Final Results - Part 4 of 4

RNS Number : 6628C

Standard Life plc

10 March 2011

Standard Life plc

Preliminary Results

2010

Part 4 of 4

Notes to the EEV financial information

3.1 Basis of preparation

The European Embedded Value (EEV) basis results have been prepared in accordance with the EEV Principles and Guidance issued in May 2004 by the CFO Forum of European Insurance Companies and the Additional Guidance issued in October 2005. EEV reports the value of business in-force based on a set of best estimate assumptions, allowing for the impact of uncertainty inherent in future assumptions, the cost of holding required capital and the value of free surplus. The total profit recognised over the lifetime of a policy is the same as under International Financial Reporting Standards (IFRS) but the timing of recognition of profits is different.

EEV includes the net assets of the businesses that are owned by equity holders of Standard Life plc plus the present value of future profits expected to arise from in-force long-term insurance policies (PVIF) where these future profits are attributable to equity holders under the Scheme of Demutualisation (the Scheme) or from sales of new business since 10 July 2006.

The opening and closing EEV numbers, and therefore the profit arising in the period, for the covered business are determined on an after-tax basis. The tax assumptions are based upon the best estimate of the actual tax expected to arise. Profit before tax is derived by grossing up profit after tax at the long-term rate of corporation tax appropriate to each territory. While for some territories this rate does not equate to the actual effective rate of tax used in the calculation of after-tax profits, it provides a consistent grossing up basis upon which to compare results from one year to another and is in line with the Group's expectation of the rate of tax applicable to business sold after demutualisation.

A detailed description of EEV methodology is provided in Note 3.17. There have been no significant changes to EEV methodology from that adopted in the previous reporting period, except as noted below.

Covered business

A detailed description of EEV covered business is provided in Note 3.17 - EEV methodology.

The regulatory basis for setting actuarial reserves and required capital has been calculated assuming the continuation of current regimes. Therefore, no allowance has been made for the change in reserving or required capital bases anticipated under either Solvency 2 or from the adoption of IFRS reporting in place of local GAAP in the Canada business.

Non-covered business

Following the Group's decision to replace IFRS underlying profit with IFRS operating profit as the chosen supplementary measure of IFRS performance, non-covered business EEV operating profit was represented by IFRS operating profit for the first time for the six months ended 30 June 2010. See Note 2.1(a) - Accounting policies - Basis of preparation of the IFRS financial information for more detail.

Prior to this change, EEV operating profit for non-covered business was defined as IFRS normalised underlying profit. Comparatives for the 12 months to 31 December 2009 have not been restated to reflect the inclusion of non-covered business on an IFRS operating profit basis, on the basis that a restatement would be immaterial in the context of the Group EEV operating profit for this period.

3.1 Basis of preparation continued

Segmentation

Under the EEV Principles and Guidance we are required to provide business classifications which are consistent with those used for the primary statements. In the IFRS financial statements the Group's reportable segments have been identified in accordance with the way in which the Group is structured and managed, as required under IFRS 8. The EEV segmentation has been prepared in a consistent manner, whilst also distinguishing between covered and non-covered business. The Heritage With Profits Fund time value of options and guarantees (HWPF TVOG) is disclosed separately in EEV, as explained in Note 3.2(a) - Segmental analysis - covered business - Segmental EEV income statement.

Within the IFRS segmental analysis, UK operations primarily comprise life and pensions, UK non-covered mutual funds business and the non-covered UK pension scheme. The Group's healthcare business, Standard Life Healthcare Limited, was sold on 31 July 2010 and has therefore been classified as a discontinued operation for the year ended 31 December 2010. The Group's banking business, Standard Life Bank plc, was sold on 1 January 2010. The comparatives for the year ended 31 December 2009 include both the banking and healthcare businesses as discontinued operations. UK non-covered business is shown within Note 3.6 - Non-covered business.

The EEV consolidated income statement presents EEV operating profit for continuing operations only and therefore excludes the results for the discontinued operations. The presentation of the comparatives has been restated accordingly. Prior to the exclusion of EEV operating profit from discontinued operations, total Group EEV operating profit before tax would have been £919m for the 12 months ended 31 December 2009.

Included within the International reporting segment are the Group's operations in Ireland and Germany, which for 31 December 2009 reporting were included in the Europe segment. Also included are the Group's business in Hong Kong and the Group's joint venture businesses in India and China, which were previously included in the Asia segment for 31 December 2009 reporting. This change in composition of reportable segments corresponds to changes made during the reporting period to the way in which the Group is managed and is consistent with the reportable segments in the IFRS financial information. The comparative information for the 12 months ended 31 December 2009 has been restated accordingly.

Impact of UK legislation enacted in 2010

The impact of UK legislation enacted in 2010:

a) Reduced the corporation tax rate from 28% to 27% effective from 1 April 2011, and

b) Increased the rate of Value Added Tax (VAT) from 17.5% to 20% effective from 4 January 2011

These changes have been included within our best estimate assumptions for UK corporation tax and VAT as at 31 December 2010.

In the Budget statement of 22 June 2010, the government also announced an intention to make further reductions in corporation tax of 1% in 2012, 2013 and 2014. However, these reductions are subject to legislation in future years and have not been included within the best estimate assumptions as at 31 December 2010.

Sensitivity analysis

The sensitivity analysis contained within Note 3.16 - Sensitivity analysis - economic and non-economic assumptions shows the sensitivity of the embedded value and the new business contribution to different scenarios. The sensitivity of the embedded value and new business contribution to a 10% fall in the market value of equity assets and a 10% fall in the market value of property assets is disclosed separately for the first time for the results as at 31 December 2010. Prior to this, we disclosed a combined test of the embedded value to a 10% fall in the market value of equity and property assets.

PVIF monetisation profile

Additional information has been included in the new Note 3.12 - PVIF monetisation profile to indicate the cash that may emerge in the next five years from the in-force PVIF. This assumes that future experience is in line with the assumptions used to calculate the PVIF, and ignores any future new business. The expected cash emergence is provided on both a discounted basis, equivalent to the PVIF used within the closing EEV, and also on an undiscounted basis.

Equivalent analyses are also provided for the new business written during the year. This is based on the cash expected to emerge from the PVIF calculated at the end of the year, and excludes all cash flows that have emerged from point of sale to end of year.

Events after the reporting period

On 11 January 2011, the Group's offer for the entire issued and to be issued share capital of Focus Solutions Group plc (Focus) was declared wholly unconditional and therefore is the effective date of the acquisition. Focus is a provider of software and consultancy solutions to the financial services industry, enabling its clients to automate the delivery of financial products and services to their customers across multiple distribution channels in a rapid and efficient manner. Continued investment in innovative technology is central to the delivery of the Group's accelerated growth strategy. The acquisition will enable the development of new and existing propositions, enhancing the customer experience and driving greater efficiencies. Refer to IFRS financial information Note 2.17 - Events after the reporting period.

3.2 Segmental analysis - covered business

(a) Segmental EEV income statement

This Note provides an analysis of EEV covered business as defined in Note 3.17 - EEV methodology.

		UK	Canada	International	HWPF TVOG	Total
12 months to 31 December 2010	Notes	£m	£m	£m	£m	£m
Contribution from new business	3.3	173	68	67	-	308
Contribution from in-force business:
Expected return on existing business		237	142	43	-	422
Experience variances	3.4	32	16	(13)	(8)	27
Operating assumption changes	3.5	44	18	19	-	81
Development expenses		(30)	(10)	(27)	-	(67)
Expected return on free surplus		(20)	16	4	-	-
Operating profit/(loss) before tax		436	250	93	(8)	771

Investment return and tax variances		463	40	22	53	578
Effect of economic assumption changes		(77)	(83)	10	(59)	(209)
Restructuring costs		(39)	(1)	(5)	-	(45)
Profit/(loss) before tax		783	206	120	(14)	1,095

Attributed tax		(212)	(53)	(27)	4	(288)

Profit/(loss) after tax		571	153	93	(10)	807

		UK	Canada	International	HWPF TVOG	Total
12 months to 31 December 2009	Notes	£m	£m	£m	£m	£m
Contribution from new business	3.3	139	46	28	-	213
Contribution from in-force business:
Expected return on existing business		204	132	39	-	375
Experience variances	3.4	148	4	(18)	143	277
Operating assumption changes	3.5	60	11	(3)	-	68
Development expenses		(18)	(6)	(23)	-	(47)
Expected return on free surplus		(27)	5	6	-	(16)
Operating profit before tax		506	192	29	143	870

Investment return and tax variances		(8)	(31)	47	62	70
Effect of economic assumption changes		(243)	(292)	(13)	9	(539)
Restructuring costs		(34)	(1)	(8)	-	(43)
Profit/(loss) before tax		221	(132)	55	214	358

Attributed tax		(62)	34	(15)	(60)	(103)

Profit/(loss) after tax		159	(98)	40	154	255

An analysis of profit after tax by territory is provided in Note 3.9 - Analysis of covered business EEV PVIF and net worth movements (net of tax).

Operating profit before tax for covered business is calculated using the expected long-term investment return which is based on opening economic assumptions. Investment variances, the effect of economic assumption changes and other non-operating items are excluded from the operating profit for the period and are reported as part of the total EEV profit.

3.2 Segmental analysis - covered business continued

(a) Segmental EEV income statement continued

HWPF TVOG represents the time value of financial options and guarantees (TVOG) arising from the Heritage With Profits Fund (HWPF). Although the HWPF includes business written by the UK, Germany and Ireland, the Group manages the risk at an aggregate level. This is consistent with the Group's IFRS financial statements as disclosed in Note 42 - Risk management to the Group's Annual Report and Accounts 2010. The results for Canada and International include the cost of the Canada and Asia businesses' TVOG and the cost of TVOG arising on business written outside of the HWPF in Germany.

The increase in the expected return on existing business is primarily due to higher opening PVIF and higher opening risk discount rates.

The higher development costs of £67m in 2010 compared to £47m in 2009 reflect the increased investment in the business. Development costs of £30m in the UK mainly relate to the investment in corporate and retail propositions and brand development. The £27m of development costs in International include £10m that reflect the costs of developing the joint venture businesses to build future growth, and £17m in the wholly owned businesses.

The negative £20m expected return on free surplus in the UK reflects the relatively low expected returns currently available on cash assets within free surplus, along with a higher expected increase in the value of subordinated debt liabilities relative to the expected return on the assets backing subordinated debt. The increase in the expected return on free surplus within Canada reflects the impact of an asset switch which resulted in more real estate within free surplus.

Profits within investment return and tax variances are largely driven by the impact of higher investment returns experienced in 2010 than had been anticipated. The UK profit of £463m includes a £43m profit from the Contract for Differences - refer to Note 3.6(b) - non-covered business - Global investment management EEV profits before tax. This also includes a £21m loss, in excess of the expected returns that are included in the expected return on free surplus, arising from differences in movements of subordinated debt liabilities and the assets that are backing the subordinated debt. The £53m profit from HWPF TVOG reflects the impact of higher than expected returns which reduced the burnthrough risk.

Effect of economic assumption changes was a loss of £209m. The impact of assuming lower future investment returns generated a loss of £426m, which included a loss of £59m reflecting higher HWPF burnthrough costs. This was partially offset by a non-operating profit of £185m (2009: loss £214m), which is explained in Note 3.13 - Principal economic assumptions - deterministic calculations - covered business. The UK result also benefited from a £30m contribution from the combined impact of a 1% reduction in corporation tax and a 2.5% increase in the rate of VAT. Refer to Note 3.1 - Basis of preparation.

HWPF TVOG shows separate movements in investment variances and economic assumptions, whereas in practice, economic assumption changes are highly dependent on the same factors that give rise to investment variances, for example market yields. Therefore, the key consideration is the net effect of the two items rather than the individual items themselves. Further comments on the movement in TVOG are provided in Note 3.4 - Experience variances and Note 3.10 - Time value of options and guarantees (TVOG).

Restructuring expenses primarily represent the covered business costs associated with the Group's Transformation and Solvency 2 Programmes as described in the IFRS financial information Note 2.3 - Administrative expenses.

(b) Segmental analysis of movements in EEV

	UK	Canada	International	HWPF TVOG	Total
12 months to 31 December 2010	£m	£m	£m	£m	£m
Opening EEV	3,120	1,553	658	(66)	5,265
Opening adjustments	-	-	-	-	-
Opening adjusted EEV	3,120	1,553	658	(66)	5,265

Profit/(loss) after tax	571	153	93	(10)	807
Internal capital transfers	(15)	(65)	(3)	-	(83)
Transfer back of surplus to Standard Life Investments	(47)	(3)	(2)	-	(52)
Transfer back of mutual funds net worth	28	(4)	-	-	24
Actuarial losses on defined benefit pension schemes	-	(20)	(9)	-	(29)
Foreign exchange differences	-	139	(5)	-	134
Aggregate tax effect of items not recognised in income statement	-	5	-	-	5
Closing EEV	3,657	1,758	732	(76)	6,071

	UK	Canada	International	HWPF TVOG	Total
12 months to 31 December 2009	£m	£m	£m	£m	£m
Opening EEV	3,129	1,597	626	(220)	5,132
Opening adjustments	-	-	33	-	33
Opening adjusted EEV	3,129	1,597	659	(220)	5,165

Profit/(loss) after tax	159	(98)	40	154	255
Internal capital transfers	(175)	(2)	(1)	-	(178)
Transfer back of surplus to Standard Life Investments	(19)	(3)	(2)	-	(24)
Transfer back of mutual funds net worth	20	(1)	-	-	19
Actuarial (losses)/gains on defined benefit pension schemes	-	(16)	13	-	(3)
Foreign exchange differences	-	71	(51)	-	20
Aggregate tax effect of items not recognised in income statement	-	5	-	-	5
Other	6	-	-	-	6
Closing EEV	3,120	1,553	658	(66)	5,265

Internal capital transfers mainly reflect dividend transfers to Standard Life plc.

Opening adjustments in International for the 12 months to 31 December 2009 reflect the inclusion of the Asia businesses on an EEV basis for the first time.

	UK	Canada	International	HWPF TVOG	Total
12 months to 31 December 2010	£m	£m	£m	£m	£m
Analysis of EEV
Free surplus	673	136	91	-	900
PVIF	2,359	962	545	(66)	3,800
Required capital	139	770	47	-	956
Cost of capital	(51)	(315)	(25)	-	(391)
Opening adjusted EEV	3,120	1,553	658	(66)	5,265

Analysis of EEV
Free surplus	930	226	46	-	1,202
PVIF	2,637	1,061	655	(76)	4,277
Required capital	159	813	59	-	1,031
Cost of capital	(69)	(342)	(28)	-	(439)
Closing EEV	3,657	1,758	732	(76)	6,071

The adjustment to opening EEV net worth and PVIF represents a change to the presentation of certain Canada GAAP guarantee reserves. Prior to the results for the 12 months to 31 December 2010, these reserves were replaced with a time value of options and guarantees (TVOG) within the Group's EEV results. In order to better align the Group's EEV net worth movement and the Group's primary measure of performance, IFRS operating profit, these reserves are now included within the EEV net worth with an offset in the PVIF. This change does not affect the TVOG. Total EEV operating profit for the 12 months to 31 December 2010 is also unaffected by this adjustment.

3.2 Segmental analysis - covered business continued

	UK	Canada	International	HWPF TVOG	Total
12 months to 31 December 2009	£m	£m	£m	£m	£m
Analysis of EEV
Free surplus	899	154	124	-	1,177
PVIF	2,173	939	528	(220)	3,420
Required capital	95	737	29	-	861
Cost of capital	(38)	(233)	(22)	-	(293)
Opening adjusted EEV	3,129	1,597	659	(220)	5,165

Analysis of EEV
Free surplus	673	161	91	-	925
PVIF	2,359	937	545	(66)	3,775
Required capital	139	770	47	-	956
Cost of capital	(51)	(315)	(25)	-	(391)
Closing EEV	3,120	1,553	658	(66)	5,265

Opening adjusted EEV in International for the 12 months to 31 December 2009 reflects the inclusion of the Asia businesses on an EEV basis for the first time.

