Orphan assets looking for a home

Axa's orphan assets wait for a home

One of Britain's largest insurance companies Axa Sun Life is set to get the go-ahead from its policyholders for plans to give them controversial windfall pay-outs of more than £400 each. The BBC's personal finance reporter Andrew Verity, takes a look at the issues.

French-owned Axa Sun Life, part of the world's largest insurance group, says it expects about 70% of the 660,000 eligible policyholders to vote on Tuesday in favour of a deal how to share so-called orphan assets in its insurance fund.

Policyholders will get the windfalls in exchange for giving up their rights to a surplus in the funds of nearly £1.7bn.

Only customers who hold with-profits policies with Sun Life or Equity & Law, two British companies now owned by the French insurance giant Axa, will be entitled to windfalls - and only if they have returned their papers saying they accept the deal.

'A poor deal'

But the Consumers' Association says it believes the deal is a poor one for policyholders.

While they may seem to be getting a windfall for nothing, in fact they are giving up their rights to a much larger share in a giant surplus fund. According Consumers' Association this fund is worth much more than £400 per policyholder.

And the association warns that the deal could set a dangerous precedent, which might lead to shareholders taking the lion's share of surpluses that should belong to policyholders.

The Consumers' Association has already signed up more than 500 policyholders who want to challenge the deal in court.

A £20bn treasure trove

About £20bn is tied up in surplus assets at British life insurers.

Because these assets are not needed to cover the insurers' liabilities, they are known as "orphan assets".

The UK government has said policyholders should normally own 90% of these surpluses, with only 10% going to shareholders.

If that rule were applied to all of Britain's insurers, policyholders would be entitled to more than £18bn.

French entitlement

But Axa Sun Life argues that its French shareholder, Axa, should get more than that.

It says shareholders have put more money into the funds of Sun Life and Equity & Law, in the past, so they deserve a larger share of the fund.

The financial regulator, the Financial Services Authority, has agreed that they can put the issue to a vote by policyholders.

But the Consumers' Association says research by independent actuaries KPMG suggests Axa is getting much more of the £1.7bn at stake than it has let on.

Under Axa's estimate, policyholders who accept the windfalls will get around two-thirds of the available money compared to one-third for shareholders.

But if other assumptions are used in the figure-work, the £400 windfall plus other benefits secure policyholders barely a third of the available surplus.

The Consumers' Association has challenged Axa to fund its legal challenge on the basis that its executives have said both sides of the argument should be heard.

The French company says it believes the CA is being too harsh in its judgements.

Ashley Holmes, head of legal affairs at the CA, said: "We have been inundated with thousands of letters of concern over Axa's plan to distribute its orphan estate."

"The fact that 500 have asked us to represent them in court is symbolic of the extent of policyholders concern on this issue".

"Axa's decision not to fund a legal challenge is deeply disappointing as it puts an extra barrier between legitimate policyholders' concerns and a public court hearing."

" As a result we will be filing an application for costs at the High Court in the next few days."