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.

News
peopleFrankie Boyle responds to referendum result in characteristically offensive style
Sport
Lewis Hamilton will start the Singapore Grand Prix from pole, with Nico Rosberg second and Daniel Ricciardo third
F1... for floodlit Singapore Grand Prix
Arts and Entertainment
'New Tricks' star Dennis Waterman is departing from the show after he completes filming on two more episodes
tvHe is only remaining member of original cast
Arts and Entertainment
tvHighs and lows of the cast's careers since 2004
PROMOTED VIDEO
Have you tried new the Independent Digital Edition apps?
Sport
Fans hold up a scarf at West Ham vs Liverpool
footballAfter Arsenal's clear victory, focus turns to West Ham vs Liverpool
New Articles
i100... she's just started school
News
news
New Articles
i100
Life and Style
Couples have been having sex less in 2014, according to a new survey
life
Arts and Entertainment
musicBiographer Hunter Davies has collected nearly a hundred original manuscripts
Sport
football
New Articles
i100... despite rising prices
Finacial products from our partners
Property search

Scottish independence: How will kilt-edged stocks fare?

Scottish companies were caned when the separatists surged in the polls. Is this the future, asks Simon Read, and would they be any better together?

Two million first-time buyers are locked out

The drought in lending to people with low deposits has created legions of frustrated buyers, writes Emma Lunn

Leaving money to charity in your will could help reduce the tax bill for your loved ones

Next week has been designated "remember a charity in your will week", to put the focus squarely on the subject
Money is slipping through our fingers: the UK is falling behind other countries in the amount we put away

How to save money: UK is crashing down the European league table for putting money away

The UK has slipped to 11th in the latest European league table of savers. Rob Griffin checks out the best options

Energy firms found guilty of bad practice could have licences revoked under Labour government

Caroline Flint, the shadow energy secretary, says a Labour government would create a new energy regulator

A student's guide to financial survival: You don't have to drown in debt at university

Fresh from A-level delight, the moment does not have to be soured by students resigning themselves to thousands of pounds worth of debt in three years' time. Rob Griffin sees how to pass the university challenge

'Dismal' eurozone data sparks concerns

European Central Bank chief Mario Draghi is under pressure to launch promised stimulus before the EU slides further
Love but not marriage: property is one area where cohabiting couples are in danger of losing out

How couples can protect their financial interests when cohabiting

People who simply live together cannot assume they have the same rights to each other's assets as spouses or civil partners. Michelle McGagh sees how they can protect their financial interests
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

    Senior BA - Motor and Home Insurance

    £400 - £450 Per Day: Clearwater People Solutions Ltd: **URGENT CONTRACT ROLE**...

    Market Risk & Control Manager

    Up to £100k or £450p/d: Saxton Leigh: My client is a leading commodities tradi...

    SQL Developer - Watford/NW London - £320 - £330 p/d - 6 months

    £320 - £330 per day: Ashdown Group: The Ashdown Group have been engaged by a l...

    Head of Audit

    To £75,000 + Pension + Benefits + Bonus: Saxton Leigh: My client is looking f...

    Day In a Page

    Scottish referendum: The Yes vote was the love that dared speak its name, but it was not to be

    Despite the result, this is the end of the status quo

    Boyd Tonkin on the fall-out from the Scottish referendum
    Manolo Blahnik: The high priest of heels talks flats, Englishness, and why he loves Mary Beard

    Manolo Blahnik: Flats, Englishness, and Mary Beard

    The shoe designer who has been dubbed 'the patron saint of the stiletto'
    The Beatles biographer reveals exclusive original manuscripts of some of the best pop songs ever written

    Scrambled eggs and LSD

    Behind The Beatles' lyrics - thanks to Hunter Davis's original manuscript copies
    'Normcore' fashion: Blending in is the new standing out in latest catwalk non-trend

    'Normcore': Blending in is the new standing out

    Just when fashion was in grave danger of running out of trends, it only went and invented the non-trend. Rebecca Gonsalves investigates
    Dance’s new leading ladies fight back: How female vocalists are now writing their own hits

    New leading ladies of dance fight back

    How female vocalists are now writing their own hits
    Mystery of the Ground Zero wedding photo

    A shot in the dark

    Mystery of the wedding photo from Ground Zero
    His life, the universe and everything

    His life, the universe and everything

    New biography sheds light on comic genius of Douglas Adams
    Save us from small screen superheroes

    Save us from small screen superheroes

    Shows like Agents of S.H.I.E.L.D are little more than marketing tools
    Reach for the skies

    Reach for the skies

    From pools to football pitches, rooftop living is looking up
    These are the 12 best hotel spas in the UK

    12 best hotel spas in the UK

    Some hotels go all out on facilities; others stand out for the sheer quality of treatments
    These Iranian-controlled Shia militias used to specialise in killing American soldiers. Now they are fighting Isis, backed up by US airstrikes

    Widespread fear of Isis is producing strange bedfellows

    Iranian-controlled Shia militias that used to kill American soldiers are now fighting Isis, helped by US airstrikes
    Topshop goes part Athena poster, part last spring Prada

    Topshop goes part Athena poster, part last spring Prada

    Shoppers don't come to Topshop for the unique
    How to make a Lego masterpiece

    How to make a Lego masterpiece

    Toy breaks out of the nursery and heads for the gallery
    Meet the ‘Endies’ – city dwellers who are too poor to have fun

    Meet the ‘Endies’ – city dwellers who are too poor to have fun

    Urbanites are cursed with an acronym pointing to Employed but No Disposable Income or Savings
    Paisley’s decision to make peace with IRA enemies might remind the Arabs of Sadat

    Ian Paisley’s decision to make peace with his IRA enemies

    His Save Ulster from Sodomy campaign would surely have been supported by many a Sunni imam