3.3 Analysis of new business contribution

The following table sets out the premium volumes and contribution from new business written by the life and related businesses, consistent with the definition of new business set out in Note 3.17 - EEV methodology.

NBC and the present value of new business premium (PVNBP) margins are shown after the effect of required capital.

	Fee (F) - Spread/risk (S/R)	NBC	Single premiums	Annualised regular premiums	PVNBP	PVNBP multiplier¹	PVNBP margin²
12 months to 31 December 2010	Fee (F) - Spread/risk (S/R)	£m	£m	£m	£m	PVNBP multiplier¹	%
Individual pensions³	F	19	3,539	92	3,858	3.5	0.5
Savings and investments	F	7	1,827	23	1,997	7.4	0.4
Annuities	S/R	56	341	-	341	-	16.5
Protection	S/R	-	-	1	1	1.0	(12.9)
Retail		82	5,707	116	6,197	4.2	1.3
Corporate pensions³	F	45	1,225	508	3,287	4.1	1.4
Institutional pensions	F	46	3,472	-	3,472	-	1.3
Corporate		91	4,697	508	6,759	4.1	1.3
UK		173	10,404	624	12,956	4.1	1.3
Fee	F	47	1,216	68	2,048	12.2	2.3
Spread/risk	S/R	21	239	52	1,000	14.6	2.1
Canada		68	1,455	120	3,048	13.3	2.2
Wholly owned	F	44	1,313	77	1,929	8.0	2.3
Joint ventures		23	74	119	550	4.0	4.3
International		67	1,387	196	2,479	5.6	2.7
Total covered business		308	13,246	940	18,483	5.6	1.7

¹ The PVNBP multiplier is calculated as the total of PVNBP less single premiums, divided by annualised regular premiums.

² PVNBP margins are calculated as the ratio of the new business contribution to the present value of new business premiums and are based on the underlying unrounded numbers.

³ Individual pensions include Retail Trustee Investment Plan. This was previously included in Corporate pensions. The 2010 impact on PVNBP is £25m.

	Fee (F) -Spread/risk (S/R)	NBC	Single premiums	Annualised regular premiums	PVNBP	PVNBP multiplier¹	PVNBP margin²
12 months to 31 December 2009	Fee (F) -Spread/risk (S/R)	£m	£m	£m	£m	PVNBP multiplier¹	%
Individual pensions³	F	7	3,096	79	3,388	3.7	0.2
Savings and investments	F	(3)	1,256	19	1,406	7.9	(0.2)
Annuities	S/R	76	448	-	448	-	17.1
Protection	S/R	-	-	1	2	2.0	11.9
Retail		80	4,800	99	5,244	4.5	1.5
Corporate pensions³	F	34	908	437	2,640	4.0	1.3
Institutional pensions	F	25	2,253	17	2,296	2.5	1.1
Corporate		59	3,161	454	4,936	3.9	1.2
UK		139	7,961	553	10,180	4.0	1.4
Fee	F	23	817	43	1,326	11.8	1.7
Spread/risk	S/R	23	415	45	1,134	16.0	2.0
Canada		46	1,232	88	2,460	14.0	1.9
Wholly owned	F	17	881	58	1,430	9.5	1.2
Joint ventures⁴		11	72	96	478	4.2	2.3
International		28	953	154	1,908	6.2	1.5
Total covered business		213	10,146	795	14,548	5.5	1.5

¹ The PVNBP multiplier is calculated as the total of PVNBP less single premiums, divided by annualised regular premiums.

² PVNBP margins are calculated as the ratio of the new business contribution to the present value of new business premiums and are based on the underlying unrounded numbers.

³ Individual pensions include Retail Trustee Investment Plan. This was previously included in Corporate pensions. The 2009 impact on PVNBP is £22m.

⁴ Single premiums in India have been restated by £8m to reflect the reclassification of regular premiums to single premiums. The impact on regular premiums is negative £2m. The impact on PVNBP for the 12 months to 31 December 2009 is £2m.

3.4 Experience variances

	UK	Canada	International	HWPF TVOG	Total
12 months to 31 December 2010	£m	£m	£m	£m	£m
Lapses	(3)	-	(2)	-	(5)
Maintenance expenses	(4)	5	1	-	2
Mortality and morbidity	4	17	-	-	21
Tax	(8)	9	(1)	-	-
Other	43	(15)	(11)	(8)	9
Total	32	16	(13)	(8)	27

Mortality profits in Canada arise from a release of annuity reserves following an exercise to validate the policy data.

Other UK variances include a £28m gain from the impact of investment strategy changes in the assets backing annuity business; a £17m loss from an agreement to fund future recharges to non-covered businesses; various modelling improvements which generated a profit of £31m; with £1m of other profits mainly arising from the impact of reserve changes and other reconciliations and management actions. The £15m loss from other variances in Canada arises from various reconciliations and variances. The majority results from premium projection variances within Canada group insurance business. The £11m loss in International mainly reflects reserving changes in the joint venture businesses.

3.4 Experience variances continued

For the 12 months to 31 December 2009, other UK variances included a £111m benefit from reduction in market risk plus the EEV operating profit benefit from a £63m release of deferred annuity reserves, offset by £38m of modelling changes for life business. The £143m of other HWPF TVOG variances primarily reflected the benefits of changes in asset allocations and hedging arrangements which reduced the HWPF burnthrough risk.

	UK	Canada	International	HWPF TVOG	Total
12 months to 31 December 2009	£m	£m	£m	£m	£m
Lapses	1	-	(5)	-	(4)
Maintenance expenses	(8)	-	4	-	(4)
Mortality and morbidity	2	18	(1)	-	19
Tax	26	(5)	8	-	29
Other	127	(9)	(24)	143	237
Total	148	4	(18)	143	277

3.5 Operating assumption changes

	UK	Canada	International	HWPF TVOG	Total
12 months to 31 December 2010	£m	£m	£m	£m	£m
Lapses	13	-	(7)	-	6
Maintenance expenses	48	68	14	-	130
Mortality and morbidity	(19)	(12)	2	-	(29)
Tax	(1)	-	-	-	(1)
Other	3	(38)	10	-	(25)
Total	44	18	19	-	81

Positive lapse assumption changes in the UK include improved long-term assumptions for most life and pension contracts. These changes in long-term assumptions reflect recent experience, after adjusting for the short-term impact of increased pension lapse activity ahead of the change in the minimum retirement age. The assumption change also anticipates the short-term impact of potential higher switching activity prior to the introduction of the Retail Distribution Review.

Expense assumption gains in the UK and in Europe reflect changes in the expense allocation for investment related expenses. The UK figure also includes an allowance for the expected benefits on maintenance costs arising from the headcount reductions announced during 2010, but only to the extent that these arrangements had been finalised by 31 December 2010.

Canada expense assumption profits of £68m mainly arise from improved expenses for group savings and retirement products, reflecting the significant growth in the business volumes during 2010.

The losses from mortality assumption changes in the UK and in Canada mainly arise from valuation and best estimate annuitant mortality.

The other assumption changes in Canada include a £37m loss from a reduction in expected fee income in our group savings and retirement products.

For the 12 months to 31 December 2009, positive lapse assumption changes in UK and Canada mainly arose from the improved persistency of pension business. The £26m loss in International reflected higher paid up assumptions in Germany and higher lapse rates for offshore business.

	UK	Canada	International	HWPF TVOG	Total
12 months to 31 December 2009	£m	£m	£m	£m	£m
Lapses	69	34	(26)	-	77
Maintenance expenses	(18)	(8)	16	-	(10)
Mortality and morbidity	7	4	1	-	12
Tax	1	-	-	-	1
Other	1	(19)	6	-	(12)
Total	60	11	(3)	-	68

3.6 Non-covered business

Non-covered business EEV operating profit is represented by IFRS operating profit as adjusted for Standard Life Investments (global investment management) look through profits and the return on mutual funds which are recognised in covered business. Refer to Note 3.1 - Basis of preparation.

UK non-covered primarily comprises UK non-covered mutual funds business and the non-covered UK pension scheme. The Group's healthcare business, Standard Life Healthcare Limited, was sold on 31 July 2010 and has therefore been classified as a discontinued operation for the year ended 31 December 2010. The Group's banking business, Standard Life Bank plc, was sold on 1 January 2010. The comparatives for the year ended 31 December 2009 include both the banking and healthcare businesses as discontinued operations.

(a) Segmental analysis - non-covered business

	Global investment management	UK	Discontinued operations	Other including group corporate centre	Total non-covered business
12 months to 31 December 2010	£m	£m	£m	£m	£m
Opening EEV net assets	195	(19)	343	644	1,163
Opening adjustments	-	34	-	(34)	-
Opening adjusted EEV net assets	195	15	343	610	1,163

(Loss)/profit after tax	26	(9)	20	(66)	(29)
Transfer back of net worth from covered business	52	(28)	-	4	28
Foreign exchange differences	2	-	-	16	18
Internal capital transfers	(18)	144	(387)	344	83
Distributions to equity holders	-	-	-	(278)	(278)
Other	(1)	149	24	48	220
Closing EEV net assets	256	271	-	678	1,205

The transfer back of net worth from covered business represents the transfer of profits and losses in relation to the Group's investment management business, the UK mutual funds business (within UK non-covered, Standard Life Savings Limited) and the Canada mutual funds business (within other non-covered), necessary to reconcile the opening and closing EEV net assets. For further detail refer to Note 3.17 - EEV methodology under consolidation adjustments.

The opening adjustment of £34m represents the reclassification of other non-covered to UK non-covered business during the period.

On 15 May 2009, the Group's equity holders approved the introduction of the Scrip dividend scheme, effective for the final 2008 dividend payment onwards. Investors taking part in the Scrip scheme receive their dividend entitlement in the form of new shares issued in lieu of cash dividends. For the 12 months ended 31 December 2010, dividends paid comprise £92m (2009: £102m) settled by the issue of shares under the Scrip scheme, and £186m paid in cash (2009: £158m).

The other movement in the UK EEV net assets relates to the change in the UK non-covered pension scheme surplus of £214m (2009: £73m deficit) and the associated deferred tax liability of £65m (2009: £23m deferred tax asset).

Other movements in other including group corporate centre predominantly relate to the £92m issue of share capital other than in cash in relation to the Scrip dividend paid by Standard Life plc, offset by shares acquired by employee trusts of £35m.

3.6 Non-covered business continued

(a) Segmental analysis - non-covered business continued

	Global investment management	UK	Discontinued operations	Other including group corporate centre	Total non-covered business
12 months to 31 December 2009	£m	£m	£m	£m	£m
Opening EEV net assets	143	31	309	672	1,155
Opening adjustments	-	-	-	-	-
Opening adjusted EEV net assets	143	31	309	672	1,155

Profit/(loss) after tax	26	(26)	49	(48)	1
Transfer back of net worth from covered business	24	(20)	-	1	5
Foreign exchange differences	1	-	-	5	6
Internal capital transfers	-	46	(23)	155	178
Distributions to equity holders	-	-	-	(260)	(260)
Other	1	(50)	8	119	78
Closing EEV net assets	195	(19)	343	644	1,163

(b) Global investment management EEV profits before tax

Global investment management profits are included in EEV on a look through basis. This means that the profits from global investment management generated from the life and pensions business are allocated to covered business. However, the excluded life and pensions profits include £33m (2009: £19m) of profits relating to products which are actively marketed and sold to third parties through global investment management distribution channels. If these profits are added to the third party profits disclosed for non-covered business, there are £66m (2009: £61m) of third party related profits for global investment management.

	12 months to 31 December 2010	12 months to 31 December 2009
	£m	£m
Life and pensions look through profits before tax	70	33
Less: Third party related life and pensions profits before tax	33	19
Life and pensions look through profits before tax excluding third party profits	37	14

Third party related life and pensions profits before tax	33	19
Third party related profits before tax	33	42
Total third party related profits before tax	66	61

Total EEV operating profit before tax	103	75

Non-operating items¹	3	(11)
Total EEV profit before tax	106	64

¹The non-operating items for the 12 months to 31 December 2010 include £nil in relation to the net negative fair value movement in respect of the liability remaining following the restructuring of a sub-fund of the Standard Life Investments (Global Liquidity Funds) plc and the 'Contract for Differences' written in September 2008, limited the liability for Standard Life Investments (2009: £9m). As at 31 December 2010, the Contract for Differences was closed at market value and all payments had been settled in full. The losses for all periods relating to the non-life net negative fair value movement and the fair value movement of assets brought directly on to the statement of financial position are also excluded from IFRS operating profit along with £3m positive other non-operational adjustments (2009: £2m).

Changes in the cost allocation methodology relating to inputs to the EEV profit calculation were introduced during 2010 together with other minor changes. The 2009 equivalent impact of these changes is an increase of £11m in life and pensions look through profits before tax, and a similar reduction in total third party related profits before tax. On this basis, the year-on-year growth in total third party related profits before tax is 32%.

	12 months to 31 December 2010	12 months to 31 December 2009
	£m	£m
Canada non-life subsidiaries	1	(1)
Mutual funds transferred to covered business	(3)	(2)
Canada non-life subsidiaries excluding transfers to covered business	(2)	(3)

Standard Life plc income/(expense)	3	(2)
Other	8	5
Other non-covered business EEV operating profit before tax	9	-

Canada non-life subsidiaries are included within the Canada segment of the IFRS financial statements.

Included within other are the head office costs relating to the International businesses. These costs are included within the International segment of the IFRS financial statements.

3.7 EEV reconciliation of movements in consolidated statement of financial position

	12 months to 31 December 2010	12 months to 31 December 2009
	£m	£m
Opening EEV	6,435	6,245
Opening adjustments	-	33
Opening adjusted EEV	6,435	6,278

Total comprehensive income for the period attributable to equity holders	1,085	291
Distributions to equity holders	(278)	(260)
Issue of share capital other than in cash	92	102
Shares acquired by employee trusts	(35)	-
Reserves credit for employee share-based payment schemes	18	24
Shares gifted to charity	4	-
Closing EEV	7,321	6,435

The opening adjustment for the 12 months to 31 December 2009 reflects the inclusion of the Asia businesses on an EEV basis for the first time.

3.8 Reconciliation of EEV net assets to IFRS net assets

	31 December 2010	31 December 2009
	£m	£m
Net assets on an EEV basis	7,321	6,435
Present value of in-force life and pensions business net of cost of capital	(3,838)	(3,384)
EEV net worth	3,483	3,051

Adjustment of long-term debt to market value	(40)	(101)
Canada marked to market	(46)	(49)
Deferred acquisition costs net of deferred income reserve	378	358
Deferred tax differences	98	157
Adjustment for share of joint ventures	35	35
Consolidation adjustment for different accounting bases¹	(45)	(7)
Other	40	13
Net assets attributable to equity holders on an IFRS basis	3,903	3,457

¹ This adjustment reflects the removal of accounting differences for the Canada subordinated liability as explained in Note 3.17 - EEV methodology.

Reconciling items are shown net of tax where appropriate.

