Shares in insurer Friends Provident made a promising debut on the London Stock Exchange, rising 7% to leave thousands of policyholders sitting on higher windfall gains.

After a quiet opening, the shares, which were offered at 225p, ended up 15p at 240p on their first day of trading, slightly higher than City expectations.

The rise, valuing Friends Provident at $3.89bn, will give a loyalty reward to those among the firm's 1.7 million policyholders who have chosen to retain shares awarded on the conversion of Friends Provident from a mutual insurer into a listed company.

Even those awarded the minimum 200 shares will see a gain, on paper, of �30 through Monday's price rise. Their shares were worth �480 at close of trading.

But the shares are, nonetheless, worth less than many observers estimated when the flotation, the UK's biggest so far this year, was first announced.

Investment bankers advising Friends Provident had said the shares could have been worth as much as 270p each, valuing a 200-share holding at �540.

Competition for shares

Most City analysts advised those receiving shares to resist selling them immediately.

While Friends Provident recently issued a profit warning, and is in a sector that is under pressure over concerns of the earnings to be make from stakeholder pensions, stock available for purchase by institutions was three times oversubscribed.

Friends Provident customers have also been offered the chance to buy additional shares at a discounted price of 213.75p each.

Experts are predicting a period of consolidation in the industry, and believe that Friends Provident could be a rich-picking for a larger competitor.

Provident shareholders are likely to receive a considerable premium on top of their shares if the company is taken over.

More than 97% of members voted for the demutualisation of the group, which was founded in 1832 to provide life insurance for Quakers.