Standard to outline flotation blueprint

Europe's largest mutually owned insurer will tell 2.4 million eligible policyholders they will receive free shares worth an average of just £1,000 if 75 per cent of them vote in favour of demutulisation and flotation.

Almost all eligible members of the insurer - those who held qualifying with-profits savings, pension and endowment policies on 30 March 2004 and are maintaining them until at least 31 May this year - will receive a fixed allocation of shares. Most will also get an additional allocation, depending on the size of their policies and how long they have been held.

The publication of Standard's prospectus tomorrow is likely to end speculation that the typical allocation could be significantly more valuable than analysts had initially expected.

While the UK stock market has risen 13 per cent over the past six month, buoying insurers' valuations, Standard's results for 2004 and 2005, which will be included in the prospectus, will not be strong enough to justify a premium rating for the company.

Last October, when Standard began contacting members to check policy details, the insurer refused to give specific estimates of the size of windfalls, but it privately briefed analysts that it expected the average distribution to be worth between £500 and £1,000.

Insiders at the company now say Standard's figures for 2004 and 2005 will not give members any reason to expect more than that. The figures for 2004 were "particularly bloody", one source said, with a £100m loss on new business, even before restructuring costs were taken into account.

Ned Cazalet, an independent insurance analyst, said the change of strategy implemented in 2004 by the chief executive Sandy Crombie, after he replaced Iain Lumsden at the helm of the insurer, had been very necessary. "Standard Life was obsessed with winning market share, but much of the new business it was writing was very unprofitable," Mr Cazalet said.

Tomorrow's figures are likely to show a modest return to profitability in 2005, as the company shifted towards a focus on higher-margin products such as self-invested personal pensions (Sipps).

This summer's float is likely to value the company at about £5bn. In addition to allocating free shares to members, the insurer will raise a little more than £1bn with the sale of new stock.

The demutualisation, which is conditional on a 75 per cent yes vote from members who take part in the ballot, was announced in January 2004. Mr Crombie, and the Standard chairman, Sir Brian Stewart, said the flotation would give the insurer better access to external capital.