The Standard Life Assurance Company
The Standard Life Assurance Company
Incorporated: 1825 as The Life Insurance Company of Scotland
Assets: £19.29 billion (US$31.14 billion)
The Standard Life Assurance Company (the Standard), is the largest mutual life office in the European Economic Community (EEC). Although it once transacted business worldwide, it now restricts itself to the United Kingdom, the Republic of Ireland, and Canada. The bulk of Standard Life’s business is obtained through agents and brokers.
The Standard has its origins in the Insurance Company of Scotland, a fire office established in Edinburgh in May 1821. At a meeting of the company’s partners on March 23, 1825, it was decided that a new company, to be called The Life Insurance Company of Scotland, should be set up. One reason given was that while Scotland had only four native offices dealing in life insurance, there were 20 such agencies for English companies. The new life office was to conduct its business from the premises of its parent company—at 200 High Street, Edinburgh—and the same company was to provide the necessary staff. Business capital was set at £3 million divided into 60,000 shares of £50 each. In fact, only £500,000 were issued. One of the main attractions for partners in the new enterprise was that at the end of the first year of trading they would receive a capital gain as well as a proportion of the business profits.
The company’s first policy—now on display in Standard Life’s training center—was issued to Alexander H. Simpson, a Paisley merchant aged 38, whose assured sum of £1,500 with profits was provided for by a single payment of £670 12s. 6d. When the claim arose in 1866 the aggregate of bonus and sum assured came to £3,982 10s.—which illustrates the company’s somewhat generous and even wayward terms in its early transactions. In these years of development, the company based its premium rates on those already offered by existing life offices. Difficult actuarial problems were referred to one of the leading directors, the calculating prodigy William Wallace. Born in 1768, Wallace had been a bookbinder, but gave up this trade for the life of a mathematics teacher and in 1819 was appointed professor of mathematics at Edinburgh University. So highly were his services valued by the company that it took legal advice in an effort to retain him on the board when, in 1829, in accordance with the terms of the deed of copartnery—or copartnership—it became his turn to retire for a year. The legal decision was adverse, but there was no animosity and on his return to the company Wallace was awarded 60 guineas by his colleagues for his work over the years. He retired in 1838. Eventually the inconvenient rule that directors should retire in rotation without the right to be reelected was abolished by the Standard Life Assurance Company’s Act of 1883.
If the company’s premium rates were too generous to some policyholders, the additional premium rates charged for foreign travel and residence were unnecessarily high and discouraged new business. For instance, for a journey to Siberia an extra premium of £10 was charged, and an extra eight guineas for residence in Trinidad. To the company’s great credit, however, is the fact that it led the way later in abolishing these irksome restrictions. Nevertheless further business would have been lost in 1831 if the company had gone ahead with its plans to exclude the risk of death from cholera as a condition of a life policy. This restriction, had it been introduced, might have spelled the end for the company after only six years as the Standard stood to lose far more in terms of potential business than in paying out on policies. Luckily, the directors shelved the proposal in favor of a donation to the Board of Health towards the cost of combating the epidemic.
In April 1831 the company decided to separate completely from the fire office, and accordingly new premises were found at 21 South St. Andrews Street. An accountant, James A. Cheyne, was appointed manager, with a former cashier of the Scottish Union Company as secretary. In December of the same year a committee was formed to draw up plans to launch a new company by act of Parliament. Early in 1832 it was agreed that this company should be called The Standard Life Assurance Company. A bill was drafted and duly given the royal assent. The act establishing Standard Life in 1832 reproduced in the main the conditions of the original deed of copartnery. The staff of Standard Life in 1832 consisted of 15 directors, a manager, a secretary, a clerk, and an apprentice. As figureheads the company elected the Duke of Buccleuch as governor and the Marquis of Lothian as his deputy. The former was succeeded in 1884 by the sixth duke, who had been deputy governor from 1866. The two titular offices went into abeyance in 1917 but were revived after 1925.
