» Skandia Global Group
» Skandia International
 |
|
|
Stock market volatility and current economic turmoilBackgroundWhat is currently happening in stock markets? What are the effects on individual investors?How does this affect Skandia customers? What should Skandia customers do if they are worried about the current situation? Should investors be more worried if they are heavily invested in the property or banking sector? If investors are approaching retirement, what should they do? How is Skandia affected?How is Skandia affected by the credit crunch? What about the solvency position of the insurance companies with the Skandia group? What is Skandia's exposure to Lehman Brothers, AIG and Morgan Stanley? Stock market volatility and current economic turmoil (Old Mutual)How is Old Mutual affected by the credit crunch? Does any of the Old Mutual Group have exposure to Lehman? Are Old Mutual's financial strength ratings affected?
BackgroundWhat is currently happening in stock markets? The period that the industry is currently going through, often referred to as the 'credit crunch', has caused high levels of volatility in various markets causing the sudden fall in share prices of some companies. At its heart is the US sub-prime mortgage market where those individuals who hold US mortgages, and are due to make loan repayments, are now thought to be increasingly likely to default. Those providing the mortgage loan – the banks – have typically borrowed money from other financial institutions to fund the loans, or have sold on the responsibility for the loan to other investment banks and insurance companies like AIG – thereby transferring the risk. This has led to the widening of the US sub-prime problem to these institutions as their ability to cover those secondary obligations becomes challenged. Stock markets around the world have reacted negatively to these events within the wider context of economic uncertainty. The recent extreme volatility in valuations for banks and financial services companies is related to their exposure to the loans and inter-institution contracts. Skandia does not conduct business in these markets. We do not loan money to customers and consequently we have no need for involvement in contracts to offset the risk of such loans. The uncertainty of interdependency amongst the various financial services institutions is still driving volatility in the markets. Intervention by the US and European governments, ensuring the continued viability of the financial sector, is designed to ensure greater confidence in the strength of the links between financial services companies. Restoring trust between those institutions is key to bringing the impact of the credit crunch to a conclusion. In addition, the restrictions on the short selling of financial stocks in both the UK and US are designed to protect shares in financial services companies from the additional volatility that can be created by investors being able to benefit from falls in these stocks. This has now been banned in a move designed to improve the stability of the stock market. Hector Sants, Chief Executive of the FSA, said: 'While we still regard short-selling as a legitimate investment technique in normal market conditions, the current extreme circumstances have given rise to disorderly markets. As a result, we have taken this decisive action, after careful consideration, to protect the fundamental integrity and quality of markets and to guard against further instability in the financial sector.' These provisions will be in force until 16 January 2009, although the FSA has conducted a 30 day review which, with one exception, has concluded that it should not make any changes to the measures at this time. The one change relates to the requirements for disclosing significant net short positions in UK financial sector stocks. The FSA accepts that it is not a proportionate requirement to require daily disclosures of short positions where there has been no change in a short position. Consequently the FSA will be making amendments to the Code of Market Conduct so that once disclosure of a short position has been made, additional disclosures will only be required when that short position changes. A further announcement will be made when this change has been made. The FSA will publish its Consultation Paper on short selling in January 2009. What are the effects on individual investors?How does this affect Skandia customers? Recent events, coupled with a slowdown in the global economy, have resulted in a period of heightened stock market volatility which, in the short term, has adversely affected the value of many funds. Investors have units in these funds, where the value is set day-to-day, based on the market value of the underlying investments eg stocks and shares, property and bank deposits. The unit's value can go up or down. Any current investment loss is 'crystallised' only when investors sell their stakes in the funds when switching into alternative funds or turning their units into the cash value on the day of sale. Investors who are re-evaluating their fund holdings should seek investment advice from their financial advisers. Skandia cannot give investment advice. Skandia's investment products offer a wide range of funds that investors can switch between, currently free of any charge by Skandia. The fund choice includes a wide range of funds that offer different exposure to equities (stocks and shares), bonds and government gilts, and cash. Investors and their financial advisers can switch between funds to match any change in an investor's own risk profile. Using this flexibility is a tool investors who are nervous in the current market conditions may use. Skandia's customers benefit from the different investor protection schemes in the regulated areas in which we operate. Generally, for UK residents, Skandia's customers are protected against Skandia going into liquidation through the Financial Services Compensation Scheme (FSCS). This is an industry-funded organisation which provide customers of financial firms with a safety net should any regulated firm be unable to meet its financial obligations. Follow the link below for further details of the levels of security for different products. Royal Skandia's customers are protected against Royal Skandia going into liquidation through the Isle of Man’s Life Assurance (Compensation of Policyholders) Regulations 1991. This scheme covers all policies issued by Royal Skandia on or after 1 February 1991 and compensates eligible policyholders up to 90% of the amount owed to them. There was a voluntary policyholder protection arrangement set up on 5 April 1998 (by the Manx Insurance Association). Policies set up under this voluntary protection are covered by the 1991 regulations. Please speak with your financial adviser for further details. Follow the links below for further details.
