ScotAm's pounds 1.6bn bonanza

Insurers: Nic Cicutti on how Pru's strike could enrich policyholders

More than 1.1 million policyholders with Scottish Amicable learned this week that they stand to gain up to pounds 1.57bn in cash and bonuses, after the insurer agreed to recommend a takeover bid from Prudential for their company.

The Prudential bid, which is being recommended by the ScotAm board to members, brings to an end three months of bitter arguments over the future of the Glasgow-based company.

If the deal goes through, with-profits policyholders will receive a combination of cash and payments from the Pru for surrendering the independence for their company. Legal hold-ups mean the payments will probably not be made until October.

The deal is worth an average of pounds 1,400 per member. The exact amount will be based on the value of individuals' policies to date and it is possible that many will receive far less.

However, it is possible to make rough assumptions as to how the distribution will take place. Some pounds 600m of the deal, worth about pounds 550 in cash on average, with a further pounds 470m, some pounds 430, will be paid in bonuses to people's policies. This means that the amount added to policies will have the chance to roll up and earn extra interest. The final pounds 500m slice will come when policies mature.

No sooner had the Scottish Amicable board announced its acceptance of the Pru offer, leaving Abbey National and AMP, the Australian insurance giant as disappointed also-rans, than attention switched to the next mutual likely to fall under the hammer. Up to now, when a mutual insurer was taken over, the bidder has paid a small "goodwill" fee for the company itself. In addition, shareholders in the bidding company paid a further sum, based on a percentage of the assumed future profits of the mutual's life fund.

Because most of the profits of the mutual go to policyholders already, this has meant that, unlike building societies, mutual insurance companies were never likely to pay out vast cash or free share bonanzas.

Prudential's bid has changed all that. The Pru bid is only costing its shareholders pounds 485m, with its policyholders stumping up an additional pounds 365m for the firm. The extra pounds 720m comes from the unlocking of ScotAm's own life fund.

This is possible because the Pru is offering an additional pounds 1.3bn financial support, to come from its own life fund, which will help ScotAm meet obligations to its policyholders without straining its own reserves.

Two things become apparent as a result of this deal. The first is that the goodwill payable for ScotAm is considerably higher than those paid on all previous occasions.

There is a hunger among some insurers to build a strong base among firms which service the growing independent financial advice sector. There are plenty of financial services providers out there measuring up potential targets, not least AMP and Abbey National, the two spurned suitors this time round.

The second is that any future bid for an insurer will in all likelihood adopt a variant, where possible, of the Pru's "unlocking" tactic. Mutual insurance company rules say that their board is under no obligation to put details of an approach for the firm to policyholders. Indeed, this was the strategy adopted by ScotAm last year, when it chose to ignore contacts from the Pru on two occasions. No longer.

Such a position is sustainable only as long as the offer could realistically be said to give few benefits to policyholders.

However, should any board in future refuse to put an offer that might pay benefits worth as much as ScotAm's members will receive, lynchings are the likeliest outcome.

For more than two years, a number of companies in the same sector have been touted as potential takeover targets. They include NPI, Scottish Life, Scottish Provident, Scottish Widows, Friends Provident, Standard Life, Equitable Life and National Mutual Life. As expected, they have stressed their commitment to mutuality. Some, particularly Standard Life and Scottish Mutual, have the potential to maintain a stand-alone stance. Others less so.

For all of them, however, the odds are shortening on their continuation as mutuals into the new millennium. In the event of a takeover - from the right insurer - many policyholders stand to gain thousands.

The lessons of this week are that it is possible to make thousands from a takeover, even with a pension plan or an endowment policy. The bet must be that several of the firms on our table are unlikely to make it to the finishing line.

Start your day with The Independent, sign up for daily news emails
Have you tried new the Independent Digital Edition apps?
Finacial products from our partners
Property search

EU to scrap roaming charges in 2017: European Commission under fire for taking so long to act

UK consumer groups complained that British holidaymakers face another two years of mobile phone misery before the law comes into effect

On the money: Yorkshire building society has demonstrated that it is taking the P2P industry seriously

Is peer-to-peer lending a risk worth taking?

The P2P industry must do more to shake off an unjustified image of being too complex and risky for the everyday saver, says Andrew Hagger

Generating grievances: Scottish Power's Longannet station in Fife

Questions of Cash: Scottish Power says it's sorry - again and again

Six of the energy company's customer have cause to blow a fuse this week

Will Patisserie Valerie be the portfolio's sweet spot?

Derek Pain: 'Patience is a virtue but maybe I should cut and run'

Derek's portfolio is currently suffering because of his failure to be more ruthless

There are now more than three million people in “severe problem debt”

Debt managers are misleading vulnerable people, warns watchdog

One debtor was given a repayment plan that would have taken 125 years to repay

Challengers are smashing the traditional high street banks when it comes to offering decent savings rates

Ignore the new breed of savings institutions and you'll lose interest

NatWest has ripped up its pledge to never be the last bank in town

NatWest pledged five years ago it wouldn't close the last bank in town. Now villagers have been told the branch shuts in September

When the last bank closes, local shops quickly go out of business

Under new state pension rules we will all be much worse off

Why did no one notice? The Government hides behind complexity, says Neasa MacErlean

Bogus Islington landlord scams public for £20,000 in fake deposits

It’s not just Islington... Simon Read warns renters and landlords about a nationwide fraud operation

Questions of Cash: The paperwork wasn't right so I was left high and dry with a broken washing machine

A reader encountered a problem with a Currys washer/dryer care plan

Borrowers should steer clear of established providers to get the best rates

Interest rates have never been cheaper if you want a five-figure personal loan but for lower-value loans it's a very different picture

Personal banking: Banking chiefs at NatWest and RBS insist that they are over the worst of the technical issues but customers are still complaining of payment issues. NatWest has waived overdraft fees and told customers they can withdraw £100 more than their limit over the next few days

People’s bank in crisis again: What should you do about the NatWest/RBS meltdown?

