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Standard Life's financial strength has been protected from the extraordinary stockmarket volatility by insurance policies it bought three years ago.
The insurer, which was forced to float in 2006 because of its weakened balance sheet, insisted today it had lost just £100m from its capital cushion in the last three months because the hedges it has taken out against "catastrophic" market falls.
If the stockmarket fell another 40% its surplus would fall to £1.9bn, from its current level of £3.4bn.
This contrasts with rival Aviva which revealed earlier this week that the surplus capital it holds to convince regulators it can withstand market falls had been eroded by £600m to £1.3bn.
While Standard Life reassured the City about its financial strength, its shares were down 2% at 196.2p on disappointment that its worldwide sales of life and pensions were largely unchanged at £12.4bn in the first nine months of the year.
Chief executive Sandy Crombie said: "The conservative investment management policies we have adopted over the past few years have resulted in a balance sheet that is both strong and resilient".
The insurer had £3.4bn of surplus capital at the end of September, compared with £3.5bn at the end of June despite a 37% fall in the FTSE 100 since August, which has forced Standard Life to cut payouts to policy holders and inflict exit penalties on customers' cashing in policies early.
Finance director David Nish said the group was continuing to roll over hedging positions it had taken out three years ago to protect against stockmarket falls. The idea of the hedges was to avoid Standard Life from coming "off a cliff edge" with the slide of the FTSE 100 - as risked happening to many insurers during the last downturn in early 2000.
Nish said Standard Life had been forced to let £1.2bn of its mortgage business leave because it wanted to reduce its need to raise finance on the wholesale markets. The reduction in mortgage business and an increase in savings means that Standard Life now needs to raise 20% of the funding for its banking arm on the wholesale market compared with 30% previously.
Analysts at Merrill Lynch said the news on capital was "encouraging". "The surplus is fairly insensitive to a further 20% fall in equities (down £0.1bn) but this sensitivity increases with further falls with each 10% decline thereof removing £1.3bn of surplus," the analysts said.
The shares continue to trade below the 230p flotation price in July 2006 and handed to more than 2 million policyholders.
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