Scottish Amicable to raise pounds 100m: Innovative bond issue will fund war chest

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SCOTTISH AMICABLE, the mutual life insurer, is raising a pounds 100m war chest for acquisitions and expansion through a bond issue.

Scottish Amicable is the first to take advantage of a Department of Trade and Industry concession to allow mutual life offices to raise additional capital by issuing debt. Mutuals have traditionally had to fund their growth out of policyholders' money and have found it difficult to raise new funds.

Roy Nicolson, ScotAm's managing director, said the move was not driven by solvency concerns: 'We are quite happy with the free asset ratio we've got.' ScotAm had free assets of pounds 764m at the end of last year, or 12 per cent of total liabilities. The bond proceeds would have strengthened the ratio to about 13.5 per cent.

Mr Nicolson said the money was not earmarked for anything in particular but ScotAm was considering several ventures in the UK and Europe. It could be used to fund takeovers of small, moribund life offices by the 'vulture' operation being set up by Sir Mark Weinberg.

ScotAm is a partner with St James's Place Capital, jointly chaired by Sir Mark and Lord Rothschild, in J Rothschild Assurance, the two-year-old life insurer run by Mike Wilson.

Mr Nicolson said the pounds 100m of undated subordinated debt was 'pseudo-equity'. The issue, handled by Kleinwort Benson, was priced at 98.09 per cent of the face value of the bonds, and will yield just over 8.5 per cent.

ScotAm will not receive the proceeds until early next month, after policyholders have given their support to the bond issue.

Earlier this year, Scottish Equitable, a fast-expanding mutual office, raised pounds 240m through a deal that will give Aegon, the Dutch insurance group, an initial 40 per cent stake in its unit-linked business.

Scottish Amicable, based in Glasgow, believes it is the sixth largest mutual life office in the UK. Last year it had premium income of pounds 1.08bn.