7 September 2001

Overcapitalised NFU Mutual to face takeover?

By Robert Harris

FARM insurance specialist NFU Mutual could face a takeover bid from investors who claim it is overcapitalised and should demutualise to release funds to members.

A former executive from the mutual has scotched Press reports speculating he was about to mount a bid, but he refuses to rule out an attempt in the future.

John Murray, a former senior manager who worked for NFU Mutual for 20 years, said he had discussed a £2bn takeover bid with potential backers. But talks ended over disagreements about the way the new business should be run.

"We decided to go our own ways some months ago," said Mr Murray. "But I am not ruling out further interest."

NFU Mutual has about 850,000 members, including 70% of UK farmers, and manages £8.5bn of assets. It is the UKs 10th largest insurer and could prove attractive to fund management companies seeking to consolidate their position.

Mr Murray says demutualisation would benefit members because the company has at least £1bn of surplus capital. That, plus goodwill, could trigger £2bn in windfall payments, he added.

Many farmers who were members before "anti-carpetbagging" measures were introduced three years ago, would benefit.

"Press reports of £25,000 may not be a million miles wide for farmers who have put all their business NFU Mutuals way," he said.

But Andrew Young, managing director of NFU Mutual, said talk of massive windfalls was "totally fanciful". "There is no such thing as a free lunch. If someone offers money, they see it as an investment. They are going to make more money out of you in the longer run.

"I do not believe there is any business case for demutualisation or for shareholders to make profits out of our policy holders." The company has a track record of delivering good value over the long term and a string of awards to prove it, he added.

Mr Young denied the firm was over-capitalised, describing the comments as "interesting" given the problems besetting some rivals. "Insurance is only as good as the security that backs it," he said.

The mutual also used this capital to benefit long-standing members through its bonus scheme, reducing premiums and topping up life insurance, he said. More than £200m was returned in 1999 and 2000. "New customers did not get anything."

Mr Young also dismissed Mr Murrays assurances that any takeover bid he put together would maintain close links with the NFU. The mutuals tied agents act as NFU group secretaries and are a key part of the unions structure. That would not be possible if it had to make a profit for its shareholders. &#42