Insurer trades at 7% premium on market debut

Shares in British life insurer Friends Provident rose 7 per cent yesterday as it made its debut on the London Stock Exchange.

The 170-year-old company, which had cautiously pitched its initial public offering (IPO) at 225 pence sterling, moved up to 240 pence sterling on volume of 122 million shares. This valued the company at £3.89 billion sterling (€6.5 billion), the UK's biggest flotation this year.

Friends' 1.7 million members received windfalls of around £450 sterling, including 20,000 Irish policyholders who remained with the British insurer after it sold off its Irish arm which later became Friends First. Policyholders were given the option to sell their shares immediately yesterday but three quarters of those receiving free shares decided to hold on to them.

Friends said 224.8 million ordinary shares worth £506 million sterling at the offer price were being sold to fund cash payments to members who had elected to sell.

Chief executive Mr Keith Satchell said he was very pleased with the institutional demand for the offer.

The Dorking-based mutual founded by Quakers in 1832, has been under pressure by members to convert to a public company for some time.

They were allocated a minimum 200 free shares under the demutualisation scheme and longer term policyholders stood to gain more depending on the value of their policies and how long they were held.

The flotation was close to three times over-subscribed by institutional investors and its market value looks set to secure Friends a place in the UK's FTSE 100 when membership of the blue-chip index is next reviewed in September.

The group said the approximate £1.4 billion sterling which it will raise from the flotation will mainly be used to support its business.

Irish stockbrokers Merrion said the stock was a long term play and Credit Suisse First Boston started coverage of Friends as a buy with a fair value of 240p.

Credit Suisse expected significant demand for the shares over the next three months.

Mr Satchell said the timing of the IPO was not ideal as the equity market had been sluggish but thought it was best to get the introduction over with and get on with business.

Friends' policyholders eligible to buy extra shares in a preferential offer, priced at 213.75 pence sterling a share, applied for £566 million of stock, which was met in full.

Following the flotation Friends has become the UK's fifth largest listed life insurance group by market value.

It has joined a growing number of British insurers which have abandoned their mutual status, either by floating on the stock market or by selling out to buyers with more financial clout to deal with rivals in the competitive life and pensions market.