Standard Life

Standard Life: Demutualisation and IPO Programme


In 2000, under guidance from the Board, Standard Life members voted to keep the firm mutual. This surprised many commentators as it came at a time when several of their competitors had decided to demutualise and list on the London Stock Exchange. Since 2000, however, the life insurance market has changed, and with it the performance of Standard Life. In 2005, the company announced steps to proceed with demutualisation and a subsequent flotation.

Since the original decision, there have been several developments that have influenced Standard Life's u-turn. In 2000/2001, the decline in the stock market undermined the capital base of a number of companies in the insurance sector, including Standard Life, whilst the low interest rate-low inflation environment has resulted in lower long term returns on investments. In addition, the bulk of Standard Life's capital base was made up from With Profit Funds, which are a shrinking market sector, and there was a prospect that an ever smaller number of investors would bear the risks of the business, whilst not being able to provide the level of capital the business required to grow. Finally, in 2004, the Board announced that it could no longer provide 'Benefits of Mutuality' in terms of increased policy payouts for holders. CEO Sandy Crombie then launched a group-wide strategic review to revitalise the business in the new post 9/11 economic climate. Part of this was determining the most suitable capital structure for the firm going forward.

Alternatives to demutualisation were considered. Staying open to new business as a mutual firm would only exacerbate the issues discussed above. Demutualisation also held the advantage that benefits for members could be paid out immediately in the form of cash or shares, whereas policy payouts would occur over the long term. Therefore the Standard Life Board took the decision that demutualisation was the best solution and mobilise the organisation towards this goal!