This is policyholder advocate's original website which was launched on 21 November 2006.

This site has been regularly update during the reattribution negotiations but was closed to new information on 31 May 2009. We have kept it open as reference site.

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The Norwich Union Plan - A Guide to the Issues

This part of our site deals with the main issues in the Norwich Union reattribution plan. It also explains some important things policyholders need to know about with-profits funds.

The Plan

Norwich Union would like to reorganise some of its with-profits funds so that it can use more efficiently the assets (that is, shares, property, government securities and cash, among other things) which belong to these funds. These assets are currently part of the with-profits fund called the “inherited estate” and there are limits on what it can be used for (please see point 2 below).

The Norwich Union plan would be achieved by using a process known as a “reattribution” (please see item 3 below). Norwich Union needs the agreement of policyholders to do this. If a policyholder agrees to the reattribution plan, they will be asked to give up their right to any future 'distribution' or sharing out of the inherited estate. (‘Distribution’ is explained in item 2 below.)

In return the policyholder will receive a payment or, in some cases, an additional bonus allocated to their policy. The policyholder’s investments would then be put into a different fund. That fund will be properly supported (please see item 6); the Financial Services Authority has rules to ensure that policyholders’ funds are protected.

If a policyholder does not wish to accept the offer, their position will remain broadly unchanged against a wide range of possible economic and financial outcomes - their policy or policies will be put in a fund that has the appropriate resources to carry on as before.

Whether or not a policyholder accepts or rejects the offer, the terms of the policies themselves remain unaffected, except that those who accept the offer will no longer be eligible to receive any special bonus distributions from the inherited estate (please see item 5 below).

1. With-profits policies

With-profits policies are long-term investments provided by insurance companies. Policyholders pay premiums which are then put together in a pooled fund which is invested by the insurance company. If the investments perform well, a bonus is allocated to policies. Companies routinely hold back some investment returns in good years, so that bonuses can be topped up in years when the fund performs poorly. This is known as 'smoothing'.

2. What are an ‘inherited estate’ and a ‘distribution’?

Inherited Estate

The inherited estate is the expression used to describe surplus assets in a with-profits fund (in other words, assets not required to meet the liabilities of the fund). An estate will often build up over many years. Whilst an inherited estate, like other assets allocated to a with-profits fund, is owned by the company, it can only be used for a limited number of purposes as follows:

There are basically only two ways in which the shareholders of the company can access the estate for other purposes – both of which have different characteristics – that is, through a distribution or a reattribution of inherited estate.

Distribution

A distribution is a payout from the inherited estate to policyholders (90 per cent) and shareholders (10 per cent) and may come about in a variety of ways. FSA rules can require a distribution when, for example, the company has more assets than it needs to support its with-profits business or when no new with-profits business is being written from the with-profits fund. A distribution is made in the form of bonuses allocated to policies.

If a distribution happens the remaining assets of the inherited estate continue to support smoothing and investment flexibility.

3. Reattribution

A reattribution is the process whereby the company offers to buy out the rights or expectations of policyholders in relation to a possible future distribution of the inherited estate. Policyholders are given an incentive payment if they choose to give up their right to take part in any future distributions from the inherited estate. The position of eligible Norwich Union policyholders who choose not to accept the offer remains broadly unchanged against a wide range of possible future outcomes.

Following the reattribution, the inherited estate remains available to support smoothing and investment flexibility, but the estate becomes owned 100 per cent by the shareholder.

4. Which policies are included in the Norwich Union plan?

The plan affects policies that are in the with-profits businesses of Commercial Union Life Assurance Company and CGNU Life. These are ‘eligible’ policies, that is, holders of them are expected to be those who would be offered an incentive payment

If you wish to check the potential eligibility of your policy a link can be found on our website in the section marked ’Eligibility ‘.

5. Are the policies themselves affected?

No. Whether or not you accept the eventual offer, your main policy terms will remain the same. If you accept the offer you will be giving up your interest in the inherited estates. If you do not accept an offer, you will keep your rights but not receive an incentive payment.

Whatever you decide:

6. What happens now?

An announcement was made on 30 July 2008 that a deal was to be put to policyholders which would be worth, if all eligible policyholders voted for it, some £1 billion. Work then was underway to complete all the paperwork necessary so policyholders could read the details and the courts could receive the legal documentation. However, on 4 February 2009 Norwich Union /Aviva announced that the turmoil in the financial markets meant that the estate had fallen in value and the deal no longer worked for the company. It was also announced that discussions were being re-opened with the policyholder advocate to try to restructure the deal.

It was announced on 6 May 2009 that a new, flexible deal is now to be put to policyholders. Minimum individual offers, based on personal circumstances, will be sent in June to policyholders including information to help them make their choice. Final payments to policyholders may change if the value of the inherited estates based on the average of June, July and August increases. Payments will be made from November, subject to the approval of the High Court approval and the Aviva board.