Even Sandler may not polish Pearl

By Alex Brummer, March 4, 2010

Many of us, of a certain vintage, have a "with profits" or endowment policy stuffed into a bottom draw somewhere. Before the age of ISAs, VCTs and index linked funds, these were regarded as the ideal safe investment.

Over time they fell out of fashion for a variety of reasons, most notably in the late 1990s and early "noughties" when it was discovered that they were unlikely to pay off the mortgage as promised by the financial adviser who had sold them.

As a result, the big insurers came up with new suites of financial products and the historic "with profits" or "zombie" policies, as they became known, were sold on. In my own case, a convertible life policy originally taken out with the Yorkshire has been on an incredible odyssey.

It was taken over by Royal Insurance, which in turn merged with the Sun Alliance, to become Royal Sun Alliance (itself renamed RSA). RSA dumped its with profits funds and they were bought up insurance whizz Clive Cowdery, founder of Resolution. Having put together several zombie life funds, Cowdery sold them on to pizza entrepreneur Hugh Osmond, who had been doing much the same as Cowdery through his own insurer, Pearl.

Then came the credit crunch. Osmond's Pearl turned out to be highly borrowed, found itself in financial difficulty and was bailed out by a series of hedge funds which parked the company, as a temporary measure, on the Amsterdam stock exchange. This game of "pass-the-savings-parcel" incidentally took place under the watchful eye of the Financial Services Authority, which did almost nothing to stop it happening. Now Pearl and its hapless 6.5m policyholders - including myself - find themselves in the loving and tender care of corporate troubleshooter Ron Sandler.

By now, Ron Sandler, a South African (who apparently holds a German passport), should be known to us all. He first became noticed in the City of London as the person who cleaned up the Lloyd's of London insurance market.

From there he made a brief appearance as chief operating office of NatWest as it unsuccessfully sought to fight off a bid first from the Bank of Scotland and then the Royal Bank of Scotland in 1999-2000.

In early 2008 he was back in the headlines when Alistair Darling unveiled Sandler as the chairman of the newly nationalised Northern Rock after the government had failed to find a buyer for the failed mortgage bank. He still remains chairman of Northern Rock's good bank - the active mortgage book and deposit taker - as it again seeks to find a private sector buyer.

Sandler's latest project is to turn around the £70bn Pearl Group, currently languishing in Amsterdam with its collection of zombie insurance contracts bought in from such august names as Britannic, London Life, NPI, Pearl, Phoenix RSA and Scottish Mutual and Scottish Provident.

His goal is to bring Pearl back to the London Stock Exchange and in preparation for that, Sandler has resurrected the name Phoenix from the dead.

This might be thought somewhat unfortunate in that it was also the name of the vehicle which rescued MG Rover only to bleed the car company dry and force into administration.

When I spoke with Sandler recently, he promised that the uncertain life faced by policyholders (like myself) would soon come to an end. He saw himself as the "great consolidator" of the "with profits" life industry who was going to provide better servicing to the millions of customers, improved investment returns and efficiencies.

There was nothing much new to this. It was precisely the kind of language used by Cowdery and Osmond when they were on the rampage.

The big difference is that Sandler does have a track record of sorting out broken enterprises. But bringing Pearl-Phoenix back to life is not going to be easy.

The current shareholders, mainly hedge funds, have to be removed from the share register and replaced with long-term holders. There is vast overhang of dilutive instruments, warrants and options that have to be sorted before a premium listing on the LSE can be obtained.

A long running dispute with bond holders, who are demanding full payment, will have to be negotiated and a new debt structure put together.

Operationally, Sandler needs to tidy up a legacy of duplications including outsourcing of services and asset management.

It is hefty and complex agenda and if Sandler can pull it off (with a bit of mazal), Phoenix would become a FTSE100 company which he argues will be better for policyholders. Certainly, it could not be any worse than the mess left behind by Hugh Osmond and his coterie of investors. But ominously among the aims of the reconstruction is "realising value from the existing portfolio". So this is not some straightforward rescue in the clear interests of policyholders.

It is another opportunist effort by a financial services group to exploit a large group of people whose life savings have been passed around like old china in a boot sale. At least Sandler's regime has a track record of sound repair work. So policyholders may finally find some stability.

But if they have any expectations of even average returns on their legacy investments, they will almost certainly be bitterly disappointed.

Alex Brummer is City Editor of the Daily Mail

Last updated: 11:27am, March 4 2010