The company said its plans, due to be implemented before summer next year, were aimed at creating better value for policyholders, while also giving it greater scope for expansion.
Allan Bridgewater, group chief executive at Norwich Union, said: "This is a good day for [our] members. Norwich Union will be well placed to take full advantage of the substantial opportunities emerging as demographic changes increase the need for private funding of retirement and other welfare benefits."
Mr Bridgewater refused to comment on the likely valuation of the company, claiming this was dependent on stock market sentiment next year.
Experts suggested the company would be valued at up to pounds 4.5bn, with pounds 2bn handed out in free shares and the rest being raised by the issue of more shares on flotation.
Among the policyholders qualifying for shares are those with life- and term-assurance cover, both with-profits and unit-linked policies, personal pensions and annuity holders.
Company pension schemes will count as one member. Each will receive a share allocation based on the size of its overall pot, up to an unspecified maximum. Qualifying members will be given the right to buy an additional amount of shares at a preferential price.
Those not benefiting from the bonanza will be the company's motor, household and other general insurance policyholders, 600,000 health and medical insurance members, unit trust and PEP investors.
Norwich Union also announced plans to shut out so-called "carpetbaggers" by declaring that policies issued from yesterday would not qualify for the handout.
Because of the time needed to prepare for a flotation next year, Norwich needs to despatch an outline proposal to members immediately.
A full circular will be mailed in the spring of 1997, with an extraordinary general meeting expected about one month later. By then postal votes will have been counted and, if in favour, High Court approval will be sought for the float. A full listing is expected by the summer.
About 15,000 policyholders whose plans mature between now and flotation next year will not qualify for shares. However, the company said yesterday that an extra bonus would be declared on most with-profit life and pensions policies maturing before that time.
Mr Bridgewater said the rationale for the float was that the company's general insurance business, which contributed about 40 per cent of UK premium income, was owned by the life fund and made up about 6 per cent of its value.
"General insurance has been profitable over the long term, but there has still been a significant exposure to the risks of volatility and the cyclical nature of the business," he said.
In addition, the Department of Trade and Industry, which controls the valuation of life fund subsidiaries, valued Norwich Union's general insurance business at pounds 480m. This was pounds 250m less than the subsidiary's net assets, and affected the company's financial strength and therefore the ability to invest its funds as appropriate.
Flotation would also give Norwich Union access to capital it needed to expand its activities, Mr Bridgewater said.
Mr Bridgewater said staff reductions were not likely.
An information line has been set up on 0645 444818.
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