Britannic declares 'orphan assets' bonuses
Wednesday 19 February 1997
The company said yesterday it had agreed with the Department of Trade and Industry (DTI) that pounds 902m of the assets in Britannic's life funds belonged to shareholders. They will not receive a direct payout of the windfall but will get an 82 per cent lift in the dividend.
Britannic said the new higher level of dividends would not be a one- off but would be regarded as a platform for future increases.
The agreement with the DTI is over the so-called "orphan assets" in the company's life insurance funds, which have been built up over many years as investment returns have exceeded the amount the company has had to pay policyholders.
Negotiations with the DTI have been over how the orphan assets should be split between shareholders and policyholders.
This decision led to a drop in shares in Prudential, which has made clear that it is becoming increasingly impatient with the DTI for delays in unlocking its own stock of orphan assets.
Analysts said the 8.5p fall to 564.5p in Pru's shares was because Britannic had been unable to persuade the DTI that the orphan assets in its ordinary, rather than industrial, life insurance business should be released to shareholders.
For Britannic, the ordinary business was only pounds 58m of the pounds 960m of assets it wanted to assign to shareholders. But for Pru, which has at least pounds 3bn of orphan assets, the ordinary insurance is thought to be a more significant part of the total.
At the end of 1995, Britannic had pounds 5.862bn of assets in its life insurance funds of which pounds 4.7bn now belongs to policyholders.
The value of shareholders' interests in the business totals pounds 1.55bn, including the orphan assets, the value of policies in force and also of new business written during 1995. The total is likely to have risen to pounds 1.7bn by the end of last year. The shares rose 66.5p to 870p after the announcement.
The bonuses to policyholders will not be paid in cash but will be added to the value of policies.
A maturing 15-year industrial life insurance policy with a premium of pounds 10 a week will receive an additional pounds 221 bonus.
A maturing 25-year ordinary branch endowment policy with a pounds 20-a-month premium will receive an additional pounds 762 bonus.
A 10-year endowment policy taken out seven years ago with a pounds 50-a-month premium will receive an additional pounds 273 on maturity.
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