22 April '03 - Paul Braithwaite at the AGM of Standard Life, Edinburgh

"I don't recognise the company that Iain Lumsden has just been talking about"

Let me start by addressing David Stonebanks on demutualisation: Standard Life has been suffering from a dreadful wasting disease. It's in the operating theatre now, and we're talking life and death. So, now REALLY isn't the time to be rifling through the patient's pockets for small change. Please, Mr Stonebanks, stand back and let the team try to save the life, instead of distracting them.

20 years ago I had what looks now like the misfortune to start contributing to pensions with both Equitable and Standard Life. For more than the last two years I've been working full-time on trying to help beleaguered Equitable Life policyholders.

A year ago I came to the AGM here and begged the board to ameliorate its over-exposure to equities. And I observed then that I could see alarm signals of arrogance and complacency similar to the Equitable. Arguably, I'm uniquely positioned to see parallels and hopefully to flag potential pitfalls to the new chairman and his non-executive board, before it's too late.

A year ago Iain Lumsden replied to me that there were NO similarities. OH, that he were right! Here are a few of the ones that I observe - apart from arrogance and complacency:

• Both were venerated mutual companies with "clubby", self-serving boards.
• They both denigrate all critics, however perceptive.
• They have dismally low member participation at 6% or 7%. I was amazed just now to hear Mr Lumsden say he was pleased that just 150,000 (out of 2.4 million members) had voted - down from 195,000 last year.
• No liquidity, so no ability to smooth.
• Huge Guaranteed Investment Return (GIR) problems on over half their with-profits fund.
• Use of jiggery-pokery, subordinated debt and future profits to 'fudge' solvency and the free-asset ratio, leaving minor room for the inevitable need for major capital.
• DREADFULL PR machines that have educated media and policyholders alike that you 'speak with forked tongue', witness Gordon Arthur's smug letter in the Financial Times last week.
• Management of both Standard Life and Equitable have both gambled 'the family silver', including mine, and LOST.

In Equitable's case it was on going to the House of Lords over the GARs. In Standard Life's, it's equities. Ned Cazalet tells me that Standard Life has lost £15 billions in the last three years.

I fear that 'The Mortgage Promise' could yet prove to be Standard Life's own 'black hole'. Last year Mr Lumsden assured us that there was NIL provision. Now, it's £1,500 million - with £1,200 millions yet to be found. Will the non-executives please take it upon themselves to obtain quotations for the cost of covering that risk? It was accepting management's view of the cost of GARs that was partly responsible for wrecking the Equitable Life.

And the KILLER similarity?

• Both have been totally dominated for a decade by a trio of actuaries. Ranson, Nash and Headdon in the Equitable. Scott-Bell, Lumsden and Sandy Crombie in Standard Life. These guys come from a different planet.

The danger of this possibly fatal flaw was demonstrated last year by Iain Lumsden's rather defiant assertion to my reasonable plea: He said: "Equities have always served us very well. With 75% in equities, we are well placed for the imminent upturn in the stock market". And we heard the same again this afternoon! On April 30th last year the FTSE was at 5,200 - one third higher than it is today. Equities may have served us well, Mr Lumsden, UNTIL THEY HAVEN'T. In my opinion 55% in equities is still far too high.

I thought actuaries were meant to anticipate the remote possibility of awful things happening and provide for them. Our actuaries, with their 'one-trick-pony' dedication to 'the cult of equities', have clung doggedl like dinosaurs, to their fig leaves until well past the 'sell-by date'.

Iain Lumsden's stewardship has been an unmitigated disaster.

Nothing personal. I'd like to wish him a long retirement. With his enviably huge, and recently much enhanced, pension.

I plead to all the non-executive directors we see before us today, who are the members' guardians: Wake up and smell the coffee!

My question is, therefore, perhaps best addressed to the new chairman, Sir Brian:

PLEASE, we desperately need a 'new broom' because Iain Lumsden's management regime is "A BUSTED FLUSH"."

Paul Braithwaite