Aviva wants to conclude the process before the autumn

The company is considering the division of a �5.2bn surplus which has built up in its Norwich Union with-profits fund.

Negotiations continue with an independent expert appointed to represent policyholder interests.

The two sides disagree about how to split the money between policyholders and shareholders.

Challenge

Aviva announced it was considering the "reattribution" of the surplus, known as the "inherited estate", in 2006.

Under the deal, just over a million eligible policyholders would be offered a cash payment in return for giving up their right to any possible future payout from the inherited estate.

We cannot allow this process to go on indefinitely David Ross, Aviva

As part of the process, the company appointed Clare Spottiswoode as policyholder advocate.

It is her job to negotiate the size of the windfall, and the company cannot put a deal to policyholders unless she agrees.

Last autumn, Ms Spottiswoode asked the Financial Services Authority (FSA) to clarify whether firms were allowed to make certain deductions from the surplus funds, amid concerns that this could unfairly reduce the amount of money available to policyholders.

The FSA confirmed that companies could use this money to subsidise new business, finance strategic assets and offset some tax charges.

It did add, however, that it wanted to consult further on whether firms should also be allowed to use the surplus to meet the cost of mis-selling claims.

Ms Spottiswoode then approached the Treasury Select Committee and asked it to challenge the FSA's findings.

Earlier this week, it took evidence on the matter from FSA chief executive Hector Sants, who confirmed the regulator's position.

Delay

Aviva, which extended its original timetable to allow Ms Spottiswoode to challenge the FSA, said it was concerned about the continuing delay.

"We cannot allow this process to go on indefinitely," said spokesman David Ross.

"The reality is we have a business to run, and this is taking up an increasingly significant amount of resources in terms of money and senior management time.

"We want to be able to put an offer to policyholders as soon as possible, so we can do a deal and make these payments," he added.

This complex process is not over and my job is to challenge every bit of it Clare Spottiswoode

Aviva is keen to resolve the issue before October, when Swiss Re takes over responsibility for administering hundreds of thousands of the relevant policies.

Mr Ross said it would be difficult logistically to make that transfer if the reattribution process had not finished.

Therefore, if the company cannot reach a deal with the policyholder advocate in the next few months - or if Ms Spottiswoode is successful in persuading the FSA to change the rules - Mr Ross said Aviva could scrap its plans altogether.

"We don't want to walk away, but ultimately we must have something to put to policyholders in a reasonable timeframe," he said.

"We started this process under certain parameters set out by the FSA. If those change, then we may decide that we no longer want to proceed," he added.

Fairness

Clare Spottiswoode, who was praised by Hector Sants for her professionalism during the Treasury Select Committee hearing, denied that she was unnecessarily delaying matters.

"This complex process isn't over and my job is to challenge every bit of it, to see whether we can get more money for policyholders," she said.

"I want to get a final offer so that I can go to policyholders and I can say whether I think it is fair. I want this to happen without delay," she added.

The consumer group Which? gave its backing to Ms Spottiswoode's approach.

"According to FSA guidelines, the policyholder advocate is perfectly entitled to challenge the operation of the fund," said chief executive Peter Vicary-Smith.

"The fact that Norwich Union wants to hold back a substantial amount of money from policyholders to pay its shareholders' tax bill, pay mis-selling claims and subsidise new business is not 'a sideshow'.

"It is critical to the overall fairness of the deal," he added.