Newspaper article The Evening Standard (London, England)

Scottish Widows Provides a Lesson in Prudence

Newspaper article The Evening Standard (London, England)

Scottish Widows Provides a Lesson in Prudence

Article excerpt


IT IS something of a cliche, but management matters. For the past two years we have had regular episodes of the Equitable Life saga, a tale of an insurance society brought low by the arrogance and short-sightedness of its management. Today the Scottish Widows board provided an insight into how to handle a problem similar to Equitable's sensibly and honourably.

When it de-mutualised and sold itself to Lloyds TSB in March 2000 for a whopping [pound]5.8 billion, the then Scottish Widows management revealed in its prospectus that it too had a problem with guaranteed annuities - and one little different in numerical terms to that at Equitable.

Then we had not had the House of Lords ruling that demolished Equitable's attempt to sidestep its problems, but there were distant rumblings of the storm to come.

Scottish Widows decided to prepare for the worst and prudently created a fully-hedged sinking fund to make sure that whatever happened it would have the money to honour its guarantees in full.

Today, with timing presumably linked to Equitable's vote on its compromise plan to ease its predicament, Scottish Widows told its policyholders that it is going to mobilise [pound]1.4 billion of its fund, now worth [pound]1.7 billion, to meet all obligations. It has 174,000 policyholders with guarantees out of a total policy base of 1.8 million, and the way this has been handled none of them is worse off or at risk.

It is in the nature of these things, unfortunately, that an insurance company behaving sensibly and competently does not get headlines or questions in Parliament. What damage to the savings industry and the reputation of insurance companies might have been avoided, however, if Equitable's earlier management had even an ounce of the prudence shown by Scottish Widows. …

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