Insurers play the windfall game

Steve Lodge assesses the rewards to be reaped by policyholders after the Halifax's takeover of Clerical Medical

THE HALIFAX building society, which plans next year to give 10 million of its customers free shares worth an average of pounds 900 as part of its conversion to bank status, may have triggered a new windfall game - this time in the world of life assurance.

The society announced plans for an pounds 800m takeover of Clerical Medical, a deal recommended by the insurer to its policyholders. Special bonuses worth up to thousands of pounds are being offered to 650,000 of Clerical's policyholders to vote for the deal.

The move could herald a new round of potential windfalls and restructuring in the world of financial services, with a number of life insurers being taken over and others, such as Norwich Union, handing out free shares as part of their conversion to stock market companies.

But carpetbaggers hunting for the next windfall should be wary. Life insurance windfalls may prove much less tangible than those from societies.

Who gets what?

Some 650,000 Clerical Medical "with-profits" policyholders will have pounds 111m of special bonuses attached to the value of their policies. This is most of Clerical's endowment holders as well as many holders of its savings plans and personal pension policies. Holders of Clerical Medical PEPs, unit trusts, straightforward life insurance and policies that are not with-profits get nothing.

The way the bonuses are calculated is complicated. Clerical says that for the holder of a typical with-profits endowment policy which has been in force for 15 years and carries a guaranteed death benefit of pounds 30,000, this special bonus will amount to pounds 2,172. A handful of people with very large policies in force for a long time will get special bonuses worth tens of thousands of pounds, it says. But many recent policies will get just a few pounds.

To qualify for a special bonus you must have a with-profits policy that is in force for the period midnight 22 March 1996 to 31 December 1996 or that matures during this period.

Policies bought through the "traded endowment policy market" - created from people selling policies they no longer want rather than cashing them in early with the insurer - will give their new owners the special bonuses.

How does the takeover affect the Halifax share handout?

It shouldn't directly. The same Halifax customers as before will get shares. Clerical Medical policyholders will not qualify for Halifax shares as a result of the takeover.

But the society's savers and borrowers who qualify for the free Halifax shares should benefit from the takeover. The Halifax says the takeover should enhance its profits and the value of the shares when it joins the stock market, expected to be in the summer of 1997.

Is the deal a good or bad thing?

According to the Halifax and Clerical Medical, both the society's members and Clerical's policyholders stand to benefit from the takeover. Halifax members gain because of the expectation of the value of their shares being enhanced. The takeover means greater financial stability for all Clerical's customers. As well as the pounds 111m special bonuses, the Halifax is pumping other monies into the fund out of which with-profits policyholders are awarded their bonuses. The idea is that this should allow enhanced returns for policies maturing in the future.

Also, as part of the deal, Clerical's with-profits policyholders are being offered a five-year guarantee that costs taken out of the fund will not increase at greater than the rate of inflation.

People with policies maturing in the next few years have very little to worry about, say industry insiders. Policyholders can also take some comfort from the fact that the proposals are supported by an independent actuary as being fair. In addition, since it is a sellers' market for life insurers, overall policyholders can believe they are being offered a reasonable price.

The main concern for people with policies not maturing for many years is that the special bonuses may be offset by reductions in the normal investment bonuses they are awarded. After the five-year cost guarantee, for example, the Halifax could significantly bump up charges, with consequent reductions in investment returns.

The loss of one mutual life insurer is not really a cause for mourning. There are still far too many of them, say analysts. And the mutuals have probably done an even worse job than the building societies in marketing the supposed benefits of mutuality.

What happens next?

A letter explaining the deal went out to Clerical Medical policyholders last week. Detailed proposals will follow in late May, and the vote in June. In the meantime there is a 24-hour information line on 0800 100555.

Who is next?

Friends Provident, Scottish Provident, NPI, Scottish Amicable, Scottish Life, and Scottish Widows could all be among the mutual targets in the sights of potential predators, including Abbey National, Sun Alliance and Woolwich building society.

Should I buy a policy in the hope of a windfall?

There's no point buying a new Clerical Medical policy in the hope of benefiting directly from the takeover - you have already missed the 22 March deadline.

However, firms selling second-hand policies say prices of Clerical policies have only risen slightly since the insurer publicly put itself up for sale. The value of the special bonuses may well not be reflected in the prices of second-hand policies simply because the full detail of these bonuses is not yet known.

It is unlikely to be worth taking out a new policy from other insurers simply on the off-chance of a windfall. Life policies are long-term commitments and by comparison any bonus may not amount to much. But there may be a case for buying a second-hand endowment - as with Clerical, the prospect of special bonuses may not be in the price. Alternatively, you could buy shares in the Life Office Opportunities Trust (Loot) run by Edinburgh-based manager Scottish Value. This buys policies that stand to yield special bonuses.

