Prudential policyholders could receive payout

Because Prudential Insurance (LSE: PRU; NYSE: PUK) is thinking of buying out policyholders’ entitlement to “orphan assets” within its with-profits fund, up to four and a half million policy holders could receive windfall payments in 2009. The payments could come as either cash payments or as bonuses to their policies, and will go to policyholders who had a policy in force as of 14 March 2007.

The surplus assets, deemed to be so because Prudential does not expect to need to use them to pay on customers’ policies, are estimated to stand at around £8.7 billion. Only part of that surplus would be given back to policyholders, while a large part of it will be retained and some could go to shareholders as a special dividend.

The buyout is still in the early stages of consideration. Under Financial Services Authority rules, the company has to first appoint an independent advocate who will consult with policyholders and look at any company proposal to make sure that it is fair. Any plan that passes the advocate’s scrutiny will then have to be approved by the company, the policyholders, and the courts. At this point, Prudential has gone so far as to appoint an advocate.

Prudential is not the only insurer to be considering this process. Norwich Union, which is part of the Aviva Group (LSE: AV), is also looking at the possibility of returning some of its surplus assets to 1.1 million policyholders.

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