HOWZAT

Another senior life-insurance boss said: “The one thing I would have felt absolutely confident of is that the herd of actuaries up there (in Standard Life) were capable of working out what their liabilities were. The fact that fundamentally the FSA doesn’t believe the numbers is the most remarkable thing in quite a remarkable week.”

Iain Lumsden has already stepped aside as chief executive to make way for Crombie, and John Hylands, group finance director, looks extremely vulnerable. Crombie defends Hylands, saying that nothing that has happened so far supports the criticism. “Before anybody criticises Standard Life, we have to wait for the (FSA) review,” he said. “I will be just as interested in the outcome as anybody else.”

One analyst said: “Although we don’t have the exact figures yet, it is clear that Standard Life’s financial position is substantially weaker than it was. The whole board has some serious questions to answer, but none more so than Hylands.”

CROMBIE is straight from Standard Life central casting. He has spent 38 years at the company, even though he is still only 54. He is, of course, an actuary. The old saw has it that actuaries are people who find accountancy too exciting. Standard Life’s problem is that it has breathed too much excitement into actuarial science.

Intriguingly, industry gossips suggest that Crombie had been at loggerheads with Lumsden since 2001, when he was passed over to succeed Scott Bell as chief executive.

With £85 billion under management, Standard Life is comfortably Europe’s largest mutual (or policyholder-owned) financial-services company. For years, its strong belief in equity investment allowed it to make industry-leading payouts to its with- profits policyholders. This won the company strong support both from customers and from independent financial advisers.

However, the “mighty Standard Life”, as it has sometimes styled itself, is aloof and bordering on arrogant. As the stock market started its slide in September 2000, the organisation made the first of a series of moves that would have costly consequences.

It made a promise to nearly 1m policyholders that it would meet any shortfall if their endowment policies failed to pay off their mortgages. In part, this was an attempt to see off any “carpetbaggers” who wanted to demutualise the business. Here was a clear demonstration of the benefits of belonging to a mutual life office that did not have to pay dividends to shareholders.

Hylands, who was then marketing manager, said cash costs would be trivial and easily met out of Standard’s capital base.

A rival life insurer said it “would not have dreamed” of giving such an open-ended commitment. “The promise gets mighty close to being a guarantee” — creating a hefty liability.

The costs of that promise soon ballooned as stock markets continued their three-year slide. Despite repeated criticisms from Ned Cazalet, the analyst who drew attention to its deteriorating finances, Standard Life stood its ground, maintaining its heavy investments in equities.

It is believed that Crombie, as head of Standard Life Investments, only began dumping equities as share prices neared their lows in late 2002.