News - Insurer suspends mortgage pledge
Life insurer Standard Life has said that it is unable to keep its promise to make up the shortfall in its customers’ endowment mortgages.
Up to 600,000 investors may be affected by the insurer’s move.
In 2000, the mutual said it would guarantee its endowment policies provided it met investment targets.
However, due to what the firm described as a “cruel investment climate”, policies maturing from 2006 will not be entirely covered by the promise.
Poor returns
Standard Life said it has put 393m aside since 2000 to cover its policyholders’ endowment shortfall.
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 The investment return has not been enough for us to continue offering the mortgage promise
Standard Life
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But the original promise depended upon “capital growth conditions being met”.
However, stock markets have fallen sharply since the guarantee was made.
“During the past four years the industry has had to cope with a cruel investment climate,” Jeff Newton, Standard Life spokesman told BBC News Online.
“The investment return has not been enough for us to continue offering the mortgage promise.”
The promise will still apply to policies which mature before 31 December 2005.
People with policies maturing after that date will still be in line to have some of their shortfall covered.
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This is a case of bringing the skeletons out of the closet
Doug Brodie, independent financial adviser
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Norwich Union, which made a similar promise to some of its customers, told the BBC it still proposed to carry out its pledge.
Time barred
Standard Life added to policyholders’ woes by announcing that it was to introduce a time bar on endowment complaints.
From February 2005, the insurer will be writing to affected policyholders to inform them that a time-bar may soon apply in their case.
The general rule, applied by many insurers, is that people must complain within three years of receiving their first ‘red letter’, outlining a likely shortfall, from their insurance company or lender.
Time barring can mean that people miss out on compensation for endowment mis-selling.
Under industry rules, policyholders whose three years have already expired will still get six months to complain.
Across the insurance industry, millions are facing shortfalls on their endowments, an investment product sold heavily in the 1980s.
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A time bar is a time limit on making a complaint about an endowment
Read more about time bars
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Many borrowers were told their endowments were guaranteed to pay off their mortgages, but some of those promises have fallen well short.
It is estimated that 3.5 million households are now facing shortfalls of more than 5,000 on their loans.
Skeletons
In March, Standard Life announced plans to float on the stock exchange.
Doug Brodie, an independent financial adviser and Standard Life watcher, sees the mutual’s decisions to impose a time bar and row back from its pledge to meet endowment mortgage shortfalls as part of preparing for flotation.
“This is a case of bringing the skeletons out of the closet,” Mr Brodie, told BBC News Online.
“It is hard on the policyholders, but if they want to move on to flotation they really don’t have any choice.”
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