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Standard Life's PI insurers back out of £100m payout battle

by Jun Merrett on Jan 14, 2013 at 15:59

Standard Life's PI insurers back out of £100m payout battle

Standard Life's professional indemnity (PI) insurers have dropped their fight against covering the cost of the insurer's £100m payout to investors in its Sterling fund.

Following an unsuccessful appeal of the initial court decision in Standard Life's favour, the PI insurers will not seek to appeal to the Supreme Court.

In February 2012, Standard Life won its £100 million claim against its insurers, who then appealed the decision. However, this was rejected by the Court of Appeal in December.

The £2.2 billion Standard Life Sterling fund was marketed by the company as a 'cash' fund despite investing in asset-backed securities which caused the fun to lose 5% of its values during troubled markets in 2009.

Standard Life then injected £100 million into the fund to reverse the drop in value but was later fined £2.45 million by the Financial Services Authority over misleading investors.

9 comments so far. Why not have your say?

Julian Stevens

Jan 14, 2013 at 16:33

Good old PI insurers ~ always there to provide you with the cover you've been paying them for when you it (not).

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John Borgars

Jan 14, 2013 at 16:45

Hey, Julian

This time they are paying up.

Generally insurers pay for the risks that they have contracted for, not for the ones that in hindsight you wish you had thought about but didn't.

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Julian Stevens

Jan 14, 2013 at 17:11

The only reason they're paying up is that a Court of Law has instructed them that they have a legal obligation to do so. Otherwise, they wouldn't be. One wonders on what grounds they tried to argue they had no liability.

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John Borgars

Jan 14, 2013 at 17:31

Probably because Standard Life paid up in advance of a court ruling that they had a legal liability (as a shareholder, because I have a with-profits policy, I supported that decision), Whereupon the question arises: did Standard Life pay up because it had a legal liability or just because it was good PR? In my view, Standard LIfe had a moral responsibility, but Pi does not cover moral responsibilities.

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David V Henderson

Jan 14, 2013 at 17:34

Actually, I think the insurer had a point this time. The marketing department wrote the prospectus for the fund and omitted to mention anything to do with asset backed securities. It was, according to them ,a cash fund.Someone in the fund team signed this off.

Now given where we are in the jolly world of financial advice and investment, this is not exactly a minor issue. One would hope that a company like Standard Life would be able to clearly display what is investment and what is savings.

Quite frankly, this was catastrophic mismanagement not of an investment...but of a simple proof reading process.

If they can't do that properly then it really does make you wonder about the complicated stuff.

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Jan 14, 2013 at 18:03

I can hear pencils being sharpened in the PI insurer's premium rating office.

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Jan 15, 2013 at 10:00

I'll bet the top brass at Standard Life are kicking themselves now. If they'd simply adopted the same stance as Capita are doing regarding Arch Cru they could have paid a fraction of the £100m and simply placed the blame on the advisers. After all, the advisers should have "known" that Standard Life weren't doing what they were supposed to be doing with the Cash Fund and, as we all now know, that's good enough for the FSA.

I doubt any other investment company will ever follow Standards Life's lead when a similar issue arises in the future - and rest assured it will - as the FSA, with their disingenuous application of s404 redress powers, have effectively sanctioned such an approach and expect advisers to pay.

If it can happen with a supposedly bog standard Cash Fund just imagine the opportunities for catestrophic results (for our businesses) that could arise when a "proper fund" goes astray.

What a disgraceful environment we work within these days.

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Jan 15, 2013 at 10:53

As soon as everyone realises that 'spin' is a vital tool in attracting ourselves as advisers to funds that we recommend to our clients, through prospectuses, factsheets and all the marketing bumf that heads our way every second of every day. This publication is paid for by these marketing departments, and they all vie for our attention. I bet the fact the Standard Life fund could invest at the managers discression in asset backed securities was buried in some small print in the prospectus, but not mentioned in mainstream marketing material. If my memory serves me well, SL had two 'cash' funds, the one in question had a better return than the other main fund. How was this achieved? Our firms research sussed this out and only used the main fund, probably lucky, but hey ho!

Lesson for FAs 101. The purpose of every fund group, fund manager etc is to attract funds under management they can charge for. The performance, the investment strategy is secondary to this and funds will be created to attract suckers who like the trendy stuff. Fund of Funds, Manager of Managers, Risk balanced investments, Hedge fund type investments are all created so you will recommend your client's into them.

New Star took this to the limit, all spin, no performance and look what happened to them! Long term its performance that counts, but if you are a director of an investment house, who cares, you will only be in that job for a few years, then move on.

Being sceptical keeps me going and helps my clients make money.

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Paul via mobile

Jan 20, 2013 at 02:13

I agreezz

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