3.9 Analysis of covered business EEV PVIF and net worth movements (net of tax)

(a) Total

	Free surplus	Required capital	Net worth	PVIF net of cost of capital	Total
12 months to 31 December 2010	£m	£m	£m	£m	£m
Opening EEV	925	956	1,881	3,384	5,265
Opening adjustments	(25)	-	(25)	25	-
Opening adjusted EEV	900	956	1,856	3,409	5,265

Contribution from new business	(265)	45	(220)	451	231
Contribution from in-force business:
Expected return on existing business	(1)	37	36	275	311
Expected return transfer to net worth	625	(59)	566	(566)	-
Experience variances	35	(1)	34	(17)	17
Operating assumption changes	6	(55)	(49)	108	59
Development expenses	(51)	-	(51)	-	(51)
Expected return on free surplus	2	-	2	-	2
Operating profit/(loss) after tax	351	(33)	318	251	569
Investment return and tax variances	179	10	189	234	423
Effect of economic assumption changes	(73)	31	(42)	(110)	(152)
Restructuring expenses	(33)	-	(33)	-	(33)
Profit after tax	424	8	432	375	807
Internal capital transfers	(83)	-	(83)	-	(83)
Transfer back of surplus to Standard Life Investments	(52)	-	(52)	-	(52)
Transfer back of mutual funds net worth	24	-	24	-	24
Actuarial losses on defined benefit pension schemes	(29)	-	(29)	-	(29)
Foreign exchange differences	13	67	80	54	134
Aggregate tax effect of items not recognised in income statement	5	-	5	-	5
Closing EEV	1,202	1,031	2,233	3,838	6,071

The adjustment to opening EEV net worth and PVIF net of cost of capital represents a change to the presentation of certain Canada GAAP guarantee reserves. Prior to the results for the 12 months to 31 December 2010, these reserves were replaced with a time value of options and guarantees (TVOG) within the Group's EEV results. In order to better align the Group's EEV net worth movement and the Group's primary measure of performance, IFRS operating profit, these reserves are now included within the EEV net worth. Total EEV operating profit for the 12 months to 31 December 2010 is unaffected by this adjustment.

	Free surplus	Required capital	Net worth	PVIF net of cost of capital	Total
12 months to 31 December 2009	£m	£m	£m	£m	£m
Opening EEV	1,235	844	2,079	3,053	5,132
Opening adjustments	(58)	17	(41)	74	33
Opening adjusted EEV	1,177	861	2,038	3,127	5,165

Contribution from new business	(252)	64	(188)	346	158
Contribution from in-force business:
Expected return on existing business	(1)	39	38	236	274
Expected return transfer to net worth	579	(60)	519	(519)	-
Experience variances	32	11	43	156	199
Operating assumption changes	41	(4)	37	7	44
Development expenses	(36)	-	(36)	-	(36)
Expected return on free surplus	(11)	-	(11)	-	(11)
Operating profit after tax	352	50	402	226	628
Investment return and tax variances	(256)	13	(243)	296	53
Effect of economic assumption changes	(138)	(1)	(139)	(255)	(394)
Restructuring expenses	(32)	-	(32)	-	(32)
Profit/(loss) after tax	(74)	62	(12)	267	255
Internal capital transfers	(178)	-	(178)	-	(178)
Transfer back of surplus to Standard Life Investments	(24)	-	(24)	-	(24)
Transfer back of mutual funds net worth	19	-	19	-	19
Actuarial losses on defined benefit pension schemes	(3)	-	(3)	-	(3)
Foreign exchange differences	(3)	33	30	(10)	20
Aggregate tax effect of items not recognised in income statement	5	-	5	-	5
Other	6	-	6	-	6
Closing EEV	925	956	1,881	3,384	5,265

For the 12 months to 31 December 2009, Asia businesses are included within the covered business results for the first time on an EEV basis. This is reflected in the opening adjustment of £33m.

3.9 Analysis of covered business EEV PVIF and net worth movements (net of tax) continued

(b) UK and HWPF TVOG

	Free surplus	Required capital	Net worth	PVIF net of cost of capital	Total
12 months to 31 December 2010	£m	£m	£m	£m	£m
Opening EEV	673	139	812	2,242	3,054
Opening adjustments	-	-	-	-	-
Opening adjusted EEV	673	139	812	2,242	3,054

Contribution from new business	(134)	17	(117)	242	125
Contribution from in-force business:
Expected return on existing business	(1)	5	4	169	173
Expected return transfer to net worth	374	(3)	371	(371)	-
Experience variances	34	(3)	31	(15)	16
Operating assumption changes	(26)	-	(26)	58	32
Development expenses	(21)	-	(21)	-	(21)
Expected return on free surplus	(14)	-	(14)	-	(14)
Operating profit after tax	212	16	228	83	311
Investment return and tax variances	187	-	187	190	377
Effect of economic assumption changes	(80)	4	(76)	(23)	(99)
Restructuring expenses	(28)	-	(28)	-	(28)
Profit after tax	291	20	311	250	561
Internal capital transfers	(15)	-	(15)	-	(15)
Transfer back of surplus to Standard Life Investments	(47)	-	(47)	-	(47)
Transfer back of mutual funds net worth	28	-	28	-	28
Closing EEV	930	159	1,089	2,492	3,581

	Free surplus	Required capital	Net worth	PVIF net of cost of capital	Total
12 months to 31 December 2009	£m	£m	£m	£m	£m
Opening EEV	899	95	994	1,915	2,909
Opening adjustments	-	-	-	-	-
Opening adjusted EEV	899	95	994	1,915	2,909

Contribution from new business	(109)	21	(88)	188	100
Contribution from in-force business:
Expected return on existing business	(1)	4	3	144	147
Expected return transfer to net worth	342	(3)	339	(339)	-
Experience variances	32	19	51	158	209
Operating assumption changes	19	(1)	18	24	42
Development expenses	(13)	-	(13)	-	(13)
Expected return on free surplus	(19)	-	(19)	-	(19)
Operating profit after tax	251	40	291	175	466
Investment return and tax variances	(213)	1	(212)	251	39
Effect of economic assumption changes	(71)	3	(68)	(99)	(167)
Restructuring expenses	(25)	-	(25)	-	(25)
Profit/(loss) after tax	(58)	44	(14)	327	313
Internal capital transfers	(175)	-	(175)	-	(175)
Transfer back of surplus to Standard Life Investments	(19)	-	(19)	-	(19)
Transfer back of mutual funds net worth	20	-	20	-	20
Other	6	-	6	-	6
Closing EEV	673	139	812	2,242	3,054

3.9 Analysis of covered business EEV PVIF and net worth movements (net of tax) continued

	Free surplus	Required capital	Net worth	PVIF net of cost of capital	Total
12 months to 31 December 2010	£m	£m	£m	£m	£m
Opening EEV	161	770	931	622	1,553
Opening adjustments	(25)	-	(25)	25	-
Opening adjusted EEV	136	770	906	647	1,553

Contribution from new business	(18)	20	2	48	50
Contribution from in-force business:
Expected return on existing business	-	30	30	75	105
Expected return transfer to net worth	142	(60)	82	(82)	-
Experience variances	14	5	19	(6)	13
Operating assumption changes	30	(55)	(25)	39	14
Development expenses	(8)	-	(8)	-	(8)
Expected return on free surplus	12	-	12	-	12
Operating profit/(loss) after tax	172	(60)	112	74	186
Investment return and tax variances	(12)	9	(3)	32	29
Effect of economic assumption changes	4	27	31	(92)	(61)
Restructuring expenses	(1)	-	(1)	-	(1)
Profit/(loss) after tax	163	(24)	139	14	153
Internal capital transfers	(65)	-	(65)	-	(65)
Transfer back of surplus to Standard Life Investments	(3)	-	(3)	-	(3)
Transfer back of mutual funds net worth	(4)	-	(4)	-	(4)
Actuarial losses on defined benefit pension schemes	(20)	-	(20)	-	(20)
Foreign exchange differences	14	67	81	58	139
Aggregate tax effect of items not recognised in income statement	5	-	5	-	5
Closing EEV	226	813	1,039	719	1,758

The adjustment to opening EEV net worth and PVIF net of cost of capital represents a change to the presentation of certain Canada GAAP guarantee reserves. Prior to the results for the 12 months to 31 December 2010, these reserves were replaced with a TVOG within the Group's EEV results. In order to better align the Group's EEV net worth movement and the Group's primary measure of performance, IFRS operating profit, these reserves are now included within the EEV net worth. Total EEV operating profit for the 12 months to 31 December 2010 is unaffected by this adjustment.

	Free surplus	Required capital	Net worth	PVIF net of cost of capital	Total
12 months to 31 December 2009	£m	£m	£m	£m	£m
Opening EEV	154	737	891	706	1,597
Opening adjustments	-	-	-	-	-
Opening adjusted EEV	154	737	891	706	1,597

Contribution from new business	(38)	35	(3)	37	34
Contribution from in-force business:
Expected return on existing business	-	34	34	64	98
Expected return transfer to net worth	132	(60)	72	(72)	-
Experience variances	14	(14)	-	3	3
Operating assumption changes	15	(3)	12	(5)	7
Development expenses	(4)	-	(4)	-	(4)
Expected return on free surplus	3	-	3	-	3
Operating profit/(loss) after tax	122	(8)	114	27	141
Investment return and tax variances	(43)	9	(34)	12	(22)
Effect of economic assumption changes	(60)	(4)	(64)	(152)	(216)
Restructuring expenses	(1)	-	(1)	-	(1)
(Loss)/profit after tax	18	(3)	15	(113)	(98)
Internal capital transfers	(2)	-	(2)	-	(2)
Transfer back of surplus to Standard Life Investments	(3)	-	(3)	-	(3)
Transfer back of mutual funds net worth	(1)	-	(1)	-	(1)
Actuarial losses on defined benefit pension schemes	(16)	-	(16)	-	(16)
Foreign exchange differences	6	36	42	29	71
Aggregate tax effect of items not recognised in income statement	5	-	5	-	5
Closing EEV	161	770	931	622	1,553

3.9 Analysis of covered business EEV PVIF and net worth movements (net of tax) continued

(d) International

	Free surplus	Required capital	Net worth	PVIF net of cost of capital	Total
12 months to 31 December 2010	£m	£m	£m	£m	£m
Opening EEV	91	47	138	520	658
Opening adjustments	-	-	-	-	-
Opening adjusted EEV	91	47	138	520	658

Contribution from new business	(113)	8	(105)	161	56
Contribution from in-force business:
Expected return on existing business	-	2	2	31	33
Expected return transfer to net worth	109	4	113	(113)	-
Experience variances	(13)	(3)	(16)	4	(12)
Operating assumption changes	2	-	2	11	13
Development expenses	(22)	-	(22)	-	(22)
Expected return on free surplus	4	-	4	-	4
Operating profit/(loss) after tax	(33)	11	(22)	94	72
Investment return and tax variances	4	1	5	12	17
Effect of economic assumption changes	3	-	3	5	8
Restructuring expenses	(4)	-	(4)	-	(4)
Profit/(loss) after tax	(30)	12	(18)	111	93
Internal capital transfers	(3)	-	(3)	-	(3)
Transfer back of surplus to Standard Life Investments	(2)	-	(2)	-	(2)
Actuarial losses on defined benefit pension schemes	(9)	-	(9)	-	(9)
Foreign exchange differences	(1)	-	(1)	(4)	(5)
Closing EEV	46	59	105	627	732

	Free surplus	Required capital	Net worth	PVIF net of cost of capital	Total
12 months to 31 December 2009	£m	£m	£m	£m	£m
Opening EEV	182	12	194	432	626
Opening adjustments	(58)	17	(41)	74	33
Opening adjusted EEV	124	29	153	506	659

Contribution from new business	(105)	8	(97)	121	24
Contribution from in-force business:
Expected return on existing business	-	1	1	28	29
Expected return transfer to net worth	105	3	108	(108)	-
Experience variances	(14)	6	(8)	(5)	(13)
Operating assumption changes	7	-	7	(12)	(5)
Development expenses	(19)	-	(19)	-	(19)
Expected return on free surplus	5	-	5	-	5
Operating profit/(loss) after tax	(21)	18	(3)	24	21
Investment return and tax variances	-	3	3	33	36
Effect of economic assumption changes	(7)	-	(7)	(4)	(11)
Restructuring expenses	(6)	-	(6)	-	(6)
Profit/(loss) after tax	(34)	21	(13)	53	40
Internal capital transfers	(1)	-	(1)	-	(1)
Transfer back of surplus to Standard Life Investments	(2)	-	(2)	-	(2)
Actuarial gains on defined benefit pension schemes	13	-	13	-	13
Foreign exchange differences	(9)	(3)	(12)	(39)	(51)
Closing EEV	91	47	138	520	658

For the 12 months to 31 December 2009, Asia businesses are included within the covered business results for the first time on an EEV basis. This is reflected in the opening adjustment of £33m.

3.10 Time value of options and guarantees (TVOG)

	31 December 2010	31 December 2009
	£m	£m
UK and Europe HWPF	(76)	(66)
Canada	(26)	(23)
International	(17)	(17)
Total	(119)	(106)

The UK and Europe HWPF TVOG reflects the value of shareholder exposure to the policyholder guarantees within the HWPF. The value of this exposure has increased by £10m during 2010, with the favourable impact of better than expected investment performance over the year being offset by the effect of modelling changes and, in particular, the effect of a downward shift in the yield curve.

3.11 Market value of subordinated liabilities within covered business

	31 December 2010	31 December 2009
	£m	£m
UK	(1,682)	(1,682)
Canada	(302)	(244)
Total	(1,984)	(1,926)

Subordinated liabilities within EEV covered business are based on the market value of the debt. The free surplus shown in Note 3.2(c) - Segmental analysis - covered business - Segmental analysis of opening and closing EEV is net of these liabilities.

The £58m increase in the Canada subordinated debt liability includes £23m from currency movements.

The impact of these movements is reflected in non-operating profit in the UK and Canada as shown in Note 3.2(a) - Segmental analysis - covered business - Segmental EEV income statement. For Canada, however, this has been offset by the Group EEV consolidation adjustment in respect of Canada subordinated debt liability, as shown in the EEV consolidated income statement.

3.12 PVIF monetisation profile

The following tables show the PVIF emergence on a discounted and undiscounted basis along with a reconciliation to the total closing PVIF as disclosed in Note 3.2(c) - Segmental analysis - covered business - Segmental analysis of opening and closing EEV, and the PVIF net of cost of capital impact from new business as disclosed in Note 3.9 - Analysis of covered business EEV PVIF and net worth movements (net of tax).

(a) PVIF emergence

In-force business		Discounted		Undiscounted
	PVIF	Cash emerging in first 5 years		Cash emerging in first 5 years
At 31 December 2010	£m	£m	%	£m	%
UK	2,637	1,348	51	1,566	34
Canada	1,087	379	35	461	14
International	672	356	53	401	37
Total	4,396	2,083	47	2,428	27

New business		Discounted		Undiscounted
	PVIF	Cash emerging in first 5 years		Cash emerging in first 5 years
At 31 December 2010	£m	£m	%	£m	%
UK	249	109	44	129	28
Canada	55	15	27	18	12
International	169	101	60	110	44
Total	473	225	48	257	30

(b) Reconciliation to closing PVIF

In-force business	Reconciliation of discounted PVIF
	PVIF	TVOG	Total
At 31 December 2010	£m	£m	£m
UK	2,637	(76)	2,561
Canada	1,087	(26)	1,061
International	672	(17)	655
Total	4,396	(119)	4,277

* See also Note 3.2(c) - Segmental analysis - covered business - Segmental analysis of opening and closing EEV.

New business		Reconciliation of discounted PVIF
	PVIF	Cost of capital	TVOG	Total
At 31 December 2010	£m	£m	£m	£m
UK	249	(7)	-	242
Canada	55	(7)	-	48
International	169	(4)	(4)	161
Total	473	(18)	(4)	451

* See also Note 3.9 - Analysis of covered business EEV PVIF and net worth movements (net of tax).

As outlined in Note 3.1 - Basis of preparation, the Group's EEV results do not include any allowance for changes to the reserving or required capital bases anticipated under future reporting or regulatory regimes. The PVIF monetisation profile therefore excludes changes anticipated from the adoption of IFRS reporting in place of local GAAP in the Canada business, and also the regulatory changes under Solvency 2.

3.13 Principal economic assumptions - deterministic calculations - covered business

(a) Gross investment returns and expense inflation

	UK	Canada	Europe
At 31 December 2010	%	%	%
Gross investment returns
Risk free	3.49	3.29	2.96
Corporate bonds	4.08 *	**	n/a
Equities	6.49	8.60	5.96
Property	5.49	8.60	4.96

Other
Expense inflation:	3.95	***
Germany			2.29
Ireland			3.01

^* Excludes corporate bond returns on annuities. For annuities in UK equity holder funds, the overall investment return, after allowing for assumed defaults, is 4.91% for annuities that are level or subject to fixed escalations and 4.02% for annuities where escalations are linked to a price index.

