Prudential policyholders will have been shocked to hear that the insurer used £1.6bn of surplus assets in its £74bn with profits life fund to settle personal pension mis-selling claims in the 1990s.
Surplus assets, known as ‘inherited estate’ or ‘orphan assets,’ build up over decades and represent the excess over what an insurer needs to meet its with profits bonus obligations to policyholders. Some of the money also represents unclaimed funds owned by individuals who have forgotten about their policies.
The discovery that Prudential has used £1.6bn of these assets to pay mis-selling claims comes at a time when 4m Prudential with profits policyholders await to hear whether it will release the £8.7bn remaining surplus in its with profit fund.
A re-attribution would involve the Prudential paying policyholders for giving up their rights to future payouts from the surplus.
Prudential chief executive, Nick Prettejohn, recently told MPs that the insurer was considering whether to go ahead with a re-attribution of the surplus, but a decision would be made by the end of June.
Mr Prettejohn denied that policyholders had been short-changed by the insurer’s actions and insisted that the company had delivered strong with profit returns to its customers.
But the FSA this week set out proposals to prevent life assurers from using inherited estates to settle mis-selling claims, saying that otherwise policyholders could be treated unfairly.
Aviva is also in negotiations with Clare Spottiswoode, NU policyholders’ respresentative, about distributing the £5bn surplus in Norwich Union’s with profits fund.
Surpluses are normally distributed on the basis of 90 per cent to policyholders and 10 per cent to shareholders.
