Hostname: page-component-8448b6f56d-jr42d Total loading time: 0 Render date: 2024-04-16T03:26:19.642Z Has data issue: false hasContentIssue false
  • English
  • Français

Equity between with-profits policyholders and shareholders

Published online by Cambridge University Press:  15 March 2012

C. D. O'Brien
Get access Rights & Permissions [Opens in a new window]

Abstract

This paper considers equity, or fairness, as being based on with-profits life insurers acting in accordance with their contracts. It uses the principles of with-profits business in conjunction with a legal approach to derive implied terms in with-profits contracts. The author examines certain situations of conflict between with-profits policyholders and shareholders. The paper does not regard all concerns put forward on behalf of policyholders’ interests as justified in practice: actuaries and regulators have been alert to issues and in many cases have taken appropriate action. However, it does suggest a number of practices that may be unfair. The paper also suggests that the current process for the reattribution of an inherited estate may favour shareholder interests over policyholder interests.

Keywords

EquityInherited EstateReattributionTreating Customers FairlyWith-Profits.
Type
Sessional meetings: papers and abstracts of discussions
Information
British Actuarial Journal , Volume 17 , Issue 2 , July 2012 , pp. 435 - 474
Copyright
Copyright © Institute and Faculty of Actuaries 2012

Access options

Get access to the full version of this content by using one of the access options below. (Log in options will check for institutional or personal access. Content may require purchase if you do not have access.)

