Plunge may leave Standard stranded

WORRIES are mounting over the financial health of UK life insurers in the wake of savage share falls. Speculation that already surrounds weaker companies has even extended to the huge Edinburgh mutual, Standard Life, led by chief executive Iain Lumsden.

Standard may have provided ammunition for critics by remaining heavily invested in shares - unlike many rivals. Some 75% of its £35bn with-profit fund is still in the stock market. It is therefore more vulnerable to further setbacks than rivals that have switched large chunks of assets into bonds.

The fund's free asset ratio, a measure of the cushion of assets over and above obligations to policyholders, was 5% at the time of its most recent return to regulators in November. It will have grown even slimmer following the latest share falls.

The Scots giant recently raised £1bn through a bond issue, though it denied that it had done so in order to shore up its capital. It said: 'We certainly are solvent. We are not selling shares at the moment and we are happy with our equity holding.'

Rival Friends Provident denied reports of an £800m bond issue to boost its finances. Its latest free asset ratio was around 7.7%, though that includes around £600m of financial engineering and will also have fallen in recent weeks.

Fears that life assurers may have been liquidating share holdings to meet solvency requirements helped push shares on their precipitous downward spiral on Monday. Insurance shares also suffered because of worries over the impact of Ron Sandler's report into savings. Leading players, including the Prudential and Aviva, said they were not offloading shares.

The Financial Services Authority recently relaxed 'resilience' tests that might have forced insurers to sell more heavily.