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2: Sandy Crombie: Strategic Transformation

With his appointment as Group Chief Executive, Crombie took
over Europe’s largest mutual with 2.6 million with profits members
and immediately instituted a new era in the company’s history. The
company would commission a “strategic review”. In the light of the
new regulatory environment and other changes in the industry the
review would determine which capital structure would be most
appropriate.

One of the options to be considered for altering the capital
structure was demutualisation of the business with a view to
seeking a stock exchange listing.

It was acknowledged that the group’s mutual structure, and the
increased regulation to which it was now subject, imposed
limitations on its ability to access additional capital and could limit
opportunities for planned growth and development, placing the
group at a disadvantage to insurance companies which did not
have such a structure.

Malcolm Wood commented that:

“At the end of March 2004, we had identified

demutualisation and IPO as the preferred option. Once
that decision had been made, we could see a way
forward.”

At the beginning of 2004, Standard Life reduced the projected
values of with profits policies. The rationale for this was that
Standard Life should not create policyholder expectations that they
would receive ‘benefits of mutuality’ because of the deterioration in
its capital base and the capital impact from new reserving rules. At
the time, payouts still included a discretionary payout in respect of
‘benefits of mutuality’. However, Standard Life’s capital condition
did not improve as investment conditions improved and, as a
result, it announced in October 2004 that these discretionary
payments would be gradually phased out from payouts.

With profits maturity payouts also gradually reduced as they were
brought closer to underlying asset values. A 25-year, £50 a