United Friendly plans to identify shareholders' stake in life fund: Insurance shares boosted by UFI announcement

UNITED FRIENDLY Insurance yesterday gave its own and other life insurance shares a boost when it announced plans to identify its shareholders' stake in its pounds 2bn life fund.

One analyst suggested shareholders might be entitled to as much as pounds 300m- pounds 400m. Income from these assets could be used to improve United Friendly's profits and dividends; it might even be possible to pay a special dividend, although this seems less likely.

United Friendly shares jumped 65p to 715p. Shares in Britannic Assurance, another company identified as having a strong life fund, rose from 1,303p to 1,475p, while Refuge Group ended 12p higher at 1,030p. Other companies saw less benefit.

United Friendly's move follows similar work by Legal & General and London and Manchester, which have disclosed shareholders' profits of pounds 1.6bn and pounds 110m respectively. Both earlier announcements boosted the whole life sector, as the stock market recognised these 'hidden' assets.

The sources of shareholders' profits include shareholders' interest in the non-profit business written by the traditional life offices. George Mack, United Friendly's finance director, said shareholders had invested substantial capital to allow the company to write new business.

United Friendly has engaged R Watson, the consulting actuaries, to help to calculate the shareholders' portion of the life fund. Dr Mack said he would be disappointed if the exercise was not completed by the end of this calendar year.

To avoid a potential conflict of interest between shareholders and policyholders, John Instance, United Friendly's appointed actuary, has temporarily stood down in favour of Richard Squires, a Watson partner. Mr Instance remains the group's life business manager.

Dr Mack said the timing of United Friendly's announcement was largely driven by the change of appointed actuary. The company was not responding to the cash demands, which are regarded to have prompted Legal & General and London and Manchester to make similar moves.

L&G has used part of its shareholders' profits to acquire for the life fund certain unit-linked companies previously owned by the group. This gave the group a pounds 31.5m one-off profit.

London and Manchester received approval from the Department of Trade and Industry, which regulates insurers, to take investment income on its shareholders' pounds 110m through its profit-and-loss account.

Life insurance companies have been warned by Lautro, their regulator, against selling endowment policies to students and other young people who cannot afford them, writes Maria Scott.

In an enforcement bulletin being sent to companies, Lautro says it is concerned about cases involving the sale of endowment contracts lasting 25 to 30 years, with premiums in the region of pounds 30 a month, to men and women aged 19 to 20. The regulator says it is not putting a blanket ban on sales of endowments to young people, but that each sale must be justified by the investor's circumstances.