PROMOTED VIDEO
News
Bryan Cranston as Walter White, in the acclaimed series 'Breaking Bad'
news
News
There have been various incidents of social media users inadvertently flouting the law
news

Sport
footballChelsea 6 Maribor 0: Blues warm up for Premier League showdown with stroll in Champions League
Arts and Entertainment
Princess Olga in 'You Can't Get the Staff'
tvReview: The anachronistic aristocrats, it seemed, were just happy to have some attention
Life and Style
tech

Board creates magnetic field to achieve lift

News
Renee Zellweger as Bridget Jones
i100
News
ebooksAn unforgettable anthology of contemporary reportage
News
Those who were encouraged to walk in a happy manner remembered less negative words
science
Life and Style
Stack ‘em high?: quantity doesn’t always trump quality, as Friends of the Earth can testify
techThe proliferation of online petitions allows us to register our protests at the touch of a button. But do they change anything?
News
Bourgogne wine maker Laboure-Roi vice president Thibault Garin (L) offers the company's 2013 Beaujolais Nouveau wine to the guest in the wine spa at the Hakone Yunessun spa resort facilities in Hakone town, Kanagawa prefecture, some 100-kilometre west of Tokyo
i100
Sport
CSKA Moscow celebrate after equalising with a late penalty
footballCSKA Moscow 2 Manchester City 2: Premier League champions let two goal lead slip in Russia
Environment
Sudan, the last male northern white rhino
environmentThe death of a white northern rhino in Kenya has left the species with a single male. These are the other species on the brink
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.

iJobs Job Widget
iJobs Money & Business

Helpdesk Analyst

£23000 per annum + pension and 22 days holiday: Ashdown Group: An established ...

Senior Helpdesk Analyst / Service Desk Co-ordinator

£27000 per annum + pension, 22 days holiday: Ashdown Group: An established ind...

Senior Pensions Administrator

£23000 - £26000 Per Annum: Clearwater People Solutions Ltd: Our client is curr...

Corporate Actions Administrator / Operations Administrator

£25 - 30k: Guru Careers: A Corporate Actions Administrator / Operations Admini...

Day In a Page

Indiana serial killer? Man arrested for murdering teenage prostitute confesses to six other murders - and police fear there could be many more

A new American serial killer?

Police fear man arrested for murder of teen prostitute could be responsible for killing spree dating back 20 years
Sweetie, the fake 10-year-old girl designed to catch online predators, claims her first scalp

Sting to trap paedophiles may not carry weight in UK courts

Computer image of ‘Sweetie’ represented entrapment, experts say
Fukushima nuclear crisis: Evacuees still stuck in cramped emergency housing three years on - and may never return home

Return to Fukushima – a land they will never call home again

Evacuees still stuck in cramped emergency housing three years on from nuclear disaster
Online petitions: Sign here to change the world

Want to change the world? Just sign here

The proliferation of online petitions allows us to register our protests at the touch of a button. But do they change anything?
Ed Sheeran hits back after being labelled too boring to headline festivals

'You need me, I don’t need you'

Ed Sheeran hits back after being labelled too boring to headline festivals
How to Get Away with Murder: Shonda Rhimes reinvents the legal drama

How to Get Away with Murder

Shonda Rhimes reinvents the legal drama
A cup of tea is every worker's right

Hard to swallow

Three hospitals in Leicester have banned their staff from drinking tea and coffee in public areas. Christopher Hirst explains why he thinks that a cuppa is every worker's right
Which animals are nearly extinct?

Which animals are nearly extinct?

Conservationists in Kenya are in mourning after the death of a white northern rhino, which has left the species with a single male. These are the other species on the brink
12 best children's shoes

Perfect for leaf-kicking: 12 best children's shoes

Find footwear perfect to keep kids' feet protected this autumn
Anderlecht vs Arsenal: Gunners' ray of light Aaron Ramsey shines again

Arsenal’s ray of light ready to shine again

Aaron Ramsey’s injury record has prompted a club investigation. For now, the midfielder is just happy to be fit to face Anderlecht in the Champions League
Comment: David Moyes' show of sensitivity thrown back in his face by former Manchester United manager Sir Alex Ferguson

Moyes’ show of sensitivity thrown back in his face... by Ferguson

Manchester United legend tramples on successor who resisted criticising his inheritance
Two super-sized ships have cruised into British waters, but how big can these behemoths get?

Super-sized ships: How big can they get?

Two of the largest vessels in the world cruised into UK waters last week
British doctors on brink of 'cure' for paralysis with spinal cord treatment

British doctors on brink of cure for paralysis

Sufferers can now be offered the possibility of cure thanks to a revolutionary implant of regenerative cells
Let's talk about loss

We need to talk about loss

Secrecy and silence surround stillbirth