Martin Flanagan: Standard Life dips a toe in Asia but won't take a plunge

Published on Wednesday 10 March 2010 20:05

STANDARD Life's Asian business may have turned a loss of £35 million in 2008 into a £6m profit last year. However, don't expect new Standard chief executive David Nish to gatecrash the Pru's multi-billion pound acquisitive splash for AIG's Asian arm, or make a similar Asian foray of his own.

Nish is largely happy with Standard's UK-centric business model (even though it has an established Canadian business and fledgling Chinese and Indian operations).

Although the UK market is facing headwinds, the new man believes it has "stupendous" prospects.

Nish cites the 1.4 trillion size of the UK corporate pensions sector – of which Standard, one of the UK's main pension players, has some 17 billion.

Even though a significant slice of UK corporate pensions may be beyond the Edinburgh life assurer's reach, such as much of the public sector, that still leaves a big opportunity for the company, Nish believes.

Elsewhere, group strategy looks to be to cut costs wherever possible, and prune operations deemed peripheral. Acquisitions? Bolt-ons, maybe; but marquee acquisitions look very unlikely.

Standard has already sold the Standard Life Bank to Barclays, and questions still surround the Scots group's healthcare business.

Standard stonewalled questions on the latter at yesterday's results (which probably means a sale is definitely possible). On the costcutting, we have been here before.

The group has been continually taking cost out since before it took the stock market shilling and ditched mutuality in 2006.

A year ago, the company said it targeted cost reduction of 75m by end-2010. It has already achieved 47m of that, and the new overall target is 150m by 2012.

Back on the trading side, Standard reported a milder-than-expected 1.5 per cent fall in 2009 operating profits despite the recession persuading customers to eschew long-term savings products.

A figure of 919m (on a European Embedded Value basis), though down from 933m previously, was sharply higher than the 662m average City forecast.

Standard posted a profit of 506m in its UK market, down from 658m, and again above City expectations. This better-than-expected performance was down partly to hedging and other strategies, such as asset allocation changes, to cut risks on the group's book of existing business.

However, the market is not getting carried away, being less excited by UK insurance market prospects than the new chief executive is.

Kevin Ryan, insurance specialist at broker ING, said Standard's UK business looked "fairly becalmed. It is doing well in difficult circumstances, but that is about the best you can say". Praise, with, faint, damn: rearrange into well-known phrase.

That is probably a bit harsh. The truth probably lies somewhere in between. Standard is a slimmer, more focused life assurer than it ever was as a dyed-in-the-wool mutual.

Sideways expansion is by all accounts a thing of the past, as is the chase for volume at the expense of margin.

But the share price, which closed up 2 per cent yesterday, is probably up with events.

And there is little in the short-term outlook for Standard's core UK domestic market in current difficult conditions to suggest major progress beyond the restructuring.

Until the UK market gets a new tailwind, and those fledgling operations in Asia reach critical mass, the shares do not look as if they are going anywhere fast.

Market recognition of this challenge has seen Standard's shares underperform the European insurance sector by about 10 per cent since the start of 2010.

Striking a balance between two faces of private equity

PRIVATE equity and hedge funds: a bunch of financial chancers and asset-stripping locusts. Or substantial and sophisticated investors who provide both serious liquidity to the stock market and revitalising change to languishing companies.

You take your pick. But City minister Lord Myners made it clear yesterday he believes that the opprobrium, particularly within the European Union, risks being overdone.

In a memorable phrase, he describes the risk of "regulatory hypochondria" if Brussels seeks to over-regulate private equity and hedge funds, and freezes the free flow of European capital in the process.