Norwich faces pounds 1.7bn decision

Flotation plan: Benefits for policyholders and customers if company abandons historic mutual status
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The Independent Online

Up to 2.5 million Norwich Union policyholders look set to gain from a pounds 1.7bn cash bonanza if they agree to allow the company to float on the stockmarket.

The windfall could mean average bonuses of between pounds 600 and pounds 700 per policyholder if the company abandons its mutual status by 1997.

Experts said yesterday that the flotation would allow the company to expand in a number of markets, most crucially the life sector in Europe and the Far East. The development of general insurance, where it already has a significant presence, would also be a major aim for Norwich Union.

The company yesterday refused to say whether it definitely intended to float. Allan Bridgewater, group chief executive at Norwich Union, said: "The board has been studying the possibility of de-mutualisation and flotation. This is a highly complex matter and a great deal of technical and legal work has to be done before a final decision can be made.

"The preliminary view of the board is that this course of action would produce significant benefits to members of the society and assist the overall development of Norwich Union."

Mr Bridgewater added that the amount of work involved in determining whether a flotation was possible meant that no public announcement would be possible until the middle of next year.

Those who may benefit from the flotation this time include with-profits policyholders, those who invest in endowments and pensions, and some unit- linked savers. Holders of general insurance products are not classed as members. Payments will be based on how much savers already have invested with Norwich Union.

It is believed no cut-off point has been chosen for when new policyholders would be denied a share in any flotation. But sources stressed yesterday that investing in a Norwich Union policy now would only be allowed if it were suited to their financial needs. "If there is a windfall, it will be quite variable. You might spend pounds 200 to get a bonus of pounds 10," one insider said. Bonuses may be paid either as a one-off cash sum or added to people's policies, as with Provident Mutual, now being taken over by General Accident.

Norwich Union's decision to lay the foundations for a flotation comes amid warnings by Bacon & Woodrow, a large firm of independent actuaries, that the number of UK insurance firms may halve within the next decade.

It also follows extensive consultations with a large firm of strategic consultants which were aimed at plotting a way ahead for the company in the next decade and beyond.

It is believed that senior Norwich directors have been told that by retaining the company's existing mutual status, whereby it is effectively owned by its policyholders, it risks slow commercial suffocation. Remaining a mutual would prevent the company from using shareholder funds and future rights issues to expand overseas.

Norwich Union's move echoes that of several building societies and life offices, including Halifax and Leeds, National & Provincial and Provident Mutual, which are also abandoning mutual status.

Paul Seymour, a former chief executive of Laurentian Life, who is now a consulting partner at the actuaries Watson Wyatt, said: "There has been a lot of generalised talk about the constraints of mutuality.

"In the case of building societies there is also the argument that their members ought to receive a greater share of the profits that are being made. Generally, however, the arguments for abandoning mutual status for life companies do not apply in the same way. After all, policyholders benefit directly from profits that are being generated.

"In the case of Norwich Union, the purpose of flotation would be for positive reasons. As another insurer, Commercial Union, has shown, expansion, possibly by acquisition, would be a key factor, especially in the European markets and the Far East."

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