Court threat to Axa over payout that 'short-changes' policyholders

The Consumers' Association yesterday threatened to mount a legal challenge against insurance group Axa's plans for dividing up £1.7bn in surplus cash after claiming the company was short-changing its 660,000 policyholders.

The CA said the insurer was offering policyholders a "shoddy deal" and added that it was willing to contest Axa's proposals in court on their behalf. The company replied that what it was offering was fair.

During the last fortnight Axa policyholders have received windfall packs detailing how much they will gain from the distribution of its "orphan assets" - money which has been built up over the years from surpluses and unclaimed bonuses. It is proposing to give policyholders a cash payment averaging £400 plus a further bonus which will be added to the value of policies. The plans need to be approved by customers and ratified by the High Court at a hearing in November.

However the CA said it had closely examined the deal and concluded that policyholders would only be getting a total of £525m, or 31%, of the orphan assets, with the company's shareholders receiving arguably more than their entitlement.

Recommendations from the Treasury have previously stated that policyholders are generally entitled to at least 90% of these funds, and that shareholders should receive no more than 10%, the CA said.

Shareholders would receive at least £319m, or 19%, directly, and will benefit indirectly from the fact that Axa wants to put aside £836m, almost half of the total cash, to cover possible tax and other liabilities, it added. Careful tax planning should considerably reduce Axa's tax liabilities, so in reality a significant proportion of this money could end up going to shareholders, according to the consumer body.

"Axa has carved up this money so that shareholders come out on top," said Ashley Holmes, head of legal affairs at the CA. "Anyone who is not happy with this deal should contact Consumers' Association. If policyholders want us to help them, we will contest this deal on their behalf." The CA said it had sought advice from leading actuaries including KPMG.

A spokesman for Axa said: "We maintain this is a fair deal for policyholders." He added that the financial services authority and an independent actuary supported the proposals.

The company would be discussing the matter with the CA at a meeting on Monday and it was "perfectly happy" that the views of the policyholders were going to be represented at the High Court hearing, he said.