Making Your Choice

Questions and Answers

1. Will the reattribution change the amount of the regular payments I make for the policy?

- No, the reattribution does not affect the payments you make for your policy or other main terms of your policy

2. Why am I being offered a payment?

Aviva:

i. Is offering you a cash payment to buy out your interests in possible future special distribution payments from the inherited estate

ii. Is offering you a price which it thinks will give its shareholders a good return and which is more than the amount of future special distributions most policyholders could expect under current FSA rules

iii. Is able to do this because a large part of the estate would otherwise be paid out as special distributions to future policyholders. This part of the estate is therefore available to share between current policyholders and shareholders leaving both better off. (See page 20 for an explanation of why the level of future sales of new policies is relevant to you)

3. Why did the agreement change after July

2008? Why isn’t the offer a fixed amount?

- Since the agreement in July 2008, the world’s financial markets have been severely disrupted

- The estate has fallen in value

- The value of the assets in the estate can change quickly even in a short time

- Aviva had made the original fixed offer on the basis that they would keep to it so long as the leading index of shares, the FTSE 100, stayed between 5000 and 7000.

- As the index of shares has fallen below 5000 the company decided it would not keep to its original offer

- In place of a fixed offer, a sliding scale has been developed which allows for an offer to be made that can cope with changes in market conditions

- the final value of the offer is settled close to the time when payments are made

- the offer is still a good one for the great majority of policyholders. In most cases it is more than would be available as possible future special distributions because as the value of the estate reduces, so does the possibility of such special distributions

- if the value of the estate falls below £1.2 billion, and Aviva goes ahead, the lowest offer for each policy will be £200

4. What is a special distribution?

- A special distribution is a payment from an inherited estate which is shared (in the case of these particular funds) between policyholders (90 per cent) and shareholders (10 per cent) and is paid as a bonus addition to your policy (see page 13, points 4 to 8). If there is more money (known as “excess surplus”) in the estate than is required for the purposes such as those set out in Question 5 below, the company must consider making a special distribution and/or a reattribution

5. What is an estate used for?

The FSA permits the estate to be used for, among other things:

a. Providing a security buffer, which enables the company to offer you guaranteed benefits but still invest a high proportion of your premiums in shares and other investments. These are likely to offer higher returns over the longer term but also carry a higher risk of losses

b. Providing some smoothing of policyholder payments

c. Providing (subsidised) capital support for the writing of new with-profit policies.

d. Paying shareholder tax

e. Making strategic investments on the company’s behalf

f. Paying the cost of mis-selling claims

6. Does the policyholder advocate agree with these uses of the estate?

The policyholder advocate does not agree with the items which allow the estate to be used to pay for things which, if there was no estate, shareholders would have to pay for themselves. This is described in more detail on page 19

7. What is a reattribution?

- In a reattribution the company offers to buy out for cash the rights policyholders have to possible future special distributions from the estate

- Because future special distributions are not guaranteed, and are dependent on there being excess surplus capital in the future, a reattribution offers policyholders a certain amount of money now against an uncertain amount in the future. The likelihood, timing and size of special distributions depend on a variety of factors but particularly on investment growth and the number of new policies that Aviva sells in the future.

- Under FSA rules a policyholder advocate is appointed to represent the interests of policyholders in a reattribution

8. The inherited estate is surplus, so why can it not be distributed 90:10 to policyholders now as a bonus to policies?

Some of the estate needs to be kept back to make sure that benefits are protected for current policyholders. Some is also kept back for future policyholders.

9. How did the estate come into being?

- The company has said in evidence to the House of Commons Treasury Committee that the funds are between 150 and 200 years old and that “over that time and through prudential management, surpluses have arisen and it is very difficult now to trace those back and be absolutely explicit about where they come from”

- The way the estate has been operated by the company has meant that until recently there has been no excess surplus to distribute. At the end of 2007 the company changed its investment strategy, in part as a result of the reattribution, so that risk was reduced and less capital was needed to be held in the estate to support the fund.

That meant that some £2.3 billion could be paid out as a special distribution with 90 per cent going to eligible policyholders and 10 per cent to shareholders. This was the pre-reattribution distribution announced in February 2008.

