Mr Whittam Smith: Former chairman of Financial Ombudsman

The body will oversee the management of Prudential's �69bn with-profits fund.

Prudential, which runs the UK's largest with-profits fund, said it was the first to set up such a committee, a step recommended by the City watchdog.

Andreas Whittam Smith, the founding editor of the Independent, is among the committee members.

The move follows a recommendation by the Financial Services Authority (FSA) that life insurers should be independently assessed to improve the transparency of how with-profits funds are governed.

Rival Norwich Union, the UK's largest insurer, has appointed actuarial firm Watson Wyatt to provide an independent assessment of its fund.

Savings issue

The governance of with-profits funds is an important issue for many British investors' long-term financial security.

WHAT DOES THE PRINCIPLES AND PRACTICES OF FINANCIAL MANAGEMENT (PPFM) SET OUT? The firm's approach to setting annual and final bonus rates and "smoothing" Its investment strategy for with-profits business The management of any inherited estates - or excess assets - and the uses to which this may be put Its approach to achieving a balance between the interests of with-profits policyholders and the interests of any shareholders of the firm

This is because millions of Britons are relying on with-profits' performance through investment products, such as endowments and pensions.

With-profits policies are designed to smooth out the peaks and troughs of stock market volatility.

However, heavy stock market falls throughout 2001 and 2002 forced many firms to trim policy values and impose exit penalties.

Declining values, coupled with the fall-out from the Equitable Life debacle, have prompted the FSA to introduce extra safeguards and checks on governance across the industry.

Until recently, there were no specific requirements for firms to be explicit about how they treated policyholders.

Since the end of 2003, though, insurance companies offering with-profits business have to write down - in "Principles and Practices of Financial Management" (PPFM) - how they manage with-profits funds.

The directors also have to certify annually that they agree with their firm's statement.

Pru board

A key role of the Prudential's new committee will be to produce an annual report on the management of the fund and that the fund is being run in line with PPFM.

The Prudential said the committee would also be an independent point of contact for shareholders and policyholders who had queries.