WHEN Archie Kane was drafted in as Scottish Widows’ chief executive in September 2003, the life company was in turmoil.
Parent bank Lloyds TSB had just dumped Scottish Widows’ long-serving boss Mike Ross, while a £1.9 million fine for mis-selling “precipice bonds” from the Financial Services Authority loomed.
The heart had been ripped out of investments arm, Scottish Widows Investment Partnership, after a spate of high-level departures, including that of chief investment officer Sandy Nairn.
The conventional wisdom at the time was Lloyds TSB would struggle even to get a return on the £7 billion it paid for Scottish Widows in 1999-2000. Believing the chances of a full recovery to be low, financial pundits suggested Kane — criticised for not being an actuary but rather Lloyds TSB’s former head of IT and operations — had been brought in to “quietly draw a veil over the Widow”.
Two-and-half years down the track, Kane has rewritten the script. On Friday, the former Price Waterhouse chartered accountant unveiled a set of figures which suggest that Scottish Widows has turned a corner.
It emerged not only that Widows had “repatriated” £1bn of surplus capital to parent bank Lloyds during 2005 but had also managed to boost pre-tax profits by 12 per cent to £683m. Profits at SWIP doubled to £16m. Overall, the Edinburgh-based group brought nearly one-fifth of Lloyds TSB’s group profits, which also rose 10 per cent, to £3.82bn.
Kane is pleased to have boosted Scottish Widows’ market share of UK life and pensions from 5.7 per cent to 6.2 per cent, without jeopardising profitability or capital ratios.
“We’re very focused on making sure the new business that we write is profitable. It’s not only growth that we are looking for, but profitable growth, “ he says.
But Widows will not be matching the “eye-watering” commission rates being paid by Aviva in the pension arena, he warns: “We’re not about to pay ruinous rates of commission that would destroy the profitability of our business.”
A key challenge facing Kane when he came in was to ensure the bancassurance model — whereby an insurer sells its products through the branches of an associated bank — started to work better for Scottish Widows and Lloyds. Some progress has been made on this score.
He says: “Overall sales are up 21 per cent year-on-year. Within that, sales through IFAs are up 30 per cent and banc assurance sales are up 13 per cent. In bancassurance we’ve seen a 23 per cent increase in the second half [compared to that of 2004].”
In the IFA channel, Kane has chosen to focus on higher-value business through various large chains of advisers such as Inter-Alliance and Berkeley Berry Birch.
Kane admits one weak spot is in the intensely competitive market for protection products: “I’m not happy with our protection performance at the moment.” But he says the company is building a new platform, which is due for launch later this year.
At the time of his arrival, there were fears Kane would take the axe to staff levels at Scottish Widows. However, unlike its near neighbour Standard Life, where about 3,300 jobs have been lost in the past 18 months, Widows’ staff has actually risen to 3,500 in Edinburgh and 4,000 across the UK.
On SWIP Kane said: “We believe we can continue to build the profits but it’s a fantastic performance and improvement. Chris Phillips and his team have improved the investment performance particularly in UK and European equities and achieved some £4.5 billion of gross new business in 2005.”
He said: “Lloyds TSB is more than pleased with the results, and in particular the financial strength of Scottish Widows, especially given our contributed of £1bn in cash to group coffers this year. That was very gratefully received. I think that Scottish Widows is very well regarded within the group.”
He could not confirm, however, that its 2005 performance meant Widows future within the Lloyds TSB is secure. “I do love questions like that. There are no such things as guarantees in business.”
This article was published in the Sunday Herald on 26 February 2006