An inquiry into British insurers' plans for the £13 billion surplus in their with-profits funds has been launched by the Treasury Select Committee. It increases pressure on Norwich Union before its proposed settlement with one million of its with-profits policyholders.

As part of the investigation, leading insurance company chiefs such as Mark Hodges, chief executive of Norwich Union Life, and Nick Prettejohn, head of Prudential in the UK, could be questioned by the committee.

It is expected that there will be at least two sessions.

News of an inquiry into the so-called “inherited estate”, or the surplus assets that have built up in insurers' funds over the years, was welcomed by Clare Spottiswoode, the advocate for policyholder interests who is in talks with Norwich Union over the future of its £5.5 billion estate.

She described the inquiry as a “matter of such public importance” affecting about 5.5 million policyholders.

Several insurers, including Norwich Union and Prudential, have been considering what to do with their inherited estates.

After a ruling by the Financial Services Authority (FSA), insurers are able to use some surplus in their funds to underwrite new business, as well as make strategic investments and even settle mis-selling claims.

Insurers argue that they need to hold on to some of the surplus capital to support the strength of the funds.

Norwich Union has already made a one-off distribution of £2.3 billion of its £5.5 billion inherited estate in line with the convention that policyholders should receive 90 per cent and shareholders 10 per cent, but the move was criticised because it will be staged over three years.

The company has put a third cash offer to Ms Spottiswoode covering a “reattribution” of the remaining surplus, thought to be about £3 billion.

In a reattribution, policyholders collect a cash sum in exchange for forgoing their rights to future bonus payments.

It is understood that policyholders have been offered substantially less than 90 per cent of the value of this part of the estate.

Peter Vicary-Smith, chief executive of Which?, the consumer group, again turned the spotlight on Norwich Union. Mr Vicary-Smith said: “[It] must act with integrity and stop hiding behind the FSA's inadequate regulation of inherited estates as an excuse for denying its policyholders a fair share of this money.”

Norwich Union said it would be making a “full and detailed” submission to the inquiry.

A spokesman said the insurer had been following FSA guidelines and would welcome the chance to clarify its process.

The committee, which has the power to recommend legislation, said it would concentrate on the definition of the inherited estate and would take written submissions on whether insurers' plans for their surplus might damage competition.

Vincent Cable, Treasury spokesman for the Liberal Democrats, said that he believed that this was “an important inquiry”.

He has written to the FSA, Norwich Union and Sir Nicholas Montagu, chairman of the insurer's independent with-profits committee.

It is thought that Mr Cable has tried to secure a debate in Parliament over Norwich Union's proposed reattribution.

Times Recommends

• Lies and cover-up at MG Rover exposed by report
• High oil prices push manufacturing costs up
• Primark founder steps down as chief executive