14 Feb, 2008
Published: 09:37 Thursday 14 February
By: Chris Marshall, Insurance Correspondent
Standard Life has reinsured £6.7
billion of its UK annuity liabilities, in a move which the insurer
expects will boost its embedded value operating profits by at least
The Edinburgh-based insurer has some £12 billion of annuity
liabilities in total.
Its decision to reinsure more than half of this, to Canada Life
International Re, is intended to reduce shareholders' exposure to
the risk of its pension customers living longer (longevity risk).
Following demutualisation, shareholders bear the longevity risk on
business made before the insurer listed, while investment risk is
borne by the company's main 'Heritage' with profits
Fund. But Standard Life's (SL.) announcement is intended to reduce
As well as the one-off £100 million boost to its operating
profits, the company said the move would allow a release of cash
from reserves in 2008 and a significant reduction in the
sensitivity of its profits to longevity risk.
Group chief executive Sandy Crombie said: 'It is consistent
with our strategy of improving risk adjusted returns for the group,
while crystallising value in the Heritage With Profits Fund estate
for the benefit of with-profits policyholders. Importantly,
Standard Life retains the relationship and servicing for all our
Standard Life shares rose 5p to 212p. Panmure Gordon has upgraded
the stock from 'hold' to 'buy' saying the
reinsurance is 'extremely good news'. The broker said the
shares had fallen too far and trading at a 20% discount to the
group's 2007 embedded value deserved the upgrade.