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The true estate of affairs

Twickenham MP Vincent Cable has followed the current industry debate on inherited estate closely. While he will have formed some views based on his understanding of previous ministerial guidance, he is also likely to have been influenced by the current media debate on Axa&#39s proposals, much of which has been both misleading and inaccurate.

For the reasons I will come to shortly, Axa&#39s inherited estate is not “surplus” cash that can be divided up into varying propor tions for policyholders and shareholders. Taking into account Axa&#39s future business plans for with-profits business, the only surplus in the fund is £163;250m which is being distributed to policyholders and shareholders in the recognised 90:10 proportion. Acc or dingly, the 90:10 rule is being res pected by our proposals.

To distribute any additional amount from the fund would make the fund fragile and would not be in the best interests of policyholders. There are many examples of life company funds that have become weak and history paints a very clear picture about what happens to companies in such circumstances.

The FSA considers there are no regulatory reasons why insurance companies should be prevented from making an offer to buy out policyholders&#39 interests in the inherited estate, as long as they satisfy the FSA and the High Court that the offer takes policyholders&#39 interests into account and the value of any offer is within a reasonable range.

The clarification of the Axa inherited estate will provide an economic value to the life office of between £163;400m and £163;500m. This compares with the £163;525m being distributed to policyholders (£163;225m from the fund and £163;300m from Axa&#39s own res our ces). It is simply not appropriate for Axa to pay 90 per cent of the value of the inherited estate to policyholders, as this would be disproportionate to the value we would derive.

We must be clear that distributing any more than £163;250m from the fund makes the fund unacceptably fragile. This opinion has been arrived at by our own actuaries and is shared by the independent actuary.

Cable suggests our ballot of policyholders is in some way a corrupt electoral process. We are asking people to decide which of two options they want to select and, unlike an election, those who choose to accept our proposals have no influence over the outcome for those who do not accept our proposals.

Those policyholders who choose to accept will receive an amount of money in ret urn for waiving any interests to possible future distributions of surplus from the inherited estate. Those who reject the offer are unaffected by our proposals and remain outside the scheme.

The holders of around 536,000 policies (the equivalent of 78 per cent of the total value of the eligible policies) have chosen to accept the terms of our proposal.

Consequently, if our sch eme is sanctioned, they will rec eive on average an amount of £163;400 rather than the £163;1,200 referred to.

The Inland Revenue has not ignored Axa&#39s scheme. Our assumptions for tax are consistent with the correspondence that Axa has had with the Inland Revenue.

In accordance with the requirements of a 2C transfer of funds, we will present our proposals to the High Court for approval on Dec em ber 18. The court process has always been integral to our scheme.

We remain of the view that our scheme is fair and reasonable and we look forward to presenting the merits of our scheme to the court next month.


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