What should Skandia customers do if they are worried about the current situation? If customers are concerned about the impact of recent volatile market conditions on the performance of their portfolio, they should contact their financial adviser in the first instance and ensure the risk profile of their fund holdings matches their own risk profile. An investor's financial adviser can assess this for them. Skandia customers can use our secure client extranet at www.skandia.co.uk to obtain an up-to-date policy valuation. Skandia does not provide investment advice. Should investors be more worried if they are heavily invested in the property or banking sector? There are a number of reasons why an individual portfolio may have exposure to property or banking stocks and such holdings may well still be appropriate. Skandia recommends that customers consult their financial adviser before making any decisions relating to the asset allocation of their portfolio. If investors are approaching retirement, what should they do? There are a number of options that are available to customers concerning utilisation of their pension pot, including the option to defer taking pension benefits until a later date. At this time of increased market volatility customers will need to speak with their financial adviser to determine the best approach for their individual circumstances, ensuring the risk profile of their investments is appropriate to their own risk profile. Can you clarify the protection afforded to a policyholder/investor in the event of one of the fund groups (as opposed to Skandia) becoming insolvent? Skandia MultiFUNDS/Selestia Investment Solutions: If you have invested into a fund group that goes into liquidation, Skandia MultiFUNDS Limited can claim against the Financial Services Compensation Scheme (FSCS) on your behalf. You will be covered up to a maximum of £48,000 for the money you hold with each fund group, as above. Fund groups are also covered by the FSA's regulations regarding segregation of client and company money, so in the event of liquidation there shouldn’t be any client financial loss provided the accounts are in good order. Skandia Life Assurance Company & Selestia Life & Pensions: If you have invested into a fund group that goes into liquidation, then Skandia Life Assurance Company Limited and/or Selestia Life & Pensions Limited are unable to claim compensation from the FSCS on your behalf as you are not the legal owner of the funds. This is a different situation to the ISA and unit trust/OEIC products above as a life company is deemed a creditor of the fund group. Fund groups are also covered by the FSA's regulations regarding segregation of client and company money, so in the event of liquidation there shouldn’t be any client financial loss provided the accounts are in good order. I am an investor in the Skandia Self-Invested Personal Pension (SIPP). What level of protection do I have for my holdings in the SIPP cash account? Sippdeal Trustees Limited is the trustee of the Skandia SIPP scheme. The primary SIPP cash account is held with Bank of Scotland (BOS) and in the name of Sippdeal Trustees Limited. In the event of any default Sippdeal Trustees Limited would be able to claim on behalf of the beneficiaries as if they were a direct depositor in BOS, ie each SIPP holder would have protection up to £50,000 assuming they had no other investments with BOS. BOS itself is part of the HBOS Group. HBOS has agreed to be acquired by Lloyds TSB. The combined group will be one of the largest financial institutions in the banking industry. The deal is subject to regulatory and shareholder approval. The UK Government is supporting the deal, in the best interests of financial stability in the UK. Skandia SIPP customers should contact the Skandia SIPPcentre on 0870 060 3999 or their financial adviser for clarification on their investments. How is Skandia affected?How is Skandia affected by the credit crunch? Skandia's business model is almost exclusively built around providing investors access to a wide range of funds from third party fund managers. As a result we do not rely heavily on borrowing or the use of derivatives like some more traditional insurance companies. The businesses operated by Skandia in the UK do not include a bank and we make no loans to customers. We therefore have no direct involvement with the primary driver of the credit crunch. In addition, Skandia's minimal exposure to with-profit and guaranteed products removes solvency risk arising from market declines. Skandia remains profitable and its robust business model and tight control on costs is evidenced by a 14% increase in profits (to £91 million) for the first half of 2008, despite falls in new business sales. Skandia's customers benefit from the different investor protection schemes in the regulated areas in which we operate. What about the solvency position of the insurance companies with the Skandia group? Skandia has low financial leverage as a result of its exclusively unit-linked product