Lloyds TSB is to sell its life insurance unit Abbey Life in a £977 million deal with Deutsche Bank.
The announcement by the high street bank came as it reported a 12 per cent rise in half-year pre-tax profits, which climbed to £1.99 billion in the six months to June 30th.
Shares in the banking group subsequently rose in early trading after the company announced that it was increasing its dividend payment by five per cent to 11.2 pence a share the first such rise implemented by Lloyds TSB since 2002.
The bank said that its board had chosen to boost the payout to investors "as a result of its increasing confidence in the group's future earnings performance".
Lloyds TSB stressed that income growth of nine per cent reflected "strong performances" across the group's various divisions, while "excellent cost management" had restricted cost growth to six per cent over the first half of the year.
Although the bank reported a five per cent increase in charges for bad debts, which climbed to £837 million over the period, impairment charges for its retail unit fell one per cent to £627 million. Fewer customer insolvencies were also seen over the first six months of 2007.
Turning to the general insurance market, Lloyds TSB said that weather related claims increased by £57 million during the first half of the year, of which £45 million related to last month's severe flooding in the UK.
The bank added that the further flooding experienced in July was likely to result in additional "exceptional claims" over the second half.
Meanwhile Lloyds TSB said that the sale of its life insurance business would allow the banking group to continue improving its capital efficiency, with the company expecting to achieve a profit before tax of around £290 million from the disposal of Abbey Life.
The life insurer, a subsidiary of Lloyds' Scottish Widows unit, has been closed to new business since 2000.
As of December 31st 2006 Abbey Life managed £12 billion of assets in respect of 1.2 million policies, Lloyds TSB said.
Commenting on the planned disposal, Lloyds TSB group chief executive Eric Daniels said: "We conducted a review of Abbey Life and came to the conclusion that a sale of the business is in the best interest of the group, as well as Abbey Life's policyholders and staff."