Standard Life revealed a sharp drop in annual profits yesterday as the recession hit its saving business, but confounded fears about a deterioration of its capital position.
Standard, the UK's fourth largest life insurer, said sales had been weak across the entire retail savings market, with new insurance business also falling back during the first half of the year.
On its preferred yardstick – "embedded value" profits – Standard's earnings fell 35 per cent to £348m during the six months to the end of the year, while underlying profits were down 86 per cent to £47m.
On a post-tax basis, the insurer actually made a £20m loss compared to a £161m profit during the first half of 2008, but its trading was broadly in line with that of its rivals, which have also reported slumps in recent days. Old Mutual said yesterday that its profits were down 81 per cent in the first half, while Legal & General revealed a 92 per cent profit decline earlier this week. However, investors in insurers have been more preoccupied in recent times with the pressure that outflows of capital might bring to bear on the sector's solvency.
Standard said it had seen the size of its regulatory buffer decline during the first half of the year, but only from £3.3bn to £3.1bn. The insurer has sought to avoid capital-intensive product lines and is also a third of the way through a £75m cost-cutting programme.
Sir Sandy Crombie, Standard's chief executive, warned that the economic downturn had hit the savings and insurance sector hard and that it was not yet clear when a recovery might arrive.
"The recession has had an inevitable impact on our performance in the first half," said Sir Sandy, who is due to stand down from his post once the insurer has identified a successor. "The outlook for retail savings is likely to remain subdued, although we have seen some early signs of recovery within our mutual fund range and our Canadian retail propositions."
Standard's financial services business was its worst performer during the first half, with sales of pensions and other savings products down by 24 per cent. Pension saving, in particular, remains a problem across the insurance sector, with investors cancelling their plans, or at least reducing contributions, in the face of falling stock-market returns.
However, Standard said it had found one bright spot in the pensions sector, with sales of group personal pensions increasing as companies sought to cut back on the cost of occupational pension provision.
Sir Sandy said that, unlike many other insurers, Standard planned to grow organically, rather than through acquisitions or mergers. The sector is currently alive with M&A gossip with Resolution, the financial services business founded by Clive Cowdery, having heightened expectations of industry consolidation with its bid for Friends Provident.Reuse content