Aviva says it will look to restructure its payout offer
Aviva is cancelling a £1bn payout promised to policyholders - blaming the falling value of its investments.
The giant insurer said it would now see if it could "restructure" the offer.
Last year a million policyholders in two of its Norwich Union with-profit funds were offered payouts that would have averaged £1,000.
But the company said that falling share and property prices had eroded the surplus in its funds, making the offer "no longer fair".
"Continuing market volatility and uncertainty means that the original reattribution offer for the inherited estate no longer meets our critical test of being fair to both policyholders and shareholders," Aviva said.
The insurer, the parent group of Norwich Union, also reported full-year sales figures showing a 1% rise in new UK business.
Aviva said it was now looking at how it could revise the payout offer, which had been made to investors in two of Norwich Union's oldest funds - the CGNU Life and CULAC with-profits funds.
The payouts were announced last July following long negotiations with the policyholders' advocate, Clare Spottiswoode.
She said she agreed with Aviva's reasons for cancelling the current offer but was confident a new one could be devised.
"The company has opened discussions with us about how to keep the prospect of a reattribution offer alive," Ms Spottiswoode said.
"We are considering how we might be able to restructure the offer to move in line with the size of the estate at a point close to the time payments could be made," she added.
The policyholders in the affected funds are mainly customers with endowment policies, pension policies and with-profits bonds.
About 700,000 people were due to be offered between £400 and £1,000, and another 220,000 would have been offered a payout of between £1,000 and £3,500 if they accepted.
The payout would have come from shareholders' funds, in order to buy out policyholders' rights to any future claim on the surplus in the two with-profits funds - known as the "inherited estate".
This surplus had been built up over decades because the insurance company had put aside more money than it needed as a financial cushion in the funds.
"We realise that this will be disappointing for our eligible policyholders," Aviva said.
"It does reflect the nature of the current exceptional investment market conditions. We expect to be able to update policyholders in the next few months."
Aviva's policyholders will now have to wait several months before they see the details of any new offer from the company.
The decision highlights the dent to the value of its with-profits funds caused by last year's fall in share prices, and the continuing slump in the value of commercial property, two of the main assets in which these funds are invested.
The company recently cut by 15% the payouts on its maturing 25-year mortgage endowment policies.
And it has told a quarter of a million savers in one of its main commercial property investment funds that they will have to wait up to six months to withdraw their money.
Peter Vicary-Smith, chief executive of Which? said:
"At a time when Aviva is cutting the payout to policyholders, it is all the more important that it stops raiding the inherited estate to pay shareholders' tax bills, prop up a deficit in the staff pension scheme or pay for its own regulatory failings."