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Standard Life Sells £7.5bn in Equities to Meet Solvency Requirements

Strategic Insights

— 1 min read

Standard Life, Europe's largest mutual insurer, has sold £7.5bn worth of equities over the past six weeks to meet new solvency requirements set by the Financial Services Authority (FSA). The company has also reduced its proportion of the £31bn with-profit fund held in equities from 77% at the beginning of 2002 to 35% as of the end of last year. This significant change in management approach is likely to affect future pay-outs to policyholders, as most of the funds will now be invested in instruments with generally lower returns, such as bonds.

Key Takeaways:

  • Standard Life has sold £7.5bn worth of equities over the past six weeks to meet new solvency requirements set by the FSA.
  • The company's proportion of the £31bn with-profit fund held in equities has fallen from 77% at the beginning of 2002 to 35% as of the end of last year.
  • Standard Life has reduced its equity weighting to avoid the stiff capital requirements of the new solvency regime for equity-backed products.
  • Other life offices managing with-profits funds are likely to continue reducing their exposure to equities, given the new solvency requirements.
  • The reduced exposure to equities could be a significant drag on the UK stock market, unless unit-linked investments can make up for the shortfall in demand.
  • Standard Life's actions may not have a significant impact on the rest of the sector, as most of the biggest companies have already reduced their equity weighting.
  • The company's new CEO, Sandy Crombie, has stated that the mutual will update its 2.6m members on the progress of the strategic review at its annual meeting in April.
  • UK life and pensions sales may be affected by the company's admission, but Standard Life does not expect a significant loss in market share in 2004.

Statistics:

  • £7.5bn: the amount of equities sold by Standard Life over the past six weeks
  • £31bn: the size of the company's with-profit fund
  • 77%: the proportion of the with-profit fund held in equities at the beginning of 2002
  • 35%: the proportion of the with-profit fund held in equities as of the end of last year
  • 2.6m: the number of members in the company

Sources:

  • Standard Life
  • Financial Services Authority (FSA)
  • Ned Cazalet, independent analyst
  • Martin Lees, Fitch Ratings
  • Roman Cizdyn, Commerzbank
  • Sandy Crombie, Standard Life CEO
  • Lombard
  • Page 20 Standard on course
  • Page 22

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