Is a Standard Life still worth a living?

I like Standard Life, says the insurance giant's current slogan. Yet the financial storm now surrounding the firm loads it with unintended irony.

For years the 179-year-old mutual insurer was lauded as one of the strongest financial institutions in the UK, so its millions of customers will be shaken by the questions raised over its financial strength. Here is a guide to what they need to know.

What's gone wrong?

The firm has been forced by the Financial Services Authority to look at ways to raise new capital. It has already taken some steps and is reviewing its future corporate structure. This could result in demutualisation. The FSA has introduced tougher rules on the size of assets life insurers need to keep to safeguard policyholders' funds - a change that follows the near-collapse of Equitable Life.

Do I need to worry?

Short answer: no. Long answer: it depends what type of Standard Life product you have. In the firing line are the 2.6 million investors in the with-profits fund.

Even pessimistic analysts do not think that Standard Life is an Equitable-in-waiting. The FSA's new rules are designed on a worst-case basis. One requirement is that Standard has reserves to cover investments that promise guaranteed bonus levels. The FSA's rules are stricter than the solvency requirements of the Companies Act, and the FSA is confident enough about the firm's position to say on its website it will not go bust.

However, the company has already had to reduce projections of likely returns. Of course, these could turn out to underplay the eventual payouts. But demutualisation and the need to pay dividends to shareholders could affect the returns.

The changes under way have no immediate impact on Standard Life's banking operation, its non-with-profits investment business - mainly unit-linked investment funds - nor its health insurance business.

Will I get a windfall if Standard Life is floated?

It is unlikely that non-with- profits customers would gain. Anyone who has bought a with-profits policy since 10 February 2000 would also be excluded from windfalls for three years from the time of their purchase. This rule was introduced after Standard Life defeated an attempt that year to force demutualisation.

How much might I get?

It's impossible to say now. Estimates of Standard Life's likely stock market value suggest anything from £3 billion to £6bn. At the upper end of the range the average payout could be about £1,500. Observers expect this to be made in shares.

So there's no point in piling in now for a windfall?

You've missed the boat, unless Standard Life takes an extraordinarily long time to reach the stock market.

I've bought a policy recently. Can I get out?

Standard Life is giving people who bought with-profits policies since 16 November 2003, the beginning of its current financial year, to cancel without penalties.

I have an older policy. Should I stop paying in ?

You could lose a windfall payment by leaving now. You would almost certainly have to pay early surrender penalties and could - in the case of endowments - endanger the tax-free status of your investment.

What about putting new money into Standard Life?

Advisers are not keen. Patrick Connolly of John Scott & Partners says the decisions the company is now taking are 'the right ones' to ensure its viability, and he does not fear another Equitable Life. But he adds: 'We advise investors not to take out new Standard Life with-profit investments while there is uncertainty.'

What happens next?

With-profits policyholders will receive letters outlining the effect of the measures taken already to bolster capital on future returns. On 29 January the firm will announce its bonuses for policies that mature this year, but it says these will not be affected. Further information on its finances will be outlined when its annual results are published on 18 February.

A report on options for restructuring the firm will be put to the annual meeting on 6 April.

If flotation is recommended, there will be a ballot later of with-profits policyholders, and 75 per cent cent of those voting would have to say yes. It could take two years for the insurer to reach the market.

Contacts

www.standardlife.co.uk call 0845 6060100 or refer
to policy documents

www.fsa.gov.uk

John Scott & Partners (08458 507508): With-profits
investors can speak to an adviser and register for a free
email update service. Alternatively investors can
register at the website above.