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Insurer Phoenix raises key targets from Standard Life Aberdeen deal

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Phoenix, the life insurer, has raised the targets from last year’s acquisition of Standard Life Aberdeen’s insurance business, saying it will cut more costs and deliver higher capital benefits than it initially expected.

The £3.2bn deal hastened Standard Life Aberdeen’s shift into asset management and more than trebled the assets of Phoenix, which specialises in buying up old books of life insurance business that other companies no longer want.

On Tuesday Phoenix said that it would generate £1.2bn of synergies from the deal, a 40 per cent increase from an initial target of £720m.

Clive Bannister, Phoenix’s chief executive, said that the annual cost base of the combined business would fall from £600m to £525m, largely thanks to changes to IT systems and processes. The company has given no indication on how many jobs will go as a result of the integration.

The company also set a new cash generation target for 2019-23 of £3.8bn. Phoenix said capital synergies would rise from the £440m initially expected to £720m as it changed the asset allocation in its investment portfolio and combined its life insurance businesses into one legal entity.

Phoenix has traditionally focused on consolidating old books of life insurance and Mr Bannister said that the company was “open for business” for future deals.

He expects more opportunities as old-fashioned insurance conglomerates break themselves up and focus on growth: “How long can you stick a thoroughbred next to a plough horse? They’re both legitimate, but need to be broken up.”

But he added that the company did not need to do a deal. As well as giving Phoenix a book of old business, the Standard Life Aberdeen deal brought an open business selling pensions products. Mr Bannister said that within five to 10 years, the flow of new business coming in would match the natural run off of the group’s closed books.

The new targets came as Phoenix reported results for 2018. Operating profit rose from £368m to £708m, which was ahead of analysts’ expectations.

According to Paul De’Ath, analyst at Shore Capital, that was “thanks in part to a large £168m release of longevity reserves due to the decline in life expectancy increases in the UK”.

Gordon Aitken, analyst at RBC Capital Markets, said that the mortality reserve releases “are not a one-off” and that there will be more to come once UK mortality data for 2018 is released.

The final dividend was increased by 3.5 per cent to 23.4p per share.

Mr Bannister said 2018 had been “a very successful year for Phoenix in which we exceeded our cash generation targets, further improved our capital resilience and transformed the business through the acquisition of the Standard Life Assurance businesses”.

Phoenix’s share price rose 2.5 per cent on Tuesday, and is up 29 per cent this year. The shares will go into the FTSE 100 later this month.

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