SLA flags possible capital return after Phoenix insurance deal

(Adds spokeswoman, share price, analyst, background)

May 3 (Reuters) - Britain's Standard Life Aberdeen (SLA) said on Thursday it was considering the potential for a "substantial" return of capital to shareholders after it completes a deal to sell the bulk of its insurance business to Phoenix Group.

Specialist UK life insurer Phoenix agreed the 3.24 billion pound ($4.40 billion) deal with SLA in February, which will enable SLA to complete its switch in focus to asset management from insurance.

An SLA spokeswoman declined to give more detail on the size of the possible capital release.

Analysts at Bernstein said they expected SLA to have 1.2-1.3 billion pounds in capital available for share buy-backs and "bolt-on" acquisitions after the deal, in addition to using 800 million pounds for debt reduction. They reiterated their "outperform" rating on the stock.

SLA's shares were up 0.93 percent to 370.5 pence at 1319 GMT, outperforming a soft FTSE 100.

Phoenix and SLA also said in separately-issued statements that they were "actively progressing" with the proposed deal, expected to be completed in the third quarter of 2018.

SLA and Phoenix said their respective circulars and the Phoenix prospectus would be published shortly after May 29, when SLA holds its annual general meeting (AGM).

General meetings of both firms to approve the deal will take place soon after the SLA AGM, they added.

($1 = 0.7361 pounds) (Reporting by Radhika Rukmangadhan in Bengaluru and Carolyn Cohn in London; Editing by Sinead Cruise and Mark Potter)