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14 Feb, 2008


Published: 09:37 Thursday 14 February 2008
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 £100 million.

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 this risk.

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 annuitant customers.

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.

       
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