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?
News
An iceberg in Ilulissat, Greenland; researchers have been studying the phenomena of the melting glaciers and their long-term ramifications for the rest of the world (Getty)
news
Environment
environment
Arts and Entertainment
Hugh Jackman bears his claws and loses the plot in X-Men movie 'The Wolverine'
film
Arts and Entertainment
'Knowledge is power': Angelina Jolie has written about her preventive surgery
film
News
Zayn has become the first member to leave One Direction. 'I have to do what feels right in my heart,' he said
peopleWe wince at anguish of fans, but his 1D departure shows the perils of fame in the social media age
Finacial products from our partners
Property search
Hard labour: a woman bears the load in a factory. But equal treatment is causing pension problems

Women to lose benefits from contracted-out pension scheme

Workers were promised that the state would pay inflation increases on parts of their pensions. But now the DWP disagrees
The Budget, says one critic, should have done more to encourage construction of affordable homes

Help for buyers but where are the homes?

A vote-winning Budget promised less tax, greater savings flexibility, and government handouts for first-time housebuyers
'It will be no wonder if people lack the enthusiasm to save taxfree,' says one expert. But there are ways to beat low rates on cash Isas

How to make the most of Isas: You can save more money now, the returns are tax-free and the rules are flexible

Rob Griffin sees how you can surmount the one big obstacle

Growing number of women under the age of 35 are turning to online gambling

Online gaming is changing the profile of victims, who see it as an answer to difficult relationships but sink deeper into trouble

Ethical investments: Lack of awareness means investors are supporting industries they oppose

Many of us have good intentions now but either we don't switch accounts or we back 'nasty' activities without realising
Payday lenders fail to recognise customers in financial difficulty, the FCA said

Payday lenders accused of unfair practices by watchdog

The Financial Conduct Authority found non-compliance in all reviewed firms

Hooray, you're going to live longer! But what should you do to celebrate?

Pension expert John Lawson talks on why improved longevity is something to plan for carefully

Pension freedom: Steve Webb answers your questions on the big shake-up

The new freedoms arrive in April but many of you have told us that you see problems as well as opportunities. The pensions minister Steve Webb responds
Pension Minister Steve Webb

There are 'dark corners' of the investment and pensions industry, says Pensions Minister

The DWP and the FCA have joined forces to investigate transaction charges in occupational pension schemes

Scottish Power was found to have unacceptably long call waiting times

Scottish Power hit with sales ban by regulator

The company was found to have unacceptably long call waiting times

This phoenix rose from the stage at the London Olympics. The insurer grew out of zombie life insurance funds

Phoenix Life: Chance of a refund for overcharged policyholders has risen

A retired adviser got his money back from the insurer after claiming he had been overcharged. Thousands of others may have a strong case
Expect a new wave of fishing expeditions by fraudsters now we can invest our life savings

Cold callers and your pension: watch out for dangerous boiler room scams

Sean O'Grady received a cold call last week that was much more sinister than normal. Yes, someone wants to get their hands on his pension...

Fuel poverty could claim 100,000 lives over next 15 years, warns energy charity

The NHS is currently bearing a yearly burden of approximately £1.5bn treating cold-related illnesses every winter

  • Get to the point
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: Retirement Coordinator - Financial Services

    Negotiable: Recruitment Genius: To provide a prompt, friendly and efficient se...

    Recruitment Genius: Annuities / Pensions Administrator

    Negotiable: Recruitment Genius: You will be the first point of contact for all...

    Ashdown Group: HR, Payroll & Benefits Officer - Altrincham - up to £24,000.

    £18000 - £24000 per annum + benefits: Ashdown Group: HR, Payroll & Benefits Of...

    Ashdown Group: Learning and Development Programme Manager

    £35000 - £38000 per annum + benefits : Ashdown Group: A highly successful, int...

    Day In a Page

    Election 2015: How many of the Government's coalition agreement promises have been kept?

    Promises, promises

    But how many coalition agreement pledges have been kept?
    The Gaza fisherman who built his own reef - and was shot dead there by an Israeli gunboat

    The death of a Gaza fisherman

    He built his own reef, and was fatally shot there by an Israeli gunboat
    Saudi Arabia's airstrikes in Yemen are fuelling the Gulf's fire

    Saudi airstrikes are fuelling the Gulf's fire

    Arab intervention in Yemen risks entrenching Sunni-Shia divide and handing a victory to Isis, says Patrick Cockburn
    Zayn Malik's departure from One Direction shows the perils of fame in the age of social media

    The only direction Zayn could go

    We wince at the anguish of One Direction's fans, but Malik's departure shows the perils of fame in the age of social media
    Young Magician of the Year 2015: Meet the schoolgirl from Newcastle who has her heart set on being the competition's first female winner

    Spells like teen spirit

    A 16-year-old from Newcastle has set her heart on being the first female to win Young Magician of the Year. Jonathan Owen meets her
    Jonathan Anderson: If fashion is a cycle, this young man knows just how to ride it

    If fashion is a cycle, this young man knows just how to ride it

    British designer Jonathan Anderson is putting his stamp on venerable house Loewe
    Number plates scheme could provide a licence to offend in the land of the free

    Licence to offend in the land of the free

    Cash-strapped states have hit on a way of making money out of drivers that may be in collision with the First Amendment, says Rupert Cornwell
    From farm to fork: Meet the Cornish fishermen, vegetable-growers and butchers causing a stir in London's top restaurants

    From farm to fork in Cornwall

    One man is bringing together Cornwall's most accomplished growers, fishermen and butchers with London's best chefs to put the finest, freshest produce on the plates of some of the country’s best restaurants
    Robert Parker interview: The world's top wine critic on tasting 10,000 bottles a year, absurd drinking notes and New World wannabes

    Robert Parker interview

    The world's top wine critic on tasting 10,000 bottles a year, absurd drinking notes and New World wannabes
    Don't believe the stereotype - or should you?

    Don't believe the stereotype - or should you?

    We exaggerate regional traits and turn them into jokes - and those on the receiving end are in on it too, says DJ Taylor
    How to make your own Easter egg: Willie Harcourt-Cooze shares his chocolate recipes

    How to make your own Easter egg

    Willie Harcourt-Cooze talks about his love affair with 'cacao' - and creates an Easter egg especially for The Independent on Sunday
    Bill Granger recipes: Our chef declares barbecue season open with his twist on a tradtional Easter Sunday lamb lunch

    Bill Granger's twist on Easter Sunday lunch

    Next weekend, our chef plans to return to his Aussie roots by firing up the barbecue
    Joe Marler: 'It's the way I think the game should be played'

    Joe Marler: 'It's the way I think the game should be played'

    The England prop relives the highs and lows of last Saturday's remarkable afternoon of Six Nations rugby
    Cricket World Cup 2015: Has the success of the tournament spelt the end for Test matches?

    Cricket World Cup 2015

    Has the success of the tournament spelt the end for Test matches?
    The Last Word: Justin Gatlin knows the price of everything, the value of nothing

    Michael Calvin's Last Word

    Justin Gatlin knows the price of everything, the value of nothing