Standard Life respects the views of its policyholders, including Michael Hogan* (Personal View, August 21), but we must disagree with his analysis regarding Standard Life and its development strategy.

Standard Life is developing a demutualisation proposal to float on the stock market with a diversified portfolio of UK and international businesses. Our brand is strong, our customer service culture gives us a valuable competitive edge, as do our established distribution channels, especially those with independent financial advisers.

The strategy we are pursuing has been developed with the best interests of policyholders in mind. We acted decisively when, earlier this year, a new regulatory regime for the life industry and changes in the market, led us to review all the businesses within the Standard Life Group.

This review was conducted rigorously and with the help of expert, external advisers; all options were examined thoroughly. The findings of the review confirmed that Standard Life UK Life and Pensions, Standard Life Bank, Standard Life Healthcare and Standard Life Investments make up a strong UK franchise that should be retained and developed.

The review also examined the group's capital requirements and concluded that it will require access to further external capital to realise our plans for growth, as well as to maintain our existing businesses.

The board concluded that, in principle, demutualisation is the best way to address the need for further external capital to maximise the value of the company and deliver performance, reduce risk and crystallise value for eligible members.

It is envisaged that a demutualisation proposal will be presented to members by the AGM in 2006. Standard Life's investment in its Banking, Healthcare and Investments businesses was criticised in last week's article but the board believes that this diversification makes sense.

Standard Life's UK Life and Pensions business has, over many years, developed a leading proposition in a market that is highly competitive and likely to remain so. In the mid 1990s, the decision was taken to embark on a programme of diversification to reduce the concentration of risk and to provide a broader range of financial products to customers.

Our strategy has been to leverage the Standard Life brand, our distribution channels and service strengths. Our bank, healthcare and investments businesses are all relatively young and, like all new businesses, have required capital investment, but do not currently require further capital from within the group.

All these businesses have robust plans for future profitability and growth and the board regularly monitors their performance against rigorous financial targets, including return on invested capital.

Earlier this year we also announced we are repositioning the life and pensions business, which includes reducing costs and focusing on more profitable market segments.

From a standing start in 1999, Standard Life Banks mortgage book had reached £9.3bn by the half year. Since its launch in 1998, Standard Life Investment's third party assets under management have trebled from £5.3bn to £15.9bn. In addition, sales in bank, investments and healthcare were all up by more than 20 percent at the half year.

These successes provide evidence that, as a group, Standard Life has a strong UK franchise, as well as developing international businesses.

In addressing the issue of falling payouts, it is important to note that the capital invested in Standard Life Bank, Standard Life Healthcare and Standard Life Investments has not had a material impact on policy values.

The fall in policy values has predominantly come from the severe decline in stock market values and the continuation of the low inflation environment. Across the industry, payouts have fallen. Payouts on Standard Life policies have nonetheless represented a good investment return over the long-term when compared with other types of investment such as a managed fund or a building society account.

Mr Hogan may argue to the contrary, but Standard Life believes that by developing our businesses, we are serving the best interests of our members and customers over the longer term.

Gordon Arthur is Group Corporate Affairs Director at Standard Life

* Standard Life has contacted Mr Hogan to invite him to discuss the points he raised in further detail.