Aviva Delays Date for Response on Surplus Assets

LONDON (Reuters) - The UK arm of insurer Aviva (AV.L) has agreed to wait until early March for a response on a third cash offer of compensation made to policyholders to allow the group to reallocate surplus assets in two funds.

The deadline, extended from late February, brings a fresh delay to already drawn-out negotiations between Aviva and an independent advocate hired to defend policyholder interests.

"This extension to the timetable recognizes the complexity of the process," Aviva said in a statement. "Norwich Union Life and the Policyholder Advocate remain committed to trying to agree an offer that is fair to policyholders and shareholders."

Aviva's Norwich Union has been considering options for the surplus for two years, hoping to free up cash it can use to pay policyholders but also to write more new business.

It said earlier this month it had decided to split the total -- deciding the future of the first half with a 2.1 billion pound bonus to 1.1 million policyholders.

The benefit of the remaining half, however, can only trickle down to shareholders if Aviva can "reattribute" the assets. Though the money is not distributed, it is pulled out of the fund and used more widely in the business.

Policyholders are typically offered incentive payments to compensate them for the move and these have been the focus of the lengthy negotiations with the independent advocate.

The surplus or "inherited estate" -- money built up in with-profits funds over the years -- was worth a total of 5.4 billion pounds at the end of June, though that has been eroded by recent market turbulence.

Parliament's Treasury Select Committee said separately on Tuesday that it had decided to undertake an inquiry into insurers' inherited estates -- including how to define them, how they should be divided between shareholders and policyholders, and whether insurers can use the cash to write new business.

Clare Spottiswoode, the policyholder advocate hired by Aviva, welcomed the inquiry which she said would help bring into focus the main areas of contention.

"Foremost among them will be the way in which the Financial Services Authority allows companies to subsidise the writing of new business, which has the effect in a reattribution of transferring value from the estate directly to shareholders," she said in a statement.

(Reporting by Clara Ferreira-Marques; Editing by David Cowell)