Scottish Widows sells Abbey Life for £977m

Published on Tuesday 31 July 2007 11:58

SCOTTISH Widows is selling its Abbey Life insurance unit for £977 million, it emerged today, as Widows parent group Lloyds TSB unveiled a 15 per cent jump in half-year profit.

Britain's fifth-biggest bank said it had reached an agreement to sell Abbey Life to Deutsche Bank, subject to regulatory approval.

Abbey Life is a UK life fund operation which has been closed to new business since 2000 but manages assets of around 12 billion through 1.2 million policies.

Lloyds said that under the terms of the deal its investment arm offshoot Scottish Widows Investment Partnership had entered into a ten-year agreement to continue to manage Abbey Life's funds.

Eric Daniels, group chief executive at Lloyds, said: "We conducted a review of Abbey Life and came to the conclusion that a sale of the business is in the best interest of the group, as well as Abbey Life's policyholders and staff."

Mr Daniels said the proceeds from the sale were likely to be ploughed into the bank's objective "to continue to improve its capital efficiency".

Lloyds, which bought Widows in 2000, also revealed it had reaped a further 600,000 dividend from its Edinburgh-based insurance business, bringing the total dividend paid since the beginning of 2005 to 2.3bn.

As it posted its half-year update, Lloyds said it had enjoyed a "continued strong performance" from Scottish Widows with an eight per cent increase in new business sales over the period, while pre-tax profit at the unit, on an European Embedded Value basis, was 482m. Over the six months to June 30, Lloyds reported a 15 per cent rise in underlying half-year earnings to 2.01bn - marginally ahead of the average forecast from analysts polled by the company.

The bank also announced its first dividend rise for five years, raising its interim dividend by five per cent to 11.2 pence per share, which it said showed it was "increasingly confident in the group's earnings prospects for 2007 and beyond".

Ian Poulter, an analyst at Teather & Greenwood, said: "There seems to be momentum in the earnings, and it is a confident statement."

Lloyds said its half-year charge for bad debts rose five per cent to 837m, including a one per cent fall in UK retail bad debts to 627m. The UK retail bad debt charge in 2007 should be below last year's impairment, the bank said.

The group also took a charge of 36m to cover the cost of settling customer claims on bank charges in the first half of the year, following a surge in customer complaints across the industry. That followed the revelation of a 116m return of overdraft fees to customers announced by HSBC yesterday.

Lloyds' general insurance division saw its profits almost halved after an extra 57m in weather-related claims - of which 45m stemmed from June's severe flooding.

Despite the flooding chaos, chairman Sir Victor Blank said the company had delivered an "excellent trading performance" in the first six months of the year.

The company's retail banking division increased profits by 13 per cent to 803m, with growth in customer numbers and deposits.