Standard Life's recent experiences meeting the FSA's new realistic solvency regime will be exceptional in the life sector, with other players only needing to finetune, according to independent insurance analyst Ned Cazalet.
In a report on life company financial strength and new business, Cazalet says other firms are likely to be involved in only “tweaking and finetuning” asset-liability management rather than having to make changes on Standard's scale.
Standard's dumping of £7.5bn-worth of equities this year has been hot news but Cazalet says other with-profits funds have been slowly getting rid of equities throughout 2003 and into this year, suggesting that around £10bn-plus in equities was sold across the sector last year.
He expects the average underlying gross investment return on UK with-profits funds this year to be around 9 per cent, with some insurers producing returns of 15 per cent or more but others such as NPI likely to languish at levels of around 5-6 per cent.
Cazalet says he will also be keeping an eye on Abbey-owned Scottish Mutual as one of six companies in relation to their with-profits ratings. He questions the sustainability of its “buttressing” of with-profits fund by derivative plays to hedge guarantees and options and to protect against equity market downturns, suggesting that a ratings downgrade is on the cards.
Alan Steel Asset Management consultant Alan Adam says: “There are other mutuals who will have to go through the same pain as Standard but I think plcs will also go through this grief, too. I think we can look forward to this sort of fun and games with the rest of the companies.”