^** Current holdings are assumed to yield in future years the earned rate for the year preceding the valuation. Future reinvestments are assumed to be in government bonds.

^*** 0.691% in 2011. The rate in subsequent years is based on a moving 30-year bond yield less a 3% deduction.

	UK	Canada	Europe
At 31 December 2009	%	%	%
Gross investment returns
Risk free	4.11	3.85	3.39
Corporate bonds	4.71 *	**	n/a
Equities	7.11	8.60	6.39
Property	6.11	8.60	5.39

Other
Expense inflation:	3.97	***
Germany			2.62
Ireland			3.34

^* Excludes corporate bond returns on annuities. For annuities in UK equity holder funds, the overall investment return, after allowing for assumed defaults, is 5.36% for annuities that are level or subject to fixed escalations and 4.11% for annuities where escalations are linked to a price index.

^**Current holdings are assumed to yield in future years the earned rate for the year preceding the valuation. Future reinvestments are assumed to be in government bonds.

^***1.367% in 2010. The rate in subsequent years is based on a moving 30-year bond yield less a 3% deduction.

(b) Risk discount rates - in-force business

	UK HWPF	UK equity holder owned funds	Canada	Europe HWPF	Europe equity holder owned funds
At 31 December 2010	%	%	%	%	%
Risk margin - in-force business
Risk margin before cost of capital adjustment:
Market risk	1.80	1.60	2.60	1.80	1.60
Non-market risk	1.80	1.60	2.80	1.80	1.60
Total	3.60	3.20	5.40	3.60	3.20
Cost of capital adjustment	-	(0.50)	(1.80)	-	(0.50)
Risk margin after cost of capital adjustment	3.60	2.70	3.60	3.60	2.70

Risk discount rates - in-force business
Risk free	3.49	3.49	3.29	2.96	2.96
Risk margin	3.60	2.70	3.60	3.60	2.70
Risk discount rate¹	7.09	6.19	6.89	6.56	5.66

¹ Using the value of in-force business as weights, the average risk discount rates for UK and Europe were 6.73% and 6.10% respectively. The weighted average for Europe includes an allowance for Standard Life International Limited (SLIL) which uses the same risk discount rate assumptions as UK business.

	UK HWPF	UK equity holder owned funds	Canada	Europe HWPF	Europe equity holder owned funds
At 31 December 2009	%	%	%	%	%
Risk margin - in-force business
Risk margin before cost of capital adjustment:
Market risk	1.80	1.50	2.50	1.80	1.50
Non-market risk	1.70	1.80	2.80	1.70	1.80
Total	3.50	3.30	5.30	3.50	3.30
Cost of capital adjustment	-	(0.50)	(2.00)	-	(0.50)
Risk margin after cost of capital adjustment	3.50	2.80	3.30	3.50	2.80

Risk discount rates - in-force business
Risk free	4.11	4.11	3.85	3.39	3.39
Risk margin	3.50	2.80	3.30	3.50	2.80
Risk discount rate¹	7.61	6.91	7.15	6.89	6.19

¹ Using the value of in-force business as weights, the average risk discount rates for UK and Europe were 7.38% and 6.56% respectively. The weighted average for Europe includes an allowance for SLIL which uses the same risk discount rate assumptions as UK business.

Changes in market risk margins generally arise from changes in the mix of business and asset allocations. In Canada, the market risk is also impacted by the relative movements in the returns assumed on equities and property compared to risk free.

During 2010, management action in Canada resulted in less equities and properties being used to back fixed liabilities. If this action had not been taken, the market risk margin in Canada would have been 0.2% higher. The impact of this reduction in the risk discount rate was a profit of £40m, which is reported through Canada other operating assumption changes as reported in Note 3.2(a) - Segmental analysis - covered business - Segmental EEV income statement.

The impact of the other changes in risk discount rates has been included in the effect of economic assumption changes shown in Note 3.2(a) - Segmental analysis - covered business - Segmental EEV income statement. The amount that relates to the changes in risk discount rate is a total of £185m, arising from UK: profit £156m; Canada: profit £7m; and International: profit £22m. These profits reflect the benefit of reduced risk discount rates which are mainly driven by reductions in risk free rates.

3.13 Principal economic assumptions - deterministic calculations - covered business continued

	UK HWPF	UK equity holder owned funds	Canada	Europe HWPF	Europe equity holder owned funds
12 months to 31 December 2010	%	%	%	%	%
Risk margin - new business
Risk margin before cost of capital adjustment:
Market risk	1.80	1.50	1.40	1.80	1.50
Non-market risk	0.50	1.60	1.90	0.50	1.60
Total	2.30	3.10	3.30	2.30	3.10
Cost of capital adjustment	-	(0.40)	(0.70)	-	(0.40)
Risk margin after cost of capital adjustment	2.30	2.70	2.60	2.30	2.70

Risk discount rates - new business
Risk free¹	4.11	4.11	3.85	3.39	3.39
Risk margin	2.30	2.70	2.60	2.30	2.70
Risk discount rate²	6.41	6.81	6.45	5.69	6.09

¹ As the new business contribution is calculated using start of period economic assumptions, the risk free rates shown here represent market yields at 31 December 2009.

² Using the value of in-force for new business as weights, the average risk discount rates for UK and Europe were 6.77% and 6.31% respectively. The weighted average for Europe includes an allowance for SLIL which uses the same risk discount rate assumptions as UK business.

	UK HWPF	UK equity holder owned funds	Canada	Europe HWPF	Europe equity holder owned funds
12 months to 31 December 2009	%	%	%	%	%
Risk margin - new business
Risk margin before cost of capital adjustment:
Market risk	1.70	1.40	1.50	1.70	1.40
Non-market risk	0.50	1.80	1.90	0.50	1.80
Total	2.20	3.20	3.40	2.20	3.20
Cost of capital adjustment	-	(0.40)	(0.20)	-	(0.40)
Risk margin after cost of capital adjustment	2.20	2.80	3.20	2.20	2.80

Risk discount rates - new business
Risk free¹	3.42	3.42	3.07	2.95	2.95
Risk margin	2.20	2.80	3.20	2.20	2.80
Risk discount rate²	5.62	6.22	6.27	5.15	5.75

¹ As the new business contribution is calculated using start of period economic assumptions, the risk free rates shown here represent market yields at 31 December 2008.

²Using the value of in-force for new business as weights, the average risk discount rates for UK and Europe were 6.11% and 5.83% respectively. The weighted average for Europe includes an allowance for SLIL which uses the same risk discount rate assumptions as UK business.

(d) International - Asia

The PVIF and cost of required capital of the Asia businesses is calculated using a 'risk neutral' approach whereby projected investment returns and discount rates are based on risk free rates. The risk free rates used were:

	31 December 2010	31 December 2009
	%	%
India	6.81	7.50
China	3.92	3.66
Hong Kong	1.55	2.45

As a result of this risk neutral approach there is no requirement to hold a market risk margin within the risk discount rate.

Non-market risk has been allowed for via a specific deduction to the PVIF, based on a non-market risk 'cost of capital' approach. This has reduced the PVIF at 31 December 2010 by £28m (2009: £21m). Similarly, the 2010 pre-tax NBC has been reduced by £18m (2009: £12m) as an allowance for non-market risk.

3.14 Principal economic assumptions - stochastic calculations

The level of the TVOG is generally calculated using a stochastic projection. This requires an economic scenario generator (ESG) which projects the relevant fund under a large number of different future economic scenarios. A detailed description of the methodology applied in the relevant funds is provided in Note 3.17 - EEV methodology.

Characteristics of ESG used for HWPF TVOG calculations - UK and Europe

The ESG simulates future economic environments in a market consistent manner. The outputs of the ESG include:

· Cash account index

· Gross redemption yield term structure

· Equity total return index

· Property total return index

· Gilt total return index

· Corporate bond total return index

· Equity dividend yields

· Property rental yields

· Price inflation

· Earnings inflation

The ESG allows option-pricing techniques to be used to value the TVOG.

Parameters used in ESG

Cash and bond returns

These variables are calibrated using the repo rates and government strips.

Inflation

This variable is calibrated based on the relationship between the real and nominal yield curves.

Equity returns

The volatility of equity returns is calibrated to the market prices of a range of FTSE 100 and Dow Jones Euro Stoxx options.

Property returns

As there is no liquid property option market, a best estimate of property return volatility is used. The property volatility is estimated from adjusted Investment Property Databank UK data.

Dividend and rental yields

Dividend yields are derived from current market observable yields (FTSE All Stocks for UK and Euro Stoxx 50 for Europe).

Rental yields are derived from rental income on our actual portfolio of property (with three month lag).

3.14 Principal economic assumptions - stochastic calculations continued

Swaption-implied volatilities

The implied volatility is that required in order that the price of the option calculated via the Black-Scholes Formula equals the market price of that option.

The model swaption-implied volatilities are set out in the following table:

	31 December 2010		31 December 2009
UK Sterling	Swap term (years)		Swap term (years)
Option term (years)	10	15	10	15
10	14.4%	14.2%	14.5%	14.3%
15	14.5%	14.3%	14.6%	14.5%
20	14.2%	13.9%	14.5%	15.2%
25	13.6%	13.3%	15.6%	17.5%

	31 December 2010		31 December 2009
Euro	Swap term (years)		Swap term (years)
Option term (years)	15	20	15	20
10	15.5%	15.1%	16.0%	15.5%
15	15.0%	14.4%	15.4%	15.4%
20	13.5%	12.8%	15.0%	15.8%
25	12.6%	N/A	16.6%	N/A

Equity-implied volatilities

The implied volatility is that required in order that the price of the option calculated via the Black-Scholes Formula equals the market price of that option.

The model equity-implied volatilities are set out in the following table:

UK equities
Term (years)	31 December 2010	31 December 2009
10	25.4%	26.6%
15	26.7%	26.6%
20	27.4%	26.9%
25	28.4%	28.0%

European equities
Term (years)
10	25.8%	27.1%
15	27.9%	27.7%
20	29.0%	28.6%
25	29.6%	30.0%

Property-implied volatilities

Property-implied volatilities have been set as best estimate levels of volatility based on historic data.

For the UK and Europe, the model is calibrated to property-implied volatility of 15% for 31 December 2010 and 15% for 31 December 2009.

Note 3.10 - Time value of options and guarantees (TVOG) also shows the value of TVOG in Canada and International, which are in addition to the HWPF TVOG. Where material, these values are also calculated using ESG similar to that used for the HWPF TVOG calculation.

3.15 Foreign exchange

A description of the approach to the currency translation for foreign entities is provided in Note 3.17 - EEV methodology.

The principal exchange rates applied are:

Local currency: £	Closing 31 December 2010	Average to 31 December 2010	Closing 31 December 2009	Average to 31 December 2009
Canada	1.556	1.605	1.693	1.778
Europe	1.167	1.165	1.126	1.118
India	70.007	70.803	75.148	75.388
China	10.317	10.477	11.025	10.649
Hong Kong	12.171	12.032	12.522	12.086

3.16 Sensitivity analysis - economic and non-economic assumptions

The tables below show the sensitivity of the embedded value and the NBC to different scenarios.

The sensitivities tested were:

· 1% increase and decrease in the risk discount rates

· Interest rates 1% higher and lower than base case, with consequential changes in fixed interest asset values, reserving assumptions, risk discount rates and investment returns on equities and properties

· 10% fall in market value of equity assets

· 10% fall in market value of property assets

· 10% decrease in maintenance expenses (a 10% sensitivity on a base expense assumption of £10 p.a. would represent an expense assumption of £9 p.a.). Where there is a look through into service company expenses, the fee charged by the service company is unchanged while the underlying expense decreases.

· 10% decrease in lapse rates (a 10% sensitivity on a base assumption of 5% p.a. would represent a lapse rate of 4.5% p.a.)

· 5% decrease in both mortality and morbidity rates for annuitant and non-annuitant policies

· EEV results assuming only prescribed minimum capital (where economic capital has been used in the EEV calculations)

Embedded value:

	UK	Canada	International	HWPF TVOG	Total
31 December 2010	£m	£m	£m	£m	£m
Embedded value	3,657	1,758	732	(76)	6,071
Risk discount rate +1%	(175)	(148)	(44)	-	(367)
Risk discount rate -1%	202	184	50	-	436
Interest returns +1%	(3)	13	(1)	19	28
Interest returns -1%	11	(76)	(10)	(74)	(149)
Fall in equity market values by 10%	(162)	(30)	(21)	(2)	(215)
Fall in property market values by 10%	(16)	(52)	(2)	(5)	(75)
Maintenance expenses -10%	120	94	10	-	224
Lapse rates -10%	111	119	14	(8)	236
Annuitant mortality -5%	(57)	(45)	(4)	-	(106)
Non-annuitant mortality -5%	12	54	(2)	(2)	62
Prescribed minimum capital	-	71	-	-	71

The sensitivity of the Canada embedded value as shown above includes the effect of changes in the market value of the subordinated liability. Whilst Group EEV is adjusted for the different subordinated debt valuation bases used for covered and non-covered business as explained in Note 3.17 - EEV methodology, the impact of these sensitivities on the Group EEV consolidation adjustment is not included in this sensitivity analysis.

3.16 Sensitivity analysis - economic and non-economic assumptions continued

New business contribution:

	UK	Canada	International	HWPF TVOG	Total
12 months to 31 December 2010	£m	£m	£m	£m	£m
New business contribution	173	68	67	-	308
Risk discount rate +1%	(25)	(10)	(10)	-	(45)
Risk discount rate -1%	29	12	10	-	51
Interest returns +1%	(2)	(2)	(1)	-	(5)
Interest returns -1%	2	1	(8)	-	(5)
Fall in equity market values by 10%	(23)	(10)	(5)	-	(38)
Fall in property market values by 10%	(1)	-	-	-	(1)
Maintenance expenses -10%	18	14	3	-	35
Lapse rates -10%	13	11	5	-	29
Annuitant mortality -5%	(2)	-	-	-	(2)
Non-annuitant mortality -5%	-	7	-	-	7
Prescribed minimum capital	-	2	-	-	2

Sensitivities to higher and lower assumed equity and property risk premiums in future investment earnings have not been calculated, as the effect of the risk premium is removed in setting the market risk margin in the risk discount rate.

The demographic sensitivities shown above represent a standard change to the assumptions for all products. Different products will be more or less sensitive to the change, and impacts may partially offset one another.

3.17 EEV methodology

Covered business

For the purposes of EEV reporting, a distinction is drawn between covered business to which EEV methodology is applied and non-covered business where results and balances are based on those determined under IFRS and included in the IFRS financial statements, unless otherwise stated.

The Group's covered business is its life assurance and pensions businesses in the UK, Canada and International (Germany including Austria, Ireland, Hong Kong and joint venture businesses in China and India), as well as the current and future profits and losses from Standard Life Investments arising on its management of funds relating to the life and pensions businesses.

UK covered business also includes:

· Non-insured self invested personal pension (SIPP) business

· Those elements of Wrap business that are contained within a long-term product wrapper i.e. bonds, SIPPs and mutual funds

· Mutual funds sold by the UK business

Canada covered business also includes mutual funds.

International covered business consists of:

· The Group's Germany branch of Standard Life Assurance Limited (SLAL)

· The Group's Ireland branch of SLAL

· The Group's offshore bond business, which is sold by SLIL

· The Group's business in Hong Kong (Standard Life Asia Limited)

· The Group's share of results in the joint venture in India, HDFC Standard Life Insurance Company Limited, at 26% for the 12 months to 31 December 2010 (during the 12 months to 31 December 2009: 26%)

· The Group's share of results in the joint venture in China, Heng An Standard Life Insurance Company Limited, at 50% for the 12 months to 31 December 2010 (during the 12 months to 31 December 2009: 50%)

The Group's non-covered business predominantly consists of the third party global investment management business of Standard Life Investments, Standard Life plc, the non-covered business of Standard Life Savings Limited, other non-life and pensions entities and the Group's UK pension scheme. The Group's healthcare business, Standard Life Healthcare Limited, was sold on 31 July 2010 and the banking business, Standard Life Bank plc, was sold on 1 January 2010. Both businesses have been classified as discontinued operations.

