of their payout later this year, with the payment likely to be made next summer.
Details of the offer emerged as Aviva announced a 12 per cent rise in half-year operating profits to £1.72 billion.
The bottom-line result showed losses of £1.27 billion after Aviva accounted for a reduction in the value of its assets in the current climate.
It said sales in the faster growing markets of North America and Asia Pacific offset "the more challenging markets" of Europe, including the UK.
Aviva said it expected the UK market for life and pensions to remain "subdued" in the second half of the year, but said it had managed to increase its share of a declining market over the first half of the year.
In general insurance, profits rose 15 per cent to £326 million after weather conditions returned to normal compared with the previous year's floods.
Chief executive Andrew Moss said: "In the face of economic headwinds, Aviva has made real progress in the last six months."
He announced the company planned to increase its annual cost savings target by £150 million to £500 million, but did not provide further details.
The company recently warned of up to 1,800 redundancies as part of a restructuring of its general insurance arm over the next two years.
It will consolidate the operational functions of its Norwich Union Insurance (NUI) business into seven centres at Norwich, Perth, Bishopbriggs, Stretford, Manchester, Leicester and Southend.
Today's £1 billion reattribution offer follows lengthy discussions between Aviva and independent policyholder advocate Clare Spottiswoode.
She said the deal was in the best interests of "the great majority of policyholders".
Ms Spottiswoode added: "This been a long and difficult process. I have challenged many aspects of the rules of the with-profits industry to try to ensure that policyholders receive the best deal possible."