References

Actuarial Profession (2008). Memorandum to the Treasury Committee enquiry into inherited estates, included in Treasury Committee (2008).Google Scholar
Ashley, C.D. (1904). Should there be freedom of contract. Columbia Law Review, 4, 423–427.CrossRefGoogle Scholar
Aviva UK Life (2009a). Legal rights arising in respect of rights and interests in and uses of the inherited estates. Aviva's response to a report by the legal advisers of the policyholder advocate in connection with the reattribution of the inherited estates of the CGNU Life and CULAC with-profits funds [appendix 25A].Google Scholar
Aviva UK Life (2009b). Tax matters in relation to the reattribution. A summary of Aviva's proposals in connection with the reattribution of the inherited estates of CGNU Life and CULAC with-profits funds [appendix 34A].Google Scholar
Aviva UK Life (2009c). Valuing the reattributed estate. A summary of Aviva's proposals in connection with the reattribution of the inherited estates of CGNU Life and CULAC with-profits funds [appendix 37A].Google Scholar
Aviva UK Life (2009d). Aviva's new business forecasts. A summary of Aviva's proposals in connection with the reattribution of the inherited estates of CGNU Life and CULAC with-profits funds [appendix 38A].Google Scholar
Bangert, R.M. (1973). Valuation of a life assurance company for purchase. Journal of the Institute of Actuaries, 99, 131–170.CrossRefGoogle Scholar
Brindley, B., Dumbreck, N., Thomson, C., Thompson, S. (1990). Policyholders’ reasonable expectations–first report of the working party.Google Scholar
Brindley, B., Cannon, C., Dumbreck, N., Thomson, C., Thompson, S. (1992). Policyholders’ reasonable expectations–second report of the working party.Google Scholar
Brindley, B., Cannon, C., Dumbreck, N., Thomson, C., Thompson, S. (1993). Policyholders’ reasonable expectations–third report of the working party.Google Scholar
Brindley, B., Nowell, P., Thomson, C. (1998). PRE issues with-profits. Paper presented to the Faculty and Institute of Actuaries Life Convention.Google Scholar
Cartwright, P. (2010). Conceptualising and understanding fairness: lessons from and for financial services. in Unconscionability in European Private Financial Transactions: Protecting the Vulnerable by Kenny, M., Devenney, J. & O'Mahony, L.F. (Eds). Cambridge: Cambridge University Press.Google Scholar
Clay, G.D., Frankland, R., Horn, A.D., Hylands, J.F., Johnson, C.M., Kerry, R.A., Lister, J.R., Loseby, R.L. (2001). Transparent with-profits – freedom with publicity. British Actuarial Journal, 7, 365–423.CrossRefGoogle Scholar
Financial Services Authority (2002a). Disclosure to consumers, With-Profits Issues Paper no. 3.Google Scholar
Financial Services Authority (2002b). Discretion and fairness in with-profits policies, With-Profits Review Issues Paper no. 4.Google Scholar
Financial Services Authority (2003). Treating with-profits policyholders fairly, Consultation Paper 207.Google Scholar
Financial Services Authority (2004). Treating with-profits policyholders fairly: further consultation, feedback on CP207 and near final text (consultation paper 04/14)Google Scholar
Financial Services Authority (2005). Fairness of terms in consumer contracts. Statement of Good Practice.Google Scholar
Financial Services Authority (2006). Treating customers fairly: towards fair outcomes for consumers.Google Scholar
Financial Services Authority (2007a). Handbook Notice 64.Google Scholar
Financial Services Authority (2007b). Reattribution of inherited estates. Letter to Clare Spottiswoode and Mark Hodges, available at: http://www.fsa.gov.uk/pubs/other/reattribution_letter.pdfGoogle Scholar
Financial Services Authority (2008a). Evidence of Mr Sants to the Treasury Committee, 22 January 2008.Google Scholar
Financial Services Authority (2008b). Memorandum to the Treasury Committee enquiry into inherited estates, included in Treasury Committee (2008).Google Scholar
Financial Services Authority (2009). Consultation paper 09/9. With-profits funds – compensation and redress. Further consultation, feedback on CP08/11 and draft Handbook text.Google Scholar
Financial Services Authority (2010). With-profits regime review report.Google Scholar
Financial Services Authority (2011a). Product Intervention. Discussion Paper DP11/1.Google Scholar
Financial Services Authority (2011b). Protecting with-profits policyholders. Consultation Paper CP11/5.Google Scholar
Froggatt, H., Iqbal, I. (2002). Smashing with profits business. Paper presented to the Staple Inn Actuarial Society.Google Scholar
Hare, D.J.P., Craske, G., Crispin, J.R., Desai, A.J., Dullaway, D.W., Earnshaw, M.A., Frankland, R., Jordan, G.A., Kerr, M.G., Manley, G.M., Mckenzie, J.L., Rae, R.A., Saker, M.C. (2004). The realistic reporting of with-profits business. British Actuarial Journal, 10(2), 223–293.Google Scholar
Harley, E., Davies, S. (2001). The Impact of Low Inflation. Financial Services Authority Occasional Paper no. 14.Google Scholar
HM Treasury & HM Revenue and Customs (2010). Solvency II and the taxation of insurance companies.Google Scholar
Jenkins, J. (2000). AXA inherited estate proposals. Expert witness report.Google Scholar
Kahneman, D., Knetsch, J.L., Thaler, R. (1986). Fairness as a constraint on profit seeking: entitlements in the market. American Economic Review, 76(4), 728–741.Google Scholar
Keefe, Bruyette & Woods (2008). Prudential (27 June 2008).Google Scholar
Kennedy, P. (1994). The actuary and the Unfair Contract Terms Directive, Paper presented to the Staple Inn Actuarial Society. Available at: http://www.sias.org.uk/view_paper?id=unfair.pdfGoogle Scholar
Kennedy, S.P.L. (1981). Comment in discussion on Redington (1981), 394–395.Google Scholar
Koffman, L., Macdonald, E. (2007). The law of contract. Oxford: Oxford University Press.Google Scholar
KPMG (2009). Contributions to the inherited estate. A report for the policyholder advocate in connection with the reattribution of the inherited estates of the CGNU Life and CULAC with-profits funds [appendix 21B].Google Scholar
