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Orphan cash deal warning by Aviva

Aviva says the longer that its reattribution negotiations continue with policyholder advocate Clare Spottiswoode the less likely it is that a reattribution will take place.

Strategic projects director Mike Urmston says the original timetable for the reattribution of the £5bn inherited estate on the with-profits funds was to pay out some money this year but this is now unlikely.

He says: “The longer that this goes on, the less likely it is that a deal will be agreed. We are still optimistic but realistic as well.”

Urmston says it is an expensive process that cannot continue indefinitely and shareholders will lose patience if the negotiations continue for too long.

He says: “There is less need to do it from a business perspective. There are other things that go on in Aviva. This is taking up time and resources needed elsewhere.”

In February, Aviva said it would be distributing £2.3bn in special bonuses to 1.1 million with-profits policyholders phased over three years.

Aviva says this will add an average of 10 per cent to the policy value over three instalments for policyholders in the CGNU Life and CULAC with-profits funds.

The company has been criticised by Spottiswoode and advisers for phasing the payments, with advisers suggesting it was a retention strategy.

But Urmston says: “It would not have been fair for those newer policyholders to get payouts all at once. The reality is we want the fund to remain strong so we do not want people all walking away on January 1. It could also have led to quite a lot of distortion to the fund if we had paid it all out in one go.”

He is keen to stress that none of the money in the inherited estate will be moved away from the fund.

The money will be raised by shareholders from other parts of the company and the inherited estate remains to ensure that the fund is protected and to allow for smoothing of capital.

Aviva has now to respond to Spottiswoode’s report, which she submitted last month, although there is no fixed deadline.

Urmston says: “I do not think we would be happy if we do not do a deal but it has always been a possibility. The shareholders could probably do something else with the money and Aviva could use that capital in other ways. One has to bear that in mind. The board will be conscious of the other alternatives that they have on the table.”

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