Abbey injects £150m to top up Scottish Mutual funds

By Stephen Foley
Sunday 19 January 2014 04:15
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Abbey National has been forced to pump £150m into its life insurance business after stock market falls took the value of its investments close to danger levels.

The cash infusion for Scottish Mutual is the latest in a string of similar measures taken by life insurers' parent companies, and raises fears that others – notably HBOS and Lloyds TSB – will have to follow suit.

The Financial Services Authority has expressed concern that some life insurers are at risk of breaching their solvency requirements as a result of falling equity values.

Abbey's decision to top up Scottish Mutual's reserves was made in the past few weeks to provide a "cushion" in case the FTSE 100 fell any further, a spokeswoman said.

"This is not the hand of the FSA, it is our own prudent capital management. It is a pre-emptive move against the FTSE falling any further. We are putting a cushion in there." The FTSE 100 has fallen 12 per cent since the start of the year, and is now more than a third below its peak on the last day of 1999.

It is the second time in less than a year that Scottish Mutual has had to be bailed out. Abbey pumped in £150m last autumn after the stock market collapse triggered by 11 September.

The new payments were made as Ian Harley, Abbey's chief executive, is under pressure to resign in the wake of a profit warning. The group has been forced to set aside £450m in bad debt provisions after its move into high-yield bonds and venture capital went badly awry.

The former building society's troubles are seen as increasing the likelihood it will be forced into the arms of a bigger European bank, and Mr Harley said this weekend he was talking to several continental players about strategic alliances which could lead to a merger.

Abbey said yesterday that its injection of £150m illustrated the advantages of a financially strong parent company for its Scottish Mutual business, which sells savings and pensions products through independent financial advisers and, under the brand Abbey National Life, through Abbey branches.

It will add to speculation that Lloyds TSB, which owns Scottish Widows, and HBOS are considering similar moves. Credit Suisse put an extra £275m into its Winterthur Life subsidiary last Friday.

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