MPs investigate reattribution of “orphan” funds

by Gill Montia

Story link: MPs investigate reattribution of “orphan” funds

A committee of MPs has today begun a major inquiry into the way in which insurance companies are reattributing their surplus with-profits funds.

The money, which is sometimes referred to as an “orphan” fund, or inherited estate, is defined by the Financial Services Authority (FSA) “as the excess of assets maintained within the long-term fund over and above the amount required to meet liabilities.”

The excess arises because insurers hold back a proportion of policyholders’ investment returns during profitable years, to cover payouts during years when returns are poor.

Analysts estimate that UK insurers hold around £13 billion of such assets, built up from policyholders’ savings over several decades.

Insurance companies including Axa and Avivia (owners of Norwich Union) are in the process of reattributing the funds between policyholders and shareholders.

However, In 2000, AXA returned just 31% of its inherited estate to policyholders resulting in an outcry from the policyholders.

The FSA has since created the post of policyholder advocate, currently held by Clare Spottiswoode, who has criticised the FSA’s rules on reattributions of this kind, saying they favour shareholders.

Following its negotiations with Ms Spottiswoode, Aviva is now planning to reattribute £2.3 billion on a 90:10 basis, with policyholders receiving £2.1 billion.

However, consumer group Which? is challenging Aviva’s proposal to phase the repayment over three years.

This could mean that thousands of policyholders with savings plans maturing before January 2010 would not receive the maximum amount.

The Treasury Select Committee now looking into the matter has requested evidence to be submitted by 14 April.