Injections of capital and fresh management thinking have allowed the three remaining Edinburgh-based life insurers to regain their former poise
THE ostentatious headquarters buildings that line Edinburgh’s St Andrew Square and Glasgow’s city centre are testimony to the former vibrancy and diversity of Scotland’s life and general insurance sector. In the 1880s, an astonishing 20 insurance firms were headquartered or based on St Andrew Square alone.
Today, however, only three life insurers remain headquartered in Scotland — Standard Life, Scottish Widows and Aegon UK — and at least one of them has outsourced back office jobs to India.
While thousands are employed in general insurance in Scotland, these tend to be claims handling and back office jobs rather than decision makers.
The life and pensions sector, weakened by poor management and an anachronistic approach to distribution, was decimated by the three-year equity bear market that ended in 2003.
However, following injections of fresh capital and fresh thinking from new management teams, all three Edinburgh-based life insurers have recovered their former poise.
Life insurers have also benefited from a surge of pensions business as customers reviewed their arrangements as a result of ‘A-day’.
The most remarkable turnaround has been at Standard Life. After losing a tussle with the Financial Services Authority over solvency rules in December 2003, the life insurer came close to collapse. But chief executive Sandy Crombie has put the business on a much firmer footing, albeit at the cost of its mutual status and some 4,500 jobs.
Alasdair Buchanan, communications director of Royal London Group, which acquired Scottish Life in 2001, says: “Sanday Crombie deserves a huge amount of credit for taking the big decisions at Standard Life.”
The biggest, he says, was to bring in Trevor Matthews, a total outsider, and a globe trotting insurance Mr Fixit who was born in Sydney in 1952, to run its core UK life and pensions business. This would never have happened under the former regime, whose hiring policy was very insular.
In March, Standard Life unveiled a big leap in profitability — its shares have climbed 26 per cent since last July.
Dutch-owned life insurer Aegon UK also delivered a strong set of results in March, with new business up 83 per cent to £124m.
In UK terms, Aegon was three years ago seen as a second-division player focused on pensions alone. Then a successful diversification programme, led by chief executive Otto Thoreson, the son of a Norwegian fisherman, who was born in Buckie on the Moray Firth, has meant it is recognised as a broader-based player with big presence in both protection and annuities.
Scottish Equitable employed just 1,200 people in Edinburgh at the time of its 1994 demutualisation. This has now more than doubled to 3,000. It moved out of its offices on St Andrew Square and into Edinburgh Park two years earlier,
Some analysts warn, however, that Lloyds TSB may tire of its ownership of Scottish Widows, which it bought for £7bn in 2000. The suspicion was fuelled by Lloyds TSB’s recent decision to put its Abbey Life business on the block.
SVM Asset Management’s chief executive, Colin McLean, says: “There are big pressures on Lloyds TSB to release some capital out of Scottish Widows. I think Lloyds either has to either joint venture or sell.”
Widows chief executive, Archie Kane, riposts: “Lloyds TSB is very happy with the performance of the business and is nothing but supportive of Widows within the wider group.”
There is also uncertainty over the future of Prudential’s Stirling office, formerly the headquarters of acquired life insurer Scottish Amicable. Following a weak performance in the UK market, Prudential is looking to make an additional £80m of annualised cost savings. Analysts say this could mean 1,000 of 2,500 Stirling-based jobs may go.
This article on Scottish life insurers was published in Scottish Business Insider on 4 May 2007