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Capital-lite plan pays off as Standard profits soar

Standard Life’s profits leapt by 43 per cent last year to £881m from £614m in 2006.

The life office said it was taking a £249m hit to profits to deal with low persistency levels and £100m to pay for increases in life expectancy.

It has set up a short-term provision to cover the current period of uncertainty until longer-term lapse trends have been established, having suffered low persistency on UK onshore unit-linked bond policies.

It says this trend reflects concerns about the outlook for commercial property, market volatility and the recent uncertainty over capital gains tax changes.

The company says by focusing on lower-capital product lines and distribution channels, its UK new business margin rose from 1.5 per cent in 2006 to 2.1 per cent in 2007, beating its 2008 margin target of 2 per cent a year early.

Standard reduced expenses on life and pensions by £31m, compared with 2005 levels, exceeding the £30m target that was set at the time of demutualisation. This reduction in costs excludes new products launched since the float, including wrap.

The firm benefited from a £191m surplus released after a review of its annuity business found it was overly prudent on reserves for bulk buyout and deferred annuities following the collapse of several final-salary schemes in the 1970s and 1980s.

Profits from investment management grew by 18.5 per cent from £70m to £83m.

Banking profits fell from £38m to £32m while profits from healthcare rose from £12m to £13m.

Group chief executive Sandy Crombie says: “Our distinctive capital-lite approach to designing and distributing products has allowed us to more than double the capital and cash generated in the business.”

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