Standard poised for fresh battle to see off carpetbagger

Britain's biggest life company under renewed pressure to demutualise after sharp fall in markets hits funds
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The Independent Online

Standard Life, once the pride of prudent mutuality, looks set to face its demutualisation demons once again this summer.

David Stonebanks, a retired college lecturer from Hertfordshire, is growing ever closer to collecting the 1,000 requests from members he needs to call an extraordinary general meeting of the company. He said yesterday he had received 950 signed forms, and was receiving up to 30 new forms a day.

Standard, which was founded in Edinburgh in 1825, is an entirely different beast to that which fought off its last demutualisation campaign three years ago. It then had more than £12bn in surplus cash and policyholders turned down the potential for up to £6,000 in windfalls.

Since then stock markets have crashed and Standard Life has lost billions of pounds on its investments. Some fear that the company's finances are on such a knife-edge that it may have to demutualise to raise desperately needed capital, regardless of Mr Stonebanks' campaign.

Mr Stonebanks admits the company is only worth up to £6bn, half its value three years ago, and its 2.5 million members would receive only around £2,000 in shares each if the company listed on the stock market.

"I know we are not going to get anything like £12bn now. I would have got around £40,000 in 2000, but even if I only get a quarter of that now, it is still better than nothing," said Mr Stonebanks, who believes policyholders are growing more and more disenchanted with the company's management.

He needs 75 per cent of members to vote for the proposal to succeed in forcing management's hand.

Standard Life yesterday said it would be contesting the vote as "forcefully" as it did in 2000, when it spent £10m on winning member support.

"The message is very simple. It is not in the best interest of the company and its members to demutualise," Gordon Arthur, director of corporate affairs at the company, said yesterday. "We are pragmatic about mutuality, not evangelical. The difference in performance between Plc companies and mutuals can quite clearly be seen. We run the company to enable us to pay out more than our Plc competitors and have been top of the pay-out tables consistently. That is because we do not have to pay dividends to shareholders or pay them a return on capital for managing their money."

The message of mutuality has, however, been falling on many deaf ears, as policyholders saw their payouts on with-profit policies cut back sharply. Policyholders had 10 per cent chopped off their funds in September and then a further 15 per cent in February this year. Some 1 million endowment policyholders are facing a shortfall in what they need to pay off their mortgage.

News that Standard's directors earned more than £2m in "performance-related" bonuses for 2002 while their own payouts were cut has provoked ire from many policyholders.

The prospect for future policyholders joining the company now may also be somewhat dented, as any gains made from the stock market from now on are likely to go into restocking the kitty.

For this reason, some of the high-profile supporters of the previous campaign are refusing to give Mr Stonebanks their support. Fred Woollard himself has said the market conditions would make it very difficult for Standard to survive on the stock exchange. Paul Braithwaite, better known for representing Equitable Life policyholders, has asked Mr Stonebanks to end his campaign. Ronnie Sloan, an Edinburgh actuary who stood for the board, is still a strong critic of the company's behaviour, but he also sees no merit in demutualising now.

There is little doubt that Standard's kitty has been much raided in the past three years to keep payouts at their elevated levels. This may, however, be the company's undoing if it begins to run short on cash.

Scott Bell, chief executive in 2002, said the capital the company held at that time was "no more, and no less" than it needed to keep its heavy investments in equities.

Since then it has lost around £12bn over the past three years on stock market investments, around £5bn in the past year. Its aggressively bullish stance on equities meant its free asset ratio has dwindled from 14.3 per cent to barely above the 4 per cent regulatory minimum. It has had to use £1.5bn of future profits to help it meet its statutory requirements and has this summer asked the Financial Services Authority to waive solvency requirements.

The company's surplus assets are now only £180m above what it needs to pay its liabilities, according to Ned Cazalet, the independent insurance analyst. This is a ratio of surplus assets to liabilities of 0.6 per cent, and compares to a figure of 33 per cent two years ago and 19 per cent last year.

"I do not believe Standard has enough capital. Excluding future profits and counting its debt as a liability that must be repaid, it has wafer-thin excess assets," Mr Cazalet said yesterday, saying he believed demutualisation was inevitable. "It would need to raise up to £2bn on flotation to provide it with the capital it needs," he said.

The past few years has seen a string of mutual life insurers converting to publicly quoted companies as a means to raise much-needed capital. Friends Provident listed on the stock exchange in the summer of 2001, raising £1.5bn to strengthen its balance sheet during a bear market. Norwich Union demutualised and floated on the stock exchange in 1997 and raised £2bn at the same time.

Mr Arthur denied the company was running short of cash and might need to demutualise, and said capital was "not a consideration" for the company, which had plenty of funds to continue growing the business - and investing in equities.

Listing now could force the insurer to join the stock market at a very difficult time. Quoted life insurers have certainly not been enjoying good times in recent years, and have looked on in envy at their mutual peers. They have avoided the double gearing listed life insurers are exposed to - seeing their own share price fall alongside that of their investment portfolio. Aviva, Legal & General, Prudential, Britannic and Royal & Sun Alliance have all seen their share prices crash on fears that falling stock markets were stretching their solvency to the limit. Floating a life insurer in these conditions is a risk that many would not want to take.

The City would take some convincing that the UK life insurance sector is a turn-around story just yet and many analysts believe it will continue to struggle against negative sentiment, not helped by government plans to introduce more price controls on savings and investment products.


David Stonebanks, a 63-year-old retired electronical engineering lecturer from Stevenage, Hertfordshire, is an unlikely giant life insurance killer. A quiet man of relatively modest means, he is certainly far removed from the last person to take on Standard Life.

Fred Woollard, the Australian fund manager who lived in Monaco, the playground of the rich and famous, ruffled more than a few feathers in Edinburgh with his demutualisation campaign three years ago.

Mr Stonebanks bought seven Standard Life endowment policies in 1991 after selling a house he had built in the bottom of his garden. He did not vote in 2000, however, as he did not have membership rights.

Mr Stonebanks, now a fully signed up member, launched his campaign to convert Standard in January this year after fearing the surplus assets of life insurers would be used to top up dwindling pension funds. He set up a dedicated website and gained 1,350 expressions of support from members.

He is now charged with the full-time task of turning that support into official requests for an egm and is only a handful away from the crucial 1,000 votes he needs to requisition an egm.

He believes current policyholders have a right to access the value of the company, which has not served all policyholders well as a mutual. He has asked for a payment of £12,500 if his campaign is successful, in lieu of the time spent working on the campaign.