British insurer Standard Life will spend 72 million pounds compensating 97,000 customers angered by a fall in the value of a pension fund many had considered a safe bet.
Brian Dennehy, managing director of financial advisor Dennehy Weller & Co, said today's move by the life insurer was a welcome and unusual step.
"It is the first time in my career spanning three decades that I can recall a major institution doing the right thing so early in an episode, without everyone resorting to lawyers and trial by media," Dennehy said.
Standard Life said in a statement that the information it had provided on its Pension Sterling Fund may not have prepared people for a 4.8 percent drop in value announced on January 14.
"We have listened to feedback and the concerns of our customers and key business partners and have decided to put customers back in the position they would have been before the valuation adjustment," the company said in a statement.
Customers who have already left Standard Life since it announced the fall in value will also benefit from the immediate cash injection.
Dennehy said the move could set a precedent for life and pension companies with similar cash funds but that the Standard Life case was specifically related to the literature that accompanied the fund.
"Standard Life had clearly marketed this fund as a cash fund," he said, adding that the IFA (independent financial advisor) community had been contemplating class action lawsuits and a boycott of Standard Life.
DAMAGE LIMITATION
The insurer said, however, that it would continue to run the fund in the same way, investing in potentially riskier asset-backed securities as well as bank and building society deposits.
The investment strategy aimed to provide greater returns than funds invested purely in cash deposits, it said.
"Overall, the assets held within the fund are considered to be of high quality and, based on current expectations ... represent sound investments."
Customers who found it too risky could always switch to a pure cash fund, Standard Life added.
Shares in the company, which had already lost almost 10 percent since the fall in the fund's value was announced last month, were down another 1.6 percent at 202 pence by 0941 GMT.
Analysts welcomed a refund they said should help limit damage to Standard Life's reputation.
"We believe that this is a good move for the company that prides itself on its good reputation, just a pity that this decision wasn't made prior to all the uproar," Panmure analyst Barrie Cornes wrote in a research note.
"We do not think that this will have done any lasting damage to its reputation amongst IFAs, but at the same time it can ill afford any further mishaps from a credibility point of view."
The company said the payment would result in a pre-tax charge of about 100 million pounds and that the net impact on 2008 profits would be about 72 million pounds.
Analysts expect the company to report a pre-tax profit of 899 million pounds before the inclusion of any exceptional items, according to the average of six forecasts compiled by Reuters Estimates.
Its worldwide sales of life insurance and pension products were 15.6 billion pounds last year.
The company said its dividend policy would not be affected by the refund.
Excluding the impact of the charge, the company said its total return on embedded value (RoEV) -- due to be announced with 2008 results on March 12 -- would have been ahead of guidance issued on January 28.