Thousands still waiting for payments to go through

The average UK household is set to hold close to £10,000 in unsecured debt by the end of 2016

If they don't get help, debtors face 30 years of financial hell

There are many people in dangerous debt who don’t seek advice

RBS/NatWest meltdown: some customers may have to wait until Saturday for their cash

Some 600,0000 payments have been delayed many of which could be crucial

Renters' warning: bogus landlords are tricking potential tenants out of thousands

An army of tricksters are using online websites to trap their victims

Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

ES Rentals

    iJobs Job Widget
    iJobs Money & Business

    Recruitment Genius: Customer Service Advisor

    £15000 - £16000 per annum: Recruitment Genius: Customer Service Advisors are r...

    SThree: Trainee Recruitment Consultant

    £20000 - £25000 per annum + OTE £45K: SThree: SThree were established in 1986....

    Recruitment Genius: Compliance Manager

    £40000 - £60000 per annum: Recruitment Genius: A Compliance Manager is require...

    SThree: Talent Acquisition Consultant

    £22500 - £27000 per annum + OTE £45K: SThree: Since our inception in 1986, STh...

    Day In a Page

    John Palmer: 'Goldfinger' of British crime was murdered, say police

    Murder of the Brink’s-MAT mastermind

    'Goldfinger' of British crime's life ended in a blaze of bullets, say police
    Forget little green men - aliens will look like humans, says Cambridge University evolution expert

    Forget little green men

    Leading evolutionary biologist says aliens will look like humans
    The Real Stories of Migrant Britain: An Algerian scientist adjusts to life working in a kebab shop

    The Real Stories of Migrant Britain

    An Algerian scientist struggles to adjust to her new life working in a Scottish kebab shop
    Bodyworlds museum: Dr Gunther von Hagens has battled legal threats, Parkinson's disease, and the threat of bankruptcy

    Dying dream of Doctor Death

    Dr Gunther von Hagens has battled legal threats, Parkinson's disease, and the threat of bankruptcy
    UK heatwave: Temperature reaches 39.8 degrees on Central Line - the sweatiest place in London

    39.8 degrees recorded on Tube

    There's hot (London) and too damn hot (the Underground). Simon Usborne braved the Central line to discover what its passengers suffer
    Kitchens go hi-tech: From robot chefs to recipe-shopping apps, computerised cooking is coming

    Computerised cooking is coming

    From apps that automatically make shopping lists from your recipe books to smart ovens and robot chefs, Kevin Maney rounds up innovations to make your mouth water
    Jessie Cave interview: The Harry Potter star has published a feminist collection of cartoons

    Jessie Cave's feminist cartoons

    The Harry Potter star tells Alice Jones how a one-night stand changed her life
    Football Beyond Borders: Even the most distruptive pupils score at homework club

    Education: Football Beyond Borders

    Add football to an after-school homework club, and even the naughtiest boys can score
    10 best barbecue books

    Fire up the barbie: 10 best barbecue books

    We've got Bibles to get you grilling and smoking like a true south American pro
    Wimbledon 2015: Nick Bollettieri - Junk balls and chop and slice are only way 5ft 1in Kurumi Nara can live with Petra Kvitova’s power

    Nick Bollettieri's Wimbledon Files

    Junk balls and chop and slice are only way 5ft 1in Kurumi Nara can live with Petra Kvitova’s power
    Ron Dennis exclusive: ‘This is one of the best McLaren teams ever – we are going to do it’

    ‘This is one of the best McLaren teams ever – we are going to do it’

    Ron Dennis shrugs off a poor start to the season in an exclusive interview, and says the glory days will come back
    Seifeddine Rezgui: What motivated a shy student to kill 38 holidaymakers in Tunisia?

    Making of a killer

    What motivated a shy student to kill 38 holidaymakers in Tunisia?
    UK Heatwave: Temperatures on the tube are going to exceed the legal limit for transporting cattle

    Just when you thought your commute couldn't get any worse...

    Heatwave will see temperatures on the Tube exceed legal limit for transporting cattle
    Exclusive - The Real Stories of Migrant Britain: Swapping Bucharest for London

    The Real Stories of Migrant Britain

    Meet the man who swapped Romania for the UK in a bid to provide for his family, only to discover that the home he left behind wasn't quite what it seemed
    Cheaper energy on the way, but it's not all sunshine and rainbows

    Cheaper energy on the way, but it's not all sunshine and rainbows

    Solar power will help bring down electricity prices over the next five years, according to a new report. But it’s cheap imports of ‘dirty power’ that will lower them the most