Insurer Standard Life beat forecasts with a 71 per cent jump in first-half operating profit, but it failed to dispel concerns yesterday over the impact of customers continuing to cash policies in early.
Poor persistency - or people cashing in early, often before firms recoup money invested - has been a problem across the sector, but it has particularly hit Standard Life, with analysts expecting it to take fresh provisions at the year-end, after the insurer said lapses remained above its long-term assumptions.
"It's the old bogeyman for Standard Life. People are not clear what the level of charges could be," analyst Raghu Hariharan at Fox-Pitt, Kelton said. "That aside, these are good results."
The former mutual society said its pretax operating profit, on a European embedded value basis, came in at £353 million - well above an average forecast of £318 million. Gains from its Canadian tax assumptions in the first half helped offset the negative impact of lapses.
New business contribution - a measure of profitability - rose 66 per cent to £151 million, again above expectations.
Sales at Standard Life's Irish operation jumped 96 per cent in the first half, the company said. Standard Life's Europe division, which includes Standard Life's Irish and German operations, saw a 54 per cent increase in sales to £513 million. Standard Life said it would further develop its product range and distribution in the two markets.
Group margins, which it signalled last month would beat 2006's 1.4 per cent, rose to 1.8 per cent. In the UK alone, where operating profit jumped 70 per cent, margins rose to 1.9 per cent - just shy of the group's 2008 target of 2 per cent.
Standard Life, which posted a 31 per cent jump in first-half sales in August, had said then it expected a "significant increase" in margins, helped by increased capital efficiency and its shift to more lucrative products including its key self-invested personal pension, which allows savers to make their own investment decisions but carries higher fees.
But weak spots remained, including its European and Canadian businesses and Standard Life Bank, where profit fell 18 per cent. Analysts said results there would again raise questions as to the rationale of the unit, which the insurer says has a hurdle rate of 15 per cent return on equity after tax.
"The management concerned with that [unit] have not lost sight of the target," Standard Life chief executive Sandy Crombie said. - ( Reuters )
