The Lowdown: How easy will Crombie wear the mantle?

Standard Life's new chief executive talks to Jason Nissé about the crisis enveloping the firm

Last Tuesday, Sandy Crombie achieved his lifelong ambition. The boy from a small town on the North Sea coast in Fife, who left school at 17, became chief executive of the firm where he had worked for 37 years. Unfortunately the company is Stan- dard Life and Crombie took over in the midst of the greatest crisis to hit the Edinburgh life firm in its 178-year history.

His appointment was overshadowed by the departure of his predecessor, Iain Lumsden, amid a row with the Financial Services Authority (FSA) about how Standard Life should present its accounts. At the same time, the firm announced a review that could lead to the end of its mutual status and a stock market flotation.

"I could have enjoyed better first days," Crombie admits, sounding a little weary after fielding calls from policyholders, regulators, merchant banks and employees all week. "But it's an honour and a pleasure nevertheless."

The trained actuary, who has spent the past six years building up Standard Life's 300-strong investment team, faces a huge challenge in the coming weeks and months. The first thing he has to do is hire advisers to work with a team from inside the firm on its "strategic review".

He denies that either the terms of reference or the choice of advisers is set yet - though the City assumes they will come from UBS, which has long been close to Standard Life. "We will define the review in some detail in a few weeks' time," Crombie insists. "We have to have a full board meeting. That is the point at which we will confirm the team."

But how come the only potential outcome mentioned in Tuesday's statement was "demutualisation"? The mere mention of the word caused shockwaves in Standard Life's head office on Edinburgh's Lothian Road. After all, the firm's mission statement, which has now been removed from its website, said: "Our mutual status is a key factor in our success." "We could have mentioned a whole raft of options," says Crombie. "But because everyone mentioned the 'd' word, we had to address that and admit it was a potential outcome."

He refuses to discuss these possible alternatives, though this has not stopped others in the industry. Solutions to Standard Life's dilemma could come from cutting back on the writing of new business, particularly selling with-profits policies which, under the FSA's rules, require a high level of capital to be allocated by Standard Life.

Another option is to sell some of the group's non-core businesses, such as its relatively recently launched bank and its thriving Canadian business. Or it could sell the group lock, stock and barrel, a move that would be as popular in Edinburgh as cancelling Burns Night.

Whatever the outcome, Crombie does not intend to mark time. "I want this done as quickly as possible. We have our AGM in early April and we will make a report then. If it is finished, it will be a final report. If there are still details that need to be made certain, it will be an interim report."

Along with the strategic review, Standard Life needs to appoint "skilled persons" (accountants and/or actuaries) to review the discrepancy between what the FSA thinks Standard Life's accounts look like and what the firm has argued. This is the nub of the row that has led to the current situation.

The City regulator is insisting that all life firms move to "realistic reporting". This change, prompted by the collapse of Equitable Life four years ago, aims to predict future liabilities better by using "stochastic modelling". This is where you take various scenarios at random and calculate how they would affect a life company, then work out how likely these outcomes are and how much capital the firm needs to protect its customers.

Realistic accounting does not need to be used until the end of this year, but when Standard Life tried to produce "realistic" accounts for its last financial year, which ended in November, its sums and the FSA's were some £3bn apart.

Trying to get a plain English explanation of the difference of opinion is difficult, but one interpretation comes in how you view the benefits of being a mutual. Standard Life argues that not having to pay out dividends to shareholders means there is more for holders of with-profits policies. With realistic accounting, the FSA argues that Standard Life should increase its reserves to cover this extra benefit - meaning the firm had less free capital than it had hoped.

As it has been probably the largest seller of with-profits policies in the UK over the last few years, this was a big factor. Does it mean Standard Life should cut back on with-profits?

"The with-profits product has been less popular and I have to say it has taken a bit of a battering," admits Crombie. "It has been effective for many people but it seems people are not buying it to the same extent."

He then extols its virtues before conceding: "It's very difficult to know where with-profits is going in the short term."

A deal with the FSA has been agreed that will allow Standard Life to publish its accounts in the middle of next month. This will be followed by the launch of a bond issue to raise £750m, which will be added to the group's capital. The FSA row has led credit agency Standard & Poor's to cut its rating by two notches to A+.

Crombie admits the row, and the uncertainty over Standard Life's future, will increase how much it has to pay to investors for the bonds, but "various investment banks have told us that the bond issue is eminently doable". Will the issue be carried out by the same bank as the one appointed for the strategic review? "If it is, it will be by coincidence not design," says Crombie.

The quietly spoken Scotsman, who claims he only loses his temper with his teenage daughters, is working as hard as he can to bring an air of confidence and calm to a situation that has all the hallmarks of Standard Life being panicked into giving up its mutual status. He says there is no one on the board, or in the management of Standard Life, who does not believe the group should be considering demutualisation, despite this being a dirty word under his predecessors, Lumsden and Stuart Bell. "We are all logical people. No one has a closed mind."

So did Lumsden have a closed mind? "I have refused to get into discussions about Iain's departure. Iain is happy to let it be known he supports this process."

There is still talk of further upheavals at Standard Life but Crombie refuses to be drawn until the group has completed the review. He does, however, deny speculation that finance director John Hylands will be a victim of the FSA row. "I don't think this affects his position at all."

Ironically, three years ago Crombie lost out to Lumsden in the battle to be chief executive of Standard Life. Would things have been different if he'd won? Possibly. But now the man who has worked all his career for one firm has, as his swansong, to steer it through a transformation. Millions of customers can only hope he is up to the task.