Standard Life yesterday moved to shore up its City credibility with a bumper item of financial engineering which will add £100m to this year's profit.

In the biggest reinsurance deal yet done in the UK, Standard has transferred £6.7bn of its annuity liabilities to Canada Life, more than half of its £12bn annuity book. The annuities, all in payment since before the company's demutualisation, posed an above- average longevity risk to Standard Life shareholders who did not share in any investment upside within the ring-fenced with-profits fund.

Though technically a reinsurance contract, the arrangement is effectively a bulk annuity transfer, as shareholder- owned Canada Life receives the assets as well as the liabilities to bet on rising investment returns. The move is expected to boost the insurer's embedded value operating profit by at least £100m in 2008, possibly more if longevity assumptions have to be revised upwards again this year.

It could also boost executive bonuses. Unlike a sale, which would be accounted differently, the contract feeds into operating profit, a key metric in the company's long-term incentive plan.

Asked on Standard's analyst conference call whether it would lead to bigger bonuses, finance director David Nish said: "Technically, yes." He said the remuneration committee could override an exceptional item, but went on: "This is not something that is just a market movement, it is positive management action, there has been a very big team across the whole of the group working on this for about 12 months, and it makes a significant change to the underlying risk profile of the group."

One analyst, however, who preferred anonymity, commented: "We rather take the view that management might have been focused elsewhere during the latter half of last year, and now that has fallen apart they can focus on delivering something else."

Standard's share price has plunged by 40% in the past six months and stands well below its 230p issue price last year, partly amid City concerns about its aborted bid for Resolution last autumn and the recent departure of UK chief Trevor Matthews. The shares closed yesterday at 209.5p, up 2.25p.

The deal will also allow Standard to release around £100m in cash from its reserves in 2008, and to reduce the amount of regulatory capital it has to hold. Nish said: "It supports our ability to grow by creating capacity for us to pursue other profitable opportunities."

But he insisted Standard was "very comfortable with our capital position" and added: "The timing of this transaction has not changed any strategic or operational thinking within the group."

Broker Panmure said Standard was "coming up smelling of roses" from its doomed merger, and upgraded the stock to a "buy", as did Tim Young at Collins Stewart, who said the deal was "eminently sensible" as Standard was chiefly a pensions company with an overweight longevity risk. But he observed that the competing bids for the book showed reinsurers now believed longevity assumptions had become too conservative.

Newer annuity business, still mostly from existing pension policyholders reaching retirement, leaves shareholders with longevity risk but they also benefit from investment margins. Nish said Standard did "not seek to price at the keenest edge".

Nish said the new opportunities would include new products such as variable annuities, popular in the US.

He said there was no technical reason why Standard could not follow suit with the rest of its annuity book, which includes group and with- profits annuities, but that it had now "rightsized" its longevity risk.

Paul Braithwaite, an activist shareholder, commented: "It looks like a bit of a cosmetic exercise to consolidate an extra £100m of prospective profit, while parting with a lot of assets to Canada Life."