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Inside edge

This is not a Standard Life issue, this is happening to the entire sector. Pru is selling Egg – currently it is at almost the same price as its launch in 2000, and is shortly to close its loss-making French operations.

Also shortly before interest rates move upwards, which raises income and profits for card firms. Egg&#39s UK end makes money.

Standard Life publishes a rise in free assets of £400m, a rise in margin cover from 210 per cent to 215 per cent and announces it is seeking to raise a further £750m.

Around £800m is what Pru should get from Egg. Coincidence?

What has made this front-page news? I think it is important to note that the front page splash in The Times as I write is Silvio Berlusconi&#39s facelift (that&#39s The Times of London, not the January edition of Beauty Surgery Times).

There is a storm in our teacup. Standard&#39s mutual status is fine, it is the concept of with-profits that the FSA does not like, because it cannot measure it on a slide rule.

Both these leviathans are raising money – no institution raises cash without a purpose.

It would certainly appear that much of the background to the current position of Standard Life in the media is Berlusconi syndrome. If Standard Life had had the foresight to ring Tony Blair and ask to move its year-end to the same day as the publishing of the Hutton report and the top-up fees vote, then I doubt that this story would have mushroomed as it has. Shame on the corporate communications dep-artment for not being creative enough.

The FSA has changed the accounting rules for all life companies and Standard is the first one to take it to the wire in amending its financial position. For example, last year, it was acceptable for Standard to carry £1.75bn in future profits in its figures, now it can only carry £1bn.

Has Standard Life&#39s financial position deteriorated over the last year?

No. There was never a story in “jet lands safely at Heathrow” and, true to form, the media have not found a story in Standard Life increasing its “available assets” to £4.6bn and its fund for future appropriations from £3.2bn to £4.5bn.

Remember, this is in the face of collapsed retail pension business and investment across the whole industry and with its pension repriced to 1 per cent alongside stakeholder contracts.

It has succeeded in shifting the with-profits/ unit-linked split from 50/50 to 20/80 and it is following AIG in building in China and India.

Is demutualisation a certainty?

No. Standard Life is in a strong position today. In the industry, these guys are Big Blue and in my professional experience have the most prudent and conservative business leaders of any major insurer.

This must be the only major firm focused on profitability and not “market share at any cost”.

The board are responsible for ensuring the best long-term return for the mutual policyholders who own the firm so the mutual/corporate debate is, by default, a continual process. Policyholders would be ill served if they were not considering the options.

But you can bet your last dollar that all the investment banks and brokers will push their own self-interests to make a convincing argument for a stock listing as the fees would be huge.

How will its with-prrofits fund perform?

Around 59.2 per cent of the with-profits fund is in equities, substantially more than most of its competitors, so there will have been a material rise in asset value over the last year – better than most, if not all.

Consider this – the FSA is forcing the industry to replace the trust/mutuality relationship of financial prudence within the life firms, with a pre-formatted set of financial rules that they can be monitored.

In other words, it is asking Standard Life to change to the same type of rules that governed Parmalat, Worldcom, Enron, BCCI, Barings and their respective auditors.

Who would you trust for security – a slightly eccentric Scots actuary in twe-eds with a slight whiff of Glenmorangie or a big four accountant, dressed in Hugo Boss, driving an Audi TT with a faint whiff of FCUK for Men?

Doug Brodie is managing director of Master Adviser


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