Standard Life: History in relation to the British Empire

Much of the information and direct quotations below are drawn from Michael Moss’s book Standard Life, 1825-2000: The Building of Europe’s Largest Mutual Life Company (Mainstream, 2000). The book is a straightforward history of the company, researched from the company’s archives. Moss is archivist at Glasgow University. Moss’s specific focus on the company has been augmented by general historical detail whose inclusion aims to plot the expansion of Standard Life alongside the expansion of the British Empire in the 19th century.

The Building of Europe’s Largest Mutual Life Company

Standard Life has its origins in the Insurance Company of Scotland, in Edinburgh in 1821. Four years later the company’s partners decided that a new company, The Life Insurance Company of Scotland, should be set up within the parent company. 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.

Moss states:

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.

The company decided to separate completely from the Insurance Company of Scotland in 1832 and this company became The Standard Life Assurance Company, then with a staff 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. Moss notes that the two offices went into abeyance in 1917 but were revived after 1925 (it would be interesting to relate these to the Russian revolution and the end of the First World War and the General Strike). That both aristocratic lineages maintained a connection (via the Bank and Royal Bank of Scotland) is more significant. Moss’ appreciation of their ‘titular’ position belies the fact that these families were at the sharp military end of the empire’s expansion: the place where the killing gets done and got done in the areas Standard moved into.

Acting on the urgings of a powerful group of London shipping and banking interests centred around the Bank of England and Baring Brothers merchant bankers, Parliament passed a Statement of Principle in support of the concept advocated by Scottish economist Adam Smith several decades earlier: so-called “absolute free trade.” Smith had been the tutor of the Duke of Buccleuch and a selective conceptualization of his ideas were advanced under the patronage of those who envisaged the future direction of the Empire after the defeat of Napoleon.

By 1846, this Statement of Principle was formalized in a Parliamentary repeal of domestic English agriculture protection, the famous Corn Laws. The Corn Laws repeal expressed the calculation of powerful financial and trade interests of the City of London, that their world dominance gave them a decisive advantage, which they should push to extremes. If they dominated world trade, “free trade” could only ensure that their dominance would grow at the expense of other less-developed trading nations. Under the hegemony of free trade, British merchant banks reaped enormous profits on the India-Turkey-China opium trade, while the British Foreign Ministry furthered their banking interests by publicly demanding China open its ports to “free trade,” during the British Opium Wars of 1839-42 and 1856-58.

From 1832 Moss attributes the company’s expansion of its operations (into Canada and Ireland) to the ‘industry and acumen of one man’, William Thomas Thomson, later instrumental in forming the Institute of Actuaries. In the decisive year of 1846 Thomson established the Colonial Life Assurance Company specifically to handle business in the British Colonies and India, offering attractive terms based on the Colonial’s more accurate assessment of mortality risk in the countries concerned. The company set up local boards of directors in the principal cities of Canada and the main West Indian islands, and opened negotiations in India, Ceylon, Cape Town, and Sydney. The demand for Colonial’s stock was greater than the new company could supply. Moss states that Thomson boasted that the Colonial’s 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."

Moss states that the Colonial’s growth followed the plunder of the Crimean campaign and the put down of the Indian Mutiny (Indian historians call this the ‘war of liberation’), by 1864 the total assurances issued exceeded £5 million and the two companies merged in 1866. After swallowing the Colonial, the Standard, was now the best-known life assurance company in the British colonies.

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.

Following the merger of the two companies, all Standard business in the East came under the control of the Calcutta office. Moss’ history notes a connection with China, although an office was set up at Shanghai in 1900 the company had been represented by agents for many years before. As in India, only European lives were insured. The relationship between the Empire’s exploitation of India is directly connected to the vigorous attempts to expand the Empire eastwards into the closed society of China, (and south via the east coast of Africa down to the Cape) which developed the strategy of producing opium in India (denying the local population the right to produce food and forcing them to buy clothing produced from jute exported to Dundee) and infiltrating this into China — spawning the term the Opium Wars.

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 UK and US brokers were signs of an increasing interest in the equity market driving the processes previously mentioned. Canada, the West Indies, Denmark, and Argentina were favourite targets. The Scottish financier James Ivory, a director of the Standard from 1906, was for many years a major consultant on investment policy.

By the end of the 19th century, the British establishment began to debate how to maintain its global empire. It devised a more sophisticated and far more effective form for maintaining its world dominance, through what came to be called “informal empire.” While retaining imperial possessions in India and the Far East, British capital flowed into Argentina, Brazil and the United States, to form bonds of financial dependence at times more effective than formal colonial titles.

The emergence of notions of special economic relationships with ‘client states,’ the concept of ‘spheres of influence’ as well as of ‘balance-of-power diplomacy,’ all stem from this British ‘Informal Empire’ toward the end of the last century. Stuart McNaghten proved to be nearly as influential.

Standard can be seen as significantly involved in strategic colonial bases and points of departure in the Empire’s expansion.

Egypt

Standard also did business in Egypt from 1898 and its Cairo headquarters, built in 1904, became one of the city’s landmarks. The bullet holes in the face of the Sphinx — Napoleon’s men used it for target practice — would have been fresh.

In his book, A People’s History of England, A. L. Morton notes:

the purchase by the British Government in 1875, on the initiative of Disraeli and with the assistance of the Rothschilds, of the shares in the Suez Canal held by the Khedive of Egypt. It is important both for its place in the development of the British Empire and for the close co-operation it reveals between the Tory Government and the Powerful international finance oligarchy.