From 1832 the company continued to progress and to expand its operations. Efforts were made to increase the number of agencies in Scottish towns, and local boards of directors were appointed. Negotiations were opened for agencies in the large towns of the north of England and the Midlands. In Ireland Dublin, Belfast, and Limerick all had representatives, and the company’s chief agent for Canada was consulted with a view to establishing a local directorate in Quebec. Much of the credit for these initiatives, and for the subsequent success that led to the Standard’s position in the front rank of life offices, was due to the industry and acumen of one man, William Thomas Thomson. Trained as an accountant in Edinburgh—he was later instrumental in forming the Institute of Actuaries—Thomson arrived at the Standard in 1834 as secretary and three years later was promoted to manager and actuary. In 1835 he presided over the company’s first division of profits ten years after its inauguration; as manager he was involved in negotiations for a move from St. Andrews Street to more spacious premises at 3 George Street at the end of 1837. Having acquired the new property for £2,400, Standard Life spent over £3,000 on extensive alterations over 18 months, with John Steell as sculptor; his facade motif of the biblical Ten Virgins was later adopted by the company as a logo. In June 1839 the new head office was ready for occupation. Subsequently, the premises were extended by the acquisition of numbers 1 and 5 George Street. Within two years after the move an independent investigation of the company’s affairs revealed that apart from its satisfactory financial position the Standard had the edge over its competitors in at least two important respects. Its bonus results were far better than, for instance, those of the Equitable Society; and unlike the latter, as well as other life offices, the Standard did not charge entry money, which was an extra premium demanded of new policyholders for the privilege of joining a flourishing institution. The generally favorable view of the company’s affairs was echoed by George Gray of Perth, an agent and policyholder at the Standard’s AGM in 1840. He predicted that with this independent seal of approval the company could now go on to do more business than it had ever imagined possible.
Indeed it did. A historian of the company, J. H. Treble, maintained that “during the years 1825-1832 internal organisational problems and the lack of a dynamic management had led to a succession of profoundly disappointing results.” Under the dynamic leadership of Thomson and a reforming board of directors this trend was dramatically reversed. Between 1845 and 1860 the Standard transacted “a larger amount of Business... than any other Office.” During the final ten years of Thomson’s management even this considerable achievement was to be eclipsed, for between 1864 and 1875 the company never failed to obtain a total of less than £1 million of new life contracts in any of its financial years. One of Thomson’s most significant decisions as manager was to solve the problem of restrictions on foreign travel by policyholders. In 1846 he established the Colonial Life Assurance Company (the Colonial), which was specifically designed to handle business in the British Colonies and India, and could offer attractive terms based on the Colonial’s more accurate assessment of mortality risk in the countries concerned. Within a year the company had set up local boards of directors in the principal cities of Canada and the main West Indian islands, as well as opening negotiations with interested parties in India, Ceylon, Cape Town, and Sydney. Within six months of opening for business the demand for Colonial’s stock was greater than the new company could supply. In time Thomson could boast that the Colonial prospectus “has been the groundwork on which the foreign rates of many home institutions have been based: it is the textbook of British Offices in settling the terms on which they permit British assurers to go abroad.” The Colonial went from strength to strength. By 1859, despite the recent depredations of the Crimean campaign and the Indian Mutiny, its funds had reached £342,354. By 1864 the total assurances issued exceeded £5 million and the company, which, after all, owed its existence to the Standard, had become a serious competitor in the home market. A fusion of the two companies presented no problems as the concerns shared a manager in Thomson and some directors. The merger took place early in 1866. The Colonial did not lose its identity as a result of the amalgamation. The two departments were kept separate at head office for 25 years afterwards; each had its own secretary and staff. Having swallowed the Colonial, the Standard, already a leading name at home, was now the best-known life assurance company in the British colonies.
Besides the Colonial, the Standard absorbed eight other insurance companies between 1844 and 1878. These were the York & London, in 1844; Commercial Assurance, in 1846; Colonial & General, in 1847; the Experience, in 1850; the East of Scotland, in 1852; the Minerva, in 1864; the Victoria & Legal & General in 1865; and the India Life Assurance Company, in 1878. Before the takeover of the York & London the Standard had no chief office in London although it did employ an agent, Peter Ewart, from 1840. When it moved into the York & London’s old premises at 82 King William Street, the Standard arranged that its London board should consist largely of former York & London directors; Ewart the agent became a full-time resident secretary. Acquisition of the Commercial and the Experience, Scottish life offices of fairly recent foundation, increased the Standard’s business in its home nation, although, as Treble pointed out, the company’s record in Scotland in the years 1850 to 1865 is disappointing. By acquiring the Minerva in 1864 the Standard gained funds of nearly half a million pounds for an outlay of a fifth of this sum—a considerably larger volume of business than had been acquired by any previous absorption. The company also benefited by acquiring the Victoria & Legal & General.
