TEP – 15 November 2007

Entrepreneur Hugh Osmond and the other owners of life insurer Pearl stand to share £50m as part of a carve-up of £500m surplus cash sitting in its with-profits fund.

Pearl's one million policyholders - who have in recent years suffered from bonus cuts and meagre investment returns - will not be getting a cash windfall; instead, their share of the surplus will be added to their policies, typically boosting their value by 5%.

Pearl's troubled life business was bought by Mr Osmond's Sun Capital vehicle and private equity company TDR Capital for £1bn in April 2005.

Pearl yesterday announced it is to start distributing the £500m of surplus cash - its so-called inherited estate - to policyholders. This money, part of the insurer's £10bn with-profits fund, has built up over decades and is effectively what is left after customers have been paid what they are entitled to.

Policyholders will receive 90% of the money, while the company's shareholders will get 10%. That means Sun Capital and TDR Capital will share the £50m and the partners - or owners - in the two firms could share the spoils unless they reinvest the money in the business.

The precise break-down of the shares between individuals was not released but Mr Osmond, his long-term business partner Alan McIntosh and insurance expert Ashok Gupta - are all Sun Capital people - who sit on the Pearl board. In total, Sun Capital lists seven key people on its website who may stand to benefit, including Edward Spencer Churchill, son of the Duke of Marlborough, and former Pizza Express executive Matthew Allen.

At TDR Capital, there appear to be three partners - venture capital experts Manjit Dale and Stephen Robertson as well as investment group Tudor.

Many of those holding under performing Pearl endowments and pension plans might have preferred to receive an up-front cash payment, but the company said: "The money is still needed as capital support." Instead, it will be added to their policies.

The shareholders will not receive the full £50m immediately; they will get their slice when customers' policies eventually pay out. In some cases that will be in several years' time. But it is likely that £100m of the total cash pile will be distributed in July. The move coincides with discussions over what should happen to an estimated £3bn-4bn of money sitting in two of Norwich Union's funds.

Norwich Union's parent company, Aviva, is proposing to make payments to its policyholders in return for them giving up their rights to any future pay-outs from this surplus.

Mr Osmond, Pearl Group's executive director, has promised better returns for policyholders after switching much of the £10bn fund back into shares and property. The company said yesterday that the distribution of the inherited estate would enable policyholders "to benefit from tangible increases in pay-outs when their policies mature."

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