Axa policyholders in line for £400 windfalls after orphan assets deal

Some 660,000 holders of Axa Equity & Life with-profits policies are to receive cash windfalls averaging £400 each following a deal with the Financial Services Authority (FSA) enabling Axa, the insurance giant, to partially unlock £1.7bn worth of orphan assets in its life fund.

Some 660,000 holders of Axa Equity & Life with-profits policies are to receive cash windfalls averaging £400 each following a deal with the Financial Services Authority (FSA) enabling Axa, the insurance giant, to partially unlock £1.7bn worth of orphan assets in its life fund.

One unidentified individual will benefit to the tune of £90,000, although most policyholders will receive much smaller amounts. Some payouts could be as low as £156. A further top-up worth around 3 per cent will be added to policies as a result of the deal.

Yesterday's agreement, which had been widely awaited in the industry, was hailed by Axa and the FSA as striking a fair balance between the competing interests of policyholders and shareholders. However, it was immediately attacked by consumer groups who accused the FSA of allowing a "scandalous" sell-out of policyholders' interests in the assets.

The orphan assets were built up as a result of a policy by the firm's actuaries, over a long period, not to distribute its investment surpluses in full to past generations of policyholders.

There was disappointment, too, in the City. Share prices of the UK life companies, who were expected to benefit from the decision, fell on the realisation that the tough conditions placed on Axa to prevent it handing out the cash to shareholders made it unlikely that other companies would be able to follow suit quickly. It is estimated there are £20bn of orphan assets sitting in with-profits funds across the UK life industry.

Under the deal, Axa will be allowed to reallocate the cash to non-profit funds which will be used to support the future growth of the business in return for an up-front payment from its own resources of £300m. Reorganisation bonuses will also be paid into Equity & Law policies to the tune of £225m, giving a total pot for policyholders of £525m.

Mark Wood, chief executive of Axa in the UK, said the release of the funds will result in a one-off boost to shareholder funds of £400m-£500m. He said: "This is a ground-breaking proposal ... which clarifies the complex issue of the inherited estate."

Traditionally, the FSA has insisted that any inherited assets that are released must be split 90 per cent in favour of policyholders with only 10 per cent for shareholders. On Axa's figures, yesterday's deal splits the assets 45 per cent in favour of shareholders and 55 per cent in favour of policyholders.

The proposals come into effect in January 2001 and policyholders will receive payouts by the end of February. The plan has to be accepted by 35 per cent of policyholders by value. The cash windfall will go only to policyholders who accept Axa's proposals, although all policyholders will get the reorganisation bonus - if the scheme, which requires High Court approval, goes ahead.

Sir Howard Davies, FSA chairman, said the FSA and before it the Treasury had been in discussions with Axa "over a lengthy period to ensure the deal put to policyholders was fair".

Sheila McKechnie, director of the Consumers' Association, said she would be writing to Gordon Brown, the Chancellor, to insist more detail be given on how the FSA was able to agree what she called a "scandalous deal". "The knock-on effect of today's decision could set a precedent which will take billions of pounds away from policyholders," she said.

Prudential, which has been negotiating since 1996 to secure the release of an estimated £7bn of orphan assets, reacted cautiously to the deal: "One should not assume because Axa has settled the case that the floodgates will open."