Partnership Assurance was the share flotation of high summer. Priced to go at 385p a share in June, it duly went, and the price powered up to 540p in a month. Since then, the market’s love affair with insurance companies has cooled, but last week brought something rather worse than a change of fashion.

The all-new Financial Conduct Authority claims to have found evidence of breaches of the ban on commission payments from two (unnamed) companies. The miscreants are alleged to have replaced payments with inducements including overseas hospitality (spouses welcome) and promotional activity. Partnership shares fell heavily after the FT revealed that it was one of the companies.

The company specialises in “impaired life” annuities, sold to those who are expected to die (actuarially) soon. It has grown dramatically, allowing Cinven, its private equity backers, to turn an investment of £160m into one worth over £1bn in five years. Partnership is heavily dependent on intermediaries for new business, which is why the FCA’s news did so much damage to the share price.

Partnership’s maiden results in August had already warned that its activities had been disrupted by the new regime, obliging intermediaries to charge fees to their clients, that the FCA is now enforcing, The business case also requires most of the liability in the annuities to be reinsured. If medical science manages to keep the impaired lives going longer than the underwriters expect, then the rates could become a lot less profitable.

Both Cinven (understandably) and Partnership’s executives were substantial sellers at flotation. At 407p, it’s still worth £1.6bn, exploiting a very obvious niche which the mainstream annuity providers seem to have missed. They won’t miss it now. More competition, increasing longevity and now the hot breath of the FCA on Partnership’s neck; it may be quite a time before the shares see 540p again.

Don’t lend to these people

Why don’t those beastly banks stop fiddling around in the capital markets casino, and lend more money to British small businesses? Well, perhaps they worry about losing it, and an investigation this week shows just how likely they are to do so.

The FT discovered that up to 40 per cent of the advances under the state-backed Start-Up Loans scheme, launched last year, are unlikely to be repaid. No bank could survive for long doing that sort of business, but banks are hardly better than the state when it comes to assessing small business loans, which is why few have any real enthusiasm for making them.

These advances are so risky that to make a profit, the bank must set the interest rate at a level few start-ups can hope to service. The state scheme was conceived as a sort of student loan for young entrepreneurs. It’s misconceived, and the reason is in the name. New businesses don’t want loans, they want equity, risk capital where both upside and downside are shared.

To be fair to the government, the SEIS scheme already gives extraordinary tax breaks to wealthy investors in companies which qualify. For moderately wealthy investors, there are venture capital trusts. This Cinderella corner of the stock market is not as dangerous as the dire risk warnings suggest.

VCTs have been around for years, and some have grown to a size where the risk is quite widely spread. These look like annuities where tax-sheltered capital is turned into tax-free income, without the guarantee, of course. In short, they are a far better way of matching risk capital to risky enterprises than the deadweight of a loan.

Please affix a stamp

The new, go-go Royal Mail prettied up its balance sheet no end last year. After announcing some ruinous rises in postage costs, the management made sure that there were plenty of first and second class stamps available at the old price, thus providing the small-time investment opportunity of the year. It could now repeat the trick by allowing buyers of the minimum of £750-worth of shares on flotation to receive their dividends in the form of stamps. This would both help the business and encourage shareholder loyalty. Were the government to deem them tax-free, the issue could really go…

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