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What now for mutual firms?

The mutual status of insurers provokes feverish media speculation but the

offices themselves are more concerned with expansion and offering solid

products.

Three Scottish life offices – Scottish Provident, Scottish Life and, of

course, Standard Life – have been the subject
of speculation.

In all three cases, the arguments for and against demutualisation are

different.

Life industry analyst Ned Cazalet stresses that mut-
ual^_ity is only

one feature of
a company.

He says: “It does not really matter what its status is as long as it is

using its capital efficiently. Life offices should assess their status on

the grounds of their business, not on mutuality alone.”

Of the remaining mutual
life offices, Cazalet predicts a good number will convert in the relatively near future.

Friends Provident wants to enter the stakeholder pension market next year.

This will be a very competitive sector and companies which enter it will

not see substantial profits for
sev^_^_eral years.

Cazalet says any company which plans to enter the
stakeholder market

will need plenty of capital to sustain it, something he says Friends does

not have at this time.

He also believes both Scottish Life and Scottish Provident are banging

their heads on the glass ceiling of expansion and may start looking for a

strategic partner.

It is accepted in the industry that both companies are very good at what

they do but, if they want to do more, they will have to demutualise.

Traditionally, there are
two reasons why a mutual would make the

decision to
go public.

First, a company could need more capital to fund expansion. This was the

case of companies such as Clerical Medical and Scottish Equitable which

converted in the mid-1990s.

Second, it could be that a life office is experiencing financial

difficulties and may seek a buyer. This was the case with firms such as

Provident Mut^_ual and NPI.

A life office could either float on the stockmarket, which is relatively

rare, or it could take the more favoured route of merging with a bigger

company.

Of the remaining mutuals, analysts believe only Standard Life would be

successful as
a stand-alone company if it
floated. The others are

simply too small to make much of an impression compared with the bigger

players.

Standard Life is the most committed to the principle of mutuality and

plans to maintain this status which it uses a a central plank of its

marketing and advertising strategy.

It has come under siege from carpetbagger Fred Woollard, who is trying to

raise support among policyholders to force the company to demutualise,

which would result in a significant windfall payment
to members.

Standard Life is holding its AGM next week and it is possible that

Woollard will make an appearance then.

Spokesman Jeff Newton says “Nothing has changed. We remain totally and

completely committed to the principle of mutuality.”

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