Aviva, the insurance group that owns Norwich Union, today pledged to return up to £1,000 to its one million policyholders and increase its dividend by 10 per cent.

Shares in the company rallied 7.34 per cent to 581p in early trading after the insurer detailed plans to release £1 billion of surplus funds, which will give policyholders between £400 and £1,000 each.

The company has already agreed a £2.1 billion special distribution to customers, which will be added to policies over the next three years.

The latest payout will bring the total Aviva is returning to £3.1 billion, or 70 per cent, of its inherited estate, the surplus that builds up in a fund.

Aviva announced the windfall after two years of talks with Clare Spottiswoode, the policyholder advocate. Policyholders will vote in the autumn to receive a share of the £1 billion surplus, and will be handed a cheque next summer.

Aviva's decision is in contrast with its rival, Prudential, which last month dropped plans to give its policyholders a share of the £8.7 billion in excess capital that has built up in its with-profits fund.

Aviva also announced today that it will increase its interim dividend to 13.09p to reflect the "confidence in delivery of stated targets and future prospects".

The payouts came despite Aviva announcing a pre-tax loss of £1.2 billion for the six months to June compared with a £1.5 billion profit last time. Operating profit generated from Aviva's fund management division fell 33 per cent to £30 million. Group operating profit rose 12 per cent to £1.7 billion.

The company said the loss reflected a fall in the value of its assets, stating: "Everyone is well aware of today's investment market conditions."

Aviva said: "Sales in the faster-growing markets of North America and Asia Pacific have offset the more challenging markets of Europe, including the UK."

However, the group said that in "tough times people do return to saving", adding: "They first cut discretionary spending, reduce debt and then focus on providing financial security for themselves and their families. Aviva can benefit from this behaviour."

To find out if you qualify for a payout, call the Aviva helpline on 0800 051 1300 and give them your policy number.

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