Aviva withdraws pounds 1bn payout to policyholders.

Byline: Iain Laing

LIFE and pensions firm Aviva is slashing a pounds 1bn payout promised to a million policyholders last year following the stock market turmoil.

The insurance group confirmed the original offer announced in July was "no longer fair to both policyholders and shareholders" after sharp falls in the value of equities.

It had originally hoped to pay eligible policyholders this summer, with more than 700,000 people due to get between pounds 400 and pounds 1,000, while another 220,000 were in line for pounds 1,000 to pounds 3,500.

The news came as Aviva - parent group of Norwich Union, soon to be rebranded Aviva - reported full-year sales figures revealing a 1% rise in new UK business.

Aviva said it was looking at how it could "restructure" the payout offer, which was designed to hand out surplus cash built over several years in Norwich Union with-profits funds.

Policyholders had already suffered lengthy delays before last summer's offer, which came after 18 months of complex negotiations between Norwich Union and the independent policyholder advocate.

Aviva said: "We realise this will be disappointing for our eligible policyholders. It does reflect the nature of the current exceptional investment market conditions. We expect to be able to update policyholders in the next few months."

The group's 2008 new business figures showed a slowdown in growth in UK life and pensions business, up 1% to pounds 11.86bn compared with a 5% rise in 2007.

Aviva, which has switched its reporting basis, said total life and pensions business rose 11% to pounds 36.28bn.

Under its previous reporting method, the results would have shown a 9% rise in worldwide business to pounds 34.58bn - better than expected in the market.

Aviva also sought to reassure over its capital strength - a key concern for insurers given the stock market volatility.

It said the surplus it is required to hold by regulators had in fact risen by pounds 100m since last September, to pounds 2bn at the end of December.

The independent policyholder advocate, Clare Spottiswoode, said Norwich Union had opened discussions with her about how to keep the prospect of a reattribution offer alive.