Standard Life is to combine its life and pensions, healthcare and banking businesses into a new UK Retail Division to be headed up by Trevor Matthews, currently the chief executive of UK life and pensions.
In its results announced today, Standard Life says the move is one of a number of further initiatives designed to increase the efficiency of the UK businesses, in addition to the original cost-cutting targets announced at the time of the company’s flotation.
Standard Life originally set targets in July 2006 to cut expenses in the life and pensions division by £30m by the end of the year – it has currently achieved £15m of savings – and it aims to reduce corporate costs in 2007 to £58m per year which it says it is on course to achieve.
However, Standard Life has today outlined an additional target to reduce underlying costs by a further £100m a year by 2009 which, the firm says, will be achieved in a phased approach with £15m of savings expected in the second half of 2007, a further £70m in 2008 and an additional £15m in 2009.
As a result, it has announced it will cut 1,000 jobs by 2009, although it says it expects to achieve this target through “growth and natural turnover” to keep involuntary job losses to a minimum.
In addition, Standard Life says Matthews will be responsible for “driving synergies” in both costs and revenues in the new UK retail division by “streamlining common functions” and targeting any “duplication of activities which currently take place across multiple business units, divisions and product lines”.
The life insurer says other key initiatives include the expansion of the use of shared service activities; the “rationalisation of group central functions”; the re-engineering of key processes and the “implementation of smarter sourcing of services”.
Details of the firm's status shift were announced as part of Standard Life’s figures. They show total UK life and pensions gross operating profit increased 37% from £272m in 2005 to £372m in 2006, on a European Embedded Value (EEV) basis, while the healthcare and general insurance sector increased from £7m to £16m and the banking arm increased from £15m in 2005 to £38m last year.
The company says the rise in UK life and pensions business, which saw new business contributions increase 519% from £27m to £167m, reflects improvement in every product group with significant growth in new business volumes of 69% to £11,400m, on a present value of new business premiums (PVNBP) basis, driven by capital investment bonds, trustee investment plans (Tips) and self-invested personal pensions (Sipps).
The company states its life and pensions EEV gross operating profit continued to increase despite a change in long-term assumptions, including a provision for persistency lapses of £207m, as it admits product lapses “continued at levels in excess of long-term trends”.
Sandy Crombie, group chief executive, says the company’s strategy of concentrating on higher margin and less capital intensive products has delivered strong growth in new business volumes and profitability.
However, he adds: “There is more we can do to increase the efficiency of our operations and to deliver a leaner and fitter Standard Life. These initiatives are in addition to the targets announced at the time of the initial public offering (IPO) and will enhance our ability to grow profitability in the medium term.”
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