In another sign of growing investor activism, the defeat came despite chief executive Andrew Moss this week waiving a near-5 per cent pay rise which would have taken his annual salary over the £1m mark.
Some 50 per cent of votes placed outside the AGM went against the pay report, while an additional 9 per cent were withheld, in one of the biggest ever shareholder protest votes.
The remuneration report would have been thrown out completely had new measures to give shareholders binding votes, as put forward by Business Secretary Vince Cable and backed by investor groups including the Association of British Insurers, been brought into effect.
The embarrassing defeat follows a similar showdown last month between shareholders and banking giant Barclays, in which nearly a third of votes failed to back its remuneration report after chief executive Bob Diamond took a £17.7m pay package for 2011.
The group, which has around 4,500 Yorkshire employees, has its UK life and pension business based in York.