Standard has a fight on its hands to beat carpetbaggers

Over the next few days, some 65,000 Standard Life with-profits policyholders will receive a package which will include their voting paper on the proposal to demutualise Standard Life and convert the life company to a plc. A special meeting of Standard Life qualifying policyholders will decide the future for the group.

They will also receive a plea from Standard Life chairman Mr John Trott to reject the demutualisation proposal "in the face of the self-interest of the carpetbaggers who have requisitioned this meeting" as well as a 20-page document laying down the management case to keep Standard Life Mutual. So what are policyholders to do?

In recent years there seems to have been an inexorable movement away from the whole concept of mutuality, with a whole series of life assurances and building societies abandoning mutuality for the delights of a stock market listing.

Among the Irish institutions who have demutualised are the former Irish Permanent and First National building societies, while Irish Nationwide has made little secret of its wish to demutualise if existing legislation can be amended to accommodate such a move by Irish Nationwide management.

In the case of Standard Life, the arguments about demutualisation are complex and Standard Life and the action group headed by Mr Fred Woollard have each produced their own set of estimates on how much with-profits policyholders can expect to get in free shares if the vote goes in favour of plc.

That both sides' estimates are poles apart comes as no surprise, and there really is no way of coming up with a specific verifiable figure short of carrying out a hugely expensive and time-consuming actuarial study. So in the absence of independent verification, policyholders wondering what to do have little hard information on which to base their decision.

Standard Life management puts forward various arguments in favour of maintaining the status quo - but the one that policyholders will inevitably take notice of is how much in free shares they are going to get if demutualisation becomes a reality.

According to Standard, about two-thirds of with-profits policyholders - and here we are talking about the carpetbaggers who piled into the worth-profits policies in anticipation of a big windfall - will only get a couple of hundred pounds.

And even that paltry figure might be more than eaten up by a 10 per cent fall in the value of policies in the future, says Standard. That might very well be the case. First Active mortgage holders who flocked to the demutualisation of their building society would almost certainly be a lot better off in the long term if they stayed as a building society and got lower mortgage rates instead. Now they are left with shares that have plummeted in value and with little sign that they will improve.

Needless to say, Mr Woollard - who stands to gain £150,000 in free shares from a demutualisation - thinks the average payment will be an awful lot higher but his £6,000 average is merely the result of dividing a notional £15 billion market capitalisation by the number of with-profits policyholders, ignoring the size or duration of the policies.

Mr Woollard is in the elite club of 4,000 with-profits policyholders - just 0.2 per cent of the total - who would get over £100,000 in free shares. But Standard contends that this is very much an elite group and that average payments will be a lot lower than £6,000 and that short-term policyholders will get very little out of the demutualisation.

Standard's other argument is the non-monetary one - the argument of principle. "We are now asking all members to take the principled decision to pass on to those yet to come the benefits of mutuality which they so clearly have enjoyed," Standard said this week.

Laudable sentiments, no doubt, but cash in hand is going to decide the June 27th vote, and in this regard Standard has a big fight on its hands to prevent the carpetbaggers triumphing.

PS - Standard placed great emphasis this week on the support it had been getting from the Irish insurance broking community in its fight to stay mutual. This observer finds this claim a little difficult to accept - since it was the same insurance broking community that rang their clients urging them to pile into Standard with-profits policies with the express aim of making a killing.

The Irish Times has heard numerous instances where this took place, so it's a little rich to expect us to believe that these self-same brokers who sold 40,000 with-profits policies and trousered the accompanying commissions, have now been converted back to the principle of mutuality.