Prudential scraps plans to redistribute orphan assets

The life insurer Prudential surprised investors and policyholders alike yesterday by scrapping controversial plans to redistribute the orphan assets in its with-profits fund.

Prudential followed in the footsteps of its UK rival Aviva last year, when it launched an investigation into whether it could redistribute its £8.7bn inherited estate – assets in its with-profits fund which are either unclaimed, or to which no individual policyholder has any direct call.

However, after growing pressure from consumer groups to give most of the money to policyholders, and calls by politicians for tighter regulation of orphan assets, both insurers have found themselves constantly on the back foot over the issue.

Nick Prettejohn, the UK chief executive of Prudential, said yesterday that the process had cost the insurer £30m. However, he said much of this was accounted for by complex actuarial analysis of its with-profits fund, which would be useful for the business.

He said a reattribution would not be the best course of action for policyholders and shareholders. "We always said we'd only proceed if it was in the interests of policyholders and shareholders. We've done a huge amount of analysis and we've come to the conclusion that retaining the existing model is in the best interests of both parties."

Mr Prettejohn defended the company's decision to use the inherited estate to pay pension mis-selling compensation and shareholder tax, claiming the regulations made it clear both of these were legitimate. The Financial Services Authority is reviewing the regulations, and is under pressure to stop life insurers using orphan assets for tax and compensation – a move with which Mr Prettejohn said he would disagree.

Which?, the consumer group that has campaigned to ensure policyholders get a fair deal from any reattribution, said Pru's decision to not push ahead made a regulatory overhaul all the more important. "Policyholders' interests are not protected by the status quo," said Peter Vicary-Smith, Which?'s chief executive.