Morton adds that the principle on which Baring ruled Egypt during his consulship was that ‘the interests of the bond-holders and those of the Egyptian people were identical.’

South Africa

Was well covered by Standard’s 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. Similar to Egypt, the British presence in South Africa was initially to protect the southern route to India via the cape, and preventing rival powers from securing bases there that could interrupt the shipping trade. Control in the 1840’s and 50’s over South Africa was not formal. Britain gradually shut the Boer Republics off from access to the Indian Ocean in stages, the aim was to ensure British supremacy in the entire southern African region.

The discovery of diamonds and gold and Rhodes’ ascendancy to Prime Minister of the Cape Colony along with Milner as British High Commissioner at the Cape brought thousands of miners, speculators and adventurers to engage in the exploitation. As ever in this process the local inhabitants future is effectively mortgaged for generations.

West Indies

By 1847 the West Indies were well served by Standard’s 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. Although the British government prohibited the slave trade which was ceasing to be economic for the West Indies sugar plantations in 1907. It was not until 1834, that slavery was abolished in the Empire. The planters received £20 million in ‘compensation’. The exploitation of slavery shifted to the west African coast.

Uruguay and Argentina

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. During the last decades of the 19th century British capital entered into selected capital-deficit countries such as Argentina, in order to — in a manner not unlike the present day’s Private Finance Initiative — finance, build, then run the nation’s rail and transport infrastructure, steamship lines and ports; a role usually encouraged by (also familiar) generous concessions from the host government.

The economies of Argentina and other British ‘client states’ were thus made into captives, with terms of trade and finance increasingly dictated by British merchant houses, trade finance banks and insurance companies. These client states of Britain found that they had lost control over their essential economic sovereignty more efficiently than if British troops had invaded Argentina to enforce ‘tax collection’ in support of the British Empire. The country was a ‘debt vassal’ of the British Empire; “imperialism on the cheap”, as one commentator dubbed it.

Moss states that the Uruguay branch flourished, but in Argentina a punitive tax on foreign companies forced the Standard to withdraw from the country in 1923.

We should also note here that the British Secret Intelligence Services in this time also evolved in an unusual manner to produce the ‘secret state’. The post-Waterloo empire represented a sophisticated marriage between top bankers and financiers mostly based in the City of London, Government cabinet ministers, heads of key industrial companies deemed strategic to the national interest, and the heads of the espionage services.

Standard Life eventually extend its business into Europe in 1890, when a branch in Brussels proved successful. At much the same time branches were opened in Copenhagen, Stockholm, and Christiana and a Spanish office was opened in Barcelona in 1904. Ultimately, like the Empire, the Standard’s history is one of risk taking and Standard Life hit serious problems in the turn of the century century and pass its bonus for the one and only year in its history in 1904. "It was a classic over-expansion, expanding much too quickly in overseas markets without the proper controls in place and losing sight of the expenses ratio, " Moss says:

That expansion programme had been headed up by Spencer Thomson who led the company in growth in the Canadian, Indian, Latin American and European markets. The investment policies also changed with investments in railway stocks, loans to local authorities and followed by loans on foreign property and heavy investment on foreign railway companies.

Moss tells us that Standard’s Budapest branch opened in 1898, and it conducted an extensive business in opulent headquarters until the outbreak of World War I. After this a certain antipathy towards communism and a loyalty towards the secret state developed:

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 policyholders 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.

Standard’s centenary, in 1925, was marked by its mutualization. Through this scheme, Standard Life became a mutual company owned (and theoretically controlled) by its policyholders, who received company profits in the form of bonuses. According to the Daily Telegraph, it was the first instance of a British proprietary company being mutualised.

As with the privatisation of utilities in the 1980s, despite the change of status, there was little change of personnel on the company’s board during the interwar years. Half of the pre-mutualisation board were still directors in 1937-38. The McNaghten era involved a closer interrelationship with the Bank of Scotland and investment trusts, such as British Investment, Edinburgh Investment, and Scottish American Mortgage. McNaghten also initiated a reduction in the Standard’s overseas operations, withdrawing from Europe in the early 1920s, Egypt, India, and China in the 1930s, and then South Africa.

Peter Scott examined the ways in which insurance companies modified their investment policies during the interwar years, and argues that this period marked the start of the transition from ‘traditional’ to ‘modern’ investment practice. Scott writes:

Economic and financial conditions raised considerable doubts regarding the suitability of traditional insurance investments, while competitive conditions forced insurance offices to seek higher-yielding assets. These pressures led to a considerable increase in the proportion of new investment devoted to corporate securities, including ordinary shares. Meanwhile new insurance investment philosophies began to be advocated, which accorded both legitimacy and importance to the role of ordinary shares in insurance portfolios.

McNaghten retired in 1938 and A. J. Mascall steered the company through the first three years of World War II. 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 became one of the five largest UK life offices. 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. New manager D.W.A. Donald, brought the 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 (it retains an interest in Cairn Oil). 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.

Resources

• Answers, Company History:The Standard Life Assurance Company, Company Histories, accessed 07 February 2011.
• Engdahl, W. F. (2004) A Century of War: Anglo-American Oil Politics and the New World Order, Pluto Press.
• Morton, A. L. (1990) A People’s History of England, Lawrence & Wishart.
• Newsinger, John (2004) The Blood Never Dried: A People's History of the British Empire, London: Bookmarks.
• Scott, P. (2000) Towards the ‘cult of the equity’? Insurance companies and the interwar capital market, The Economic History Review, 2002, Wiley Online Library.
• Thomas, H., Ed. (1959) The Establishment, Ace Books, page 151.