Delta Lloyd agrees Unit-Linke

RNS Number : 1121D

Aviva PLC

10 September 2008

 



10 September 2008

AVIVA'S DUTCH BUSINESS DELTA LLOYD GROUP AND CONSUMER ORGANISATIONS AGREE ON UNIT-LINKED INSURANCE COMPENSATION

Aviva plc ('Aviva') is pleased to announce that its Dutch business, Delta Lloyd Group ('Delta Lloyd') has reached a settlement for compensation with regard to unit-linked insurance policies, which have been the subject of an industry review.  The adverse impact on Delta Lloyd's embedded value is expected to be approximately £230 million* (pre-tax) of which £50 million (pre-tax) was included in the interim results. This will be shown as an exceptional item in the Aviva Group's results for the year ending 31 December 2008.  Aviva anticipates only a limited impact on IFRS profit as IFRS provisions, which are established on the basis of Dutch regulatory requirements, are already considered adequate.

* €300 million translated at an average exchange rate of 1.29 Euro/GBP

The press release issued by Delta Lloyd is set out below:

PRESS RELEASE	Corporate Communications
CONTACT	TELEPHONE
David Brilleslijper	([phone]
Amsterdam, 10 September 2008
BREAKTHROUGH ACHIEVED
DELTA LLOYD GROUP AnD consumeR organisatiONS AGREE ON UNIT-LINKED INSURANCE COMPENSATION  FOR INGEN

Delta Lloyd Group and the Verliespolis and Woekerpolis Claim Foundations have reached agreement on a financial compensation arrangement for unit-linked insurance policyholders. The agreement represents a considerable improvement for customers on the recommendation made by the Financial Services Ombudsman in March. It simultaneously constitutes the mediation result of an earlier case that Verliespolis had taken to the Ombudsman against Delta Lloyd.

The foundations jointly represent some 200,000 policyholders. The VEB (Association of Stockholders), the VEH (Homeowners' Association) and the Financial Services Ombudsman support the result achieved after months of negotiations.

The current value of the compensation for Delta Lloyd Group amounts to approximately 
€300 million, including a maximum of €30 million for a fund to assist customers in 'distressing' situations. In addition, Delta Lloyd Group had already reserved €110 million to guarantee the returns for customers with insurance policies containing a guaranteed minimum return.

The agreement was announced by board chairman Niek Hoek at a joint press conference of Delta Lloyd Group and the Foundations. 'Delta Lloyd Group is delighted to have reached agreement with the representatives of its customers. The agreement that we have now reached fulfils the wish of our customers, consumer organisations and the company to remedy the formerly perceived lack of cost transparency, whilst leaving open the option of using unit-linked insurance products to realise longer-term wealth growth in a transparent manner.

Therefore this agreement, though certainly costly for us, is in our opinion extremely important for continuity and social responsibility reasons, and thus marks a significant step in improving society's trust in the insurance industry.'

Compensation exceeds Wabeke 

In conformity with the earlier recommendation of the Ombudsman, the compensation currently agreed by Delta Lloyd Group, Verliespolis and Woekerpolis Claim provides for a maximisation of the costs per policy on maturity date. Within this agreement risk premiums are limited and will be based on recent mortality tables. In March, the Ombudsman had still assumed a maximum of 3.5% costs for a unit-linked insurance policy without guarantees and a maximum of 4.5% costs for a unit-linked insurance policy with a guarantee of at least 3% on the net fund return. 

Delta Lloyd Group and the Foundations now make a distinction between four categories:

1st category. 2.45% costs (original recommendation: maximum of 3.5% costs)

For unit-linked insurance products with a total premium at the start of the insurance of at least €1,200 per year, without a guarantee or with a guarantee on the net fund return of less than 3%, the costs are maximised at 2.45% over the entire term.

2nd category. 2.85% costs (original recommendation: maximum of 3.5%)

For unit-linked insurance products with a total premium at the start of the insurance of a maximum of €1,200 per year, without a guarantee or with a guarantee on the net fund return of less than 3%, as well as single-premium policies, the costs are maximised at 2.85% over the entire term. 

3rd category. 3.10% costs (original recommendation: maximum of 4.5% costs)

For unit-linked insurance products with a total premium at the start of the insurance of at least €1,200 per year and a guarantee on the net fund return of at least 3%, the costs are maximised at 3.10% over the entire term. 

