The Standard Life Insurance Demutualization (Or How 72,000 Former Policyholders in the United Kingdom Are About to Forfeit £113,000,000 in Unclaimed Stock and Cash)

Imagine you have a policy with an insurance company.  This insurance company is mutually run, which means there are no stockholders.  Instead, the policyholders own the business and the enterprise is managed to give policyholders the best service, at the lowest possible price, as a cooperative undertaking.  Now, imagine that one day, the policyholders’ representatives decide they want the business to become a for-profit corporation.  The representatives convert the company and send the policyholders (who are the de facto owners) stock certificates based upon a formula that can include all sorts of different variables such as their total annual premium volume and the length of time they’ve been with the firm.  Suddenly, Aunt Carolyn, who never owned a share of stock in her life, finds herself with a pile of stock certificates in the insurance company she’s patronized for as long as she can remember, cashing a stream of dividend checks that appeared out of nowhere and she doesn’t entirely understand.

The process of converting from a mutually structured cooperative enterprise to a for-profit company run for the benefits of shareholders is known as demutualization.  A demutualization can make a person a lot of money, whether it’s an insurance group, a credit union, or a dairy co-op originally organized for farmers to work together to negotiate the best prices for their milk.  In the the life insurance industry alone here in the United States, a couple hundred companies have demutualized over the past 85 years.  Some famous examples are MetLife and Prudential.  MetLife, for example, demutualized in 2000, sending eligible policyholders common stock certificates.  Not only was the stock free, it has appreciated almost 400% once you factor in dividends in the nearly 15 years since the transformation.  Though nothing in life is certain, historically, if one is given the choice between cash and stock in a demutualization, stock has been the way to go.  The shares are frequently undervalued when they debut in an IPO, caused, in part, by former policyholders dumping en masse the mysterious securities they’ve been handed.

In 2006, a British mutual insurance company called Standard Life underwent demutualization.  It had 2,400,000 policyholders who were entitled to cash or stock.  Eligible policyholders were given 185 free shares plus additional shares based on “the size of their with profits investment and how long they had held the policy”.  On top of this, policyholders were given the opportunity to subscribe for more stock in the IPO on the London Stock Exchange.  Subscribed shares bought with new money could be acquired at a 5% discount to the IPO price everyone else had to pay.  To encourage long-term ownership, on the one-year anniversary of the demutualization, former policyholders were gifted 1 free bonus share for every 20 shares they had held continuously since going public, including any shares they received for free and any shares they bought on their own in the IPO, amounting to an additional 5% ownership bonus.  Those who held since that time have not only received a stream of cash dividends from the start, they were in for another surprise just last month when the company announced a special cash windfall distribution to shareholders based on the sale of a Canadian operation (which it structured in a very tax efficient manner).

Suffice it to say, Standard Life is one of those cases in which the 55%+ capital gain on a stock chart is woefully understating economic reality.  Free shares, discounted IPO terms, free bonus shares, nearly a decade of cash dividends plus special cash distributions don’t appear anywhere on the virtual graph paper despite lining the pockets of former policyholders just the same.

As happy as this story is, there is a potential sad ending for a lot of would-be investors.  Of the 2,400,000 policyholders, roughly 280,000 of them didn’t come forward to claim their cash and stock.  Over the years, as the company tracked down those on the roster and eligible individuals came forward upon hearing about the demutualization, that list was cut down substantially.  Today, there are 73,000 former policy members who still have not emerged to get their hands on the property that rightfully belongs to them.  It sits, abandoned, waiting.  Even worse, time is now of the essence.  When the demutualization was completed, a deadline was set for ten years in the future at which point all unclaimed wealth is forfeit.

To give you an idea of the scope of what is at stake, the remaining unclaimed cash and stock in the Standard Life demutualization totals £113,000,000.  The average claim is around £3,000 but there is one person out there who is entitled to £120,000!

If you, your parents, your grandparents, your children, your cousins, your coworkers, or anyone you know had any sort of policy at Standard Life in the year 2006 or prior, do yourself, or them, a favor and contact the company to check the unclaimed share roster.  You never know.  Your late single parent, who died back in 2006, might have tens of thousands of pounds sterling set aside that is your rightful inheritance but, if not claimed, will be lost to you forever.