Kramer, A. (2004). Implication in fact as an instance of contractual interpretation. Cambridge Law Journal, 63(2), 384–411.CrossRefGoogle Scholar
Law Commissions (2002). Unfair Terms in Contracts. A joint consultation paper issued by the Law Commission and the Scottish Law Commission. London: TSO.Google Scholar
Law Commissions (2005). Unfair Terms in Contracts. Report on a reference under section 3(1)(e) of the Law Commission Act 1965. Cm 6464. London: TSO.Google Scholar
LECG (2009a). Valuation of the reattributed estates. A report for the policyholder advocate in connection with the reattribution of the inherited estates of the CGNU Life and CULAC with-profits funds [appendix 37B].Google Scholar
LECG (2009b). Aviva's new business assumptions. A report for the policyholder advocate in connection with the reattribution of the inherited estates of the CGNU Life and CULAC with-profits funds [appendix 38B].Google Scholar
LECG (2009c). The impact of FSA guidance on policyholders. A report for the policyholder advocate in connection with the reattribution of the inherited estates of the CGNU Life and CULAC with-profits funds [appendix 39].Google Scholar
Lewison, K. (2007). The Interpretation of Contracts. London: Sweet & Maxwell.Google Scholar
Lilley, P. (1989). Reply to question in the House of Commons on life assurance taxation, Hansard, 20 December.Google Scholar
MacDonald, E. (2009). Casting aside ‘officious bystanders’ and ‘business efficacy’? Journal of Contract Law, 26, 7–101.Google Scholar
Meier, K.J. (1991). The politics of insurance regulation. Journal of Risk and Insurance, 58(4), 700–713.CrossRefGoogle Scholar
O'Brien, C. (2003). Regulating life assurers in a low solvency environment: the UK experience. Economic Affairs, 23, 16–20.CrossRefGoogle Scholar
O'Brien, C. (2004). Constraints on discretion: distributing surplus in with-profits life insurance. Journal of Financial Regulation and Compliance, 12, 118–127.CrossRefGoogle Scholar
O'Brien, C. (2009a) The UK with-profits life insurance industry: a market review. Report for the policyholder advocate. Available at: http://www.nottingham.ac.uk/business/cris/papers/Appendix_11_WP-Market-Review.pdfGoogle Scholar
O'Brien, C. (2009b). Valuation of Life Insurance Liabilities on a Market-Consistent Basis: Experience from the United Kingdom. Actuarial Practice Forum, January.Google Scholar
Office of Fair Trading (2008). Memorandum to the Treasury Committee enquiry into inherited estates, included in Treasury Committee (2008).Google Scholar
Parliamentary and Health Service Ombudsman (2008). Equitable Life; a decade of regulatory failure. London: The Stationery Office.Google Scholar
Paterson, J.M. (1998). Terms implied in fact: the basis for implication. Journal of Contract Law, 13(2), 103–125.Google Scholar
Paul, R.M. (1996). Merging with-profits and unit-linked life funds in a proprietary company: actuarial considerations based on a case study. British Actuarial Journal, 3, 623–687.CrossRefGoogle Scholar
Peden, E. (2001). Policy concerns behind implication of terms in law. The Law Quarterly Review, 117, 459–476.Google Scholar
Phang, A. (1990). Implied terms revisited. Journal of Business Law, 394–413.Google Scholar
Phang, A. (1993). Implied terms in English law – Some recent developments. Journal of Business Law, 242–255.Google Scholar
Phang, A. (1998). Tenders, implied terms and fairness in the law of contract. Journal of Contract Law, 13(2), 126–142.Google Scholar
Rakoff, T.D. (1995). The implied rules of contracts: of ‘default rules’ and ‘situation-sense’. in Beatson, J. & Friedman, D. (eds),“Good faith and fault in contract law”. Oxford: Clarendon.Google Scholar
Redington, F.M. (1981). The flock and the sheep and other essays. Journal of the Institute of Actuaries, 108, 361–385.Google Scholar
Robertson, A. (2005). The limits of voluntariness in contract. Melbourne University Law Review, 29, 179–217.Google Scholar
Sandler, R. (2002). Medium and Long-Term Retail Savings in the UK. London: HM Treasury.Google Scholar
Smaller, S.L., Drury, P., George, C.M., O'Shea, J.W., Paul, D.R.L., Pountney, C.V., Rathbone, J.C.A., Simmons, P.R., Webb, J.H. (1996). Ownership of the inherited estate. British Actuarial Journal, 2, 1273–1298.Google Scholar
Spottiswoode, C. (2009a). First witness statement. For the High Court of Justice in the matter of the Aviva reattribution.Google Scholar
Spottiswoode, C. (2009b). Note on behalf of Policyholder Advocate regarding shareholder value and IRR. Issued by Rhodri Thompson and James Ayliffe to the High Court of Justice in the matter of the Aviva reattribution.Google Scholar
Tenreiro, M. (1995). The Community Directive on Unfair Terms and National Legal Systems. European Review of Private Law, 3, 273–284.CrossRefGoogle Scholar
Thompson, R., Ayliffe, J. , Freshfields Bruckhaus Deringer (2009). Legal rights arising in respect of rights and interests in and uses of the inherited estates. A report by the legal advisers of the policyholder advocate in connection with the reattribution of the inherited estates of the CGNU Life and CULAC with-profits funds [appendix 25B].Google Scholar
Thompson, S., Bright, D., Cummings, J., Shah, R. (2002). Report of the Customers’ interests working party [of The Actuarial Profession]. Available at: http://www.actuaries.org.uk/research-and-resources/documents/report-customers-interests-working-partyGoogle Scholar
Tillinghast Towers-Perrin (2001). Asset Share Survey 2000.Google Scholar
Treasury Committee (2004). Restoring confidence in long-term savings: Endowment mortgages. Fifth report of session 2003–04. HC 394 London: The Stationery Office.Google Scholar
Treasury Committee (2008). Inherited Estates. London: The Stationery Office.Google Scholar
Tuley, P.J. (2009). Management actions in a with-profits fund. British Actuarial Journal, 15(2), 227–273.CrossRefGoogle Scholar
Wallace, J.G. (1973). Presidential address. Transactions of the Faculty of Actuaries, 34, 1–15.CrossRefGoogle Scholar
Which? (2008). Memorandum to the Treasury Committee enquiry into inherited estates, included in Treasury Committee (2008).Google Scholar