Standard Life said yesterday it has sold £7.5bn of shares in the past month to clear the regulator's solvency hurdles, bringing to an end its white- knuckle ride on the stock market.
The move, along with hiking charges to customers, means that Standard now has more than £4bn in surplus capital to meet new "realistic" solvency measures, more than twice the minimum margin. These new rules have forced Standard to reserve for the costly guarantees it has given its with-profits policyholders, causing it to take fewer risks on the stock market and match its assets to more closely to its liabilities.
The shares sale cuts Standard's equity exposure in its with-profits fund to about 34 per cent of assets, lower than a number of its listed rivals; 40 per cent of its 2.6 million with-profits policyholders have only 20 per cent of their funds now invested in equities. As a result, policyholders will see their potential returns shrink. At least 85 per cent of its endowment policies are unlikely to pay off the mortgage they were designed to cover. These shortfalls will now increase as annual projection rates will come down by 1 per cent. Policyholders will also see up to 0.75 per cent swiped off their funds to remove the "benefits of mutuality" Standard had previously promised, but not guaranteed. Payout values have already been cut back by 20 per cent over the past year.
This sharp withdrawal from equities marks a significant climbdown from Standard's previous stance. The company had obstinately kept its share investments at about 75 per cent when markets were tumbling; in the past three years, Standard has lost almost £12bn in capital. Sandy Crombie, the chief executive, said the company was still holding the maximum equity content possible given the new constraints on its capital.
"We will still have a higher equity holding than many other competitors. There has been a big change, however, in what levels the new regime will tolerate. There is a trade off between long-term returns and long-term security," he said.
It emerged last month that Standard was in urgent discussions with the Financial Services Authority over the new rules on how it should calculate its financial strength. The company had to announce plans to raise £750m of capital and commission a strategic review, the outcome of which could lead to a demutualisation. Iain Lumsden, chief executive and a long-standing champion of mutuality, abruptly left the company.
"Standard's high-equity investments had been an aberration in the market. The management has taken the action it needed to take and now is on a stronger footing going forward," Roman Cizdyn, an analyst at Commerzbank, said yesterday.
Policyholders will get an update on the company's strategic review at its annual general meeting in April.Reuse content