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Cazalet says Standard Life is a one-off case

Standard Life&#39s recent experiences meeting the FSA&#39s 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&#39s scale.

Standard&#39s 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.”

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