MUTUAL insurer Standard Life was last night locked in talks with the City watchdog over the interpretation of new accounting rules.

The society, based in Edinburgh, is in dispute with the Financial Services Authority over the interpretation of aspects of the new "realistic" regime which is being introduced from this year.

Reports in the media said the society would see its level of core capital more than halved once the new rules were implemented, potentially reducing the bonuses it paid to its 2.6 million with-profits policyholders.

Standard Life said it did not expect its solvency position under a statutory basis to be "materially different" from when it reported its interim results in August.

Then, the society had a free asset ratio - a key solvency measure which looks at the level of assets a firm has left after meeting its liabilities and solvency requirements - of 19.5 per cent.

But this figure took into account waivers granted by the FSA, such as allowing the firm to include in the calculation £1.5bn of future profits and £1bn of funds it had borrowed.

The FSA confirmed in a brief statement that it was in discussions with the society over the calculation of its balance sheet under the new regime, but said discussions were close to a conclusion.

Roger Doig, an insurance analyst at JP Morgan, said it was very unlikely that Standard Life would have a problem under the new regime.

He said: "We would be very, very surprised if the upshot was that one of the strongest companies had a big problem.

"If it does, there are a lot of other companies that would have far bigger problems."