portfolio. The group's minimal exposure to with-profit and guaranteed products removes solvency risk arising from market declines. What is Skandia's exposure to Lehman Brothers, AIG and Morgan Stanley? AIG: The protected element within the Protected Portfolio Investment (PPI) range is supported by zero coupon bonds from a number of counterparties, one of which is AIG. Lehman Brothers: Our exposure to Lehman Brothers stock within our Skandia Investment Management Limited (SIML) Funds is minimal. As always we are in close discussion with the underlying managers of our funds to ensure their holdings remain in line with our expectations. SIML's recently launched Skandia Alternative Investments Fund held the Lehman Commodity Plus Fund. SIML has moved quickly to sell that fund and is currently evaluating the funds on its reserve bench and will decide where to invest the proceeds based on the best interests of its clients. Morgan Stanley: Our exposure to Morgan Stanley stock within our SIML funds is minimal but we do hold Morgan Stanley retail funds within our MultiManager range. As always, we continue to monitor these holdings daily and liaise closely with Morgan Stanley to ensure our funds are managed in the best interests of our clients. It should be noted that fund groups are also covered by the FSA's regulations regarding segregation/classification of monies, so in the event of liquidation there shouldn’t be any client loss provided the accounts are in good order. It should also be noted that Morgan Stanley is the ISA plan manager for Skandia’s Protected Portfolio Investment product. Stock market volatility and current economic turmoil (Old Mutual)How is Old Mutual affected by the credit crunch? Old Mutual is an international financial savings and wealth management group with a wide range of businesses. Internationally its main operations cover asset management, banking, life assurance and general insurance. It is the parent company of the Skandia Group. Despite the falls in stock markets, the Old Mutual Group remains well capitalised and has sufficient liquidity to support regulatory and operational needs for the foreseeable future. The capital surplus of the Old Mutual Group remains above target for 30 September 2008 at £1.1 billion, and despite reducing further through October as a result of additional adverse currency and market movements remained ahead of target at £0.8 billion on 31 October 2008. Each of the companies in the group has investments to meet the fund or savings objectives of customers. These will be affected by volatility in the markets depending on the asset type, sector, and any protection offered. Each of the companies in the group has sufficient capital and liquidity to support their regulatory and operational needs. The Old Mutual Group additionally makes wide-ranging investments on its own behalf, with its own capital; these are distinct from the investments it makes on behalf of customers through the investment and savings managers of the group companies. Through its US Life business Old Mutual has investments in Freddie Mac and Fannie Mae, for which it has already made a write down of around $135 million in the value of the preferred stock in these companies. This was communicated to the market on 10 September 2008. Old Mutual also has exposure to Lehmans but this is not deemed to be significant to the financial strength of the group, as was announced on 17 September 2008. Does any of the Old Mutual Group have exposure to Lehman? Old Mutual owns no equity in Lehman. Old Mutual US Life ('US Life') has some corporate bonds of Lehman and very small amounts of counterparty exposure to derivative contracts. These exposures are not material within the context of Old Mutual. Are Old Mutual's financial strength ratings affected? The role of ratings agencies is to evaluate the financial strength of companies to provide assurance to investors. The recent events in the market have placed great focus on the financial sector, and the ratings agencies will be assessing ratings continuously. The specific issues in Old Mutual’s US Life operations have caused some re-assessment of that business. These changes will have a very small impact on Old Mutual’s ability to write new business in the US, but no other immediate impact is foreseen. The latest information on Old Mutual Group ratings are available here. |
Skandia Spectrum Funds An innovative new concept in portfolio management About Skandia An overview of Skandia |
|
|
Information on this website is not intended for Hong Kong residents. Information on this website about Skandia Group Companies is intended for UK residents only, unless it relates to Royal Skandia, Skandia Life Norge or Suomen Sivuliike. Skandia Group companies do not offer investment advice and no information on this website should be construed as such.
Calls may be monitored and recorded for training purposes and to avoid misunderstandings.  |
©2008 Skandia Legal and regulatory information (including product legal information) |
|
Protecting your money
