Announcing the details of the pounds 3bn share allocation yesterday, Norwich Union said with-profits policyholders, including those with endowment mortgages, would receive a minimum of 300 shares, worth an estimated pounds 720.
Slightly more than 1 million members will get more than the minimum, depending on the current value of their policies. The basis of calculation has not yet been published, but there is no maximum award, and policyholders with large pension funds will get shares worth pounds 10,000 or more.
A further 1.1 million members with non-profit policies, which includes anyone with an ordinary life assurance policy, investors in Norwich Union unit trusts and pensioners with Norwich Union personal pensions, will get a fixed allocation of 150 shares, worth an estimated pounds 360.
Policyholders living abroad will be eligible for shares and there will be a cash alternative for members living in countries which do not permit share ownership. But the flotation will not benefit ordinary household and motor policyholders, who are not deemed to be members of the society.
The cut-off date for policies which are eligible is 1 October last year. Any taken out after that date will not qualify for free shares. The proposal must win 75 per cent approval from those voting at an extraordinary general meeting to be held on 18 April.
After the furore caused by second-named account-holders missing out on the building society flotations, Norwich also looks set to run into flak after ruling that each policy relates only to one member.
Where there are two named policyholders only the first name on the policy will be entitled to shares. The finance director, Richard Harvey, admitted yesterday that many thousands of divorced couples would still have joint policies, and only the first-named would receive the shares.
The shares would currently be worth an estimated 220p-265p each, Norwich Union said. It is raising pounds 1.75bn in new capital in a public share offer at the time of the flotation. The new money will go to pay costs of the float, estimated at pounds 120m. Another pounds 130m will be retained in the general insurance company, and the balance of pounds 1.5bn will be paid into the life assurance fund, and invested in shares and other assets.
Had the group been a public company throughout the past three years, profits would have risen from pounds 404m in 1994 to pounds 581m in 1995 before dropping back to pounds 567m last year.
Assuming a dividend yield of 5 per cent, the group is expected to be valued at over pounds 5bn based on the notional pounds 205m dividend it would have paid last year. That equates to around 1.1 times the embedded value of the life fund, whereas comparable companies are valued at between 1.3 and 1.8 times the embedded value, which suggests the market value of the group after flotation could be in excess of pounds 6bn.
It will rank in the top 40 UK companies when dealings begin in June.