Consolidation adjustments

Covered business includes the profits and losses arising from non-covered businesses providing investment management and other services to the Group's life and pensions businesses. As a result, the profits and losses on an IFRS basis have been removed from the relevant non-covered segments (investment management, UK non-covered and other non-covered) and are instead included within the EEV results of the covered businesses.

The capitalised value of the future profits and losses from such service companies are included in the opening and closing embedded value for the relevant business, but the net assets remain within the relevant non-covered businesses. A transfer of profits from the covered business to the non-covered business is deemed to occur in order to reconcile the profits and losses arising in the financial period within each segment with the opening and closing EEV net assets.

The consolidation adjustment to remove the impact of the accounting differences for the Canada subordinated liability is explained in more detail under subordinated liabilities within the EEV methodology.

Value of in-force covered business

The value of future equity holders' cash flows is calculated for each material business unit on an after-tax basis, projected using best estimate future assumptions as described in the EEV methodology.

Allowance is made for external reinsurance and reinsurance within the Group. The cash flows include the profits and losses arising in Group companies providing global investment management and other services where these relate to covered business. This is referred to as the 'look through' into service company expenses.

The projected cash flows are discounted to the valuation date using a risk discount rate which is intended to make sufficient allowance for the risks associated with the emergence of these cash flows, other than those risks allowed for elsewhere in the EEV calculations. In particular, a deduction is made from the present value of the best estimate cash flows to reflect the risks associated with the existence of financial options and guarantees, this deduction being assessed using stochastic techniques as described in the EEV methodology.

Free surplus

The free surplus is the market value of any assets allocated to, but not required to support, the in-force covered business at the valuation date. In the UK, this comprises the market value of the assets in the equity holders' fund, plus the value of the equity holders' interests in the surplus of the long-term fund, after appropriate allowance for tax, less the required capital supporting the covered business.

For some assets and liabilities where market value is not the normal basis for accounting, as in Canada, the free surplus is restated to market value, adjusted as required to allow for the present value of any tax which would become payable if the assets were realised.

Allowance for risk

Under the EEV Principles and Guidance, risks within the covered business are allowed for in the following ways:

· Application of risk discount rates to projected cash flows, which are derived by adding a risk margin to a risk free rate

· Holding of required capital for the covered business, determined by reference to both regulatory requirements and internal economic capital assessments

· Allowing for TVOG

Risk discount rates

Under the EEV methodology, a risk discount rate is required to calculate the present value of expected future distributable profits as a single value at a particular date. The risk discount rate comprises a risk free rate which reflects the time value of money and a risk margin allowing for the risk that experience in future years may differ from that assumed. In particular, a risk margin is added to allow for the risk that expected additional returns on certain asset classes are not achieved.

Risk discount rates have been determined as the risk free government bond yield plus a risk margin. The risk margins have been determined for market risk and non-market risk separately. For market risk, we have opted for an approach whereby the risk margin is determined such that the PVIF (excluding the allowance for the TVOG) calculated using expected 'real world' asset returns equates with the PVIF calculated using 'risk neutral' investment returns and discount rates. In this way, the benefits of assuming higher than risk free returns on future cash flows are offset by using a higher discount rate. However, when returns above the risk free rate arise from the additional returns available from investing in illiquid assets, namely corporate bonds and mortgages, where they are matched to appropriate liabilities, these are not offset in determining the discount rate. Allowance has then been made for non-market risk by applying stress tests to the PVIF using our internal capital model, and quantifying an additional risk margin based on the results of the stress tests.

The main elements of non-market risk which are stress tested are lapse, mortality, expense and credit risk assumptions. Benefits of diversification between risk types are allowed for in deriving the risk margins in line with our internal capital model.

3.17 EEV methodology continued

Separate risk discount rates have been calculated for in-force and new business and for the principal geographic segments (UK, Europe and Canada). Within the UK and Europe, separate risk margins are calculated for profits emerging on policies inside the HWPF (regardless of whether these profits emerge directly from the HWPF or by reassurance into other Group entities) and on policies that are in equity holder owned funds. For HWPF policies, there is a significant inter-Group reassurance agreement in respect of mortality surpluses on annuities, which are reassured out of the HWPF. The HWPF risk margin anticipates diversification benefits including the annuity mortality risk, since the overall capital structure also benefits from this diversification.

The risk margins are also reduced to allow for any cost of required capital (excluding double taxation cost) which is already reflected within the EEV.

Market risk margins are reviewed at each valuation date, allowing for changes in risk profile arising from movements in asset mix. Non-market risk margins are reviewed in detail once a year.

The values of the risk discount rates used for this reporting period are provided in Note 3.13 - Principal economic assumptions - deterministic calculations - covered business.

In Asia, the PVIF and cost of required capital is calculated using a 'risk neutral' approach whereby projected investment returns and discount rates are based on risk free rates. As a result, there is no need for an additional market risk margin in the discount rate. Non-market risk is deducted directly from the PVIF using a 'cost of capital' approach on the risk capital arising from the key sources of non-market risk. For the Asia businesses, this methodology would give a similar result to the methodology used in the UK, Europe and Canada since the calibration of a risk discount rate would have allowed for the market and non-market risks.

Required capital

Required capital represents the amount of assets over and above those required to back the liabilities in respect of the covered business whose distribution to equity holders is restricted. As a minimum, this will represent the capital requirement of the local regulator.

The levels of required capital are reviewed in detail once a year.

We have set required capital to be the higher of regulatory capital and our own internally assessed risk-based capital requirement. In determining the required capital for the purposes of assessing EEV, the Group excludes any capital which is provided by the existing surplus in the HWPF, as this capital is provided by policyholders. Any required capital in excess of that provided by the existing surplus in the HWPF would need to be provided by assets in the equity holders' funds. As part of the annual assessment, projections of the expected surplus in the HWPF, on best estimate assumptions, are carried out to assess whether this is sufficient to cover the level of required capital in respect of the HWPF.

The levels of required capital in the current EEV calculations are therefore as follows:

· UK and Europe (business in HWPF) - no capital requirement in excess of statutory reserves or asset shares is valued in the EEV

· UK and Europe (business in equity holder owned funds) - 100% of EU minimum regulatory capital, which is higher in aggregate than Standard Life's internal risk-based capital requirement

· Canada - the level of required capital is taken as 150% of minimum continuing capital and surplus requirements (MCCSR)

· Asia - required capital is based on the local statutory capital requirements

The cost of required capital has been calculated using assumptions consistent with those used in the value of in-force (VIF) calculations.

Time value of financial options and guarantees (TVOG)

The TVOG represents the potential additional cost to equity holders where a financial option exists which affects policyholder benefits and is exercisable at the option of the policyholder.

UK and Europe - HWPF

The main source of TVOG in the Group EEV arises from the HWPF. Under the terms of the Scheme, equity holder cash flows from the HWPF are held back if required to cover HWPF liabilities on the Financial Services Authority realistic or regulatory basis. This option for the UK, Germany and Ireland results in the loss of cash flows when the HWPF has insufficient assets to pay guaranteed policy benefits. The main options and guarantees within the HWPF in respect of UK and Europe business relate to with profits business and include minimum guaranteed rates of return.

The value of the TVOG arising from the HWPF at any point in time will be sensitive to:

· The level of the residual estate (working capital in the HWPF)

· Investment conditions in terms of bond yields, equity and property values, and implied market volatility

· The investment profile of the assets backing the applicable policies, the residual estate and non profit business in the fund at the time the TVOG is calculated

The level of the TVOG has been calculated by a model which projects the HWPF under a large number of different future economic scenarios. Particular features of this calculation are:

· The projected economic scenarios and the methodology used to discount equity holder cash flows are based on market consistent assumptions

· The total cost includes an allowance for non-market risk

· Changes in policyholder behaviour are allowed for according to the particular economic scenario

· Changes in management actions, including the dynamic guarantee deductions, are allowed for according to the particular economic scenario, such actions being expected to be consistent with the way that the HWPF will be managed in future as described in the Scheme and in the Principles and Practices of Financial Management (PPFM)

· Each projection allows for the gradual release of the residual estate over time to policyholders where there are sufficient funds to do so

UK and Europe

Most with profits business written post demutualisation is managed in a number of new with-profits funds. For the present reporting period, the only significant volumes of this type of new business have arisen in Germany. These policies have guarantees relating to benefits available on the policy maturity date. These guarantees increase each year with the addition of bonuses.

Equity holder assets are at risk if the resources of these with-profits funds are insufficient to pay the guaranteed benefits. The level of the TVOG has been calculated using stochastic techniques. The TVOG has reduced both the NBC as well as the closing PVIF for Europe.

An adjustment is made to allow for TVOG arising on a selection of guaranteed annuity benefits on unit linked and smoothed-managed businesses within Germany.

Canada

The main options and guarantees within the Canada business are in respect of minimum investment returns, guaranteed maturity and death benefits, and vested bonuses, which apply to certain investment and insurance contracts.

Asia

The TVOG in the Asia businesses within International arises from guarantees and options given to with profits business written in India and China.

Other economic assumptions

The assumed investment returns reflect our estimates of expected returns on principal asset classes, and are, in general, based on market conditions at the date of calculation of the EEV.

The inflation rates assumed are, in general, based on the market implied long-term price inflation plus a margin to allow for salary inflation.

The Group's offshore business, which is sold by SLIL, is included within International results but has the same economic assumptions as UK covered business.

Details of the assumptions used for this reporting period are provided in Note 3.13 - Principal economic assumptions - deterministic calculations - covered business.

Non-economic assumption changes

Non-economic assumptions for the main classes of business, including most expense assumptions, are reviewed on an annual basis.

Expense assumptions

Expense assumptions on a per policy basis have been derived based on an analysis of management expenses performed by each business, and are split between acquisition and maintenance assumptions.

In determining future expenses in relation to covered business, no allowance has been made in the EEV or the NBC for any allocation of Group corporate centre costs.

Development expenses represent specific expenses incurred which are considered temporary in nature and are not expected to occur again.

Costs related to restructuring have been excluded from the EEV results where it has been agreed that these costs are to be met by the HWPF and therefore would not form part of the surplus cash flows.

Global investment management expenses are also allowed for, and the assumptions for these reflect the actual investment expenses of Standard Life Investments in providing global investment management services to the life and pensions business rather than the investment fees actually charged.

3.17 EEV methodology continued

Restructuring and corporate transaction expenses for covered and non-covered business are consistent with those identified in the IFRS operating profit adjustments and primarily represent costs in relation to the Group's Transformation and Solvency 2 Programmes, and transaction costs in relation to the sale of Standard Life Healthcare Limited and Standard Life Bank plc. Refer to the IFRS financial information Note 2.3 - Administrative expenses for further detail.

Acquisition costs used within the calculation of the NBC reflect the full acquisition expenses incurred in writing new business in the period.

Expenses - pension scheme deficits

Pension scheme deficits have been included in accordance with International Accounting Standard (IAS) 19 Employee Benefits. IFRIC 14 IAS 19 - The Limit on a Defined Benefit Asset, Minimum Funding Requirements and their Interaction was adopted by the Group from 1 January 2008. The interpretation provides guidance on assessing the limit in IAS 19 Employee Benefits on the amount of any surplus that can be recognised as an asset and explains how the pension asset or liability may be affected by a statutory or contractual minimum funding requirement.

Other non-economic experience assumptions

Assumptions are made in respect of future levels of mortality, morbidity, premium terminations, option take-up, surrenders and withdrawals. The assumptions reflect our best estimates of the likely future experience, and are based on recent experience and relevant industry data, where available.

Annuitant mortality assumptions use a combination of base mortality rates, which are generally set by reference to recent experience, and expected future changes in mortality. The latter uses data provided by the Continuous Mortality Investigation Bureau in the UK and the Canadian Institute of Actuaries in Canada along with other company specific considerations.

Assumptions regarding option take-up, surrenders and withdrawals are assumed to vary, where appropriate, according to the investment scenario under consideration when deriving the TVOG, to reflect our best estimate of how policyholder behaviour may vary in such circumstances.

New business

Definition of new business

New business includes new policies written during the period and some increments to existing policies.

For the UK, classification as new or existing business is determined as follows (using the approach used for the published new business figures):

· New recurrent single premium business is classified as new regular premium business to the extent that it is deemed likely to renew

· Department of Work and Pensions (DWP) rebates are deemed to be new single premiums

· Pensions vesting into annuity contracts under existing group defined benefits contracts are not included as new business

· Pensions vesting under other group contracts and individual pensions are included as new business

· Products substituted due to the exercise of standard contract terms are not deemed to be new business

· All increments and indexations to existing policies, including new members, and increments and indexations paid by existing members of group schemes, are deemed to be new business

For Germany, new business comprises new contracts written into the equity holder owned funds during the period. The new business contribution for Germany is calculated assuming a specific level of future premium indexation. Similarly, it is assumed that premiums on 'low start' policies increase at the end of the low start period.

For Ireland, new business is determined as follows:

· New contracts written during the period are included as new business

· New premiums on recurrent single premium contracts are included as new business

· Pensions vesting into annuity contracts under existing group defined benefits contracts are not included as new business

· Pensions vesting under other group contracts and individual pensions are included as new business

· All increments and indexations to existing policies, including new members, and increments and indexations paid by existing
members of group schemes, are deemed to be new business

For Canada, business is deemed to be 'new business' if a contract has been issued during the reporting period. The new business contribution also includes the value of renewal premiums for a new contract, where the renewal premiums are (i) contractual,
(ii) non-contractual but reasonably predictable, or (iii) recurrent single premiums that are pre-defined and reasonably predictable. The present value of future net income attributable to renewal premiums on existing group pension and savings contracts, including those from new members, is not included as new business. Since all deposits (new and renewal) in individual segregated funds business attract a new business/first year commission, this business is treated as new business for EEV purposes.

For the Asia businesses, new business is defined as that arising from the sale of new contracts during the reporting period. The value of new business includes the value of expected renewals on those new contracts.

New business contribution (NBC)

The contribution generated by new business written during the period is the present value of the projected stream of after-tax distributable profit from that business. NBC before tax is calculated by grossing up the contribution after tax at the full corporation tax rate for UK business and at other equivalent rates of tax for other countries. NBC is calculated as at the end of the reporting period.

The economic assumptions used are those at the start of the reporting period, and the non-economic assumptions are those at the end of the reporting period. An exception to this policy is annuity business in the UK and Ireland where, to ensure consistency between the economic assumptions used in the NBC and those used in pricing the business and in the calculation of mathematical reserves, the economic assumptions used are the average rates for each quarter during the reporting period, and the asset allocations are those used in the pricing basis.

Present value of new business premiums (PVNBP)

New business sales are expressed as the PVNBP. The PVNBP calculation is equal to total single premium sales received in the period plus the discounted value of regular premiums expected to be received over the term of the new contracts, and is expressed at the point of sale. The premium volumes and projection assumptions used to calculate the present value of regular premiums for each product are the same as those used to calculate NBC, except that the PVNBP is discounted using the relevant opening risk free rate rather than the risk discount rate.

Tax

The opening and closing EEV numbers for the covered business are determined on an after-tax basis. The tax assumptions used are based upon the best estimate of the actual tax expected to arise. Attributable tax and profit before tax are derived by grossing up profit after tax at the long-term rate of corporation tax appropriate to each territory. While for some territories this rate does not equate to the actual effective rate of tax used in the calculation of after-tax profits, it provides a consistent grossing up basis upon which to compare results from one year to another and is in line with the Group's expectation of the rate of tax applicable to new business.

