Standard Life is taking the first step down the road to demutualisation after six weeks of bruising negotiations with the FSA over its financial strength, with a recommendation of whe-ther it should float expected by the summer.
In a shock move which sees Standard chief executive Iain Lumsden stepping down to make way for Standard Life Investments chief executive Sandy Crombie, the life office has announced a strategic review following talks with the FSA about the implementation of new accounting rules.
IFAs say there is no threat to Standard as a viable business although some say that the loss of one of the few remaining big mutuals would limit consumer choice.
Independent insurance analyst Ned Cazalet says Standard's with-profits fund looks effectively closed and warns that the firm could be forced to sell £7bn worth of equities to reduce its equity weighting.
But Standard finance director John Hylands rejects Cazalet's claim, saying there is no evidence that the fund is closed, stressing that the life office has a strong financial base and could continue writing new business with or without new cash.
The stand-off with the regulator has led the FSA to appoint an independent review into Standard's accounting procedures.
Standard & Poor's downrated the group, lowering its financial strength rating from AA to A+.
Any decision to demutualise will ultimately be made by 2.5 million of Standard Life's with-profits policyholders who have voting rights.
Hylands says: “There is an issue for us over having potentially a large diversified financial services business with all the capital in a with-profits fund when the with-profits part of the business is a relatively small part of the whole. We are not there now but we could be if these trends continue.”
Cazalet says: “We would dismiss talk of Standard Life being 'strong' and seemingly having billions of pounds of spare capital sloshing about in its statutory returns as meaningless burbling.”
Master Adviser managing director Doug Brodie says: “I have no problem leaving my clients in Standard Life with-profits funds but there is a concern that external forces could cause a run on funds that could leave it pushed into cash, gilts and corporate bonds.”