Lloyds TSB ousts Widows chief in shake-up of insurance business

Lloyds TSB ousted Mike Ross, the chief executive of its assurance business Scottish Widows, yesterday after an overhaul of the company and ahead of a large fine from the Financial Services Authority for mis-selling savings bonds.

The FSA has been investigating sales of the Scottish Widows' Extra Income & Growth bond, which offered high returns and a capital guarantee as long as markets did not fall, for some time. An announcement from the regulator fining the Lloyds group for these "precipice bonds" is expected imminently.

A spokeswoman for Lloyds TSB said that talks with the FSA were at an "advanced stage" but there was no connection between the issue and Mr Ross's departure from the group. It is understood that the fine will focus on the conduct of Lloyds' salesmen, who may not have made clear the risks of the investment to consumers, rather than Scottish Widows, which only acted as the product provider.

It will, however, overshadow the departure of Mr Ross, who worked with Scottish Widows for nearly 40 years and masterminded the £5.5bn takeover by Lloyds TSB in 1999.

In doing so he secured bumper windfalls for Scottish Widows policyholders, who on average received payouts of more than £6,000 each. Some payouts to policyholders reached six figures.

The mighty price paid for Scottish Widows, however, has not delivered huge returns for Lloyds TSB and Mr Ross's position within the group is thought to have become increasingly difficult to maintain. Following the appointment of Eric Daniels as chief executive of Lloyds TSB in June, a wide-ranging review of Scottish Widows has been carried out. It thought that Mr Ross, who is also deputy chief executive of Lloyds TSB, clashed with his new boss over suggestions for change within the organisation.

Mr Daniels yesterday gave his support to Scottish Widows for the next five years, amid rumours that he has been keen to sell off the division. He appointed Archie Kane, currently the director of IT and operations at Lloyds, to take over from Mr Ross next month. "We have a clear five-year plan for Scottish Widows which Archie has the wide financial services experience to implement," Mr Daniels said. Mr Kane was responsible for integrating systems when Lloyds merged with TSB.

Mr Ross, who joined Scottish Widows in 1964 as a trainee actuary, will leave on 30 September with a pay-off of about £1m, and a £4.4m pension pot worth £274,125 a year. He is a former chairman of the Association of British Insurers.

Since the Scottish Widows acquisition, when Peter Ellwood was at the Lloyds TSB helm, stock markets have collapsed and investors have turned away from life and pensions products. The company also has been beset by problems in its asset management division. These began when Lloyds' fund management business, Hill Samuel, was merged with Scottish Widows' investment arm and moved to Edinburgh. Most Hill Samuel fund managers left and Scottish Widows Investment Partnership, as it renamed, has since struggled to hold on to staff.

"[No one] would pay that kind of sum for a life insurer now," said Ned Cazalet, an independent insurance analyst. "The bottom has fallen out of the whole life and pensions sector and the idea that life insurers would provide easy cash for banks has been proved wrong. The question for Lloyds is what do they do with it?"

Lloyds said last month it would have to reserve a further £300m to compensate endowment mortgage customers with legitimate mis-selling complaints.