During 2009, a loan was made to the HWPF by Standard Life plc, repayment of which is contingent on the emergence of recourse cash flows and surplus in the HWPF (contingent loan agreement). A transfer to equity holders was then made to transfer the remaining unallocated surplus to equity holders without equity holder tax arising. As a result of this the market risk associated with unallocated surplus was reduced. Future transfers to equity holders from the HWPF will, in the first instance, take the form of repayments under the contingent loan agreement. Such transfers can be made without equity holder tax arising for a number of years. Over time the actual effective tax rate on these transfers to equity holders will move toward the standard rate of corporation tax.

For non-covered business, attributed tax is consistent with the IFRS financial statements, unless otherwise stated.

Subordinated liabilities

The liabilities in respect of the UK subordinated guaranteed bonds and Mutual Assurance Capital Securities plus the subordinated debt issued by Canada form part of covered business and have been deducted at market value within the EEV. The Canada subordinated liability is owned by a non-covered subsidiary of the Group, where the asset is valued on an amortised cost basis. Total Group EEV has been adjusted to exclude the difference between the market value and the amortised cost value of the Canada subordinated liability.

For non-covered business, no adjustment is made to the IFRS valuation of debt.

Foreign exchange

Embedded value and other items within the statement of financial position denominated in foreign currencies have been translated to Sterling using the appropriate closing exchange rates. NBC and other items within the income statement have been translated using the appropriate average exchange rates. Gains and losses arising from foreign exchange differences on consolidation are presented separately within the EEV consolidated statement of comprehensive income. Details of the exchange rates applied are provided in Note 3.15 - Foreign exchange.

4 Supplementary information

4.1 Analysis of IFRS profit by segment

	UK	Canada	International	Global investment management¹	Other	Elimination	Total
2010	£m	£m	£m	£m	£m	£m	£m
Opening IFRS shareholder net assets							3,457
Fee based revenue	593	150	212	331	-	(155)	1,131
Spread/risk margin	148	222	-	-	-	-	370
Total income	741	372	212	331	-	(155)	1,501

Acquisition expenses	(172)	(64)	(31)	-	-	-	(267)
Maintenance expenses	(312)	(193)	(129)	(194)	-	155	(673)
Growth investment spend	(61)	(35)	(15)	(34)	(4)	-	(149)
Joint venture businesses	-	-	(23)	-	-	-	(23)
Group corporate centre costs	-	-	-	-	(50)	-	(50)
Capital management	(21)	30	1	-	17	-	27
Other	59	-	-	-	-	-	59
IFRS operating profit/(loss) before tax from continuing operations	234	110	15	103	(37)	-	425
Tax on operating profit	(36)	(20)	(8)	(27)	2	-	(89)
IFRS operating profit/(loss) after tax from continuing operations	198	90	7	76	(35)	-	336
Non-operating items	33	78	(3)	3	(26)	-	85
Tax on non-operating items	9	(23)	-	-	5	-	(9)

Profit/(loss) for the year from continuing operations	240	145	4	79	(56)	-	412
Profit from discontinued operations	20	-	-	-	-	-	20

IFRS profit/(loss) after tax attributable to equity holders	260	145	4	79	(56)	-	432
Other comprehensive income, dividends and other movements in equity							14
Closing IFRS shareholder net assets							3,903

¹ Global investment management fee based revenue includes share of profits from HDFC Asset Management Company Limited.

	UK	Canada	International	Global investment management¹	Other	Elimination	Total
2009	£m	£m	£m	£m	£m	£m	£m
Opening IFRS shareholder net assets							3,407
Fee based revenue	498	109	208	267	-	(110)	972
Spread/risk margin	240	221	-	-	-	-	461
Total income	738	330	208	267	-	(110)	1,433

Acquisition expenses	(166)	(60)	(14)	-	-	-	(240)
Maintenance expenses	(291)	(156)	(127)	(164)	-	110	(628)
Growth investment spend	(31)	(30)	(17)	(25)	(3)	-	(106)
Joint venture businesses	-	-	(27)	-	-	-	(27)
Group corporate centre costs	-	-	-	-	(50)	-	(50)
Capital management	(28)	29	-	(5)	21	-	17
Other	-	-	-	-	-	-	-

IFRS operating profit/(loss) before tax from continuing operations	222	113	23	73	(32)	-	399
Tax on operating profit	27	(55)	1	(13)	6	-	(34)
IFRS operating profit/(loss) after tax from continuing operations	249	58	24	60	(26)	-	365
Non-operating items	(93)	(121)	(12)	(9)	(20)	-	(255)
Tax on non-operating items	26	22	2	-	4	-	54

Profit/(loss) for the year from continuing operations	182	(41)	14	51	(42)	-	164
Profit from discontinued operations	49	-	-	-	-	-	49
IFRS profit/(loss) after tax attributable to equity holders	231	(41)	14	51	(42)	-	213
Other comprehensive income, dividends and other movements in equity							(163)
Closing IFRS shareholder net assets							3,457

¹ Global investment management fee based revenue includes share of profits from HDFC Asset Management Company Limited.

4.2 EEV and EEV operating profit

	Covered
	UK (and HWPF TVOG)	Canada	International	Total non-covered	Group elimination	Total	Pence per share
2010	£m	£m	£m	£m	£m	£m	p
Opening EEV	3,054	1,553	658	1,163	7	6,435	288
Opening adjustments	-	-	-	-	-	-
Adjusted opening EEV	3,054	1,553	658	1,163	7	6,435
New business contribution	173	68	67	-	-	308
Contributions from in-force business	255	182	26	-	-	463
Non-covered business	-	-	-	16	-	16
EEV operating profit before tax from continuing operations	428	250	93	16	-	787

Tax on operating profit	(117)	(64)	(21)	(47)	-	(249)
EEV operating profit after tax from continuing operations	311	186	72	(31)	-	538	24

EEV non-operating profit/(loss) after tax and EEV profit after tax from discontinued operations	250	(33)	21	2	38	278	12
EEV profit/(loss) after tax	561	153	93	(29)	38	816

Non-trading adjustments	(34)	52	(19)	71	-	70
Closing EEV	3,581	1,758	732	1,205	45	7,321	322

	Covered
	UK (and HWPF TVOG)	Canada	International	Total non-covered	Group elimination	Total	Pence per share
2009	£m	£m	£m	£m	£m	£m	p
Opening EEV	2,909	1,597	626	1,155	(42)	6,245	286
Opening adjustments	-	-	33	-	-	33
Adjusted opening EEV	2,909	1,597	659	1,155	(42)	6,278
New business contribution	139	46	28	-	-	213
Contributions from in-force business	510	146	1	-	-	657
Non-covered business	-	-	-	(26)	-	(26)
EEV operating profit/(loss) before tax from continuing operations	649	192	29	(26)	-	844

Tax on operating profit	(183)	(51)	(8)	(5)	-	(247)
EEV operating profit/(loss) after tax from continuing operations	466	141	21	(31)	-	597	27

EEV non-operating (loss)/profit after tax and EEV profit after tax from discontinued operations	(153)	(239)	19	32	49	(292)	(13)
EEV profit/(loss) after tax	313	(98)	40	1	49	305

Non-trading adjustments	(168)	54	(41)	7	-	(148)
Closing EEV	3,054	1,553	658	1,163	7	6,435	288

4.3 Reconciliation of IFRS operating profit to EEV capital and cash generation

	UK	Canada	International	Investment management	Other	Total
2010	£m	£m	£m	£m	£m	£m
IFRS operating profit/(loss) before tax from continuing operations	234	110	15	103	(37)	425
Tax on operating profit	(36)	(20)	(8)	(27)	2	(89)
IFRS operating profit/(loss) after tax from continuing operations	198	90	7	76	(35)	336

Impact of different treatment of assets and reserves	(20)	4	2	-	-	(14)
DAC & DIR, intangibles and other	(6)	12	(41)	-	-	(35)
Look through to investment management	47	3	2	(52)	-	-
EEV operating capital and cash generation from continuing operations	219	109	(30)	24	(35)	287

EEV operating profit after tax - PVIF	83	74	94	-	-	251
EEV operating profit/(loss) after tax from continuing operations	302	183	64	24	(35)	538

	UK	Canada	International	Investment management	Other	Total
2009	£m	£m	£m	£m	£m	£m
IFRS operating profit/(loss) before tax from continuing operations	222	113	23	73	(32)	399
Tax on operating profit	27	(55)	1	(13)	6	(34)
IFRS operating profit/(loss) after tax from continuing operations	249	58	24	60	(26)	365

Impact of different treatment of assets and reserves	10	69	(3)	(1)	(9)	66
DAC & DIR, intangibles and other	(13)	(16)	(31)	-	-	(60)
Look through to investment management	19	3	2	(24)	-	-
EEV operating capital and cash generation from continuing operations	265	114	(8)	35	(35)	371

EEV operating profit after tax - PVIF	175	27	24	-	-	226
EEV operating profit/(loss) after tax from continuing operations	440	141	16	35	(35)	597

4.4 Group assets under administration and net flows

Group assets under administration (AUA) represent the IFRS gross assets of the Group adjusted to include third party AUA, which are not included in the statement of financial position. In addition, certain assets are excluded from the definition, for example deferred acquisition costs, intangibles and reinsurance assets.

Group assets under administration (summary)

12 months ended 31 December 2010

	Opening AUA at 1 Jan 2010	Gross inflows	Redemptions	Net inflows	Market and other movements	Closing AUA at 31 Dec 2010
	£bn	£bn	£bn	£bn	£bn	£bn
Fee business
UK	66.6	9.4	(7.3)	2.1	7.5	76.2
Institutional pensions	12.0	3.6	(1.2)	2.4	1.4	15.8
Conventional with profits (excluding annuities)	6.9	0.2	(1.1)	(0.9)	0.6	6.6
UK total	85.5	13.2	(9.6)	3.6	9.5	98.6
Canada	11.3	2.2	(1.8)	0.4	2.3	14.0
International (wholly owned)	9.1	2.2	(0.8)	1.4	0.6	11.1
Standard Life Investments third party	56.9	12.4	(6.2)	6.2	8.5	71.6
Consolidation/eliminations¹	(23.9)	(6.7)	3.0	(3.7)	(4.6)	(32.2)
Total fee business	138.9	23.3	(15.4)	7.9	16.3	163.1

Spread/risk
UK	13.1	0.5	(1.1)	(0.6)	0.9	13.4
Canada	9.2	0.9	(1.3)	(0.4)	1.3	10.1
Total spread/risk business	22.3	1.4	(2.4)	(1.0)	2.2	23.5

Assets not backing products	7.8	-	-	-	0.6	8.4
Joint ventures	0.8	0.4	(0.1)	0.3	0.1	1.2
Non-life assets	1.6	-	-	-	(0.2)	1.4
Other consolidation/eliminations¹	(1.3)	-	-	-	0.5	(0.8)

Group assets under administration	170.1	25.1	(17.9)	7.2	19.5	196.8

¹ In order to be consistent with the presentation of new business information, certain products are included in both life and pensions AUA and investment operations. Therefore, at a Group level an elimination adjustment is required to remove any duplication, in addition to other necessary consolidation adjustments.

4.4 Group assets under administration and net flows continued

Group assets under administration (summary)

12 months ended 31 December 2009

	Opening AUA at 1 Jan 2009	Gross inflows	Redemptions	Net inflows	Market and other movements	Closing AUA at 31 Dec 2009
	£bn	£bn	£bn	£bn	£bn	£bn
Fee business
UK	57.4	7.9	(6.6)	1.3	7.9	66.6
Institutional pensions	8.6	2.5	(0.9)	1.6	1.8	12.0
Conventional with profits (excluding annuities)	7.9	0.3	(1.5)	(1.2)	0.2	6.9
UK total	73.9	10.7	(9.0)	1.7	9.9	85.5
Canada	9.0	1.6	(1.1)	0.5	1.8	11.3
International (wholly owned)	8.3	1.8	(0.9)	0.9	(0.1)	9.1
Standard Life Investments third party	45.5	9.7	(4.0)	5.7	5.7	56.9
Consolidation/eliminations¹	(18.7)	(3.8)	1.9	(1.9)	(3.3)	(23.9)
Total fee business	118.0	20.0	(13.1)	6.9	14.0	138.9

Spread/risk
UK	11.9	0.6	(1.1)	(0.5)	1.7	13.1
Canada	8.3	1.0	(1.1)	(0.1)	1.0	9.2
Total spread/risk business	20.2	1.6	(2.2)	(0.6)	2.7	22.3

Assets not backing products	9.7	-	-	-	(1.9)	7.8
Joint ventures	0.5	0.3	(0.1)	0.2	0.1	0.8
Non-life assets	1.7	-	-	-	(0.1)	1.6
Other consolidation/eliminations¹	(2.2)	-	-	-	0.9	(1.3)

Group assets under administration	147.9	21.9	(15.4)	6.5	15.7	170.1

Group assets under administration

12 months ended 31 December 2010

	Fee (F) - Spread/risk (S/R)	Opening AUA at 1 Jan 2010	Gross inflows	Redemptions		Net inflows	Market and other movements	Closing AUA at 31 Dec 2010
	Fee (F) - Spread/risk (S/R)	£bn	£bn	£bn		£bn	£bn	£bn
UK
Individual SIPP	F	11.8	3.4	(1.5)		1.9	1.4	15.1
Individual pensions	F	22.3	0.8	(2.5)		(1.7)	3.0	23.6
Investment bonds	F	8.7	0.3	(1.1)		(0.8)	0.8	8.7
Mutual funds	F	3.7	1.7	(0.4)		1.3	0.3	5.3
Annuities	S/R	13.1	0.5	(1.1)		(0.6)	0.9	13.4
Legacy life	F	9.1	0.4	(1.3)		(0.9)	0.9	9.1
UK retail		68.7	7.1	(7.9)		(0.8)	7.3	75.2
Corporate pensions	F	17.9	3.0	(1.6)		1.4	1.7	21.0
Institutional pensions	F	12.0	3.6	(1.2)		2.4	1.4	15.8
UK corporate		29.9	6.6	(2.8)		3.8	3.1	36.8
Assets not backing products		7.0	-	-	-		0.2	7.2
UK long-term savings		105.6	13.7	(10.7)		3.0	10.6	119.2

Canada
Fee	F	8.5	1.5	(1.1)		0.4	1.8	10.7
Spread/risk	S/R	3.4	0.2	(0.4)		(0.2)	0.4	3.6
Group savings and retirement		11.9	1.7	(1.5)		0.2	2.2	14.3
Fee	F	1.4	0.4	(0.3)		0.1	0.2	1.7
Spread/risk	S/R	5.3	0.3	(0.6)		(0.3)	0.9	5.9
Individual insurance, savings and retirement		6.7	0.7	(0.9)		(0.2)	1.1	7.6
Group insurance	S/R	0.5	0.4	(0.3)		0.1	-	0.6
Mutual funds	F	1.4	0.3	(0.4)		(0.1)	0.3	1.6
Assets not backing products		0.8	-	-		-	0.4	1.2
Canada long-term savings		21.3	3.1	(3.1)		-	4.0	25.3

International
Ireland	F	4.9	1.4	(0.7)		0.7	0.4	6.0
Germany	F	4.2	0.8	(0.1)		0.7	0.1	5.0
Hong Kong	F	-	-	-		-	0.1	0.1
Wholly owned long-term savings		9.1	2.2	(0.8)		1.4	0.6	11.1
Joint ventures long-term savings		0.8	0.4	(0.1)		0.3	0.1	1.2
International long-term savings		9.9	2.6	(0.9)		1.7	0.7	12.3
Total worldwide long-term savings		136.8	19.4	(14.7)		4.7	15.3	156.8
Non-life assets		1.6	-	-		-	(0.2)	1.4
Standard Life Investments third party assets under management		56.9	12.4	(6.2)		6.2	8.5	71.6
Consolidation and elimination adjustments¹		(25.2)	(6.7)	3.0		(3.7)	(4.1)	(33.0)
Group assets under administration		170.1	25.1	(17.9)		7.2	19.5	196.8

Group assets under administration managed by:
Standard Life Group entities		144.9						164.0
Other third party managers		25.2						32.8
Total		170.1						196.8

¹In order to be consistent with the presentation of new business information, certain products are included in both life and pensions AUA and investment operations. Therefore, at a Group level an elimination adjustment is required to remove any duplication, in addition to other necessary consolidation adjustments.

