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Axa stirring up orphan storm

Axa&#39s proposals to pay Axa Equity & Law with-profits policyholders windfalls from orphan assets have brought severe criticism from consumer lobbyists and IFAs.

The Axa move comes as figures obtained by Money Marketing reveal life offices have more than £40bn sloshing around as orphan assets.

The Axa plans have come under fire for not paying out enough and critics are calling for a more open approach as to what Axa stands to gain from the move.

The proposals have brought the issue of orphan assets to the forefront, sparking industry speculation as to whether other insurers are likely to follow suit.

Prudential has been hotly tipped as the next life office to follow and CGNU admits it is considering a move. CGNU confirms it has orphan assets of between £7bn and £9bn but says the Axa announcement does not mean its own plans will be speeded up.

Prudential media relations manager Jennie Campbell says: “We are in continuing discussions with the FSA on the various options for attributing the estate. But the Axa settlement is different. It does not speed up or slow down our process.”

However, IFAs believe the Pru is likely to follow suit.

Holden Meehan director Mark Beer says: “Axa&#39s plans will bring the whole issue of orphan assets to a head. It is up to the courts whether the plans can go ahead but if they do, it will be bizarre if Prudential does not do the same.”

Axa plans to hand out windfalls to its former Axa Equity & Law with-profits policyholders from its orphan assets. This is because it plans to transfer all the business currently in Axa Equity & Law to Axa Sun Life.

All eligible with-profits policyholders will share an estimated £225m in the form of reorganisation bonuses.

Policyholders who elect to transfer to the new with-profits fund will share in an additional £300m, with windfalls estimated to be around £400 per policy.

If a policyholder accepts the proposal, they will have to give up all future rights to any interest in the inherited estate.

The Consumers&#39 Association is outraged by the proposals. Its main concern isthat Axa is not being up front enough with its plans.

The CA is calling for the FSA to publish details of the Axa proposals as well as any similar deals planned by other insurers. The association says it is hard for policyholders to establish what this deal means without knowing the details.

IFAs are concerned that the proposals are not in the interests of its policyholders. They say Axa would not pay out windfalls unless it stood to gain substantially itself.

Hargreaves Lansdown managing director Peter Hargreaves says: “One thing you can be sure of is that Axa will be what is known as prudent.”

IFAs say the money belongs to the policyholders and the balance of the share-out should fall in policyhold-ers&#39 favour.

Beer says: “I think the money belongs to the policyholders as it has built it up over the years. Axa has been prudent while keeping this money back in reserves but now ithas grown at a higher ratethan expected”

But Axa refutes the claims, saying they are way off mark.

Spokesman Phil Hinkley says: “Clearly, we are disappointed that the CA believes the proposals are unfair. But we will continue to talk to the CA to ensure it has a more complete understanding of our proposals.”

The issue of what shareholders have to gain from the proposals has also come under criticism. It is only the policyholders who will be receiving cash payouts from the orphan assets.

But life office analyst Ned Cazalet of Cazalet Financial Consulting says: “No money will be leaving the long-term fund as a result of these plans. I do not know why some of the shareholders thought they might get the cash as a result of this.”

Informed Choice managing director Nick Bamford says: “I do not have a great deal of sympathy for shareholders who are not happy about the money not directly going to them.

“As long as they are happy with their capital growth, if that is why they are investing, or the income generated by their shares, then they should not be unhappy about policyholders getting windfalls.”

The CA say it is time for the issue of orphan assets to be addressed. It is calling for the Chancellor to hold a summit on the subject.

McAteer says: “Axa would not pay £300m out to policyholders unless it was getting a good deal. It is not stupid. Even conservative estimates say this move will add £1bn to shareholders&#39 funds. Axa clearly paid the price because it thinks it is worth it.”

Murray Enterprise says its success in investment trust performance is due to shrewd buying of technology stocks as well as investment in less popular but steady stocks.

Marketing director Bill Johnstone says: “First, we are a very big fund which has a huge uptake. We also rode the technology boom in the early part of the year exceptionally well, investing in stocks which had mostly good earnings. We mixed this with investment in small but solid companies in the less fashionable areas.”

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