My suspicion however is that policy holders will get very little. Standard
> Life is having problems meeting the solvency requirements, and needs the
> money to stay afloat.
On the face of it the most effective way to do it would probably be to sell shares into the market and put the proceeds into the w/p fund, which in direct terms wouldn't give any windfall at all, just better prospects for policies as they mature. However, they may feel that they have to make some kind of distribution to get people to vote for it, possibly by giving some shares to policyholders. The likelihood is that any windfall would be proportional to the policy value, at least approximately.
It's also possible that another company will make a bid for SL, in which case they would probably pay some cash to policyholders to sweeten the deal, as with Scottish Widows a few years ago.
Scottish Widows was taken over by Lloyds, and the latter paid the cash. SL could estimate a likely minimum price for the shares and base a cash payment on that, but it's probably more likely that they would distribute shares with an option to have them sold, on the basis that people who retain a shareholding are more likely to stay loyal to the company in future. Also if fewer shares are sold at the time of flotation the achieved price will probably be higher - when e.g. Halifax floated there was a shortage of shares which tended to squeeze the price up.
My understanding is different. During the recent years of decreasing stock market values SL stayed in the market and borrowed dosh against the value of the fund, whereas other companies bailed out into fixed interest. Since about a year ago we have seen an improvement in the market and SL have been just about the only company placed to gain maximum benefit.
The FSA steps in whose prime concern is to stop it being criticised, as it is for failing to spot the Equitable Life fiasco. The FSA decides to introduce new requirements and tells SL to keep its 'bonus reserve' (as it were) in fixed interest funds so as to protect those bonuses, rather than leaving them in equities which could go down in value again. So SL were forced by the looney FSA to ditch £8bn of equities in the market and buy gilts. The FSA also discussed with SL a new way of LifeCo declaring their W/Profit assets, to be called the 'realistic method'. This method is quite different from the way a LtdCo would be required to do it for the purposes of Cos Acts reporting. The new 'realistic method' is still in 'beta' testing and SL have agreed to be the guinea pig.
This means that the whole structure of the SL w/p fund is being changed at the whim of the FSA, purely on the grounds of the FSA not being criticised.
The current trend against w/p funds means that new monies coming in a much lower than in the past. The fund also carries the full business risk of SLs other business activities including the Bank & the Investment business. SL wants to expand and it needs capital which the FSA wont let it raise via the w/p fund. The only answer is to demutualise.
This is a long long way from 'having problems meeting the solvency requirements, and needs the money to stay afloat.'
Except that they started selling before the recovery, so the won't have gained as much as they lost, and they sold another chunk this year so they'll make even less from further recovery.
Put another way, w/p funds are being forced to make realistic provision for the possibility that stockmarkets can fall substantially. If they are going to claim that policy values are guaranteed they should be ensuring that they can in fact be paid.
I think that's really the main point, the value of the w/p fund (of all insurers) is likely to fall steadily as redemptions aren't matched by new business. In effect it's like a company being forced to keep buying back a substantial number of its shares even when the profits don't cover it.
No, they started at the back end of 2003, the recovery started in march .
Theyve only sold part of the fund though.
There are different ways of doing that, and which way should be left to the fund managers not forced on them by a regulator whose only justififcation is protect itself from criticism.
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