4.4 Group assets under administration and net flows continued

Long-term savings operations net flows (regulatory basis)

12 months ended 31 December 2010

		Gross inflows	Redemptions	Net inflows	Gross inflows	Redemptions	Net inflows
	Fee (F) - Spread/risk (S/R)	12 months to 31 Dec 2010	12 months to 31 Dec 2010	12 months to 31 Dec 2010	12 months to 31 Dec 2009	12 months to 31 Dec 2009	12 months to 31 Dec 2009
	Fee (F) - Spread/risk (S/R)	£m	£m	£m	£m	£m	£m
UK
Individual SIPP¹	F	3,436	(1,493)	1,943	2,897	(1,136)	1,761
Individual pensions²	F	827	(2,486)	(1,659)	939	(2,331)	(1,392)
Investment bonds	F	247	(1,054)	(807)	294	(1,527)	(1,233)
Mutual funds¹	F	1,647	(355)	1,292	1,038	(243)	795
Annuities	S/R	491	(1,133)	(642)	617	(1,138)	(521)
Protection	S/R	85	(57)	28	94	(57)	37
Legacy life	F	345	(1,333)	(988)	396	(1,685)	(1,289)
UK retail		7,078	(7,911)	(833)	6,275	(8,117)	(1,842)
Corporate pensions^1,2	F	2,994	(1,604)	1,390	2,613	(1,104)	1,509
Institutional pensions	F	3,631	(1,191)	2,440	2,468	(921)	1,547
UK corporate		6,625	(2,795)	3,830	5,081	(2,025)	3,056
UK long-term savings³		13,703	(10,706)	2,997	11,356	(10,142)	1,214

Canada
Fee	F	1,483	(1,063)	420	1,158	(705)	453
Spread/risk	S/R	176	(403)	(227)	180	(346)	(166)
Group savings and retirement		1,659	(1,466)	193	1,338	(1,051)	287
Fee	F	438	(280)	158	243	(208)	35
Spread/risk	S/R	296	(624)	(328)	447	(519)	(72)
Individual insurance, savings and retirement		734	(904)	(170)	690	(727)	(37)
Group insurance	S/R	411	(332)	79	350	(285)	65
Mutual funds¹	F	313	(352)	(39)	225	(179)	46
Canada long-term savings		3,117	(3,054)	63	2,603	(2,242)	361

International
Ireland	F	1,349	(638)	711	949	(781)	168
Germany	F	796	(130)	666	823	(122)	701
Hong Kong	F	43	(8)	35	16	(4)	12
Wholly owned long-term savings		2,188	(776)	1,412	1,788	(907)	881
Joint ventures long-term savings⁴		378	(124)	254	287	(76)	211
International long-term savings		2,566	(900)	1,666	2,075	(983)	1,092

Total worldwide long-term savings		19,386	(14,660)	4,726	16,034	(13,367)	2,667

¹ The mutual funds net flows are also included within mutual funds net flows in the third party investment operations. In addition, an element of the UK non-insured SIPP is included within UK mutual funds net flows in the third party investment operations.

² Individual pensions include Retail Trustee Investment Plan. This was previously included in Corporate pensions. The total 2010 net outflow is £3m (2009: net outflow £13m).

³ UK long-term savings include a total net outflow of £1,778m in relation to conventional with profits business (2009: net outflow £2,081m). Of this, a net outflow of £855m is in relation to annuities business (2009: net outflow £874m).

⁴ Includes net flows in respect of Standard Life's share of the Asia joint ventures.

Long-term savings operations net flows (regulatory basis)

Three months ended 31 December 2010

		Gross inflows	Redemptions	Net inflows	Gross inflows	Redemptions	Net inflows
	Fee (F) - Spread/risk (S/R)	3 months to 31 Dec 2010	3 months to 31 Dec 2010	3 months to 31 Dec 2010	3 months to 31 Dec 2009	3 months to 31 Dec 2009	3 months to 31 Dec 2009
	Fee (F) - Spread/risk (S/R)	£m	£m	£m	£m	£m	£m
UK
Individual SIPP¹	F	795	(356)	439	784	(346)	438
Individual pensions²	F	154	(565)	(411)	184	(635)	(451)
Investment bonds	F	67	(268)	(201)	52	(245)	(193)
Mutual funds¹	F	453	(23)	430	337	(80)	257
Annuities	S/R	98	(282)	(184)	131	(278)	(147)
Protection	S/R	22	(14)	8	22	(13)	9
Legacy life	F	82	(331)	(249)	93	(328)	(235)
UK retail		1,671	(1,839)	(168)	1,603	(1,925)	(322)
Corporate pensions^1,2	F	643	(362)	281	838	(303)	535
Institutional pensions	F	955	(327)	628	903	(258)	645
UK corporate		1,598	(689)	909	1,741	(561)	1,180
UK long-term savings³		3,269	(2,528)	741	3,344	(2,486)	858

Canada
Fee	F	380	(336)	44	271	(210)	61
Spread/risk	S/R	50	(103)	(53)	49	(90)	(41)
Group savings and retirement		430	(439)	(9)	320	(300)	20
Fee	F	129	(89)	40	95	(71)	24
Spread/risk	S/R	96	(156)	(60)	101	(147)	(46)
Individual insurance, savings and retirement		225	(245)	(20)	196	(218)	(22)
Group insurance	S/R	104	(86)	18	89	(73)	16
Mutual funds¹	F	65	(84)	(19)	70	(51)	19
Canada long-term savings		824	(854)	(30)	675	(642)	33

International
Ireland	F	458	(214)	244	314	(218)	96
Germany	F	237	(37)	200	240	(31)	209
Hong Kong	F	20	(3)	17	7	(2)	5
Wholly owned long-term savings		715	(254)	461	561	(251)	310
Joint ventures long-term savings⁴		102	(41)	61	80	(19)	61
International long-term savings		817	(295)	522	641	(270)	371

Total worldwide long-term savings		4,910	(3,677)	1,233	4,660	(3,398)	1,262

² Individual pensions include Retail Trustee Investment Plan. This was previously included in Corporate pensions. The total 2010 net outflow is £3m (2009: net outflow £1m).

³ UK long-term savings include a total net outflow of £449m in relation to conventional with profits business (2009: net outflow £436m). Of this, a net outflow of £209m is in relation to annuities business (2009: net outflow £217m).

⁴ Includes net flows in respect of Standard Life's share of the Asia joint ventures.

4.4 Group assets under administration and net flows continued

Long-term savings operations net flows (regulatory basis)

15 months ended 31 December 2010

		Net flows
	Fee (F) - Spread/risk (S/R)	3 months to 31 Dec 2010	3 months to 30 Sep 2010	3 months to 30 Jun 2010	3 months to 31 Mar 2010	3 months to 31 Dec 2009
	Fee (F) - Spread/risk (S/R)	£m	£m	£m	£m	£m
UK
Individual SIPP	F	439	446	492	566	438
Individual pensions	F	(411)	(375)	(368)	(505)	(451)
Investment bonds	F	(201)	(194)	(198)	(214)	(193)
Mutual funds	F	430	301	245	316	257
Annuities	S/R	(184)	(173)	(166)	(119)	(147)
Protection	S/R	8	7	7	6	9
Legacy life	F	(249)	(273)	(253)	(213)	(235)
UK retail		(168)	(261)	(241)	(163)	(322)
Corporate pensions	F	281	336	471	302	535
Institutional pensions	F	628	546	792	474	645
UK corporate		909	882	1,263	776	1,180
UK long-term savings		741	621	1,022	613	858

Canada
Fee	F	44	83	176	117	61
Spread/risk	S/R	(53)	(50)	(61)	(63)	(41)
Group savings and retirement		(9)	33	115	54	20
Fee	F	40	33	34	51	24
Spread/risk	S/R	(60)	(79)	(97)	(92)	(46)
Individual insurance, savings and retirement		(20)	(46)	(63)	(41)	(22)
Group insurance	S/R	18	21	22	18	16
Mutual funds	F	(19)	(7)	(12)	(1)	19
Canada long-term savings		(30)	1	62	30	33

International
Ireland	F	244	203	154	110	96
Germany	F	200	149	151	166	209
Hong Kong	F	17	7	6	5	5
Wholly owned long-term savings		461	359	311	281	310
Joint ventures long-term savings¹		61	60	44	89	61
International long-term savings		522	419	355	370	371

Total worldwide long-term savings		1,233	1,041	1,439	1,013	1,262

¹ Includes net flows in respect of Standard Life's share of the Asia joint ventures.

4.5 Analysis of new business

Long-term savings operations new business

12 months ended 31 December 2010

		Single premiums			New regular premiums		PVNBP
	Fee (F) - Spread/risk (S/R)	12 months to 31 Dec 2010	12 months to 31 Dec 2009	12 months to 31 Dec 2010		12 months to 31 Dec 2009	12 months to 31 Dec 2010	12 months to 31 Dec 2009	Change⁴	Change in constant currency⁴
	Fee (F) - Spread/risk (S/R)	£m	£m	£m		£m	£m	£m	%	%
UK
Individual SIPP¹	F	3,201	2,698	69		55	3,461	2,923	18%	18%
Individual pensions²	F	338	398	23		24	397	465	(15%)	(15%)
Investment bonds	F	202	236	-		-	202	236	(14%)	(14%)
Mutual funds	F	1,625	1,020	23		19	1,795	1,170	53%	53%
Annuities	S/R	341	448	-		-	341	448	(24%)	(24%)
Protection	S/R	-	-	1		1	1	2	(50%)	(50%)
Legacy life	F	-	-	-		-	-	-	-	-
UK retail		5,707	4,800	116		99	6,197	5,244	18%	18%
Corporate pensions^1,2	F	1,225	908	508		437	3,287	2,640	25%	25%
Institutional pensions	F	3,472	2,253	-		17	3,472	2,296	51%	51%
UK corporate		4,697	3,161	508		454	6,759	4,936	37%	37%
UK long-term savings		10,404	7,961	624		553	12,956	10,180	27%	27%

Canada
Fee	F	465	349	68		43	1,297	858	51%	36%
Spread/risk	S/R	51	70	10		5	169	123	37%	24%
Group savings and retirement		516	419	78		48	1,466	981	49%	35%
Fee	F	438	243	-		-	438	243	80%	63%
Spread/risk	S/R	186	344	4		3	224	380	(41%)	(47%)
Individual insurance, savings and retirement		624	587	4		3	662	623	6%	(4%)
Group insurance	S/R	2	1	38		37	607	631	(4%)	(13%)
Mutual funds	F	313	225	-		-	313	225	39%	26%
Canada long-term savings		1,455	1,232	120		88	3,048	2,460	24%	12%

International
Ireland	F	1,260	846	9		9	1,298	882	47%	51%
Germany	F	39	29	24		29	337	407	(17%)	(14%)
Hong Kong	F	14	6	44		20	294	141	109%	108%
Wholly owned long-term savings		1,313	881	77		58	1,929	1,430	35%	38%
India³		34	24 ⁵	104		83 ⁵	444	362 ⁵	23%	15%
China³		40	48	15		13	106	116	(9%)	(10%)
Joint ventures long-term savings		74	72	119		96	550	478	15%	9%
International long-term savings		1,387	953	196		154	2,479	1,908	30%	31%

Total worldwide long-term savings		13,246	10,146	940		795	18,483	14,548	27%	25%

¹ Included within non-insured SIPP is an element which is also included within UK mutual funds net flows in the third party investment operations figure.

²Individual pensions include Retail Trustee Investment Plan. This was previously included in Corporate pensions. The 2010 impact on PVNBP is £25m (2009: £22m).

³ Standard Life's share of the joint venture company's new business.

⁴% change is calculated on the figures rounded to millions.

⁵ Single premiums in India have been restated by £8m to reflect the reclassification of regular premiums to single premiums. The impact on regular premiums is negative £2m. The impact on PVNBP for the 12 months to 31 December 2009 is £2m.

⁶ New business gross sales for overseas operations are calculated using average exchange rates. The principal average rates for the 12 months to 31 December 2010 were £1: C$1.60 (2009: £1: C$1.78) and £1: €1.17 (2009: £1: €1.12).

4.5 Analysis of new business continued

Investment operations

12 months ended 31 December 2010

		Opening AUM at 1 Jan 2010	Gross inflows	Redemptions	Net inflows	Market and other movements	Net movement in AUM	Closing AUM at 31 Dec 2010
		£m	£m	£m	£m	£m	£m	£m
UK	Mutual funds¹	5,818	3,838 ²	(1,617)	2,221	1,140	3,361	9,179
	Private equity	3,547	82	(65)	17	(127)	(110)	3,437
	Segregated funds	12,754	1,073	(1,417)	(344)	1,569	1,225	13,979
	Pooled property funds	1,417	208	-	208	77	285	1,702
Total UK		23,536	5,201	(3,099)	2,102	2,659	4,761	28,297
Canada	Mutual funds¹	1,562	309 ³	(347)	(38)	265	227	1,789
	Separate mandates	3,004	491	(649)	(158)	597	439	3,443
Total Canada		4,566	800	(996)	(196)	862	666	5,232
International	Europe	2,136	1,625	(198)	1,427	243	1,670	3,806
	India⁴	2,096	654	-	654	642	1,296	3,392
	Other	142	84	(9)	75	914	989	1,131
Total International		4,374	2,363	(207)	2,156	1,799	3,955	8,329

Total worldwide investment products excluding money market and related funds		32,476	8,364	(4,302)	4,062	5,320	9,382	41,858
	UK money market funds⁵	3,625	519	-	519	(191)	328	3,953
	India cash funds⁵	2,458	(1,588)	-	(1,588)	565	(1,023)	1,435
Total worldwide investment products		38,559	7,295	(4,302)	2,993	5,694	8,687	47,246

Total third party assets under management comprise the investment business noted above together with third party insurance contracts. New business relating to third party insurance contracts is disclosed as insurance business for reporting purposes. An analysis of total third party assets under management is shown below.

	Opening AUM at 1 Jan 2010	Gross inflows	Redemptions	Net inflows	Market and other movements	Net movement in AUM	Closing AUM at 31 Dec 2010
	£m	£m	£m	£m	£m	£m	£m
Third party investment products	38,559	7,295	(4,302)	2,993	5,694	8,687	47,246
Third party insurance contracts (new business classified as insurance products)	18,370	5,104	(1,897)	3,207	2,790	5,997	24,367
Total third party assets under management	56,929	12,399	(6,199)	6,200	8,484	14,684	71,613

Standard Life Investments - total assets under management	138,724						156,874

¹Included within mutual funds are cash inflows which have also been reflected in UK and Canada mutual funds new business sales and net flows for UK mutual funds, an element of UK non-insured SIPP and Canada mutual funds.

² In the 12 months to 31 December 2009, UK mutual funds gross inflows were £1,615m and net inflows were £669m.

³ In the 12 months to 31 December 2009, Canada mutual funds gross inflows were £231m and net inflows were £48m.

⁴ International gross inflows include India where, due to the nature of the Indian investment sales market, the new business is shown as the net of sales less redemptions. India cash funds are included as money market and related funds in the table.

⁵ Due to the nature of the UK money market funds and India cash funds, the flows are calculated using average net client balances. Other movements are derived as the difference between these average net inflows and the movement in the opening and closing AUM.

