Strong debut for Norwich Union

Norwich Union shares jumped to an early premium to the 290p strike price of its pounds 2.4bn share offer yesterday, netting immediate profits for new shareholders despite a fall in the market as a whole. The shares closed at 324.5p after reaching 356p in early trading.

The strong debut for the shares meant almost 3 million former members of the life and general insurance group received windfalls worth an average pounds 1,300. Members who received the minimum 300 share handout have a share stake worth just under pounds 1,000.

Many members received far more than that, depending on the size of their insurance or pension policies. Around 1.1 million non-profit policyholders received 150 shares, which were worth just over pounds 500 at yesterday's closing price.

The Norwich windfalls are the latest instalment in a summer of handouts which are estimated to be injecting more than pounds 30bn into the British economy, raising fears that interest rates will have to be increased more than would otherwise be the case in order to restrain consumer demand.

With nearly 150 million shares changing hands, Norwich Union was easily the day's most actively traded stock. Wilder predictions that the shares might push towards 400p proved unfounded, as the market struggled to overcome worries about tax rises in the Budget, but investors still received a healthy first-day profit.

Any member who successfully applied for pounds 1,500 worth of shares in the institutional and retail offer that accompanied the free-share handout, would have made a paper profit of pounds 342. Members enjoyed a 25p a share discount in the offer, and successful applicants were able to pick up shares at just 265p.

The price of the shares is expected to remain volatile as the market focuses on concerns that the Government may remove the tax advantages of tax-exempt groups such as pension funds and charities. That would have a knock on effect on the stock market value of shares.

Analysts have said the fair value of Norwich Union shares is between 280p and 340p but, as with the Halifax and Alliance & Leicester flotations, continuing upward pressure is expected to be put on the shares by institutions keen to increase their exposure to the stocks before Norwich Union enters the FTSE 100 index of leading companies.