Comment: Mutual champion deserves to succeed

A cynic would argue that, unlike many others, Alastair Lyons, newly appointed chief executive of National Provident Institution, can afford his strongly pro-mutual principles. He very recently received a near three-quarters of a million pound payoff following Abbey National's takeover of National and Provincial Building Society, so he doesn't have to be in awe of the share options, long-term incentive plans and bumper salaries that tend to be on offer in proprietary companies. Well, maybe, but the observation is a little unfair, for Mr Lyons was as vehement a defender of mutuality while at National and Provincial as he intends to be in his new job at National Provident.

The pressures for demutualisation among life assurers are very different from those at work among the building societies, but the basic argument in defence of mutuality is much the same - if the customer and the owner of a business are one and the same, then logically the customer is better off since there is no separate class of shareholder that has to be serviced. This assumes, of course, that the mutual is able to match the proprietary company in terms of efficiency and profits, which is not always the case. None the less, the underlying logic of the argument cannot be faulted, so why are so many building societies and life assurers converting?

With building societies the answer lies with the very substantial free shares windfall that demutualisation is able to deliver to members. With life assurers the case is less clear cut, for with one or two exceptions (notably Norwich Union), conversion doesn't on the whole deliver these upfront gains. To make the case for selling out, the life assurer is generally forced to resort to the argument that it needs more capital in order better to pursue a high-return investment strategy. The gains, such as they are, come on the reversionary and terminal bonuses. But who's to say the life assurer wouldn't have delivered these gains anyway over the lifetime of these policies?

Mr Lyons believes he can find new capital to support his growth and investment strategy without actually selling the business. He doesn't pretend it won't be hard, for National Provident lacks the financial strength of the two other firmly committed life mutuals, Standard Life and Scottish Widows. But he does think he can provide a viable mutual future, with clear advantages over an outright sale to Australian Mutual or some such other. Like those building societies that have chosen to stay mutual, he's going to have to find a way of demonstrating the advantages of mutuality to policyholders by offering tangible mutual benefits. Let's hope he succeeds.

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