Gordon set for expansion in UK insurance: Paul Durman looks at the South African mogul as he merges his business empire

DONALD GORDON, the South African life insurance mogul, expects today to secure approval for the merger of Capital & Counties, his London-listed property company, with TransAtlantic Holdings, CapCo's controlling shareholder.

The move looks likely to see Mr Gordon taking a more prominent role in the UK insurance and property markets. TransAtlantic's main stock market listing will switch from Luxembourg to London. More importantly, Mr Gordon makes it clear he would consider acquiring insurance or property companies made vulnerable by pressures in their markets.

TransAtlantic already owns a 50 per cent stake in Sun Life, a big UK life office. The merger with CapCo, in which TransAtlantic owns 82.6 per cent of the ordinary shares, will create a company with net assets of more than pounds 1bn.

Proxies received from CapCo's minority shareholders indicate they will back the deal, albeit with no great enthusiasm. TransAtlantic's terms offer CapCo little if any enhancement in net asset value. However, the merger does offer shareholders greater protection from the vicissitudes of the property market and will give them stakes in a larger company with more of its shares free-floating - in the hands of investment institutions rather than strategic holders.

Mr Gordon, 62, will remain firmly in control of TransAtlantic through a 54.1 per cent stake held by Liberty Life, the South African insurance giant that is the powerhouse of the group.

Founded by Mr Gordon in 1958, Liberty Life has free assets of pounds 2.25bn. Taking account of companies in which Liberty Life is the controlling or dominant shareholder, Mr Gordon estimates the group - 'possibly the most highly capitalised life company in the world' - controls assets of pounds 30bn.

He is critical of many British life companies for being badly undercapitalised for the mortality and investment risks they have to bear. He believes the industry needs a shake-out to bring down expenses, which have risen as a proportion of premium income. 'There is not exactly a surfeit of management talent around,' he says.

Rationalisation of Britain's 150 or so life offices has long been predicted. Thus far, moves such as Australian Mutual Provident's acquisitions of London Life and Pearl Assurance have been counterbalanced by the creation of in- house life offices by the big banks and building societies.

Financial weakness may prove the necessary catalyst, particularly for the mutual offices, 'owned' by their policyholders and lacking access to additional capital. Mr Gordon believes some of the smaller and weaker mutuals will have little option but to demutualise or link up with a stronger company.

Despite his views on UK insurance management, Mr Gordon is not prepared to discuss Guardian Royal Exchange, the not-noticeably well-managed composite insurer where he has been a non-executive director for more than two decades. GRE owned a controlling stake in Liberty Life for 14 years until 1978, when Mr Gordon and his colleagues bought back control in an early example of a management buyout. Liberty Life had by then grown to represent about 10 per cent of GRE's life fund. GRE still retains a 10.3 per cent stake in Liberty Holdings.

Mr Gordon is scathing about the single premium business that many UK life insurers have turned to during the recession to maintain their sales figures. Single premium business is regarded as much less than the more reliable income from regular premium policies.

Mr Gordon says: 'I don't even look at our single premium business. That's a bit of extra cash flow. . . .not the stuff that builds great insurance companies.'

Sun Life has been at the forefront of the companies that have sold hundreds of millions of pounds of single premium bonds. However, Mr Gordon says he has not found it necessary to make 'one change' to Sun Life's management.

He has complained about open market property valuations, which this year caused a big write-down of the value of CapCo's main development, the Thurrock Lakeside shopping centre in Essex. However, he sees 'a lot of investment opportunities in property in terms of acquisition. Why buy a property when you can buy any property company at a massive discount to net asset value?'