Writing is on the wall for mutual insurers

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The Independent Online
If ever a demonstration were needed of the relative firepower between different UK insurers, the takeover of Scottish Amicable by Prudential provides it

After all, here was a company, slightly tarnished but still in reasonable health, whose actuaries spent the best part of two years devising a complicated two-part flotation strategy. Yet within two weeks of ScotAm executives unveiling their plans, along came the Pru and blew them out of the water.

In the end, the big guns won. But there is more to this tale than one company taking advantage of the relative weakness of another. Prudential's successful bid marks a new stage in the way life companies are valued - most importantly by their own policyholders.

Until now, valuations placed on mutual insurers involved a relatively small amount of money - in some cases just tens of millions of pounds - to be paid as "goodwill" for taking over the company.

In addition, the buyer would have to pay a sum based on a proportion of assumed future profits generated from that firm's life fund. The total cost of the purchase, as many disappointed Clerical Medical members discovered after their takeover by the Halifax last year, certainly did not involve huge bonuses for them.

Scottish Amicable has changed all that. In future, policyholders asked by their life companies to approve a stock market flotation or a takeover will want to know whether the proposal unlocks cash from their life fund, as Prudential's offer has done, and how much.

They will also demand a far higher "goodwill" offering than ScotAm's hapless executives ever assumed they were likely to receive for their firm. The old argument that life company takeovers will not result in big payouts to members no longer holds true. Nor does the suggestion that mutuals can simply ignore potential bidders, as ScotAm's executives did with an initial Prudential approach last year. That may have been possible before Prudential's cleverly structured deal.

But to deny policyholders large handouts in cash and bonuses simply because you want to continue with your own strategy is no longer an option - as NPI, Scottish Life, Friends Provident, Scottish Provident and half-a-dozen others may shortly discover.

Sir John's departure is bad timing

It is a tricky job being the chairman of a German-owned investment bank these days. First Simon Robertson parted company with Kleinwort Benson after what were politely termed strategic differences with his new bosses at Dresdner Bank. Now Sir John Craven is retiring finally from the top job at Deutsche Morgan Grenfell.

There, however, the similarities begin to wane. Mr Robertson paid the price for a straight falling-out with his new owners. Sir John, by contrast, proved to be the great survivor at Morgan Grenfell, spending six and a half years on the management board of its parent Deutsche Bank before stepping down last May.

He insists that his departure has nothing to do either with the Peter Young scandal, or "that wretched Horlick woman" or, for that matter, his decision to take on the chairmanship of Lonrho as from today.

Those who do not subscribe to the coincidence theory of corporate reshuffles may suspect otherwise. Sir John's retirement comes a matter of days before Imro slaps a pounds 1m fine on Deutsche Morgan Grenfell Asset Management over the Young affair. The Lonrho appointment also raised an eyebrow or two since Morgan Grenfell also happens to be the company's banker.

Against that, Sir John was as far removed from both the Young and the Horlick affairs as it is possible to be while still working for the same bank. He may not have liked either episode but he gave up active involvement in the management of Morgan Grenfell almost a year ago. The role of chairman was largely titular and in any case Sir John was rarely about the place. In the last couple of weeks he has spent one day in London and the rest of the time in South Africa, Indonesia, Australia and Switzerland prospecting for new business.

Nevertheless, the timing of his departure is unfortunate. He arrived at Morgan Grenfell in the immediate aftermath of the Guinness affair and he leaves with the bank once again tinged by scandal. He is not, however, severing links altogether with Deutsche Bank but will join the great and the good who sit on its advisory board - which is not to be confused with its supervisory board or its management board. Given the Horlicks that Deutsche has made over the aborted Thyssen bid, it may be in need of some advice.

The sound of breaking glass

The product may be dull but, boy, the same cannot be said for life as a manager, or a shareholder for that matter, in Pilkington. Even before yesterday's nasty bit of news from Germany, the shares were standing at a 17 per cent discount to the price they went for in the 1995 rights issue. The sound of breaking glass was them crashing another 6 per cent to a fresh low.

Quite how it is possibly to stumble from one huge disappointment to the next when dealing in something as prosaic as glass will make a great management textbook one of these days. Two years ago it was a whopping pounds 375m goodwill write-off to cover Pilkington's ill-fated adventure into contact lenses that did the damage. Last year it was the turn of restructuring charges in the UK and Europe to leave a pounds 155m hole. This year, the collapse in float glass prices and the disintegration of the German building market will leave Pilks nursing another pounds 55m of exceptional charges.

If it is any consolation, at least the trend is in the right direction. At this rate Sir Nigel Rudd may even have a clean set of results to parade come the next millennium, if he chooses to stay that long.

The irony is that the company has been doing many of the things that it ought to be doing. It may still have the air of paternalism that clings to great British industrial institutions. But in fact the new management in the shape of chief executive Roger Leverton has been there for nearly five years.

It has cut capacity where it needed to be cut and bought businesses when it made sense to do so.

The pounds 300m splashed out on the Italian automotive glass maker SIV and Interpane in Scandinavia has given Pilks a big enough share of the European glass market to punch its weight with the big car makers.

Unfortunately, it is difficult to legislate for the kind of collapse in prices that has ravaged the European glass market, nor for the determination of a competitor to add to the fun by building some unwanted capacity. Pilks' problem is that it is running to stand still. As fast as it cuts capacity more fat appears. It begins to make you wonder whether there will ever be serious money to to made from selling glass into a mature market like Europe.

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