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Standard Life Profit Pumps 43%, Beats Forecasts

Reuters
Wednesday, 12 Mar 2008 | 12:39 PM ET

Insurer Standard Life posted a forecast-beating 43 percent rise in 2007 operating profit on Wednesday, despite a 249 million pound ($501 million) charge as UK customers continue to cash in policies early.

Its shares jumped 12.9 percent to 247 pence before the close, following the results Britain's sixth-largest listed insurer said its pretax operating profit, on an embedded value (EEV) basis, totaled 881 million pounds, well above analyst forecasts ranging from 579 million to 752 million, according to Reuters Estimates.

The headline number was boosted by one-off gains including a 191 million pound gain from a review of its annuity business, which offset charges for higher customer departures and increased longevity.

But analysts said profits were ahead even without the extraordinary gains, thanks to efficiency increases and a 68 percent jump in the contribution from new business -- or profit from sales -- to 345 million pounds. Margins increased by 0.7 percentage points to 2.1 percent, the group said.

Standard Life -- whose prospects have been clouded by a failed takeover bid for a rival last year and a top executive departure in January -- also said it had beaten its closely watched 9-10 percent return on embedded value target (RoEV) for 2007, coming in at 11.5 percent.

Analysts had expected a hit to profits from higher charges and provisions for customers living longer and for the cost of policyholders leaving early, after it took a 266 million pound lapse charge in 2006.

Standard Life took a 249 million pound hit from UK customers leaving early in 2007 -- offset by positive changes in Canada, which left the group lapse charge at 219 million -- and it also took a 100 million pound hit from changes to mortality assumptions. But positive tax, expense and other changes offset all those charges, and assumption changes boosted the operating line by 148 million.

Standard also booked an unexpected 191 million pound benefit to operating profit from a review of its UK annuity business.

Standard Life said customer departures had been fueled by its demutualization and listing on the stock market and by UK pension rule changes in 2006. But it said pension activity had stabilized since the second quarter, though market volatility had hit its unit-linked bonds in the second half of 2007.

The insurer, buoyed by a 32 percent rise in statutory reported pretax profit, said it would pay a dividend of 11.5p per share, up 6.5 percent and at the higher end of expectations.

Standard Life has been one of the worst performing stocks in the UK sector since its failed cash-and-shares bid for rival Resolution last year and the surprise departure in January of Trevor Matthews, its head of retail and one its most prominent and charismatic executives.

Prior to the results, its shares had dropped more than 17 percent since the start of the year.

"Concerns in a number of areas seem overdone, although the current economic climate is unhelpful," UBS said in a note to clients. "The discount rating of the shares relative to the sector seems unwarranted in our view."