Is Standard Life Fubar? No probably not, but the company does need to adapt fairly rapidly if it is to maintain its competitive position.
From all the information I have seen, including that issued by Standard Life itself, the FSA, and all the credible rating agencies such as Standard & Poor's, Moody's and AKG, the business has a problem but it does not have a disaster.
Standard has sufficient reserves to meet its liabilities and to continue to pay bonuses but because of a fairly recent change in attitude on the part of the FSA, this is no longer enough.
What we are seeing is the regulatory equivalent of global warming or at least a fairly sudden shift in the climate.
The FSA is in a determined and vigilant mood, something which should be welcomed by all those who do not want to see another Equitable Life.
Standard's use of the mutuality bonus in its new business illustrations is a good example. Standard claimed that because it is a mutual, its policyholders will benefit from the profits it generates, profits which would otherwise be paid to shareholders.
It included an allowance for these future profits in its new business illustrations in the form of a reduced annual management charge, thereby making it look extremely competitive when placed alongside its peers.
The FSA now takes the view that if Standard cannot guarantee these mutuality bonuses, and it is not making specific reserves for them, then it cannot include them in the quotes. Tough, and on this issue I am in agreement with the regulator.
This was apparently one of the sticking points between Standard and the FSA last week.
It was striking how abruptly the story appeared in the press, just when negotiations appeared to have reached an impasse, causing Standard a considerable amount of negative publicity. Within a few days, Standard had come round to the FSA's way of thinking.
Standard has to change, if it is to continue to thrive. Standard Life will no doubt go through the motions of looking into its options for the future and will then come back in the summer and announce to gasps of surprise from onlookers that it is indeed going to demutualise.
This is not necessarily a bad thing as far as Standard's investors are concerned. A business needs to adapt to survive in a changing climate.
Mutuality is a good idea in principle but if it gets in the way of running the business effectively then it becomes a burden rather than an asset. With-profits now makes up just 20 per cent of Standard Life's new business and here too a change in marketing emphasis is needed. Hargreaves Lansdown's lead in eschewing with-profits as a new business proposition has clearly been followed by many other IFAs in the past couple of years.
We are still happy to use Standard for new business, the company is an excellent pension administrator, but it must also accept that with-profits, like mutuality has unfortunately had its day.
What should we expect for the future? My guess is a demutualisation in a couple of years time, with windfalls of a few hundred pounds per head.
In the meantime, there are warning signs to watch out for. If Standard cuts its bonuses beyond the levels of its leading competitors, if it starts offloading big chunks of equities, if its MVAs stay high even when the market is rising and if its commission levels and product terms start getting cut, then we may have to rethink our current view.
In the meantime, we are happy to carry on doing business with Standard Life.
Tom McPhail is head of pensions research at Hargreaves Lansdown