Standard Life's true capital position is “significantly weaker” than the company has claimed and the industry believed, says rating agency Fitch.
The report – Reality Check: Is Standard That Poor? – warns that the plans to raise £750m in hybrid debt will be costly and that Standard's days as a mutual are numbered.
It says: “Clearly, the actions that Standard Life has had to take, in somewhat dramatic circumstances, do demonstrate that its true economic capital position is significantly weaker than previously perceived and claimed by the company. In terms of corporate structure, Fitch Ratings believes that the options for Standard Life are limited and its days as a mutual are numbered.”
Fitch believes raising £750m will be expensive due the perception that Standard has been forced into the move and uncertainties over the outcome of the FSA discussions on the realistic reporting regime and the company's strategic review.
Fitch director Harish Gohil says, on a conservative basis, if it excluded all subordinated debt and future profits from Standard's surplus assets, its solvency margin cover ratio would be “barely” in excess of 120 per cent.
For the 2003 financial yearend, Standard's surplus assets were estimated to be £4.6bn, meaning its solvency margin cover ratio was 215 per cent, but Fitch says 43 per cent of this was subordinated debt and future profits which it describes as “inferior” capital.
Standard group actuarial director Bob King says: “It is not clear exactly what Fitch means by “true” economic capital position. If they are talking about our realistic solvency position, we will be disclosing this information along with a number of our competitors at the end of March. We have not quoted any realistic figures in the past.”
Fitch consultant Martin Lees says: “The FSA has not so much moved the goalposts but has put them into their correct positions and a number of insurers have been caught offside.”
Rating game, p56