New rules for orphan assets

By JO THORNHILL
Updated:

 

NEW proposals announced by the City watchdog, the FSA, could benefit millions of with-profits policyholders, by ensuring they get a bigger share of a company's orphan assets when they are redistributed.

Orphan assets are those which exceed the amount a life company needs to meet obligations to policyholders (for example after windfall payments following a merger or demutualisation deal). Analysts have estimated the total value of such assets in UK life funds exceeds £10bn.

Last year the Consumers Association heavily criticised the FSA for not doing enough to protect the interests of Axa Sun Life policyholders. Axa bought out customers' rights to the orphan estate for a fraction of what it was actually worth.

But, under the proposals announced yesterday, the FSA said it could act as negotiator on behalf of policyholders in future cases. Or an actuary or independent expert could be appointed on policyholders' behalf.

And another of the proposals - if accepted - would see life insurers consulting more widely and openly with policyholders over the status of orphan funds.

The Consumers' Association has welcomed the FSA's initiative but said its paper had failed to address the real issue. 'It is crucial that prior to any deal being put on the table, the FSA deals with the issue of ownership,' a spokesman said.

'At a time when millions of policyholders are worrying about paying for their mortgage and saving for their pensions, the priority for the regulatory authorities and the Government must be to stop companies raiding policyholder funds. This is a major issue and unlike the Equitable case, the FSA cannot claim that it has not had prior notice.'

Life assurers with the most significant orphan estates include Prudential, Legal & General and CGNU.

It is known that Prudential, whose orphan assets have been estimated as high as £9bn, has had extensive formal discussions with the regulator since 1996. Legal & General has also engaged in less formal talks.

Most watched Money videos