Founded in the early 1990s by insurance broker Chris Rostron to provide better incomes for people with life-shortening medical conditions on the basis of new patented actuarial annuity tables, PAFS has expanded into capping the cost of long-term care provision and retirement benefits. Last year the society more than doubled its gross premiums to £72 million, from 7,800 policyholders, and chief executive Simon Whitehead says the target is now £100 million.

Under the plan he has agreed with Phoenix, PAFS will transform itself into a company, Partnership Life Assurance. Phoenix will pay £6.2 million to qualifying policyholders, who stand to receive at least £500 each.

The private equity group will also pay £5.1 million to provide capital for future growth and £3.5 million for ‘demutualisation expenses’. Whitehead, an ex-Prudential luminary who previously sought to buy PAFS for the life insurance giant, and fellow directors will dip into their six-figure remuneration packages to contribute £800,000 to Partnership Life.

These stakes could become valuable shareholdings in the event of flotation or sale. This has offended friends of the founder, Rostron, who was eventually ousted over alleged conflicts of interest – which he has rebutted – concerning reinsurance arrangements and intellectual property rights to the key actuarial tables.

Critics suggest the Phoenix scheme undervalues PAFS, whose prospective embedded value they calculate at nearer £18 million, thus putting Phoenix and investing directors in line for handsome potential profits. Members will vote on the plan on 15 August.