Tough time ahead for Standard Life

Standard Life, the UK's largest mutual insurer, posted a huge hike in its yearly sales figures yesterday, but warned of tough times ahead as investors stay away from equity investments.

The company saw a 21 per cent rise in new sales of pensions, savings and investments to £1.43bn, on the industry standard of one tenth of single premium business plus regular premium business. Total sales in the UK were up 31 per cent to more than £8.2bn. Iain Lumsden, chief executive, said 2002 had been a challenging year and that next year was likely to prove more difficult.

Standard had maintained a high proportion of its with-profits fund in equities, believing they will provide policyholders with the best returns. But as stock markets have tumbled, Standard has seen at least £5bn of its surplus capital disappear in the past two years.

Policyholders were left wondering what the costs of piling on such large volumes of business have been, and what contribution it is making to profits. As an unlisted company, Standard is not under the same obligations as its quoted peers to provide information about the profitability of its business to investors.

Analysts have raised concerns that the company is pursuing an unsustainable business model and policyholders' bonuses will be cut.