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FSA moves nearer to reattribution of orphan assets

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&#39s 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&#39 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.”

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