If, despite Thomson’s flair, the Standard’s Scottish premium income remained static in mid-century, the company’s income from England and Ireland over the same period increased threefold. One important factor in this growth was the company’s progressive relaxation of restrictions on its insurance contracts, beginning in 1851, although at the time the company’s inspector of agencies, William Bentham, attributed the Standard’s success largely to the attractive bonus and the distinguished ability and increasing energy of the management. Indeed it was Bentham himself, in his ten years as inspector, 1853-1863, who, by a ruthless weeding-out of inefficient English agents, contributed much to the company’s prosperity. However by 1870 it was recognized in a report that this prosperity was under threat from the continued use of the tontine system of bonus calculation, a scheme that benefited long-surviving policyholders, discouraged new entrants, and acted as a drain on profits. In 1865 an alternative scheme had been floated, and in time this proved so popular that in 1875 the tontine system was closed to new entrants. Another important development was the introduction of the endowment policy in 1870. Throughout these years of startling growth, Thomson ensured that the Standard’s funds were being invested shrewdly. He bought government annuities with guaranteed good yields. When the price of gold was about to plummet he acquired land in Fife and invested heavily in government bonds. Through its foreign branches, the company also took up land holdings abroad, notably in Canada, where a permanent office had been established in Montreal in 1846.
Following the establishment of the Montreal office, agencies were set up in all the major cities and towns from the Canadian Atlantic coast westward as far as Toronto. By 1847 the West Indies were well served by agencies. In the late 1880s the company’s central office was located in Barbados, where it remained until 1924 when it was moved to Trinidad. The Standard’s association with India had begun with the founding of the Colonial in 1846. Following the merger of the two companies, all Standard business in the East came under the control of the Calcutta office. China had been represented by agents for many years before an office was set up at Shanghai in 1900. As in India, only European lives were insured at first. By 1925 the branch office in Shanghai had been declared redundant and the Standard’s representation reverted to agents. South Africa was well covered by agents from 1854 until a branch office was opened at Port Elizabeth in 1895. In 1900 this was moved to Cape Town, and shortly after the end of the Boer War, Johannesburg became the centre of operations. The Standard also did business in Egypt from 1898 and its Cairo headquarters, built in 1904, became one of the city’s landmarks. From 1889 the Colonial expanded its presence in Uruguay and Argentina, though with some initial difficulty due to local indifference to the benefits of life assurance. In time the problems were overcome. The Uruguay branch flourished, but in Argentina a punitive tax on foreign companies forced the Standard to withdraw from the country in 1923. The company did not extend its business into Europe until 1890, when a branch in Brussels immediately proved successful. At about the same time branches were opened in Copenhagen, Stockholm, and Christiana. A Spanish office was opened in Barcelona in 1904. Having opened a Budapest branch in 1898, with Charles Szilagyi as secretary/agent, the Standard built an opulent headquarters in 1901 on a prime site, from which it conducted an extensive business until the outbreak of World War I. In an enemy country conditions for the company were arduous, although Szilagyi coped admirably, sending telegraph messages back to head office from the U.S. embassy via The Hague, before being dismissed from his post by the Communist state regime. By 1919 the branch was being run by a workers’ committee of three clerks, one of whom doubled staff salaries. In 1921 the company withdrew from Hungary, however, and policy-holders received their full sums assured. Belgian business never recovered from the effects of German occupation. Although business already on the books was still carried on in the years immediately after the war, no new risks were accepted by the Brussels, Barcelona, and Stockholm branches.
William Thomson retired from the Standard in 1874 and was succeeded as manager by his son Spencer. By this time, the company was already the U.K.’s leading life office and Spencer Thomson presided over a major investment program. Private Acts of Parliament of 1883 and 1891 broadened the Standard’s powers of investment, and from the 1890s the work of the board’s Stock Exchange Committee and the use of U.K. and U.S. brokers were signs of an increasing interest in the equity market. Low land prices at home tempted the Standard to invest considerably in overseas property, particularly in territories covered by its overseas branches. Canada, the West Indies, Denmark, and Argentina were favorite targets, and Canada was consistently favored for mortgage transactions over four decades. The Scottish financier James Ivory, a director of the Standard from 1906, was for many years a major consultant on investment policy. He worked at first with Thomson’s successor, Leonard Dickson, who was appointed manager in 1904. Dickson himself had been appointed directly from the board—an unorthodox procedure— and his premature death in 1919, from injuries sustained while trying to halt a runaway horse, deprived the company of a shrewd business mind just at the point when the Standard’s fortunes were beginning to revive following World War I.
