Standard Life
policyholders facing bigger shortfalls and more red letters
IAIN DEY DEPUTY BUSINESS EDITOR http://www.scotsman.com/
MORE of Standard Life’s mortgage endowment
customers are likely to find out that they are facing a
shortfall on their policy when they receive their annual
statements over the next few weeks.
Thanks to the new solvency rules for insurers introduced by the
Financial services Authority, Standard Life has had to reduce
the amount of policyholders’ money it holds in shares.
Although this asset switch allows the Edinburgh firm to give
more assurances to the regulator that it will be able to meet
the guarantees it has made on certain policies, the switch to
safer, lower-yielding bond investments means long-term growth
prospects are lower.
Earlier this year, Standard Life chief executive, Sandy Crombie,
told the Treasury select committee that 86 per cent of the
firm’s 1.2 million mortgage endowment policyholders were
destined to face a shortfall - most of whom can now expect that
shortfall to have grown.
The total percentage of policyholders receiving "red letter"
warnings indicating that their policy is to face a shortfall is
also likely to have increased.
A spokesman for Standard Life said: "The simple way to put it is
that, yes, in the majority of cases, people will find themselves
either with a shortfall that they didn’t have before or with one
that has increased.
"However, it is entirely dependent on the type of policy that
you have and the important thing for policyholders is to wait
for their statement to see the full effect on their policy,
which will be detailed in full in that statement."
Standard Life previously assumed more generous growth in its
policies than many of its rivals because, as a mutual company,
it does not have to pay a dividend to shareholders.
Standard Life policies have outperformed rivals in many areas.
In January this year, the payout on a maturing 25-year,
£50-a-month endowment was almost £12,000 higher than a similar
policy from Scottish Widows - a former mutual now owned by
Lloyds TSB.
But the new FSA rules prevent the company from assuming that
mutual status can guarantee a higher payout.
The annual statements have usually been delivered to
policyholders by this time of year but the changes which have
had to be made to account for the new solvency rules have held
up the process this year.
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