Around a million Norwich Union with-profit policyholders are to be offered cash payments of £1,000 as part of the firm’s reattribution process.
Back in February, Norwich Union’s owner, Aviva, announced it was in negotiations with policyholder advocate Clare Spottiswoode about how it could buy eligible policyholders’ interest in the “inherited estate”, cash used as a buffer to protect the funds during periods of underperformance.
This money is generally considered to belong to policyholders and, as such, should be split 90/10 between them and shareholders.
Today, Aviva has confirmed the reattribution will go ahead, with policyholders in the CGNU Life and CULAC able to choose whether to receive a cash payment now in return for giving up their right to receive any possible future payouts from the inherited estates or to stay as they are. Those who choose the later option will continue to have the right to receive cash bonuses, although these are unlikely in the next few years.
Cash payments are likely to be issued in summer 2009, with policyholders set to receive at least £400. Average payments will be in the region of £1,000, however.
Mark Hodges, chief executive of Norwich Union life business, says the offer represents good value for 99% of policyholders.
"We recognise that policyholders have a choice and everyone will be entirely free to make their own decision on whether or not to accept the offer," he adds.
How reattribution works
All policyholders, regardless of whether they accept the cash payout or not, will continue to have an interest in their with-profit fund, and as such will receive normal bonuses and payments.
Those that vote to receive the money, will be paid their “share” of the inherited estate from Aviva's shareholder funds, not the inherited estate or the with-profits funds.
Norwich Union says this means that the inherited estate will remain in the with-profits funds, until it's no longer needed.
Clare Spottiswoode, who represents the interests of policyholders, says: "I'm delighted that we have a deal that is in the interests of the vast majority of policyholders. There is a substantial amount of cash available for them and this offer also provides a fair return to shareholders. This deal is good in all respects."
The firm will write to eligible policyholders later this year, setting out exactly how much money they could potentially receive. Payments will depend on the size of the policy and how long it has left to run.
Earlier this year, Norwich Union told Moneywise that an estimated 50% of policyholders eligible to vote have between five and seven years left of their policy.
In February, it also announced it was paying 1.1 million with-profits policyholders a £2.1 billion bonus in three instalments over the next three years. Shareholders were also to receive £230 million.
The move means that policyholders with a short period left on their policy are unlikely to receive another cash bonus during that time.