Axa's orphan trap

By THIS IS MONEY
Updated: 19:00 EST, 13 September 2000

The Consumers' Association is urging disgruntled Axa policyholders to band together to demand the insurer gives them a bigger slice of its £1.7bn orphan assets. Orphan assets are sums sitting on insurers' books that have no obvious owners.

Axa, the French owner of Axa Sun Life and Axa Equity & Law, is planning to give just £225m of its orphan assets to policy-holders - with £25m going to its shareholders - plus another £300m from its assets.

In return for these payments, which typically would be in the region of £400 each, policyholders would have to surrender their rights to any future distributions from the orphan assets. Mick McAteer, director of policy at the Consumers' Association, says the association wants to hear from any Axa policyholders who don't think this is enough.

Then it can present its legal arguments on behalf of Axa policy-holders about the size of the payments at the High Court hearing needed to ratify the deal on November 20.

Mr McAteer says: 'This deal is very complex and we have taken independent advice confirming that it is a bad deal for current policyholders. We are not trying to stop payments; we just want to get Axa customers a better deal.'

What is wrong with this deal, says Mr McAteer, is that policy-holders are only getting just over 30% of the orphan assets in return for surrendering rights to future payments. To put this in perspective, previous orphan assets releases have given policyholders 90% of the proceeds and shareholders just 10%.

Axa has found £1.7bn worth of orphan assets and its complicated plan is to give some of this to qualifying Axa Sun Life and Axa Equity & Law policyholders - but only if they agree to give up any rights to the remaining assets. It has just sent all 660,000 policyholders a huge 110-page document and election form for them to make their choice.

Independent financial adviser Gareth Marr of A&B says that qualifying Axa policyholders face difficult decisions. 'Many people would think good, it is another windfall and go for it. I think that some of them should take a step back as it may not be in their best interests to take the money,' he says.

He points out that turning down the money and staying in the old with-profits fund - thus keeping rights to any future distributions - might be a good idea. He says this because your bonuses should be bolstered by the remaining £1.45bn orphan assets.

Forms must be returned by October 16. Below, Money Mail answers the questions Axa policyholders should be asking.

Steve Manchip, 53, from Kingsbridge, Devon, is furious about the Axa deal. Mr Manchip, a retired money broker and a former soldier in the Territorial Army, has one Equity & Law policy which is due to mature in December and a number of other Axa policies further away from maturity.

'This deal is robbery from small investors on a big scale,' he says. 'It makes my blood boil that the man in the street is, once again, losing out to big business and the interests of shareholders.'