Merging With-Profits and Unit-Linked Life Funds in a Proprietary Company: Actuarial Considerations Based on a Case Study

In the current financial climate takeovers of proprietary life companies by other life companies, amalgamations of mutuals and demutualisations have become more and more prevalent. However in respect of takeovers, the process does not end with the purchase, but normally results in the transfer of the long-term business of one of the companies to the other. To optimise synergy and administrative efficiency, there may be a need to reconstruct the amalgamated funds. The author has been involved as Appointed Actuary and internal project manager in such transfers of business within proprietary companies and has also acted as an independent actuary and as an external project manager for other transfers. One of these transfers involved four companies transacting both with-profits and unit-linked business in which the interests of both policyholders and shareholder had to be protected. He considered this transfer to be of sufficient interest to merit the preparation of a paper discussing the issues which arose. Although the paper is principally based on that transfer as a case study, relevant and related factors arising in other transfers have been included where appropriate, as have references to the role of the actuary before, during and after reconstruction. In the case study, the scheme of transfer and the associated reconstruction of corporate structure involved merging three separate with-profits funds, merging many unit-linked funds (including unitised with-profits) and, subject to appropriate compensation, rationalisation of the rights to surplus attributable to both with-profits policyholders and shareholder.