Consumer fury over Axa assets

The Consumers' Association is demanding that Chancellor Gordon Brown call a summit meeting with the insurance industry to investigate the way companies hand out windfall profits, known as orphan assets, which are estimated to be worth £20 billion.

CA's demand has been provoked by anger at the plan drawn up by insurer Axa for distribution of its orphan funds worth £1.7 billion.

CA believes the scheme may award as little as 35 per cent of the assets to policyholders, with the remainder going to shareholders. The watchdog believes that policyholders should get 90 per cent, while shareholders receive 10 per cent.

The orphan assets are surplus profits that the insurers have not paid out to with-profit policyholders in past generations.

One of the CA's criticisms of the Axa deal is its complexity. It says it cannot be certain what proportion of the assets Axa's 600,000 policyholders will get until it has more information.

CA has arranged a meeting with the Financial Services Authority, the chief financial services regulator, which has approved the Axa deal, next Thursday to raise its concerns.

But it also wants the Chancellor to call insurers to a meeting to discuss the issue publicly. Several insurers are drawing up schemes to distribute their orphan assets and CA fears that the Axa deal could become a model for others.

The row over distribution of surplus profits comes as thousands of mortgage customers are being asked to find money from their own pockets to fund shortfalls on endowment policies.

Prudential is estimated to have between £7billion and £9bn in orphan assets, CGNU £5bn, and Britannic about £1bn.

Mick McAteer, a policy and research officer with CA, said: 'We want Gordon Brown to have a summit where everyone can argue the issues in public.'

Sheila McKechnie, director of CA, was scathing about the FSA's approval of the scheme: 'In effect the FSA has given approval for it to be put to policyholders. They are, de facto, endorsing it. That is disgraceful.'

The FSA defended the proposal and said it had been drawn up in private because it was a market-sensitive issue. CA is appealing for Axa policyholders to contact it to look into the possibility of representing them in the court hearing that will be held to examine the merits of the plan. Policyholders can email CA on orphan@which.net

Axa is offering policyholders cash bonuses averaging £400 each - most people will get less than £1,000 - and special bonuses once their policies mature. Policyholders who reject the windfalls will also receive the special final bonuses, but in exchange for forgoing the cash will share in possible further payments in future.

But there is no guarantee what, if any, further payments this group will receive. Policyholders must vote on the proposal by 16 October and after that it will go to a court hearing.

McKechnie said: 'We are very concerned about the fact that the deal is being put to policyholders before there is a court case.'

CA is to ask the Financial Services Authority if it can put its view of the deal into the information pack sent to Axa policyholders.