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12 Mar, 2008

By Chris Marshall | 09:22:00 | 12 March 2008

Analysts have hailed Standard Life for having turned around its business, upgrading it to a 'buy' after it posted profits that were well ahead of consensus.

Standard Life announced a jump in operating profit before tax of 43% to £881 million over the year to the end of December, prompting a 13.7% rise in its share price to 248p at 9.15am on Wednesday morning.

The Edinburgh-based insurer's new business contribution before tax in 2007 was up 68% up on the previous year. Standard, which was reporting its results for its first full year as a listed company, announced it would pay a full year dividend of 11.5p.

Tim Young, an analyst at Collins Stewart described the results as 'barn-storming'. Young wrote in a note: 'True, Standard Life still has issues with its over-reliance upon a future based on SIPPs and wraps (the legacy of the much over-rated Trevor Matthews) but we expect the company to establish a significant presence in the more important corporate pensions market.'

In a conference call on the results, chief executive Sandy Crombie added to speculation that he would stay on at the insurer beyond his 60th birthday next February, saying 'I don't have any expectations of retirement…we can see a lot to be done and I look forward to playing my part in achieving it'.

In January the insurer had announced that its chief executive of UK financial services, Trevor Matthews, was to leave the firm to join Friends Provident.

Standard is on the look-out for a replacement for Matthews, but has said that he may not be replaced directly, with a number of options being considered. Crombie said: 'At the present time I have set no deadlines'.

Crombie also played down any possibility of Standard making a bid for Friends Provident, a move which is expected to comfort the market after Friends announced results below expectations yesterday.

Many analysts and investors had been hoping that Standard would use its results to give them some clarity on its strategy and targets. Standard said that it had 'exceeded' each of the three costs efficiency targets it had set itself, which included a reduction in group corporate centre costs, a reduction of UK life and pensions expenses by £31m, and a continuing reduction in underlying costs.

It has strengthened its mortality assumptions across UK and Canadian operations by £100m. Standard said it had also strengthened its persistency assumptions in the UK and Europe, and that adverse lapse experience and strengthened operating assumptions had reduced embedded value operating profit by £249m, compared to a £266m in 2006.

Standard said that there had been an upturn in lapse activity in UK onshore unit-linked bonds, which reflected concerns about the outlook for commercial property, as well as general market volatility.

In January, Standard reported a fall in net inflows into its life and pensions business, admitting that market volatility had taken its toll on sales at the firm. Inflows for the full year were £2.5 billion into life and pension products, compared to £3.2 billion in 2006. As new pensions inflows were £2.7 billion this would indicate outflows of £300 million in the life business.

The news in January that Matthews was leaving came at the end of a turbulent period which included a failed bid for zombie fund operator Resolution at the end of last year.

But Standard recently won plaudits from analysts for announcing a deal to re-insure a £6.7 billion chunk of its UK annuity liabilities. Crombie said this would reduce capital requirements going forward.

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