Fitch Ratings has affirmed Standard Life Assurance Limited’s (SLAL) Insurer Financial Strength (IFS) rating at ‘A’ and Long-term Issuer Default rating (IDR) at ‘A-‘. Fitch has also affirmed the Long-term IDR of Standard Life plc (Standard Life), the top holding company for the Standard Life group, at ‘BBB+’. In addition, the agency has affirmed Standard Life’s subordinated debt at ‘BBB’. The Outlooks on the Long-term IDRs and IFS rating are Stable.
Standard Life’s ratings reflect its strong business position in the UK life and pensions market. In terms of sales volumes, the company is one of the leading players, driven by its success with self-invested personal pensions (SIPPs).
Standard Life has low debt leverage and remains well-capitalised. “Standard Life’s ‘capital-lite’ product mix does not generate high exposure to investment guarantees. This means that its capital buffer is less geared to financial markets than that of many other UK life insurers,” says David Prowse, Senior Director in Fitch’s Insurance Group in London.
“The downside is that the earnings power of Standard Life’s product mix is dependent on the value of funds under management, which is sensitive to financial markets and policyholder surrender rates, particularly for the large volumes of SIPP business sold in recent years. The extent to which the company can flex its charges and cost base in the event of falling fund values is key to maintaining profitability. However, Standard Life is still seeing strong net inflows and growing funds under management,” adds Prowse.
The main driver of Standard Life’s ratings is its ability to maintain its position and profitability in its key UK pensions market in the face of increasing SIPP competition and the introduction of the Retail Distribution Review (RDR). Failure to achieve this could lead to a downgrade. Greater product diversification beyond the UK pensions market, or enhanced profitability within it, as indicated by operating return on assets, could lead to an upgrade.
Under the RDR, due to take effect by the start of 2013, financial advisers will no longer receive sales-based commissions from insurers. Instead, they will charge fees directly to their customers. Fitch believes the RDR will lead to a shift of some customers away from independent financial advisers (IFAs), the main sales channel for Standard Life and many other UK insurers. For more details on the RDR, see Fitch’s report “UK Life – Retail Distribution Review”, available at www.fitchratings.com.
Source : Fitch Ratings
