Court challenge to AXA 'could open £20bn chest'

Claims that consumers have been deprived of hundreds of millions of pounds by an insurance company will be heard in a High Court case that could unlock a £20bn treasure chest of surplus assets.

Claims that consumers have been deprived of hundreds of millions of pounds by an insurance company will be heard in a High Court case that could unlock a £20bn treasure chest of surplus assets.

The case centres on plans by the giant insurance group AXA to pay a substantial portion of £1.7bn of surplus funds to shareholders. Even though AXA is offering 660,000 policyholders windfalls of £400 each, the Consumers' Association (CA) says they should get much more.

The association is preparing to challenge AXA's proposals for distributing so-called "orphan assets", at the High Court on 20 November. The hearing is being seen as a test case for more than £20bn of orphan assets held by British life assurance companies, which could be paid out.

Orphan assets are reserves held in life funds, which are made up of unclaimed life policies and surplus profits on lapsed policies. They are often built up over decades. Policyholders and shareholders are arguing over who gets the lion's share of these "inherited estates".

The proposals have been prompted by the merger of AXA Equity & Law, chaired by Lord Taverne, and AXA Sun Life, chaired by Mark Wood,

The CA has commissioned an independent study of AXA's proposals, which says it would give 31 per cent of the £1.7bn to policyholders and 19 per cent to shareholders. The remaining 50 per cent, some £836m, would be locked away for tax and other long-term liabilities.

The consumer group says this breaks guidelines established by the Government in 1995, which say that in any distribution of orphan assets policyholders should receive 90 per cent of any payout and shareholders no more than 10 per cent. The association also says AXA's future tax bill could be cut by careful tax planning. Therefore, orphan assets earmarked to pay off tax under the present proposals could end up benefiting shareholders.

AXA has sent voting forms to policyholders, and the Financial Services Authority (FSA) has let the deal go forward to a vote by policyholders, of whom only 35 per cent have to approve the scheme. Postal votes have to be in by 16 October.

Ashley Holmes, the head of legal affairs at the association, said yesterday: "A choice between getting a cash windfall or receiving nothing at all is not a real choice to put before policyholders... in the light of this independent assessment, some may not be happy at the way AXA has carved up this money so that shareholders come out on top."

The consumer group is urging discontented policyholders to contact it. It has to be invited to represent the policyholders before it can put its views forward at the High Court.

A spokesman for AXA rejected the Consumers' Association claims yesterday, saying: "We're a little surprised by their timing, as we had a meeting about orphan assets scheduled with them for Monday [11 September].

"We believe this is a fair deal for with-profits policyholders. It was put together with the knowledge of the FSA and it has been approved by independent actuaries."

The AXA spokesman also said that even the CA acknowledged that, had AXA decided not to propose any deal, policyholders would have been unlikely to get any significant benefit from the assets.

AXA has sent out a 110-page circular and further explanatory leaflets to its policyholders. It also provides a helpline on 0345 341 341, which is open on weekdays from 8am to 6pm.