BRITISH INSURER Standard Life reported a surprise 15 per cent jump in profits yesterday, wrong-footing analyst expectations of a 3 per cent fall, as a programme of technology investment delivered bigger-than-expected cost cuts.
Britain’s fifth biggest insurer made an operating profit of £302 million in the first six months of 2012. That was up from £262 million a year earlier, and well ahead of the £254 million expected by analysts.
Standard Life shares were up 6.1 per cent early yesterday, making the company the FTSE 100’s second biggest riser. They earlier rose 6.6 per cent.
“It’s an indication that the last two years of investment in IT have suddenly hit the bottom line, and that wasn’t particularly well-flagged,” said Investec analyst Kevin Ryan.
Standard Life’s improved performance reflected a three-year programme of technology upgrades which helped cut the marketing and capital expenses it incurs when writing new life insurance business by 18 per cent.
Standard Life has spent about £200 million a year since 2010 on the modernisation programme, and has previously drawn criticism from some analysts and investors for failing to spell out when the plan would yield results.
“The benefits of the cost reduction programme are coming through to a much greater extent than we and the market had anticipated,” Panmure Gordon analyst Barrie Cornes wrote in a note, upgrading his recommendation on the shares to “buy” from “hold”.
Lower costs and stronger pension sales helped drive a 62 per cent increase in profits at Standard Life’s British business, outweighing a 30 per cent decline at its Canadian operation due to low interest rates and weaker sales of corporate savings and retirement products.
The 187-year-old insurer is on course to deliver continued growth despite “challenging” market conditions, chief executive David Nish said in a statement.
The company is paying a dividend of 4.9 pence per share, an increase of 6.5 per cent. Standard Life shares have risen 24 per cent since the start of the year, outperforming a 16 per cent increase for the Stoxx 600 European insurance share index. – (Reuters)
