Standard Life to increase dividend and scotch rumours of rights issue

INSURANCE giant Standard Life is expected to increase its dividend payment this week and allay fears of a cash call on shareholders.

The sector is being battered amid rumours of capital problems, but analysts believe Standard Life chief executive Sir Sandy Crombie will attempt to calm nerves, despite mixed fortunes across the group.

Analysts predict a fall in sales of about 15% at the Edinburgh-based company as investors sit on their hands during the financial storm.

But pre-tax profits are expected to rise 1% to about 888m, taking account of expectations of future growth, or "embedded value". However, underlying pre-tax profit could be down as much as 73% to 194m due to harsh market conditions.

Analysts say the group's dividend payment to shareholders will be increased from 11.5p to 12.06p.

Standard Life's share price closed at 133.3p on Friday, down 3.7% after hitting an all-time low. This was largely due to concern over reduced capital levels among the big insurers and rumours of rights issues. However, analysts say that while some insurance companies have run up sizeable exposure to corporate debt, none will be forced into raising capital.

Andrew Hobson, analyst with Williams de Broe, says: "Standard Life's solvency is pretty good and a rights issue is unlikely, although it may be overpaying on its dividend."

Craig Bourke, analyst with Blue Oak Capital, says the problems hitting insurers in the past year arise from "phoney solvency issues". If companies are to take a hit on the back of the recession it will not be until 18 or 24 months down the line.

Standard Life Bank is set to report a 34% fall in profits to 21m. Last month the bank's chief executive Anne Gunther quit her role and she is not being replaced. There has been speculation that its mortgage book may be sold to a third party and that it will close to new lending. However, it is understood there are no plans to dispose of the business and that it is still regarded as an integral part of the group.

Insurers were among the biggest losers on the stock market last week due to fears over capital levels. Friends Provident was the hardest hit, down 14.5% to 57.7p. Friends reports its results on March 17 and analysts say it may be forced to reduce its dividend because of weak financial markets.

Last week Aviva's announcement that it was maintaining its dividend stirred fresh concerns over its capital strength. Some analysts and investors had expected the company to cut or cancel the payout.