Can Crombie revive Standard Life?

IT'S A FAIR bet Standard Life chief executive Sandy Crombie kept his Porsche in the garage this week. Ever since being acutely embarrassed by the timing of his £65,000 purchase last year - it came as 1,000 staff faced the sack - he has promised to be sensitive about choosing when to dash around in his Carrera.

Tuesday would not have been a good time to go for a spin. The once-proud mutual life insurer cut bonus rates yet again - reducing average payouts by 7% - just days after the Edinburgh-based company confirmed new business was down in the UK.

Crombie has been battling to reposition Standard Life ever since taking over from Iain Lumsden 13 months ago. He is aware that, if anything, he needs a Battle Bus rather than a sports car as he faces the toughest test of his career - winning the backing for de-mutualisation.

He needs not only 75% support from more than two-and-a-half million disenchanted members - those holding rapidly shrinking with-profits policies - but also a thumbs-up from the City's all-important moneymen. They need to be convinced Standard Life is a growth story they can buy into if and when shares come up for grabs, most likely in June of next year.

Value slashed

'We're at the start of what will be like an election campaign, albeit one that will run for 18 months,' Crombie says, adding: 'It's important we have a very good 2005. In 2006, when the market places a value on the company, it will look at 2005.'

Unfortunately for Standard Life, this value is likely to be considerably lower than five years ago, when Australian would-be carpetbagger Fred Woollard waltzed into town to force the company to float. Then, Standard Life was given an estimated market value of up to £15bn, which would have handed members a £6,000 windfall. Now, the company would do well to make the middle reaches of the FTSE 100 index. And members could now get little more than £1,000.

The reasons for its fall from grace date back to Woollard's defeat and the subsequent suicidal chase for market share launched by the board. While Crombie is reluctant to throw blame around, he is clear enough to suggest he would have done things considerably differently if in charge then.

'You only have to look at the actions I've had to take,' he says. 'Sell £7.5bn of equities, go into bonds, take away the benefits of mutuality out of policy illustrations, take 20% out of costs in the UK, change the product mix and bring in new products with a higher margin. If that's not a demonstration that wrong things were being done, what is?'

He insists that, even as chief investment officer during the turbulent run, he could not affect the group's startling decision to maintain a high exposure to equities long after the tech bubble burst. While he voted to stay mutual five years ago, Crombie says: 'The future looked somewhat different then.'

Viable option

This time round, he is passionate in his belief it is only through a stock market listing that Standard Life can have any chance of recapturing its former glory. Once the mutual agreed to the Financial Services Authority's long list of orders a year ago - following six weeks of frantic talks over the state of its balance sheet - de-mutualisation was effectively the only viable option left to the board.

Announcing the outcome of the talks in January last year (after which Crombie took over) Standard Life announced it was to raise £750m in fresh capital. It now needs access to more if it is to grow and take on the Aviva and Prudentials of this world.

Ned Cazelet, independent insurance analyst, says: 'They need capital. This isn't some interesting parlour game. If they decide to carry on as before, what are they going to use for money, buttons? They need to get the strategy right, build the bicycle, get on it and show people what they can do.'

Crombie's first task has been to put the core UK life and pensions business on a firmer footing. This is why he is not too concerned by falling life and pension sales in the UK last year. More importantly for him, the margins on new business were broadly the same in the second half of 2004 as the first.

He maintains that with-profits, while a smaller part of the sales mix, will still form a core part of the product offer, alongside other profitable saving plans. Fees paid to independent financial advisers on low-value pension products has been cut in a bid to reduce the need for capital in parts of the business.

Foreign growth

The structure of Standard Life Plc will be flagged to the City later this year and, while Crombie wants the UK to form the heartbeat of the business, he wants its other operations - including Germany, Canada, China, India and Standard Life Bank - to take up the slack.

He says: 'What I'm trying to do is drive up the proportion of distributable earnings from other businesses outside the UK in the medium term so it's half and half. At the moment, UK life and pensions is around 75% of our business.'

While getting the message right externally - and Crombie insists roadshows with angry members have 'gone well' - the other role has been improving HQ morale. He also concedes the company needs to shed its arrogant reputation.

Trevor Matthews was brought in from Manulife in Japan in July to head up life and pensions and it would be no surprise if the finance director due to be appointed also comes from outside the business. Crombie's decision to skip a £500,000 bonus may help repair its image.

'There are an awful lot of positive things and good people here, it's not all bad,' Crombie says. 'One of the things I'm looking forward to this year is to see some different adjective describe us. We have had beleaguered and embattled. I'm hoping to see different words, like rejuvenated.'