Page 5 -

4. lower expected future investment returns meant that
guarantees became more valuable. At the same time, tighter
regulatory requirements developed in the wake of the
Equitable debacle meant that more companies backing such
guarantees with an investment mix dominated by equities
and property were required to hold more capital in reserve
than before.

The company went from a position of top ranking for financial
strength AAA rating in 2000, to AA- by the end of 2003.

In the early part of 2003 David Stonebanks, a retired electrical
engineering teacher from Stevenage, began building support for a
new demutualisation campaign. However, those expecting
bonanza windfalls were destined to be disappointed. The free
assets of the company had plummeted in the previous three years,
after sharp falls in equity markets had seriously eroded its capital
position. Where in 2000 Standard had available assets of £10.5bn,
by 2003 this had reduced to £3.6bn.

Once again Standard Life management fought off this attempt to
force a vote among its members on abandoning its mutual status.
They argued that mutual status was much more beneficial for
members as profits could go to policyholders rather than to
shareholders.

Moreover, Standard Life’s board insisted that its on-going
commitment to equities, during the worst bear market for 80 years,
would yet turn out to have been the correct strategy. With around
60 per cent of the with profits fund invested in equities, Iain
Lumsden, the chief executive said,

“When markets turn, prices can move very rapidly, it
can be extremely dangerous to be out of equities at
such times.”

However, as Crombie points out:

“The view with the equities market was to “ride the
roller-coaster”. The difficulty was that you couldn’t tell
where on the cycle you were.”

2003 also saw Gerry Grimstone join the Standard Life Board. He
had come from an investment banking background.