Dickson’s successor, Stuart McNaghten, proved to be nearly as influential a figure in the history of the Standard as William Thomson. Having arrived at the company as actuary in 1911, he was able to put his considerable experience in rival life offices to good use. As manager he was responsible for a number of significant innovations. His multi-option Acme policy of 1921-1922 proved attractive and was copied by other life offices. He also pioneered life insurance for women, establishing a special women’s department in the early 1920s at the company’s West End branch in London. In 1925 the Standard’s centenary was marked by the most important event since its inception—its mutualization. Through this scheme, Standard Life became a mutual company owned and controlled by its policyholders, company profits being distributed to its policyholders in the form of bonuses. Although some U.S. corporations had already adopted this course it was, according to the Daily Telegraph, the first instance of a British proprietary company being mutualized. In 1928 the Standard was one of the first offices to introduce occupational pension schemes. By the following year it was the fourth-largest U.K. life office. Remarkably, despite its change of status, there was little change of personnel at the company’s helm during these interwar years. Half of the pre-mutualization board were still directors in 1937-1938. The period of McNaghten’s managership saw a close interrelationship with the Bank of Scotland and with investment trusts, such as British Investment, Edinburgh Investment, and Scottish American Mortgage. McNaghten also presided over a drastic reduction in the Standard’s overseas operations. A withdrawal from Europe in the early 1920s was followed by a departure from Egypt, India, and China in the 1930s, and a phased withdrawal from South Africa.
McNaghten retired in 1938 after 19 years as manager and was succeeded by Albert E. King, who left in 1939. A. J. Mascall steered the company through the first three years of World War II, from which it emerged, thanks partly to its severance from Europe, relatively unscathed. The postwar years saw the Standard go from strength to strength. Under manager Andrew Davidson and then Alex Reid, funds increased in the ten years from 1946 by over £100 million to £157 million, and the company eclipsed its Scottish competitors to become one of the five largest U.K. life offices. Since mutualization, the company’s attractive bonus record had been a major ingredient in its success, and in 1955 the present two-tier system was introduced, to be followed in 1963 by the introduction of the special claims bonus. In 1964 Reid was succeeded by J. B. Dow, who in 1966 helped set up the Insurope consortium, consisting of the Standard and six European life and pension offices brought together to provide international employers with a pool of expertise on pension schemes. The original group was later enlarged to include offices operating worldwide.
By the time Dow retired in 1970, Standard Life had become the largest mutual company in the United Kingdom, with one of the lowest expense ratios. New manager D.W.A. Donald, who had joined the Standard at the age of 17 in 1932 and was a respected writer on insurance matters, brought his company into a still closer connection with the three Scottish banking groups and the British investment trusts, and in his time the Standard became a major shareholder in oil exploration companies. By the mid-1970s, Standard Life was the fourth-largest life office in Britain and was among the Scottish companies with the most multiple directors, a remarkable continuity from its position of 20 years before. Donald’s successor George Gwilt, who like his predecessor had spent his entire working life with the Standard, was a pensions expert. It was largely due to him that this side of the company grew to the extent that, by the early 1980s, group pensions business accounted for half the Standard’s premium income. Since then, Standard Life continued to expand, under the leadership of A. Scott Bell, who took over from Gwilt in 1988, and who was instrumental in negotiating a joint venture with the Halifax Building Society to market unit trust contracts.
The Heritable Securities and Mortgage Investment Association Limited; Standard Life Pension Funds Limited; Standard Life Investment Funds Limited; Standard Life Trustee Company Limited; Standard Life Trust Management Limited; Cutlers Gardens Estates Limited; Standard Life Property Company Limited; Standard Life Investment Management Services Limited; Whiteleys of Bayswater Limited; Standard Life Portfolio Management Limited; Bonaventure Trust Incorporated; The Standard Life Assurance Company of Canada; Halifax Standard Life (Holdings) Limited (50%); Halifax Standard Trust Management Limited (50%).
Walford Papers, Chartered Insurance Institute, London; Schooling, Sir William, The Standard Life Assurance Company, 1825-1925, Edinburgh, William Blackwood and Sons, 1925; Norman, G.A.S., The Overseas History of the Standard Life Assurance Company, The Standard Life Assurance Company corporate typescript, 1958; Clayton, G., British Insurance, London, Elek Books, 1971; “A Century and a Half for Standard Life,” Post Magazine and Insurance Monitor, October 16, 1975; Scott, John, and Michael Hughes, The Anatomy of Scottish Capital, London, Croom Helm, 1980; Treble, J.H., “The Pattern of Investment of the Standard Life Assurance Company, 1875-1914,” Business History, volume 22, number 2, 1980; Butt, John, “Life Assurance in War and Depression: the Standard Life Assurance Company and Its Environment, 1914-39,” in The Historian and the Business of Insurance, edited by O.M. Westall, Manchester, The University Press, 1984; Treble, J.H., “The Record of the Standard Life Assurance Company in the Life Assurance Market of the United Kingdom, 1850-64,” in The Historian and the Business of Insurance, edited by O.M. Westall, Manchester, The University Press, 1984; Trebilcock, Clive, Phoenix Assurance and the Development of British Insurance, Volume I, Cambridge, The University Press, 1985.