Standard Life's profits hit as policyholders desert

The Scottish insurer Standard Life unveiled a worse-than- expected set of maiden results yesterday, after an unexpectedly high number of customers cashed in their policies following the company's demutualisation and flotation this summer.

Thousands of customers who had held on to their pensions and investment policies to secure their free entitlement of Standard Life shares have since surrendered their policies.

Although the loss of customers has come since the end of the first half, the company made a provision of £100m in its interim accounts to cover future policy surrenders, leaving the group with an operating profit of £206m for the period. Analysts were predicting a figure of around £250m.

Trevor Matthews, the UK chief executive, said the high level of surrenders had been driven not only by the demutualisation but also by changes to pension laws that came into force in April, which encouraged people to review their pension arrangements.

He said the company expects the level of surrenders to continue to increase over the coming months, but to begin coming back down to normal levels by the end of the tax year.

Group chief executive Sandy Crombie said that, in spite of the policy surrenders, the company would still meet its target of cutting costs by £30m, and would achieve a return on embedded value of between 9 and 10 per cent for the full year. New business levels continued to grow strongly in the first half, coming in almost three times greater than in the same period in 2005. Mr Crombie added that profit margins had also increased four-fold, driven by price increases and a reduction in the commission the group pays to advisers.

Making her final public appearance for the group, Alison Reed, the finance director, said that she was proud of her work in preparing the company for demutualisation, but said it was now "better to have a clean break, for everyone".

She will step down at the end of next month. Headhunters have been appointed to find a replacement.

Sir Brian Stewart, the chairman, is also expected to stand down within the next few months.

Mr Crombie side-stepped the issue of his own succession. Previously, he has indicated that he does not want to stay beyond his 60th birthday in two years' time. Yesterday, however, he would not rule out working beyond the two years.

Shares in Standard fell as much as 2.9 per cent yesterday, before closing down 1.2 per cent at 268p, giving the company a market value of £5.42bn. The shares have risen more than 16 per cent since the float in July.