10. How likely is it that there will be special distributions from these funds in future?

- This depends, in particular, on the investment performance of the funds and the number of subsidised new with-profits policies Aviva sells

- The policyholder advocate believes that the special distribution announced in February 2008 means that there is unlikely to be a similar special distribution in the near future

- Pages 7 to 11 of this guide show possible outcomes based on a wide range of assumptions

11. Who owns the estate?

- In law the estate is owned by the company but if there are any special distributions these must be paid out 90 per cent to policyholders and 10 per cent to shareholders. In a reattribution the company can make a cash offer to buy out policyholders’ rights to future special distributions from the estate

- Each policyholder has an individual choice to make about whether or not they wish to give up their rights to any future possible special distributions by accepting the offer

12. Who benefits from an estate?

- Both policyholders and shareholders benefit

- If the estate grows and there is more than is needed the extra can be distributed 90 per cent to policyholders and 10 per cent to shareholders

- Aviva benefits by more than its normal 10 per cent. Under current FSA rules insurers are able to use the estate, among other things, to provide capital support to subsidise the writing of new business, to pay shareholder tax, to make strategic investments and to pay mis-selling costs (see footnote on page 14)

13. What is the offer?

-The lowest payment for each policy is £200, which will increase if the size of the estate is more than £1.2 billion based on the average of valuations made in June, July and August 2009

- For many policyholders the offer will be more. It will be based on the value of the investment held, the type of policy and the time the policy has to run

- Policyholders who accept their individual offers give up their rights to receive any future special distributions from the inherited estate

- Aviva takes complete control of the part of the estate transferred to it from those policyholders who accept the offer. Only Aviva will benefit from future possible distributions from that part of the estate, but it must continue to use the estate to provide security for all policyholders, including those who have accepted the offer

- Policyholders who do not wish to accept the offer will keep their rights to future special distributions from the balance of the estate but will not receive a cash payment

14. How is the company paying for this?

- Aviva plc will pay for the reattribution offer from its own funds. It will not come from the inherited estate or any part of the with-profits funds

- In return Aviva will purchase the right to all future special distributions that those policyholders who accept the cash offer might otherwise have received.

15. Why have I been offered money for a reattribution but not been told anything about a special distribution?

- It is most likely that your policy has matured and you do not qualify for the special distribution announced in February 2008

- If your policy is still in force and you have not been notified, you should take the matter up with Aviva

16. What is the tax situation if I accept the offer?

If you are an individual and resident for tax purposes in the UK, your cash payment should not be subject to tax. This applies for both life and pension policies. Exceptions will apply if the payment results from trading in life policies or if the life policy was bought 'second-hand'

Similarly, the cash payment should not be subject to tax if you are an individual policyholder who is resident for tax purposes in Jersey, Guernsey or the Isle of Man.

Certain policies will not get a cash offer but instead will receive an additional bonus of the same value. (If yours is one of these it will be made clear in the letter Aviva has sent to you.) The receipt of this additional bonus should not have tax consequences, other than those that normally apply to your policy bonuses, regardless of where you live.

If your circumstances are not described above (for example you are resident for tax purposes outside the UK, Isle of Man or Channel Islands), or you are uncertain about your tax position, you should seek appropriate local advice about the tax consequences of the offer.

17. What is the tax situation if I don’t accept the offer?

Any future special distributions will be an additional bonus to your policy and taxed in the normal way.

18. Are all policyholders being treated consistently?

- Yes, eligible policyholders are being treated the same although the amounts being offered to them will differ depending on the type of policy, the length of time it has to run and the amount of money they have invested

19. Why does Aviva recommend this to 99 per cent of policyholders but the policyholder advocate only to ’the great majority’?

- Aviva has made its own estimate about how likely it is that special distributions might happen in future and how many eligible policyholders might get more by taking the offer than waiting for possible future special distributions

- The policyholder advocate has tested a wider range of possibilities and used a different method from Aviva to make her own estimates

- The policyholder advocate’s range of results shows that the offer is beneficial for between about 75 per cent and about 95 per cent of policyholders, depending on a wide range of assumptions about the future

- There is no ‘right’ or ‘wrong’ answer to this question because the future is uncertain, and the results are different for each set of assumptions

20. It looks like the company is getting a lot for its money. Why are you recommending that we consider the offer?

-The explanation on pages 22 and 23 shows how the estate is treated in a reattribution. It is different from a 90:10 special distribution (see question 4)

- In a reattribution the company takes the initiative and offers a cash amount to buy out policyholders’ interests in future possible special distributions from the inherited estate

-The company already receives significant benefits from the inherited estate beyond the 10 per cent of any special distribution (see the answers to questions 4 and 5). These benefits are taken into account when the company makes its offer. There are also factors that reduce the value of the estate to the company. It has to keep the estate to support the fund once it has taken full control and there are risks associated with that. There are also significant tax and other costs to be taken into account

- From the policyholders’ perspective, the offer is worth more than the great majority of them might, under current FSA rules, reasonably expect to receive in special distributions from the estate over the lifetimes of their policies (see page 19).

