UPDATE 1-Life insurer Resolution hit by rise in IT costs

Thu Nov 15, 2012 9:30am GMT

* Sees extra costs of over 65 mln stg from IT overhaul

* Shares down 3.8 percent

LONDON Nov 7 (Reuters) - British life insurer Resolution is to absorb more than 65 million pounds ($103 million) of extra costs from programmes to update its IT systems and outsource back-office functions.

The cost overruns include 35 million pounds related to adapting the computer systems of businesses that Resolution bought from Axa in 2010 and 30 million pounds from severing and transferring existing outsourcing contracts.

The insurer will take a further hit in the "low tens of millions of pounds" from a review of two other IT programmes, it said on Thursday.

"It is disappointing that it is costing a bit more, but we are absolutely on track to deliver the benefits," chief executive designate Andy Briggs told reporters.

Resolution shares were down 3.8 percent by 0915 GMT, making the company the second-biggest faller in the FTSE 100 index . The stock is down about 8 percent since the start of the year, lagging a 27 percent rise in the FTSE life insurance index.

"Although these costs do not impact the cash generation capability of Resolution, it is nevertheless disappointing given we view cost management as a core competency," Barclays Capital analysts wrote in a note.

Resolution was set up in 2008 by entrepreneur Clive Cowdery to make money buying, merging and selling on underperforming life insurers, but it failed to complete as many takeovers as hoped because falling share prices deterred owners from doing deals.

The company, which spent 4.7 billion pounds buying three insurers including Friends Provident, called a halt to acquisitions in August and said it would instead try to make money for its investors by wringing savings out of existing assets.

The cost increases will not affect Resolution's financial targets or its ability to pay dividends, the company said, adding that it had raised the total cost savings target at its core British unit by 17 million pounds to 160 million pounds.

Resolution also said that its new-business profit rose 45 percent to 138 million pounds in the first nine months of the year, with a strong performance in Britain offsetting a decline at its overseas units.

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