4th category. 3.5% costs (original recommendation: maximum of 4.5% costs)

For unit-linked insurance products with a total premium at the start of the insurance of a maximum of €1,200 per year and a guarantee on the net fund return of at least 3%, the costs over the entire term are maximised at 3.5%. 

The difference between the actual costs of the insurance and the above maximum costs will be settled on maturity date on the basis of the capital available on that date.

Delta Lloyd Group will provide a clear picture of the consequences of this compensation, given the three indicative investment returns (pessimistic, 4% and historical), by the date of the 2009 annual statement. This statement will be based on the De Ruiter models for transparent reporting. 

The Verliespolis and Woekerpolis Claim Foundations will consult this agreement with their members

This compensation for costs comes on top of the €110 million that Delta Lloyd Group has already earmarked in its balance sheet for unit-linked insurance products where customers run a limited investment risk thanks to the guaranteed minimum net fund return. These are customers in categories 3 and 4 above. Delta Lloyd is the only Dutch insurer where a large proportion of its unit-linked insurance products offer a guaranteed capital on maturity. Many of our policyholders are thus already guaranteed a reasonable minimum return on their unit-linked insurance policies. For this reason, these customers, in line with the earlier recommendation of the Ombudsman, will receive more moderate compensation of their costs, taking account of the costs incurred by Delta Lloyd to guarantee these policies.

Policies that have already expired or have been commuted will, in line with recommendations 4 and 8 of the Ombudsman of March 2008, are also covered by these arrangements. Customers who wish to be considered eligible for the arrangements must notify Delta Lloyd Group.

Fund for 'distressing' situations

Alongside the above compensation of costs, Delta Lloyd Group will make a maximum of €30 million available for a fund that will be used to offer targeted support to customers who, due to their specific circumstances, are eligible for extra compensation and who are difficult to provide for in a general agreement. This includes policies where, due to losses on investments, the overwhelming share of the contributions is used to fund risk premiums. The details of this additional compensation will be filled in shortly. 

Policies involved and market share

The current agreement applies to the whole Delta Lloyd Group, which, with a total of around 445,000 policies, has a market share of over 5%, divided over the following labels:

• Delta Lloyd Life Insurance: 222,000 policies, of which 167,000 (75%) have a guaranteed net fund return;

• OHRA Life Insurance: 38,000 policies;

• Erasmus Life Insurance: 10,000 policies;

• Nationaal Spaarfonds: 175,000 policies.

About two thirds of these policies will be eligible for compensation.

In view of the negotiations on the buy-back of the 51% interest of Delta Lloyd Group by ABN AMRO Bank Netherlands, the ABN AMRO Insurance joint venture is not covered by the terms of this agreement.

Agreement is also mediation result

The agreement that has now been achieved simultaneously constitutes the mediation result of the case taken by the Verliespolis Foundation to the Ombudsman against Delta Lloyd and thus marks the end of the proceedings in this dispute. 

Maximum of 2.5% costs in new unit-linked insurance products

Delta Lloyd Group had already announced its intention to adhere to the Wabeke standards as a minimum. This means that all unit-linked insurance products currently still included in Delta Lloyd Group's product range will carry a maximum cost percentage of 2.5% over the entire term.

- ends -

Enquiries:

Media

David Brilleslijper, director corporate communications, Delta Lloyd         [phone]

Danielle Anthony, senior group media relations manager                        [phone]

James Murgatroyd/Ed Simpkins, Finsbury                                              [phone]

Analysts

Charles Barrows, investor relations director                                           [phone]

Jessie Burrows, head of investor relations                                             [phone]

Susie Yeoh, investor relations manager                                                [phone]

Notes to editors:

• Aviva is the leading provider of life and pension products in Europe with substantial positions in other markets around the world, making it the world's fifth largest insurance group based on gross worldwide premiums at 31 December 2007. 

• Aviva's principal business activities are long-term savings, fund management and general insurance, with worldwide total sales of £49.2 billion at 31 December 2007 and funds under management of £359 billion at 30 June 2008. 

• The Aviva media centre at www.aviva.com/media includes images, company and product information and a news release archive.

• For broadcast-standard video, please visit www.thenewsmarket.com/aviva.  

 

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