City cheers as Crombie reassures that Standard Life is prepared for worst

A BULLISH Sir Sandy Crombie yesterday dismissed fears that Standard Life could be sucked into financial "Armageddon" after the life and pensions stalwart demonstrated its resiliance in the face of recession.

Unveiling a 6 per cent increase in pre-tax operating profits, Crombie said Standard's capital "buffer", at £3.5 billion, meant it could survive further dramatic falls in the financial markets.

The chief executive's delivery of the former mutual's annual results found favour in the City, where there have been fears over the insurance sector's reserves. Standard's shares last night ended up more than 7 per cent.

The markets were bouyed by Crombie's assertion yesterday that Standard could take "a whole lot more" volatility before being forced to seek help from investors.

Reporting pre-tax operating profits in 2008 of £933 million, the insurer's recently knighted chief executive said the group's capital buffer was "practically unchanged" despite tumbling equity markets, allowing it to increase its dividend.

Shares in Britain's largest insurers, Prudential, Legal & General and Aviva, have all plunged in recent months on concerns that market falls will be cutting capital surpluses to risky levels, potentially forcing rights issues.

But Standard Life said its Financial Groups Directive surplus – the accepted measure in the indutrsy – fell by just 3 per cent in 2008, to £3.5bn. Because of its business structure and hedging positions, even if markets fell 40 per cent this year, its surplus would drop by only a further 17 per cent, it said.

Crombie was bullish about Standard's ability to ride out the recession, saying: "What we're saying here is, we can take all that's happened and a whole lot more, and still have a strong surplus position."

Asked where Standard would rank among UK insurers if the markets fell further and sector peers needed to raise cash, Crombie maintained he was not contemplating such a move but added: "We'd expect to be towards the last, if not the last. "We can all imagine Armageddon happening, but what we're trying to demonstrate through these (results] is that we've absorbed a huge amount already and are practically unchanged, with the capacity to absorb a whole lot more. We're just not contemplating the need for help."

Standard Life increased its total dividend to 11.77p, a rise of 2.3 per cent. Its shares jumped 7.1 per cent to 172.8p, having risen 31 per cent from an all-time low on Monday.

Crombie signalled that Standard would continue to cut costs, targeting £75m in savings over the next two years.

A fall in the group's investment returns meant that under European reporting standards, Standard posted a £134m loss after tax. However, the operating profit measurement is the key figure for the City.

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SLI'S SLIDE

FALLING valuations caused a sharp drop in assets under management at Standard Life Investments (SLI).

But Standard Life's investment arm says it is still winning business from major investors.

SLI, Scotland's largest fund management company, said total assets under management fell by £12.2 billion to £156.8bn at the end of 2008. A fall in property, equity and fixed income asset valuations was partly offset by inflows from third party investors.

During the year SLI reported net inflow of assets of £3.4bn, while asset inflows from its parent company, Standard Life, increased by £2.4bn.

SLI chief executive Keith Skeoch said the inflows from institutions had continued in 2009. "We finished the year with a very strong pipeline of business," he said. "In my business, you often win a mandate, but it takes time for the money to come in, so we know we've got off to a robust start in 2009."

He declined to forecast the short-term future of the equity markets other than predicting "more volatility". Skeoch added that asset valuations were now "getting close" to properly taking into account the likely impact of economic woes on corporate profits.