Making Your Choice

Introduction

Dear Policyholder,

Since the previous reattribution offer announced in July 2008 and my letter to you of September the financial world has been subject to great volatility. One impact has been very significant changes in the values of assets and therefore the value of the inherited estates. This has led Aviva to withdraw the offer initially proposed in July 2008 and to replace it with a new proposal. It is my view that, under current Financial Services Authority (FSA) rules, the new offer is in the interests of the great majority of policyholders, and that the position of policyholders who do not accept the offer is properly protected.

Your offer

In this information pack you have a letter from Aviva which contains an individual offer for your policy.

This offer is to pay you a cash amount in return for which you will give up your rights to receive any future special distributions from the inherited estates of two of the Aviva with-profits funds. (If any of these terms is unfamiliar to you, please look at page 4 of this guide which will lead you to a Question and Answer section and more detailed explanations of aspects of the reattribution proposal.) It is important also to note that even those policyholders who might in the future be better off financially by voting ‘No’ are likely to have to keep their policies for several years before their potential future special distributions might be greater than the cash offer. To help you come to your decision about whether to accept the offer, my guidance is based on groups of policies which are similar. The guidance can be found on pages 7 to 11.

The turmoil in the world’s financial markets has led to a fall in the size of the inherited estates since the previous offer agreed in July 2008. The new offer from Aviva is a change from a fixed offer to one which can move in line with the size of the estates.

Your offer letter from Aviva contains the lowest amount you will receive if you vote ‘Yes’. It will be higher if the inherited estates are larger than £1.2 billion in the summer of 2009. At the end of 2008 they were £1.5 billion (see note on page 7).

This process provides policyholders with the potential to gain from any increase in the value of the estates while ensuring that you know the lowest value payment you might receive.

If the High Court, which must approve the proposals, agrees with the reattribution and it receives its final approval from the Aviva Board, it is intended that Aviva will begin to send out payments from November 2009.

In summary:

- for the great majority of policyholders the offer is more than they might expect to receive from possible special distributions in the lifetime of their policies

- taking Aviva’s basic assumptions of what might happen if there was no reattribution, we estimate that the amount policyholders might expect to receive from the estates under current FSA rules is around £100 million, whereas policyholders are being offered £500 million with the estates valued at £1200 million (that is, £1.2 billion)

- there is a minimum payment offer of £200 regardless of the size of your policy. This will be more if the estates are above £1.2 billion

- your letter from Aviva shows your lowest payment for your policy, which also will be increased if the estates are above £1.2 billion in the summer of 2009

- there is a genuine choice for policyholders – you are not bound by any majority vote. This means that if you want to accept the offer you must complete the voting form and return it in the envelope provided

- those who do not wish to accept the offer will be at least as well-off as they are now across a wide range of circumstances

In addition:

- the amount of the cash offer will be decided as close as possible to the time the payments are likely to be made. This means that policyholders will gain from any increase in the value of the estates above £1.2 billion

- if the estates fall below £1.2 billion, and Aviva decides to go ahead with the reattribution, the lowest payment would still be £200

The charts overleaf show how the offer will vary on a sliding scale depending on the value of the estates in the summer of 2009. The left hand chart shows the total amount of money that Aviva would pay at different values of the estates if all policyholders accepted the offer.

The right hand chart shows how the lowest payment for each policy changes for different values of the estates.

For many policyholders the offer will be more than the lowest payment, as it will be based on a number of variables including the size of their investment, type of policy, and how long the policy has to run.

Your choice

Throughout the discussions with Aviva I have been concerned that policyholders should have a real choice about the reattribution proposals. We have worked hard to ensure that if you do not want to accept the offer for any reason your position will be safeguarded. Now you have your opportunity to decide whether you want to accept the offer or not. If you would like to know more about the reattribution than is in this guide you may wish to read my report (see page 26).

Impact of FSA rules

The way the FSA rules currently allow the estates to be used significantly reduces the value of potential special distributions you are giving up by accepting the offer. My guidance compares what you are giving up, under the FSA rules, with your cash offer.

Conclusion

It is no exaggeration to say that these are extraordinary times, and in such circumstances it is very positive that an offer is being made.

I believe that Aviva’s proposals are in the interests of all eligible policyholders in that: - you have a cash offer that for the great majority is more than you might reasonably expect to receive from future special distributions from the inherited estates

- you have a choice about whether or not to accept, and if you do not accept you will be broadly in the same position as you are now.

I hope that we can now move to a conclusion of the reattribution and that those who wish to accept the offer can look forward to receiving payments by the the end of the year.

Yours faithfully

Clare Spottiswoode CBE