Clerical 'in bid talk' with GE

JOHN EISENHAMMER

Financial Editor

Clerical Medical, the UK mutual life insurer, is believed to be in discussions with a potential bidder, possibly GE Capital of the United States. Analysts put a price of about pounds 1bn on Clerical Medical, the eleventh largest life company in Britain in terms of worldwide premiums.

Clerical is one of many mutuals busily reviewing their future in the light of much tougher business conditions in the life market, and the resources needed to keep up with technological change. Last month, Norwich Union, one of the country's biggest mutual insurers, decided to convert to a public limited company, adding urgency to the argument among insurers and building societies about the importance of size and diversification.

Speculation about the suitor also centered on NatWest Group. Clerical Medical took a 7.5 per cent stake in NatWest Life when it was set up, and runs its administrative as well as some of its fund management operations. NatWest has met with only modest success in building up its life business, and the market believes it is interested in acquiring the expertise, systems and client list a mutual would provide.

Eric Hodson, finance director at Clerical Medical, said yesterday: "We are not in serious discussions at the present time with a third party."

GE Capital, the powerful financial services arm of General Electric, the American conglomerate, has publicly stated its intention of building up business in the UK. It has been linked to bid speculation surrounding Mercury Asset Management, Baring Asset Management and Gartmore.

Last week GE Capital announced that it is buying for pounds 270m one of the US life insurance businesses put up for sale by Aon, a Chicago financial services group. Clerical would bring products, market experience and a fund on which GE Capital could build.

Clerical Medical traditionally sold life insurance through independent financial advisors, but recently built its own salaried sales force, with mixed results. A planned merger with NPI, another life company, collapsed three years ago.

Its free asset ratio, used by analysts as a rough guide to the strength of a life fund, is low compared to its larger rivals. The percentage of free assets to total assets at Clerical is estimated to be 4.7, compared with 13.7 at Standard Life, 12.3 at the Prudential and 7.6 at Norwich Union.