Tweet
Insurer blames falling stockmarkets and a slump in commercial property for reduced payments
Payouts to hundreds of thousands of Norwich Union with-profits policyholders could be worth just a fifth of what was originally promised by the insurer soon to be known as Aviva, it was announced today.
Last year, nearly 1 million investors with CGNU and Commercial Union Assurance Company funds looked set to scoop an average £1,000 each, but plunging stockmarkets and a slump in the value of commercial property could see payouts begin at just over £200.
The cash has been earmarked for payment from the insurer's so-called "inherited estate" – surplus money amassed in its with-profits funds over decades of investment – but Aviva shareholders are also in line for a payout.
The cash windfalls, offered to with-profits customers in return for a waiver on their right to future payouts from the inherited estate, were dependent on the performance of the FTSE 100 share index.
Previously, around 700,000 customers had been informed they would be given between £400 and £1,000 if they accepted the offer, and another 220,000 would get between £1,000 and £3,500.
The inherited estate fund was worth £2.1bn in June last year, but was valued at just £1.4bn at the end of March, Aviva said.
Britain's biggest insurer will write to its customers in June outlining the £400m deal and the final windfall will be determined by the average value of the inherited estate from June to August this year.
If the fund stays at its March level, 90% of the eligible policyholders will receive a payout of between £244 and £1,150 according to the size and maturity date of their policy. The remaining 10% of policyholders will receive a higher sum. If all policyholders took up the offer the average payout would hover close to £500.
Clare Spottiswoode, a former gas industry regulator appointed to fight for the rights of policyholders during this division of spoils, said she was satisfied with the outcome for policyholders.
"This is good news for policyholders after the turmoil in financial markets that affected the plan announced last year," she said. "Aviva's proposal shows that together we have found an imaginative way of keeping the reattribution [cash disposal plan] in place, which includes the opportunity for policyholders to benefit from any increase in the estate."
Regulator failures
The insurer's final calculation will be presented before a high court for final approval, and policyholders will receive their money in September.
It will be up to individual policyholders to decide whether they want to accept the offer rather than having to wait to accept the vote of a majority.
Laith Khalaf of independent financial adviser Hargreaves Lansdown said most policyholders would take the cash offer rather than hold off for the promise of a greater return in the future. "Most will plump for taking something now rather than some vague offer that might materialise in the future."
The consumer group Which? said policyholders had been let down by the City regulator, the Financial Services Authority (FSA), which had failed to defend their interests and cost them a substantial amount of money.
Chief executive, Peter Vicary-Smith, said: "The FSA effectively looked the other way while Aviva plundered the inherited estate to pay shareholder tax bills, subsidise new business, pay misselling compensation costs when the company broke the rules, and prop up a deficit in the staff pension scheme.
"Policyholders deserve a regulatory framework based on a clear set of principles which guarantees that all of the inherited estate is used in their best interests. The FSA needs to act now instead of ignoring the criticism of Which? and the Treasury select committee."
guardian.co.uk © Guardian News & Media Limited 2009 | Use of this content is subject to our Terms & Conditions | More Feeds
More...
