Norwich Union has today announced that it can no longer provide policyholders with the £1billion payout it promised back in July.
The reattribution offer, which would buy out policyholders' rights to any future surplus on the funds (known as the inherited estate), totalled £1billion and was to be awarded to eligible endowment
and with-profits policy holders within two of Norwich Union's oldest funds, giving them a cash payment of between £400 and £1,000.
However, since then, market volatility has hit the insurance giant, causing Norwich Union, which is part of Aviva
, to go back on its word. In a statement released today, chief executive at Norwich Union Life Mark Hodges said:
"The value of the inherited estate has reduced significantly which means that the original reattribution offer, announced in July 2008, no longer meets our critical test of being fair to both policyholders and shareholders."
However, Norwich Union has said that it will be looking at restructuring the reattribution rather than getting rid of it.
Mr Hodges added: "We are working closely with the Policyholder Advocate to see how we can restructure our offer to take account of the volatile market conditions, and see if we can give eligible policyholders a reattribution offer to consider later on this year.
"Whilst I realise this will be disappointing for our eligible policyholders, it does reflect the nature of the current exceptional investment market conditions."
So far this year Norwich Union has slashed bonuses on its with-profits funds including endowments and pensions, by as much as 15 per cent and many investors in its property funds have found themselves unable to make withdrawals.
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