S&P Affirms 'AAA' Rtgs on Standard Life; Otlk Stable.

Business Editors

LONDON--(BUSINESS WIRE)--Standard & Poor's

July 24, 2000-- Standard & Poor's today affirmed its triple-'A'-long-term counterparty credit and insurer financial strength ratings on The Standard Life Assurance Co. (Standard Life), the largest mutual life insurance company in Europe. At the same time, Standard & Poor's affirmed its 'A-1+' short-term commercial paper rating on Standard Life Assurance Co. Funding Inc., based on the unconditional and irrevocable guarantee of Standard Life. The outlook is stable.

The ratings are based on the company's extremely strong capitalization, extremely strong business position, very strong operating performance, and high-quality service standards.

Major rating factors:

-- Extremely strong capitalization. Standard Life's capitalization is extremely strong according to Standard & Poor's U.K. life risk-based capital model. Traditional measures of capital adequacy also demonstrate the company's position as one of the best-capitalized U.K. life offices; minimum margin coverage was 6.3 times (x) at year-end 1999, up from 6.1x at year-end 1998. This capital strength enables Standard Life to maintain a high equity backing ratio for the benefit of its with-profits policyholders, without threatening the company's financial strength.

-- An extremely strong business position. Standard Life is the second-largest U.K. life office (based on 1999 data), with a U.K. life and pensions market share of about 6.5%. The company was the leading provider in the independent financial adviser (IFA) sector in 1999, with a market share of more than 10%. The group also has a very strong franchise in the Canadian and Irish life markets and is increasing its geographic diversity through operations in Germany and Spain. Overseas business accounted for 27.5% of total life and pensions new business in 1999 (24.7% in 1998) and this percentage is expected to increase, reflecting the strong growth potential of these overseas operations.

-- Very strong operating performance. The closure of the appointed representative sales channel in the U.K. and the career agency salesforce in Canada demonstrate Standard Life's focus on efficient and profitable product distribution. This efficiency in new business generation is demonstrated by an acquisition expense ratio of 51.5% in 1999, which compares favorably with that of peers and the market average of more than 70%. Noncommission expense control also is very strong, while its expenses-to-assets ratio of 1.1% is about one-half the industry average.

-- High-quality service standards. Standard Life continues to receive industry recognition for its high-quality service standards, with awards for 'Life & Pensions Service Provider of the Year' from Financial Adviser, 'Company of the Year' from Money Marketing, and 'Life & Pensions Company of the Year' at the Personal Investment Marketing Show (PIMS). This is a clear competitive advantage for Standard Life in the IFA market.

OUTLOOK: STABLE

Extremely strong capitalization will remain a key competitive strength for Standard Life, with minimum margin coverage expected to average between 5.5x-6.0x over the long term. A subdued pensions market is expected in 2000 and early 2001, reflecting uncertainty in the run up to stakeholder pensions. This is expected to result in flat pensions sales for Standard Life in 2000. However, the introduction of a with-profit bond--previously a gap in Standard Life's product range--combined with an innovative with-profit annuity, will lead to market share gains over the medium to long term. Standard Life's competitive advantage in expense efficiency and service standards is also expected to be maintained, Standard & Poor's said.---CreditWire

Copyright 2000, Standard & Poor's Ratings Services