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Friends not trying to hide changes

Response letter to Peter Rutherford & Co technical manager Mike Gordon

I have received your letter dated May 2 which appeared in Money Marketing

last week.

You claim that Friends Prov-ident is using the proposed demutualisation

“to hide a change in the membership rules” and that such a change “cannot

be in the interests of members”. We firmly reject both these claims.

We have not in any way hidden the proposal to extend membership. The

circular is open, transparent and explicit in this regard and I would refer

you to a key paragraph in the two-page summary on pages three and four of

the circular.

The paragraph headed Eligibility on page four refers clearly and in plain

words to the extension of membership as an integral part of the proposal

and quantifies the impact of this element of the proposal by informing our

members that such an extension will reduce the demutualisation benefits of

the existing holders of “eligible with-profits policies” by approximately

4.7 per cent.

I am disappointed that your letter makes no mention of this clear

disclosure and seeks to imply that it is apparent only to those who have

“taken the time to read the small print in your 88-page members&#39 circular”.

The proposal to extend membership is also covered in paragraph seven on

pages 14 to 16 of the circular, where the reasons are set out why the board

felt it was fair and reason-able to extend membership to those

policyholders whose membership had ceased through no fault of their own

after the announcement on May 4, 2000. While you seem to dismiss its

importance, the independent actuary (at paragraph 5.4 on page 49 of the

circular) regards the proposed extension of membership as being “in line

with good practice” (it has happened in a number of earlier

demutual-isations) and supports this element of the proposal, stating that

in his view the “resulting dilution…. is acceptable”. You will,

therefore, understand that I cannot accept that the proposal to extend

membership has been hidden in any way.

You claim we are being undemocratic as to the voting process by including

the proposal to extend membership rights within the proposal to

demutualise. We reject any suggestion that we are being undemocratic. The

board has had to consider many issues to arrive at a proposal which it

believes to be fair. In doing so, the board has applied a consistent set of

principles.

The alternative policy of a series of separate resolutions on the

individual issues could extend to many aspects of the scheme and would not

only be impracticable but would result in a much lengthier and more complex

process. Furthermore, such an approach could result in a conditional

approval which would be unworkable.

You also raised the issue of the extent of benefits to matured or “well

advanced” policies. The general allocation of shares is based on growth in

asset share of the policy. Those policies that have been in force longest

have contributed most to the growth of Friends and are being rewarded

appropriately.

The timescale for voting is entirely in line with leading practice and the

demutual-isation process is not in any way being “rushed through”.

David Newbigging

Chairman,

Friends Provident,

Dorking

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