Europe's biggest mutual insurer, Standard Life, said on Monday it expects to clarify its balance sheet position on Tuesday after continuing speculation forced it to suspend dealings in its subordinated debt.
Standard's announcement last week that it was locked in talks with Britain's financial watchdog over how to calculate its capital position fuelled fears of a reserves crisis and triggered volatile trading in its normally relatively illiquid debt.
The 178-year old firm said it expected to shortly conclude its talks with the Financial Services Authority and would make an announcement setting out its position on Tuesday.
The Edinburgh-based firm suspended trade in its subordinated debt until its announcement after hearing of "unusual" trading.
A Standard Life spokesman reiterated that its 2.6 million policyholders do not need to worry about its financial strength but declined to comment on media speculation it was considering a stock market flotation to solve suspected regulatory problems.
A source familiar with the situation said investment bank UBS, Standard Life's adviser, was looking at strategic options for the group. UBS declined to comment.
Analysts said Standard Life was particularly hard hit by tough new solvency tests for life companies being introduced by the FSA later this year.
Standard Life's large holding of equities and the extensive guarantees it has offered policyholders mean it will be required to hold a larger amount of capital under the new "realistic" method of calculating balance sheets, analysts say.
Greig Paterson, analyst with Fox-Pitt Kelton, said Standard Life had a number of capital-raising options, including raising more debt, cutting its equity exposure or demutualising.
"But either way there will be brand damage for Standard Life. They have hung their hats on mutuality and the high equity holding of their fund."
One industry analyst said a flotation would probably flop and the company, if it needs to raise capital, would be better off looking for a trade buyer.
"It's better to float from a position of strength rather than everyone knowing you need to do it to raise capital. What they need to do is find someone who would be prepared to put capital into the business," the analyst said.
The analyst, who declined to be named, said some big international insurers might be interested, noting Dutch insurer Aegon has previously expressed an interest in the UK.
Standard Life, which has more than 90 billion pounds ($167 billion) worth of assets under management, raised one billion pounds in a debt issue in 2002.
Paterson said the poor publicity for Standard Life, which has a 10 percent share of the UK life market, could benefit larger listed rivals, like Aviva and Prudential, which have large orphan estates or investments that can be used to cushion policyholders from market volatility.
European insurers were slightly lower in early trade but UK insurers were mixed - Prudential was flat, Aviva was off 1.2 percent, but Legal and General was up 0.7 percent.
Standard's 6.375 percent euro bond due 2022 and callable in 2012 was indicated bid at a spread of 128 basis points over Bunds this morning, a trader said, around 10 basis points wider than the close on Friday. Bond prices fall as spreads widen.
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