With profits review: FSA upbraids Aviva for lengthy reattribution process

The Financial Services Authority (FSA) has criticised Aviva over the four years it took the group to complete the reattribution of its inherited estate last year. In a review of the £330 billion with profits sector it says two providers are being investigated for governance failings.

The Financial Services Authority (FSA) has criticised Aviva for the length of time it took the insurer to complete the reattribution of its with profits inherited estate last year.

Last October - after four years of complex, stop-start negotiations with its policyholder advocate Clare Spottiswoode and the FSA - Aviva paid out £470 million to policyholders who had agreed to relinquish their rights to the group's inherited estate. This was in addition to the distribution of £2.1 billion of the estate via bonus top ups.

In its with profits regime review report published today the regulator says: 'We were concerned at the length of time the Aviva reattribution took, as this unduly prolonged uncertainty for policyholders and made effective financial planning more difficult. It also generated increased attendant costs on the firm.'

The FSA advised Aviva and other insurers that more preparation should be done before launching complex initiatives like this at policyholders.

Aviva first announced its attention to clarify the ownership of the inherited estate - built up over decades in its with profits funds - in October 2005. It appointed Spottiswoode, former Ofgem boss, to be its policyholders' representative in February 2006. Firm proposals for policyholders did not emerge for over a year and were then temporarily derailed by market turbulence in February 2008.

During the long process Aviva was caught in wrangles both with Spottiswoode and Which?, the consumers' association, which claimed the group was 'ripping off' unsuspecting policyholders, an accusation denied by the group.

In a statement Aviva accepted that the process had taken longer than expected and created uncertainty. It said: 'Our focus was always to create a reattribution that was fair to both policyholders and shareholders. We were committed to ensuring our customers had a choice of whether they wished to accept the offer or not. The election process we had in place ensured our customers were able to have their say. In the end, more than 87% of eligible policyholders took the opportunity to vote, with 96% of these voting in favour of the offer.'

Two firms under investigation

In the review the FSA also revealed it had referred two with profits providers for enforcement action for further investigation of governance failings.

Ken Hogg, FSA insurance director, said the the two main areas of concern were:

• 'ineffective governance' and a lack of an independent challenge within providers' with profits committees to ensure policyholders' interests were being protected
• 'significant weaknesses' in consumer literature with insufficient effort being made by providers to ensure policyholders receive 'comprehensive, timely and clear information'.

Hogg said: 'This review shows that, while there has been some progress, there is still more work to be done by firms in the with profits sector to make sure that their policyholders are treated fairly. We expect all firms to raise their game in this area, not just the firms we reviewed.'