The FSA has moved a step further to creating a structure for reattributing billions of pounds of orphan assets with its proposals for the fair treatment of with-profits policyholders.
Last week, the FSA issued revised proposals on with-profits, which will also require providers to issue consumer-friendly principles and practices of financial management.
The new proposals will allow firms with excess inherited capital to consider a reattribution of surplus as an alternative to a distribution of surplus to policyholders.
Norwich Union says the paper – which is to go back for further consultation – starts to set out a procedure that will allow providers and consumer groups to approach a consensual reattribution of orphan assets. Last month, Money Marketing revealed NU's desire to reattribute its £4.3bn orphan assets if it could be effected without risk to brand.
NU says more work needs to be done on creating a clear process for effecting a reattribution before life offices will want to enter into the process for fear of attracting the negative publicity that surrounded litigation between the Consumers' Association and Axa over the issue.
The FSA has dropped a proposal to force with-profits providers to set targets to limit payout levels from one year to the next – a move that many industry experts had predicted would have forced funds into bonds and killed off with-profits. Under the new proposals, with-profits providers must have a clearly articulated smoothing policy.
FSA sector leader for insurance David Strachan says: “We have carried out extensive research to develop new information to be made available to consumers on with-profits policies. This will result in firms providing information that will help consumers to understand better how with-profits funds work.”
Norwich Union chief actuary Mike Urmston says: “This FSA document starts to provide a framework that will help move forward the issue of reattribution of inherited estates.”