Standard Life Plc, Scotland’s biggest insurer, will pay out some of its swelling capital surplus as a special dividend after full-year profit rose 65 percent, beating analysts’ estimates.
The special payout of 12.8 pence a share will cost 302 million pounds ($453 million) and supplement the full-year dividend of 14.7 pence, the Edinburgh-based company said in a statement today. Pretax operating profit climbed 65 percent to 900 million pounds, beating the 852.5 million-pound median estimate of four analysts surveyed by Bloomberg.
Standard Life said it could afford a special dividend after its capital surplus rose to 4.1 billion pounds from 3.1 billion pounds in 2011. It’s shifting away from traditional life-insurance products to provide pensions and mutual funds, which put fewer demands on the company’s capital and have become more popular as the government encourages Britons to save privately for their retirement, rather than rely on the state.
The results and dividend “vindicate in many respects the strategy embarked upon by management in the recent years,” Eamonn Flanagan, a Liverpool, England-based analyst at Shore Capital Group Ltd. with a hold rating on the stock, wrote in a note to clients today.
Net income more than doubled to 698 million pounds in 2012 from 298 million pounds in the year-earlier period.
The shares slipped 0.3 percent to 373 pence in London trading today, valuing the company at about 8.8 billion pounds. The insurer was the fourth-best-performing stock in the U.K.’s FTSE 100 Index last year, rising 61 percent.
Flanagan said he would need further evidence that new products can offset the decline in demand for insurance policies to upgrade Standard Life to a buy.
In October, the U.K. introduced so-called auto-enrolment, requiring companies to offer employees a private pension plan. Standard Life runs those plans and charges an annual fee on the assets managed. Because customers take on the risk of their pension assets declining in value, Standard Life is allowed to hold less capital than it would for traditional life-insurance offerings, such as investment bonds and annuities.
The firm also boosted its capital by 750 million pounds when it raised C$400 million ($388 million) in a debt offering in Canada in September, Finance Director Jackie Hunt said by telephone today. The remaining 250 million pounds of the capital surplus increase came from earnings, she said.
Legal & General Group Plc, the biggest manager of U.K. pension assets, has followed a similar strategy of developing retirement products and raised its dividend 20 percent yesterday.
Other insurance companies have been cutting payouts, citing a reduction in bond income as interest rates stay near record lows. Aviva Plc’s shares slumped today after the company lowered its dividend by 44 percent. RSA Insurance Group Plc, the biggest non-life insurer by market value in Britain, reduced its dividend by 33 percent last month.
Sales of long-term savings products slipped 2 percent to 19.7 billion pounds. The drop was due to increased competition in the last months of the year, before a ban on commission payments to independent financial advisers took effect, Chief Executive Officer David Nish said in an interview.
Standard Life doesn’t pay commission, putting the firm at a disadvantage before the ban, known as retail distribution review, or RDR, came into effect on Jan. 1.
To capitalize on RDR as independent advisers’ costs rise, the insurer created an online portal that helps them direct clients’ assets into a variety of funds. The portal charges an annual fee and helps the firm gather assets for Standard Life Investments, its fund-management division.
Third-party assets under management at Standard Life Investments rose 15.6 percent to 83 billion pounds.