ScotAm policyholders set for pounds 1,400 windfalls

Clifford German
Sunday 23 October 2011 07:54

Policyholders in Scottish Amicable stand to gain windfalls worth pounds 1,400 on average after the Prudential yesterday won the closely fought race for the life insurer with a knockout pounds 2.15bn bid.

Last night speculation centred on other mutual insurers likely to attract bids from predators. Among the companies named were National Provident Institution, Friends Provident, Scottish Provident and Scottish Life.

The Pru's offer consists of pounds 850m worth of cash and assets plus a pounds 1.3bn loan on commercial terms which will increase the investment performance of the ScotAm life fund.

Some 1.1 million with-profit policyholders will get an average of pounds 550 in cash, plus a pounds 430 bonus which will be added immediately to their policies The balance will be added to their terminal bonuses.

Up to 400,000 non-profit policyholders get nothing because under ScotAm rules they are not members of the society.

Individual benefits depend on what policies are held, how much has been invested and how long the policies have been in force. Anyone who had applied to take out a with-profit policy before the close of business on Monday will get something.

The pounds 600m cash element of the bid and about half the immediate bonuses, together worth pounds 850m, will come from the Prudential shareholders and policyholders.

The balance of the immediate bonus plus the terminal bonus, together worth pounds 720m, represents surplus value that will be squeezed out of ScotAm's own funds.

Exactly who gets what will depend on detailed work over the next six weeks to find a formula that reflects the amounts policyholders have contributed, investment performance and the length of time policies have been held.

A circular giving details will be sent out to policyholders some time in May and a vote will be held on the proposals in June.

The decision then has to go before the Scottish courts, which could take two or three months, so it may be October before the business is transferred and the bonuses are paid.

Details of the rival bids, from Australian Mutual Provident and Abbey National, will be revealed in the circular, but will not be released earlier unless the losers themselves decide to reveal them.

Yesterday Abbey National expressed disappointment about the bid outcome, but stressed its own plans to concentrate on rapid organic growth.

AMP, which is keen to expand in Europe, also choose to stay silent.

Other potential bidders, including Germany's Allianz and Fortis, the Dutch insurer, may also be stalking bid candidates.

The Prudential's trump card, according to Roy Nicolson, ScotAm's chief executive, was the pounds 1.3bn support to the ScotAm life fund, which will allow it to improve its performance by investing more in equities without straining its reserves. The Pru has also guaranteed the jobs of all the 1,500 ScotAm staff who work at its head office at Craigforth, Stirling, for at least the next three years.

The 200 staff in ScotAm's overseas division and the 280 members of the salesforce are expected to stay as the Prudential intends to build up both departments. The only question mark is over the 150 staff at ScotAm's investment division based in Glasgow. The Pru said it would consider maintaining its presence in Scotland.

The Prudential's chief executive, Sir Peter Davis, stressed the complementary nature of the two businesses, with the Pru's strength in with-profit bonds and annuities and the big networks of independent financial advisers matched by ScotAm's strength in mortgage endowments, personal pensions, unit-linked policies, long-term care and close links with small and medium-sized independent financial advisers (IFAs).

The combined business will have over 7 million policyholders, pounds 105bn of funds under management, and over pounds 800m worth of new business in 1996.

Prudential has also acquired a 25 per cent stake in J Rothschild Assurance, a life company formed by Sir Mark Weinberg, together with LAHC, a takeover vehicle of small, dormant insurers. Some experts predicted the Pru may want to increase its holding in JRA.

The acquisition will slightly dilute the Pru's earnings per share in 1998, finance director Michael Bloomer admitted, but the extra business confirms the Prudential as market leader in UK fund management and puts it hard on the heels of Standard Life, the UK market leader in business sold through IFAs. The Pru's shares rose 15.5p to 555.5p.

Comment, page 25

Scottish Amicable bid details

Cash paid to 1.1m policyholders pounds 600m Immediate bonuses to policies pounds 470m Terminal bonus when policies mature pounds 500m Amount to be loaned by the Pru to the ScotAm 'capital fund' pounds 1.3bn

The pounds 1.3bn capital support allows ScotAm to free pounds 720m (paid in annual and terminal bonuses) of the above sum from its life funds

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