UK clarifies rules on insurer asset reorganisations

LONDON, Dec 29 (Reuters) Britain plans to clarify rules governing policyholders' representatives named when an insurance firm reorganises assets by partially exempting them from authorisation by the industry watchdog, the Treasury said.

Insurers who decide to restructure with-profits funds are currently required to use an independent policyholder advocate whose role is to represent policyholder interests.

But the role of the advocate is neither subject to, nor exempt from the Financial Services Authority's rules.

The Treasury said that situation, as giants like Britain's largest insurer Aviva consider restructuring their funds, could cause uncertainty.

In a consultation document, the Treasury said on Friday that full FSA authorisation, designed for firms providing financial advice, would be too onerous for policyholder advocates.

It proposes to exempt the advocate from requiring full authorisation but will retain safeguards including the FSA's approval of an advocate's appointment and rules on information policyholders must receive on potential benefits and rights.

''I want to see the role of the policyholder advocate set on a clear legal footing,'' the Economic Secretary to the Treasury, Ed Balls, said.

Policyholders are typically given incentive payments during the reattribution of what is known as the ''inherited estate''.

This is money built up in a with-profits fund over years, above the amount needed to meet current and future policyholder comitments and other obligations such as tax and expenses.

Reattributing the inherited estate, the move being considered by Aviva, means the excess capital can be used more widely in by the group.

Aviva has named the former head of the UK gas industry watchdog, Clare Spottiswoode, as its policyholder advocate and said last month an offer for policyholders could come next autumn, though payments would not be distributed before 2008.

The Association of British Insurers said it welcomed the principle of partially exempting the policyholder advocate, but said it would wait to examine the proposals before responding.

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