- The other policyholders will have to wait for several years before they might be better off by turning down the offer.

- Most of the estate that would go to policyholders is likely (if there was to be no reattribution) not to go to current policyholders, but to future policyholders

- After a reattribution future policyholders would no longer share in special distributions from the reattributed estate, and the money they were likely to receive effectively becomes available to make current policyholders, as well as shareholders, better off through the reattribution

- Some policyholders may expect to receive more in future special distributions but may have personal reasons to take cash now

21. If I accept what will happen to my annual bonuses and final bonus? Will Aviva make less risky investments resulting in lower returns in future?

- The Independent Expert’s role is to ensure that the company has protected policyholders and that their regular bonus expectations are not affected by the deal

- He is satisfied that, so far as possible, the performance of your policy will be as it would have been without a reattribution. Similarly the investment policy for the assets to provide backing for your policy is not expected to change

22. Will Aviva be changing the terms of my policy?

No. Your main policy terms are not affected by the reattribution

23. Will the fund be as secure as it is now after the reattribution?

Fund security and how the fund will work after the reattribution are commented on by the Independent Expert. A brief summary of his report is included in the Aviva brochure that has been sent to you.

A longer summary and his complete report are available to you on the policyholder advocate’s and Aviva’s websites or you may request a hard copy by calling our telephone helpdesk (the number is at the back of this guide.)

24. Why did you agree a deal when the FSA is still consulting on whether companies should no longer be able to pay mis-selling costs from the inherited estate? Doesn’t that reduce the amount of money that policyholders could have been offered?

The great majority of mis-selling compensation claims have now been settled and the impact on possible future special distributions is small.

25. Is the policyholder advocate satisfied with the arrangements to decide which policyholders should be eligible for a reattribution offer?

The policyholder advocate wrote an introduction to Aviva’s guide to eligibility for the reattribution which was sent to all policyholders in December 2007. She is broadly satisfied with the arrangements. The Independent Expert also gave his views.

26. Is the policyholder advocate satisfied with the way Aviva has allocated (divided) the offer between individual policyholders?

Yes, in general the policyholder advocate is satisfied with the basis of allocation. There is no single correct way to allocate the overall amount of offer but shebelieves that the one chosen, together with the special distribution announced in February 2008, produces a reasonable outcome.

27. Does the policyholder advocate have any comments on the points raised by the Independent Expert and the With-Profits Actuary, particularly in respect of the allocation of benefits to with-profits policyholders?

The Independent Expert and the With-Profits Actuary have reviewed in detail the effect of the reattribution on the normal policy benefits of all transferring policyholders who accept the offer and on the interests in future inherited estate distributions of those who decide not to accept the offer. The policyholder advocate’s comments on these matters may be found in her report.

28. I don’t want to accept this deal. How much of the inherited estate is to be put into the special fund to support any future special distributions?

- The amount will depend on how many policyholders decide not to accept the offer, the size of their investments, the type of policy and the time their policies have left to run. The amount will be paid into a separate fund (known as the ‘Old With- Profits Sub-fund’) and become its inherited estate

- The policyholder advocate has worked hard to ensure that policyholders who decide not to take the offer will be broadly in the same position as they are now

- Policyholders who do not accept the offer will keep their rights to any future special distributions

29. I want to object to the reattribution – how can I register my concern?

If you want to be heard in court, it would help if you contact Aviva's solicitors so they can tell the court on your behalf. Please write to: Clifford Chance LLP, 10 Upper Bank Street, London, E14 5JJ as soon as possible, quoting reference (KAC/CMS), and no later than 21 August 2009.

To assist the court you should set out in writing your reasons for objecting to the scheme.

Aviva has agreed to share any court objections they receive with the policyholder advocate.

You can, if you prefer, send your court submission to the policyholder advocate at:

Office of the Policyholder Advocate
PO Box 60216
London
EC3P 3AE

This office will then share your submission with Aviva. Please mark your envelope "High Court Reattribution" in the top left hand corner. We will send you a receipt for your records.

Please note that you are able to object to the reattribution even if you decide to vote "Yes".