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Axa and the orphan assets

Our industry can appear complicated. The current industry debate on orphan assets seems impossibly complex. As is often the case, the heart of the issue is essentially simple.

Many people, including Paul Nuki (Nuki&#39s Eye, Money Marketing, September 14), are still under the impression that Axa is taking money from its orphan assets and buying off policyholders for a minimal amount.

Axa Equity & Law&#39s orphan assets total around £1.7bn. We propose to distribute £250m of this amount on the 90:10 principle – £225m to eligible policyholders and £25m to shareholders. The £1.45bn that is left stays in the policyholders&#39 fund and will continue to provide investment flexibility and stability for policyholders.

So what does Axa gain? Ownership of a portion of these funds enables Axa to account for the assets and investment income which they generate. If 100 per cent of policyholders elect, this ownership has a value to Axa of around £500m.

Axa takes no cash from the fund but will pay £300m to policyholders accepting this offer. The proposals have been confirmed as being “fair” by the independent actuary. The FSA have said that there is no reason for it to object to the offer being put to policyholders.

We are confident that our proposals are fair and reasonable and remain happy to work with the Consumers&#39 Association in the expectation that it will arrive at the same conclusion. Around 280,000 out of the 660,000 policyholders affected by the proposals have already worked through the scheme and decided to vote in favour.

Policyholders will decide to accept or reject this offer. This is how it should be. Those voting in favour will receive an average cash payment of £400.

In addition, if the proposals proceed, with-profits policyholders will be eligible for a reorganisation bonus estimated to be worth 3 per cent of maturity value whether or not they accept the offer.

The independent actuary has confirmed that the choice to take the money has no effect on policyholders&#39 prospects for future bonuses or investment performance – their “reasonable expectations” remain intact.

If they do nothing, policyholders will remain in a 90:10 fund and have the prospect of future distributions from the inherited estate. We antici-pate that there will be no such distributions for the fore-seeable future.

The policyholders decide. So far, 40 per cent have accepted the offer. The offer is open until October 16.

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