Earlier this year, Standard Life announced a strategic review of the way the company accesses and uses capital. This decision was influenced by a number of factors, such as fundamental changes to the nature of our business, changing market dynamics and new regulation.
The strategic review is now well advanced and the conclusions reached in a number of important areas were announced last week.
Certain management actions have already been taken to strengthen our capital position. These actions have been approved by the FSA and are reflected in our realistic balance sheet. In addition, the FSA's skilled person's review of the assumptions and methodology used in preparing our realistic balance sheet has been completed.
As a result, our realistic balance sheet, prepared in accordance with ABI guidelines, has been published and submitted to the FSA. It confirms a realistic surplus of £4.6bn, more than twice the risk capital margin.
Standard Life has a well-diversified portfolio of UK and international businesses which have good potential for growth. All our UK businesses – Standard Life and Pensions, Standard Healthcare, Standard Investments and Standard Bank, along with our Canadian operation, will remain part of Standard Life Group. While further work is continuing on our other established international businesses, it is likely that we will retain and develop these within the group.
Given the current market environment, it is important that our main life and pension business focuses on writing more profitable business and reducing costs. So, we aim to reposition ourselves in the pension market and improve the mix and profitability of our business by growing our presence in the investment, mutual funds, protection and drawdown markets. This will involve the repositioning of some product lines and a number of new and exciting product developments.
Our new open-architecture platform, Sigma, has already been well received by IFAs. We will continue to work with IFAs to demonstrate the benefits of integrating Sigma into their sales process, so enhancing our overall proposition.
Protection is a growing and profitable market for providers and advisers. It is our intention to be among the major players in this market. The launch of our online protection proposition later this year will increase our capacity for new business. We feel this is an exciting initiative which, among other things, will offer IFAs and their clients a more convenient and efficient point-of -sale and application process.
Our new market strategy will improve our profitability but these improvements alone will not deliver all the cost efficiencies we need to make. To ensure our business is in the best possible financial shape to compete successfully, we will reduce staff by around 1,000 by the end of the year. This will be done through a combination of natural turnover, phasing out some contract positions and redundancies.
We are confident that the nature of our required cost-savings, against a backdrop of improved efficiencies, greater use of technology and restructured operations, will not impact on the quality of service we provide to IFAs or their clients. Our customer-facing functions, long recognised as among the best in the industry, will be largely unaffected by the job losses.
We aim to continue growing a successful, diversified business. To realise these plans for growth, while maintaining existing business, we will require access to further capital. With-profits business, which has traditionally provided this capital, is declining but, as a mutual, we cannot source alternative capital as easily as a plc.
Our board has concluded that proceeding towards demutualisation is in the best interests of the company and all its policyholders. We will now assess the detailed requirements for demutualisation and an implementation plan will be developed for approval by the board. It is envisaged is that a proposal will be put to members by the 2006 annual meeting.
We have very strong relationships with IFAs, who as recently as last month voted us Money Marketing's Company of the Year for the sixth year running. We have always appreciated their tremendous support and will continue to work hard to earn this in future, so they can continue to recommend us with confidence.
Change is necessary for us at present and many IFAs will be facing similar challenges with their own businesses. However, many features of our company – which mark us out from our competitors – will not change.
We have always put IFAs and their clients first and will continue to do so. We will continue to champion the benefits of advice wherever possible. Working with advisers, our approach has been to put their Standard Life clients – new and existing – at the forefront of our minds and this will not change.
Last, but not least, we aim to offer the best overall service to IFAs and their clients in the UK market. Our support for advisers both locally and in head office will remain as strong as ever.
In summary, Standard Life's future success will be achieved by working closely with IFAs and continuing to develop market-leading products with excellent service and investment performance.
Our core brand values of trust, financial security and customer focus will continue to underpin everything we do because, at the end of the day, this is what clients experience and that is how they will judge their advice.
The more things change, the more they stay the same.
Nathan Parnaby is managing director (sales) at Standard Life