Outlook: AMP-NPI

THE HEADLINE number looks big, but as NPI policyholders have discovered to their cost over the years, it is the bits that have been squirrelled away from view that give a truer picture of the state of affairs. AMP of Australia says that NPI's half a million members will benefit to the tune of pounds 2.7bn from the takeover announced yesterday. It may also snow in Sydney this Christmas.

The figures do indeed accumulate to pounds 2.7bn, but it is hard to see how this deal from down under values NPI at anything like that. The only new money on offer is the pounds 510m AMP is paying for goodwill. The balance is made up of pounds 1.4bn of policyholders' own money and an pounds 800m financing facility that AMP will generusly make available to policyholders on commercial terms.

That makes it rather a good deal for AMP. Without overpaying, the Aussies have picked up a life business with a strong brand name and excellent distribution capabilities that can be integated with their existing Pearl Assurance arm in the UK.

But it is an indifferent deal for NPI policyholders. The pounds 800 cash payout dangled before with-profits policyholders may be enough to book next summer's holiday now. But it is peanuts compared to the sums they could have made had they lodged their money with a life fund other than NPI. A policyholder who has been putting, say, pounds 50 a month into an NPI endowment for the last 25 years can expect to see the fund mature with a value of pounds 64,000 against the pounds 120,000 that could have been earned with another life company.

AMP intends to distribute the pounds 1.4bn built up in NPI's life fund. But this is hardly largess on the part of the Australians. This sum represents the assets backing their policies, a large chunk of which would have been distributed eventually to policyholders anyway in the form of terminal bonuses.

Even that pounds 1.4bn is a movable feast as the figure was struck at the end of last year. Since then NPI has mortgaged pounds 260m of its future earnings through a securitisation deal and may have to fork out pounds 350m to cover its exposure to guaranteed annuity payments.

Policyholders could, of course, vote down the deal in the spring, but in reality their choice is to like it or lump it. The chances of a better offer from elsewhere are virtually nil as the auction has already been long and exhaustive. Nor does soldiering on alone look like an option for NPI. The poor management of the company which has brought about its weakened financial condition meant that NPI had little future as an viable independent life office. Hardly a good prospectus on which to go to the market, as NPI policyholders are discovering.