Standard takes hit on finance worries

Worries about the financial strength of insurer Standard Life have hit its sales and led to a fall in its share of the British market, the company admitted yesterday.

The Edinburgh-based firm said "consumer uncertainty" in the wake of revelations about its talks with the City regulator over its financial strength were largely to blame for its UK life and pensions sales falling 13% to £430.7m in the six months to May 15.

But growth in other areas meant first-half sales were flat, and chief executive Sandy Crombie gave an insight into what a difficult time it had been when he said that if he had been offered these results in January, "I would have bitten your arm off".

It emerged six months ago that Europe's largest member-owned insurer and the Financial Services Authority had been locked in heated discussions over a new way of reporting financial strength which the regulator had demanded in order to make a proper assessment of a company's health following the Equitable Life fiasco.

In the following weeks and months, a string of announcements added to the sense of crisis. The firm parted company with chief executive Iain Lumsden, reversed its previous antipathy towards demutualisation by announcing plans to float on the stock market, was attacked by Treasury select committee MPs, announced a fresh round of cuts to with-profits policy payouts, sold about £7.5bn of its shares to bolster its capital position and cut hundreds of jobs.

The company said its share of the UK life and pensions market fell to 10.2% in the first three months of this year from 11.1% at the end of 2003.

Its share of the crucial independent financial adviser market fell from 15.5% to 13.5% - but the insurer hopes to woo back disaffected investors and advisers in the coming months with a series of product launches and initiatives.

Mr Crombie said the "noise at the time", and Standard Life's high media profile earlier this year had made an impact on its core life and pensions business. Other parts of the group - such as Standard Life Bank and its investments operation - were seeing strong growth, he added.

But the company hinted that its 2.5m with-profits policyholders could expect further cuts in policy payouts and bonuses later this summer as the company responds to the "low-inflation, low-growth environment". These were last cut in January, and an announcement regarding them may come early next month.

It has also increased the money set aside for settling mortgage endowment compensation claims.

The planned demutualisation will require the support of at least 75% of those policyholders who vote - and the insurer plans to hold a ballot of members by 2006.

With talk of a likely average windfall of about £1,500, the company is slowly winning people round to the idea but still has a lot of work to do.

The insurer canvassed the views of members and said the number who actively supported its conversion to a public company had gone up from 17%-18% to about 32%.

Polls of independent financial advisers suggested they were swinging behind the demutualisation plans.

The company revealed it may ditch its Spanish business, Prosperity, which faced a highly competitive market; the board is reviewing its future and disposal is a possibility. It has also sold a number of buildings in Edinburgh as part of its cost-cutting drive.