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Put Standard on the carpet

Standard Life recently mailed a brochure containing “real facts” about demutualisation to the company&#39s 2.3 million members. This brochure, we believe, contains a number of misleading statements concerning the Standard Life Members&#39 Action Group&#39s demutualisation proposal. We welcome the opportunity to put the record straight to prevent IFAs and their policyholding clients&#39 feeling any unnecessary anxiety.

Standard Life argues that some policyholders will lose out from demutualisation because transfers to shareholders will lead to lower returns, especially on policies with a long time until maturity.

From our understanding, all existing policyholders will receive free shares that will more than compensate them for any future transfers to shareholders.

In any demutualisation, the regulators, the independent actuary and in this case, ultimately, Scotland&#39s highest court, the Court of Session, have to be satisfied that no existing policyholder will suffer from the demutualisation.

John Jenkins, a leading actuary at accountants KPMG, recently confirmed this by saying: “The regulators insist that the benefits of existing customers are not in any way reduced by a flotation. And that includes their future benefits.”

Previous life company demutualisations such as Scottish Widows and Norwich Union have been structured to ensure that no policyholder lost from demutualisation. How can Standard Life, which is much stronger than any previous demutualisation candidates possibly argue that it is unique in being the only company where a large number of its policyholders will lose from conversion to a plc?

Standard Life finance director Iain Lumsden said in June 1999 that, in aggregate, it is likely thatthe existing with-profits policyholders would profit from demutualisation.

Mr Lumsden has recently added that existing policyholders will “win” from demutualisation. Why then is the company so opposed to letting itsmembers win?

Standard Life has disputed our average windfall estimate of 5,000-6,000 for each of the 2.3 million with-profits policyholders. Standard Life claims that half of the policyholders will receive a windfall of less than 2,500 and a quarter will receive less than 1,000. These numbers are impossible to verify independently and are based on a very low 12bn value for the company. Other estimates of the company&#39s value range as high as 20bn.

Whatever the size or age of their policy, all existing policyholders will gain from demutualisation, and the legal protections referred to above ensure they cannot lose.

Standard Life argues service standards will fall and products will become less competitive following conversion to a plc. This makes no sense. The fact that people continue to buy life insurance from plc&#39s such as Norwich Union and CGU shows that plc&#39s can provide good service and competitive products.

It has also been argued that conversion to a plc will weaken Standard Life. This is wrong. The issue of free shares does not by itself make the company any weaker or any stronger. It need not affect the company&#39s AAA credit rating.

According to its own data, Standard Life has 530,000 endowment policyholders facing a shortfall on their mortgages. These people are unlikely to be impressed by claims that Standard Life has been a top performer and should give a particularly warm welcome to demutualisation.

Conversion to a plc does not hand the company to some new group of shareholders. Today&#39s with-profits policyholders will be the shareholders receiving those dividends now and in the future. They already own part of Standard Life but, if our proposal succeeds, they will be given the choice whether to sell or keep that ownership interest, a choice they do not have today.


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