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Aviva names adviser to handle orphan assets worth 2.1 bn pounds

Aviva names adviser to handle orphan assets worth 2.1 bn pounds

LONDON: Life insurance company Aviva Plc. has engaged former head of energy regulator Ofgas, Clare Spottiswoode, to advise on policyholders’ interests when it starts reclaiming some 2.1 billion pounds locked in orphan assets in two of its with-profits funds. The surplus cash is an accumulated sum of money over and above the amount that policyholders are contractually entitled to.

According to Aviva, the full value of this surplus, accumulated in its CGNU and Commercial Union Life Assurance Company funds, stands at 3.3 billion pounds. Of this, it is estimated that 2.1 billion pounds is available for reattribution after taking care of minimum solvency requirements. Policyholders have no claim to these funds, but Aviva feels when it is reattributing the assets, there could be clash between policyholders and investors.

Although law stipulates that orphan assets belong to the company, several consumer groups claim there are legislations providing for 90 per cent of the money to be allocated to the policy holders and 10 per cent to company investors.

Aviva, Britain’s biggest insurer, said it is not yet decided whether to proceed with the reattribution, but would do so if there were clear benefits for both policyholders and shareholders.

The exercise would call for compensations to customers who would be giving up their future claims on the excess amount. Any deal would need to have the approval of the Financial Services Authority.

Consumer group Which? has been taking up the cause of the policyholders in this issue. A senior policy adviser at Which?, Mick McAteer, said Spottiswoode’s job would be difficult, as the law is unfairly against policyholders.

Which? chief executive Peter Vicary-Smith said the government view has always been that any attribution of orphan assets should be 90 per cent to policyholders and 10 per cent to shareholders.

Aviva is maintaining that the entire inherited estate is owned by the company. Under FSA rules, the company must compensate policyholders for the loss of the inherited estate, but there is no pre-determined split.

The orphan assets are formed when some of the returns from investments by the insurers are not allocated to policyholders as soon as they are earned. The insurance companies put such earnings aside, bolstering the capital base of the fund or these are used in investing in volatile assets. Some insurers make use of this surplus to issue bonuses to policyholders.

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