Financial security, customer service and trust. These are the brand values on which Standard Life has been built and they remain the values to which the company remains fully committed.
In this respect, Standard Life is the same company it was a week, a month or a year ago.
What is also unchanged – and I cannot stress this enough – is the commitment to the IFA community. Standard Life will continue to support IFAs who have recommended the company and who will hopefully continue to do so. The level of support we have had from IFAs during this difficult period has been extremely encouraging. The value of this continued confidence is immeasurable, as is our appreciation of it.
That said, it would be understandable if IFAs were concerned by what they might have read about our discussions with the FSA and the board's decision to conduct a strategic review to consider the best way forward for the business. It may help to clarify a few key points.
First and foremost, Standard Life has not decided to demutualise – this is just one of a range of options that will be considered.
Standard Life continues to have a strong capital base on both a statutory and Companies Act basis.
The review has no impact on current surrender and transfer values, or payouts.
Standard Life remains open to all types of business, including with-profits.
The review will ensure Standard Life is best placed to maximise its potential in the future.
Many will be wondering about what will be the ultimate outcome of the review. It would help to understand the underlying reasons for it. The first reason is the way the company has changed over recent years. It is no longer dependent on writing with-profits business. An ever increasing amount of our UK life and pension business is investment-linked.
Standard Life has diversified outside of its traditional life and pension business and has successful investment, banking and healthcare operations. The company is active in a wide range of overseas markets and involved in international joint ventures.
Much of this growth has been funded out of the with-profits fund, which gives rise to a number of issues. Our with-profits customers have enjoyed the rewards of this successful diversification and growth but they ultimately bear the risks. Some customers may not be comfortable with this.
The question arises over whether with-profits customers should continue to be the primary source of our capital or whether there is another, and possibly better, way of funding growth and expansion in the future. This means that we should review our mutual status.
A second factor is the forthcoming introduction of new financial reporting requirements for the life and pension industry. This has been the focus of our intense discussions with the FSA over recent weeks.
This regime will require us to increase the amount that we reserve for guarantees that exist in some of our policies but, more significantly, it will alter the way we have to reserve for discretionary items. These include the benefits of mutuality that Standard Life has, on a discretionary basis, passed on to with-profits customers.
These have been paid by topping up claims from profits generated from other parts of the business and we have reflected these benefits, both accrued and projected, in our illustrations since 2000.
It has become clear in our discussions with the FSA that to continue doing so under the realistic reporting requirements would compel the company to hold significantly higher reserves. We do not believe this would be in the best interests of our with-profits customers as it would tie up considerable additional amounts of capital.
Despite this, Standard Life remains financially strong on both a Companies Act and a statutory reporting basis. Our free assets cover our required minimum margin (the amount of capital we must maintain above our liabilities) by 215 per cent. This will increase to 250 per cent following the £750m debt issue we plan to undertake in the coming months.
This capital will fund future business growth and allow Standard Life to make the most of opportunities to develop the business.
It is against this background that the board of Standard Life has decided to conduct a strategic review. The purpose of this review will be to consider the options available to the company and to identify the best way forward. One of the options – and there will be others – will be demutualisation. It is impossible to predict with any certainty the outcome of this review. As always, uppermost in the board's considerations will be the long-term interests of policyholders.
It is hoped we will be in a position to provide an interim report on the review at the AGM in April. In the meantime, Standard Life will operate on a business as usual basis. We will continue to accept new business, pay out on existing policies and deliver high standards of service and we remain committed to key projects.
IFAs who have recommended Standard Life to their clients have no reason to question their decisions. And there is no reason why IFAs cannot continue recommending Standard Life with confidence. We hope they will continue to do so.
Gordon Arthur is director of corporate affairs at Standard Life