Standard Life ups cost cutting target

LIFE and pensions giant Standard Life today announced plans to save another £75 million over two years to combat an expected hit to revenues.

The firm said it was already reducing headcount in certain areas of the business, such as sales, to achieve the cost reduction, but hopes to redirect staff to other growth divisions to minimise the impact on jobs.

Standard Life upped its cost cutting targets as it reported a 6% increase in 2008 pre-tax operating profits to £933 million on a European embedded value basis, the standard industry measure.

It also sought to reassure over its capital strength – a key concern for insurers in the financial crisis – with news its buffer stood at £3.3 billion despite stock market falls.

Standard Life revealed the impact of the stock market woes on the bottom line, with net losses of £134 million against profits of £587 million a year earlier.

The Edinburgh-based group said it would focus on "driving efficiencies" to combat the effect on profitability.

It last year delivered £100 million of planned cost savings a year earlier than its original 2009 target and is now aiming for another £75 million by the end of 2010.

Costs will be reduced right across the business, according to group chief executive Sir Sandy Crombie.

Standard Life last month announced 195 roles will be cut within its distribution business.

But the group is investing in other areas, such as its "wrap" investment portfolio management system, which launched in 2006.

Sir Sandy said the group was pleased with a "solid" performance in 2008, but stressed prudence over 2009.

The group revealed in January that the financial crisis had taken its toll on sales at the end of last year.

UK life and pensions new business fell by a quarter to £2.38 billion in the final three months of 2008.

It also suffered an 80% plunge in protection sales in the quarter, while pensions business dropped 28% and savings and investments were off by a fifth.

The fourth quarter falls left full-year UK life and pensions sales down 9% at £12.2 billion.

Standard Life said the outlook for retail savings was likely to remain subdued, although it hopes for continued growth in areas such as group pensions and fixed income investment mandates.

"As an asset managing business, our revenues will inevitably be impacted by lower financial market levels. Our ongoing focus on efficiency will help mitigate the impact of this on profitability," said the firm.

Shares in the insurer rose 4% as the annual operating profits came in ahead of expectations.

Standard Life said the £100 million of cost reductions seen so far had boosted earnings by £64 million.

Barrie Cornes, insurance analyst at Standard Life, reiterated a "buy" recommendation on the group after today's results.

"Standard Life represents a relatively defensive play within the UK life sector," he said.