Prudential, a leading player in the annuity market, and at the forefront of with profits annuities, has made a key decision not to pay out its £8.7 billion with-profits surplus. This saves the insurer a lot of scrutiny and potential reputational damage down the line.
The Pru and Norwich Union, both of which have been mulling distributing the £13 billion the two hold between them in their with-profits surplus funds in a ‘reattribution’, have found themselves tugged in two directions – by their bosses, the shareholders, and their customers, policyholders.
Prudential has watched from the sidelines while Norwich Union – much further into negotiations on its inherited estate – has taken the brunt of criticism from consumer groups, MPs and the City regulator with accusations of putting shareholders before their with-profits customers.
After 15 months of analysis, this morning the Pru made a move which on one hand analysts say could save its reputation from the damage that Aviva has suffered, but on the other, means it loses an important support to its valuation.
By keeping the £8.7 billion cushion in place, the move confirms the Pru’s commitment to with-profits funds. It has outperformed its rivals, reporting a market-beating 7.2% investment return on its £82 billion with-profits fund last year, even having launched an innovative annuity based on the returns of the funds.
And the Prudential still faces its critics. Consumer group Which? wants a ‘rigorous and independent assessment of Prudential’s inherited estate to determine whether any of this money should be considered an ‘excess surplus’. It also wants all the costs incurred by Prudential in the 15 months it has spent considering a reattribution to be borne by shareholders, and not charged to the inherited estate. These costs include those for a full-time team which would have gone on to negotiate the terms of a payout with the insurer.
