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Aviva policyholders set for £500 million payout

In February last year Aviva, the UK insurance giant, offered to pay out £1 billion to policyholders who agreed to give up their future rights to a share of the company's orphan fund. The fund in question was valued at £4.2 billion in February 2008 although it has since fallen to a value of £1.2 billion. Due to a legal challenge by a number of policyholders, the original scheme was put on hold and the payout figure has now been downgraded down to £500 million.

However, a court case earlier this week cleared the way for Aviva to agree a £500 million payout with policyholders, even though a small number are still refusing to accept the deal. The company expects to pay out between £200 and £1150 to eligible policyholders, out of the share of surplus funds commonly referred to as "orphan funds". However, there is controversy in that Aviva has been cleared to retain £700 million for the company and shareholders, giving policyholders less than 50% of the funds on offer.

As the agreement has been ratified in the courts there is no going back now and, despite talk of further legal challenges, the situation seems to be clearer than ever before. It is now highly likely that other insurance companies in the UK will look to distribute their orphan funds along similar lines, allowing them to retain the majority of the funds in question.

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