By Myles Neligan
LONDON (Reuters UK) - Four and a half million Prudential (PRU) customers will not receive a hoped-for windfall after the insurer abandoned plans to reattribute an 8.7 billion pound surplus in its with-profits fund.
Under the plan, Prudential policyholders would have received a one-off payment in return for giving up the right to a share of any future distribution of the surplus, or inherited estate, with the full amount going instead to Prudential's shareholders.
The company has said previously that policyholders would have been entitled to "a small one-off benefit", with newspapers reporting estimates of several hundred pounds on average.
Prudential UK and Europe Chief Executive Nick Prettejohn said on Friday the group had concluded that shareholders and policyholders were unlikely to reach any mutually acceptable reattribution deal.
The estate, built up from decades of shareholder contributions and unclaimed policies, and used to protect policyholders from market fluctuations by smoothing out returns, would underpin the with-profits fund's performance in current choppy financial markets, he said.
"This isn't a decision based on current market conditions," he told reporters on a conference call. "But current volatile conditions are an excellent example of why it is necessary to have a strong inherited estate."
By 3:50 p.m., Prudential shares were down 2 percent at 540 pence, while the FTSE 100 share index was largely flat.
Prudential's decision was seen as unlikely to have had any impact on the stock, as few analysts had factored the reattribution process into their earnings forecasts.
"There is a reasonable argument that says keeping the estate means they've got clearer financial strength in the with-profits fund to support new business acquisition," said Collins Stewart analyst Tim Young.
Prudential began looking into the possibility of re-attributing the estate in March last year, and named former City lawyer Peter Bloxham to safeguard policyholders' rights in any reattribution process.
Rival insurer Aviva (AV) launched efforts to reattribute a surplus in its with-profits funds in November 2006, but is still locked in negotiations with its policyholder representative, Clare Spottiswoode, formerly head of gas regulator Ofgas.
Panmure Gordon analyst Barrie Cornes said Aviva's slower-than-expected progress could have influenced Prudential's decision not to go ahead.
"The pulling of its discussions...is not a major surprise given the way in which Aviva's discussions have gone in the last few months," he wrote in a research note.
(Editing by Louise Ireland)
