Peter Bloxham, who will negotiate for Prudential policyholders

The Pru is considering buying out their entitlement to so-called orphan assets within its with-profits fund.

If the plan goes ahead then the current policy holders may get cash payments or additional bonuses to their polices.

A retired City lawyer, Peter Bloxham, has been asked to negotiate a good deal for the policyholders.

The Prudential's with-profits fund is worth �85bn and holds the investments of customers with endowment and pension policies and investment bonds.

The surplus assets, built up over many years, are estimated to be worth �8.7bn.

"Peter Bloxham has a very straightforward job to do," said Peter Vicary-Smith, chief executive of the consumers organisation Which?

"The Government view has always been clear that any normal distribution of the inherited estate should be 90 per cent to policyholders and 10 per cent to shareholders. We see no reason why this should change," he added.

Surplus

The money is deemed to be surplus because the Pru says it does not expect to have to use the money to pay out on the customers' policies.

Who, precisely, owns the surplus money in with-profits has been a matter of debate for some years as it has not been clear whether it belongs to the policyholders or shareholders.

On the face of it the sums involved suggest an average windfall of about �1,900. However, the eventual payout will be much smaller.

The company stressed that only part of the surplus would be given back to the policyholders, if they eventually agree to give up their right to make a claim in the future to the whole of it.

A large part of the surplus would remain in the fund while some may be given to shareholders as a special dividend.

A similar process is underway at the Norwich Union insurance company where 1.1 million policyholders have an interest in surplus assets valued at about �3bn.

Proposal

At the moment the Pru is only considering buying out its policyholders.

Under rules laid down by the Financial Services Authority in 2005 it must first appoint an independent advocate - in this case Pete Bloxham - who will consult with policyholders and scrutinise any proposal put forward by the company to make sure it is fair to them.

"I will examine the Prudential's figures and conduct a very thorough review of the underlying data - some of which goes back almost 150 years," said Mr Bloxham.

"Should a reattribution proceed, I look forward to negotiating on behalf of Prudential's with-profits policyholders, to obtain the best possible outcome for them," he added.

Any plan must be agreed by the company, policyholders and the courts.

The Pru says its with-profits policyholders do not have to take any action at the moment.

Only those who had a policy in force as of 14 March 2007 will be eligible for any windfall.