High Court victory for Axa

The hearing may last for several days

The High Court has ruled in favour of French insurance group Axa's plan to split a £1.7bn surplus between its policy holders and its shareholders.

The Consumers' Association had argued that the Axa plan was a raw deal for policy holders.

Last summer, the company offered policy holders £400 in cash if they gave up claims to a larger part of the surplus.

The case may have implications for other UK life insurers, such as the Prudential, which are estimated to have built up some £20bn in so-called 'orphan' funds over the past several years.

Orphan funds are made up of surplus profits and unclaimed life policies.

Thousands of Equity and Law and Sun Life policy holders - both of which are owned by Axa - have already accepted the Axa deal.

Mr Justice Evans-Lombe said that he had reached a "clear conclusion" that he should approve Axa's plan, adding that he had heard nothing which would lead him to disagree with the views of an independent actuary and the Financial Services Authority (FSA).

Axa had earlier asked the FSA to clarify whether the assets were owned by its shareholders or by current holders of insurance policies.

The FSA accepted Axa's proposal to divide the assets and pay £525m to policy holders.

The judge said he would give full reasons for his decision at a later date.

Appeal possible

It is not yet clear whether the Consumers' Association will appeal the decision.

"We will be taking a decision about our next steps in the New Year but our campaign for fairer financial deals for consumers, particularly in the share out of orphan assets continues," association director Sheila McKechnie said.

The consumers' group has called on Chancellor of the Exchequer Gordon Brown for a public enquiry.

"Without such an enquiry other companies will attempt similar smash and grab operations on the remaining £20bn of orphan assets," the Association said.

Business plans

Axa had been ordered by the court to put up £100,000 "pre-emptive" legal costs to fund a policy holder's challenge to its "scheme of arrangement".

The costs order was granted to Stuart MacWhirter, backed by the Consumers' Association and more than 1,400 other policy holders who object to the plan.

Axa sought court approval of a reorganisation scheme including plans to pay its 660,000 "with profits" policy holders only a small proportion of its surplus "inherited estate".

Axa argued it is entitled to retain the inherited estate to support its future business plans and that in any case policy holders have no contractual right to, or reasonable expectation of, a share in the estate.

Consumer concerns

But according to the Consumers' Association, this is splitting up the available funds as 45% going to shareholders and 55% to policy holders.

The organisation says that this is contrary to Treasury statements demanding that up to 90% of such funds should go to policy holders, and no more than 10% to share holders

The Consumers' Association is also supporting a separate legal challenge against another insurer, Prudential, over ownership of its orphan estate.

Prudential is estimated to have about £7bn in inherited assets and the British life assurance industry as a whole has some £20bn in surplus funds built up over decades.