Norwich Union reattribution cut
Aviva announced that Norwich Union’s reattribution offer to policyholders would be cut due to continued volatility and uncertainty in the financial markets and a fall in value of the CGNU Life and CULAC inherited estates.
In their 9th Fund Transfer and Reattribution Update, Aviva blamed the global financial crisis for a significant fall in the value of the £2.1 billion inherited estate. This loss was cited as the reason for a cut in the Norwich Union reattribution offer which would have seen a payout of £1 billion to to eligible policyholders. Mark Hodges, chief executive Norwich Union Life, said the offer no longer “meets our critical test of being fair to both policyholders and shareholders” so cannot go ahead.
Aviva say they will continue to work with the Policyholder Advocate to see if the offer can be restructured, but are determined to put a valuable offer to eligible policyholders “if we can”. Perhaps it’s worth remembering that Mark Hodges told a Select Committee on Treasury Twelfth Report that “none of the current generation of policyholders has contributed to the inherited estate.”
The Office of the Policyholder Advocate stated they are working with Aviva to create a reattribution offer that will vary according to the size of the inherited estate. Claire Spottiswoode seems to accept that a fixed price offer is no longer viable now the estate has suffered a significant fall in value. She said “I believe that it is very positive that, even in these extraordinary times, the reattribution remains on the agenda.” While accepting the original offer isn’t viable, her strategy is to ensure there will still be a minimum payment and that any policyholders who choose not to accept the offer “will be in broadly the same position as they are now against a wide range of economic circumstances.” In an interview for Radio 4′s Moneybox she warned about the effect of continuing market volatility on any outcome saying “Clearly there are levels in the market where it just isn’t worth doing a deal at all.” However she was “pretty certain” that a way could be found of dealing with any volatility to reach an offer.
It seems that any reattribution offer will not happen until later in the year. Clare Spottiswoode expects that payments, should they materialise, are unlikely to be made until after a High Court hearing in the autumn. This effectively leaves policyholders still in the dark about how much, if any, of a smaller slice they will now receive from an even smaller cake. After waiting so long some policyholders may be wondering if the crumbs will be too small and stale to be worth waiting for.
The value of the inherited estate will not be apparent until audited figures are made public in March but it is exposed to equities, commercial property and corporate bonds. Aviva was keen to make a point of it’s capital strength, highlighting an estimated £2.0bn surplus above the regulatory capital requirement. They also stated that in the event of a 40 percent fall inequities their surplus would be approximately £1.3 billion. At least policyholders can be reassured about this factor although there were no clues in the announcement as to the current state of the relevant funds. One interesting point revealed during a question and answer session was that the move to MCEV had not impacted on the value of the inherited estate. Aviva CFO Philip Scott was clear when he said there is “no link between MCEV and reattribution.”
While the value of the estate will be unkown for a while longer, it is known that the inherited estate has bee used to pay mis-selling claims, while consumer group Which? have also pointed out how it has been used to cover a £64 million deficit in the staff pension scheme. They also claim Aviva takes millions of pounds each year to pay the shareholders’ tax bill on money they receive from the fund. Commenting on the latest threat to the reattribution offer Which? chief executive, Peter Vicary-Smith, 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.” He was also clear that it was wrong for policyholders take all the risk only for Aviva to get all the benefit from any upside in the value of the estate.
March 26th, 2009 at 1:02 pm
Surely Aviva must be breaking the law by removing money from the reattribution fund which belongs to policy holders and not the company.
The second point is that they are claiming that the fund has reduced considerably, now from a laymans point of view, if the money had been ringfenced then the fund should have remained the same notwithstanding stockmarket flutuations. IE if I had a hundred pounds in my wallet yesterday and I didn’t spend any of it then I still have a hundred pounds.
There appears to be skulldugery afoot, someone surely has to take High Court action, the sooner the better.
September 17th, 2009 at 4:06 pm
I quite agree with R Lovatt, this is surely business mal practice on an enormous scale. We were advised by a NU salesman not to cash in our endowment policy back in 2007 because our policy entitled us to a £1000 bonus from the inherited estate. So we waited. Since that time NU brought in MVR penalties whist renaging on the inherited estate bonus meaning that over the past 18 months we have lost a further £2500 on this policy. We are now making an official complaint to NU over this situation but I am surprised not to find more about this on web blogs and finance sites from other unhappy policy holders who must have also been similarly misguided by NU staff when they tried to cash in poorly perfoming policies back in 2007/8.