⁶Funds denominated in foreign currencies have been translated to Sterling using the closing exchange rates at 31 December 2010. Investment fund flows are translated at average exchange rates. Gains and losses arising from the translation of funds denominated in foreign currencies are included in the market and other movements column. The principal closing exchange rates used as at 31 December 2010 were £1: C$1.56 (31 December 2009: £1: C$1.69) and £1: €1.17 (31 December 2009: £1: €1.13). The principal average exchange rates for the 12 months to 31 December 2010 were £1: C$1.60 (2009: £1: C$1.78) and £1: €1.17 (2009: £1: €1.12).

Long-term savings operations new business

Three months ended 31 December 2010

		Single premiums		New regular premiums		PVNBP⁴
	Fee (F) - Spread/risk (S/R)	3 months to 31 Dec 2010	3 months to 31 Dec 2009	3 months to 31 Dec 2010	3 months to 31 Dec 2009	3 months to 31 Dec 2010	3 months to 31 Dec 2009	Change⁵	Change in constant currency⁵
	Fee (F) - Spread/risk (S/R)	£m	£m	£m	£m	£m	£m	%	%
UK
Individual SIPP¹	F	723	722	15	10	770	761	1%	1%
Individual pensions²	F	39	52	5	5	54	64	(16%)	(16%)
Investment bonds	F	62	42	-	-	62	42	48%	48%
Mutual funds	F	449	337	5	-	483	337	43%	43%
Annuities	S/R	60	95	-	-	60	95	(37%)	(37%)
Protection	S/R	-	-	-	-	-	-	-	-
Legacy life	F	-	-	-	-	-	-	-	-
UK retail		1,333	1,248	25	15	1,429	1,299	10%	10%
Corporate pensions^1,2	F	174	377	87	85	502	704	(29%)	(29%)
Institutional pensions	F	875	869	-	3	875	875	-	-
UK corporate		1,049	1,246	87	88	1,377	1,579	(13%)	(13%)
UK long-term savings		2,382	2,494	112	103	2,806	2,878	(3%)	(3%)

Canada
Fee	F	103	59	7	4	185	113	64%	54%
Spread/risk	S/R	17	21	1	1	26	32	(19%)	(24%)
Group savings and retirement		120	80	8	5	211	145	46%	37%
Fee	F	129	95	-	-	129	95	36%	24%
Spread/risk	S/R	67	74	1	1	76	86	(12%)	(19%)
Individual insurance, savings and retirement		196	169	1	1	205	181	13%	4%
Group insurance	S/R	-	-	11	15	174	264	(34%)	(40%)
Mutual funds	F	65	70	-	-	65	70	(7%)	(16%)
Canada long-term savings		381	319	20	21	655	660	(1%)	(9%)

International
Ireland	F	423	285	3	2	438	297	47%	51%
Germany	F	20	14	7	9	113	129	(12%)	(9%)
Hong Kong	F	7	2	18	8	124	48	158%	154%
Wholly owned long-term savings		450	301	28	19	675	474	42%	46%
India³		11	9 ⁶	21	23 ⁶	95	111 ⁶	(14%)	(20%)
China³		12	11	5	5	41	38	8%	1%
Joint ventures long-term savings		23	20	26	28	136	149	(9%)	(15%)
International long-term savings		473	321	54	47	811	623	30%	30%

Total worldwide long-term savings		3,236	3,134	186	171	4,272	4,161	3%	1%

¹ Included within non-insured SIPP is an element which is also included within UK mutual funds net flows in the third party investment operations figures.

² Individual pensions include Retail Trustee Investment Plan. This was previously included in Corporate pensions. The 2010 impact on PVNBP is £7m (2009: £9m).

³ Standard Life's share of the joint venture company's new business.

⁴The PVNBP figures for the three months period to 31 December 2010 and to 31 December 2009 exclude the full impact of the year end changes to non-economic assumptions. The effect of changes to year end non-economic assumptions was an increase in total PVNBP of £171m in the final PVNBP results published in the 2010 Preliminary results (2009: decrease £110m).

⁵ % change is calculated on the figures rounded to millions.

⁶ Single premiums in India have been restated by £2m to reflect the reclassification of regular premiums to single premiums. The impact on regular premiums is negative £1m. There impact on PVNBP for the three months to 31 December 2009 is £1m.

⁷ New business gross sales for overseas operations are calculated using average exchange rates. The principal average rates for the 12 months to 31 December 2010 were £1: C$1.60 (2009: £1: C$1.78) and £1: €1.17 (2009: £1: €1.12).

4.5 Analysis of new business continued

Investment operations

Three months ended 31 December 2010

		Opening AUM at 1 Oct 2010	Gross inflows	Redemptions	Net inflows	Market and other movements	Net movement in AUM	Closing AUM at 31 Dec 2010
		£m	£m	£m	£m	£m	£m	£m
UK	Mutual funds¹	8,192	1,239 ²	(489)	750	237	987	9,179
	Private equity	3,483	19	(41)	(22)	(24)	(46)	3,437
	Segregated funds	14,184	55	(554)	(499)	294	(205)	13,979
	Pooled property funds	1,682	21	-	21	(1)	20	1,702
Total UK		27,541	1,334	(1,084)	250	506	756	28,297
Canada	Mutual funds¹	1,687	68 ³	(87)	(19)	121	102	1,789
	Separate mandates	3,318	63	(111)	(48)	173	125	3,443
Total Canada		5,005	131	(198)	(67)	294	227	5,232
International	Europe	3,560	365	(70)	295	(49)	246	3,806
	India⁴	3,456	(110)	-	(110)	46	(64)	3,392
	Other	196	5	(2)	3	932	935	1,131
Total International		7,212	260	(72)	188	929	1,117	8,329

Total worldwide investment products excluding money market and related funds		39,758	1,725	(1,354)	371	1,729	2,100	41,858
	UK money market funds⁵	5,192	(891)	-	(891)	(348)	(1,239)	3,953
	India cash funds⁵	1,600	(348)	-	(348)	183	(165)	1,435
Total worldwide investment products		46,550	486	(1,354)	(868)	1,564	696	47,246

	Opening AUM at 1 Oct 2010	Gross inflows	Redemptions	Net inflows	Market and other movements	Net movement in AUM	Closing AUM at 31 Dec 2010
	£m	£m	£m	£m	£m	£m	£m
Third party investment products	46,550	486	(1,354)	(868)	1,564	696	47,246
Third party insurance contracts (new business classified as insurance products)	22,556	1,360	(608)	752	1,059	1,811	24,367
Total third party assets under management	69,106	1,846	(1,962)	(116)	2,623	2,507	71,613

Standard Life Investments - total assets under management	153,749						156,874

¹ Included within mutual funds are cash inflows which have also been reflected in UK and Canada mutual funds new business sales and net flows for UK mutual funds, an element of UK non-insured SIPP and Canada mutual funds.

² In the three months to 31 December 2009 UK mutual funds gross inflows were £499m and net inflows were £225m.

³ In the three months to 31 December 2009 Canada mutual funds gross inflows were £72m and net inflows were £21m.

⁶ Funds denominated in foreign currencies have been translated to Sterling using the closing exchange rates at 31 December 2010. Investment fund flows are translated at average exchange rates. Gains and losses arising from the translation of funds denominated in foreign currencies are included in the market and other movements column. The principal closing exchange rates used as at 31 December 2010 were £1: C$1.56 (30 September 2010: £1: C$1.62) and £1: €1.17 (30 September 2010: £1: €1.15). The principal average exchange rates for the 12 months to 31 December 2010 were £1: C$1.60 (2009: £1: C$1.78) and £1: €1.17 (2009: £1: €1.12).

Long-term savings operations new business

15 months ended 31 December 2010

		PVNBP
	Fee (F) - Spread/risk (S/R)	3 months to 31 Dec 2010²	3 months to 30 Sep 2010	3 months to 30 Jun 2010	3 months to 31 Mar 2010	3 months to 31 Dec 2009²
	Fee (F) - Spread/risk (S/R)	£m	£m	£m	£m	£m
UK
Individual SIPP	F	770	757	878	1,029	761
Individual pensions	F	54	80	152	114	64
Investment bonds	F	62	49	45	46	42
Mutual funds	F	483	445	383	480	337
Annuities	S/R	60	72	82	127	95
Protection	S/R	-	-	1	-	-
Legacy life	F	-	-	-	-	-
UK retail		1,429	1,403	1,541	1,796	1,299
Corporate pensions	F	502	949	1,024	727	704
Institutional pensions	F	875	755	1,012	830	875
UK corporate		1,377	1,704	2,036	1,557	1,579
UK long-term savings		2,806	3,107	3,577	3,353	2,878

Canada
Fee	F	185	344	434	255	113
Spread/risk	S/R	26	48	49	35	32
Group savings and retirement		211	392	483	290	145
Fee	F	129	91	98	120	95
Spread/risk	S/R	76	48	46	54	86
Individual insurance, savings and retirement		205	139	144	174	181
Group insurance	S/R	174	125	140	168	264
Mutual funds	F	65	66	81	101	70
Canada long-term savings		655	722	848	733	660

International
Ireland	F	438	313	292	253	297
Germany	F	113	71	76	78	129
Hong Kong	F	124	59	69	64	48
Wholly owned long-term savings		675	443	437	395	474
India¹		95	116	93	140	111 ³
China¹		41	21	29	26	38
Joint ventures long-term savings		136	137	122	166	149
International long-term savings		811	580	559	561	623

Total worldwide long-term savings		4,272	4,409	4,984	4,647	4,161

¹ Amounts shown reflect Standard Life's share of the joint venture company's new business.

² The three month period to 31 December 2010 and to 31 December 2009 exclude the full impact of year end changes to non-economic assumptions. The effect of changes to year end non-economic assumptions was an increase in total PVNBP of £171m in the final PVNBP results published in the 2010 Preliminary results (2009: decrease £110m).

³ PVNBP for India has been restated to reflect the reclassification from regular premiums to single premiums.

4.6 Exposure to investment property and financial assets

Group exposure to investment property and financial assets

The total Group external exposure to investment property and financial assets including discontinued operations has been segmented below based on the stakeholder sub-group with which the market and credit risk relating to those assets lies.

	Exposure
	Shareholder	Policyholder (participating)	Policyholder (unit linked)	TPICF and NCI¹	Total
31 December 2010	£m	£m	£m	£m	£m
Investments in associates and joint ventures	37	1,557	1,138	117	2,849
Investment property	862	2,297	4,147	1,104	8,410
Equity securities	564	9,335	48,449	1,959	60,307
Debt securities	9,986	29,883	17,869	1,997	59,735
Loans	2,823	207	106	-	3,136
Other financial assets	1,365	7,516	935	232	10,048
Cash and cash equivalents	2,243	221	4,254	716	7,434
Total	17,880	51,016	76,898	6,125	151,919

¹ Third party interest in consolidated funds and non-controlling interests.

	Exposure
	Shareholder	Policyholder (participating)	Policyholder (unit linked)	TPICF and NCI¹	Total
31 December 2009	£m	£m	£m	£m	£m
Investments in associates and joint ventures	47	1,138	686	72	1,943
Investment property	776	2,314	3,279	742	7,111
Equity securities	479	8,151	40,759	1,469	50,858
Debt securities	9,339	30,208	15,095	876	55,518
Loans	9,876	211	146	-	10,233
Other financial assets	1,533	7,657	668	112	9,970
Cash and cash equivalents	4,106	904	3,727	190	8,927
Total	26,156	50,583	64,360	3,461	144,560

¹ Third party interest in consolidated funds and non-controlling interests.

The total shareholder exposure to investment property and financial assets of £17.9bn (31 December 2009: £26.2bn) includes £11.2bn (31 December 2009: £10.1bn) of assets held by non-segregated funds of the Group's Canadian operations. The effective exposure of shareholders to assets of the non-segregated funds in Canada was significantly lower than the nominal level of exposure presented below because changes in the value of assets are typically accompanied by offsetting changes in the value of related liabilities. The shareholder exposure is limited to the net impact on the shareholder surplus and the value of any guarantees which may be triggered.

Shareholder exposure to investment property and financial assets

	Canada non-segregated funds exposure		Standard Life Bank exposure		Other shareholder exposure		Total shareholder exposure
	31 Dec 2010	31 Dec 2009	31 Dec 2010	31 Dec 2009	31 Dec 2010	31 Dec 2009	31 Dec 2010	31 Dec 2009
	£m	£m	£m	£m	£m	£m	£m	£m
Investments in associates and joint ventures	21	17	-	-	16	30	37	47
Investment property	862	776	-	-	-	-	862	776
Equity securities	459	372	-	-	105	107	564	479
Debt securities	6,359	5,989	-	195	3,627	3,155	9,986	9,339
Loans	2,811	2,374	-	7,464	12	38	2,823	9,876
Other financial assets	512	458	-	194	853	881	1,365	1,533
Cash and cash equivalents	184	68	-	1,491	2,059	2,547	2,243	4,106
Total	11,208	10,054	-	9,344	6,672	6,758	17,880	26,156

Shareholder exposure to debt securities excluding Canada non-segregated funds consists primarily of debt securities backing annuity liabilities and subordinated debt liabilities. The increase in exposure can be attributed to new annuity business written in the period as well as a change in the shareholder asset mix.

Standard Life Bank was sold on 1 January 2010 and therefore the Group has no exposure to Standard Life Bank assets after that date.

Group exposure to debt securities

The Group's exposure to debt securities has been further analysed in the tables below. The high quality of the debt security portfolio has been maintained, with 52% of debt securities rated AAA (31 December 2009: 57%) and 95% (31 December 2009: 95%) being rated as investment grade.

	Exposure
	Shareholder	Policyholder (participating)	Policyholder (unit linked)	TPICF and NCI¹	Total
31 December 2010	£m	£m	£m	£m	£m
Government	4,063	18,379	8,168	1,024	31,634
Corporate - financial institutions	2,672	8,013	5,335	416	16,436
Corporate - other	3,045	3,167	4,016	552	10,780
Other	206	324	350	5	885
Total	9,986	29,883	17,869	1,997	59,735

¹ Third party interest in consolidated funds and non-controlling interests.

	Exposure
	Shareholder	Policyholder (participating)	Policyholder (unit linked)	TPICF and NCI¹	Total
31 December 2009	£m	£m	£m	£m	£m
Government	4,231	18,679	7,285	478	30,673
Corporate - financial institutions	2,484	7,929	4,824	220	15,457
Corporate - other	2,374	3,228	2,552	173	8,327
Other	250	372	434	5	1,061
Total	9,339	30,208	15,095	876	55,518

¹ Third party interest in consolidated funds and non-controlling interests.

4.6 Exposure to investment property and financial assets continued

Shareholder exposure to debt securities

Further details of the shareholder exposure to debt securities, including credit ratings, are presented below.

	Credit rating
	AAA	AA	A	BBB	Below BBB or not rated	Total
31 December 2010	£m	£m	£m	£m	£m	£m
Government	1,166	1,519	1,378	-	-	4,063
Corporate - financial institutions	503	856	898	52	363	2,672
Corporate - other	290	232	1,928	517	78	3,045
Other	135	-	-	-	71	206
Total	2,094	2,607	4,204	569	512	9,986

	Credit rating
	AAA	AA	A	BBB	Below BBB or not rated	Total
31 December 2009	£m	£m	£m	£m	£m	£m
Government	1,596	1,419	1,216	-	-	4,231
Corporate - financial institutions	787	532	679	70	416	2,484
Corporate - other	236	200	1,371	434	133	2,374
Other	155	-	11	11	73	250
Total	2,774	2,151	3,277	515	622	9,339

Debt securities classified as corporate include securities issued by corporate entities which carry government guarantees. Debt securities classified as other consist primarily of securities issued by supranational institutions.

Shareholder exposure to loans

Shareholders are directly exposed to loans of £2.8bn (31 December 2009: £9.9bn) which, in 2010, primarily comprise the Canadian non-segregated funds commercial mortgage book. This mortgage book is deemed to be of very high quality. In 2009, loans also included Standard Life Bank's retail mortgage book.

	31 Dec 2010	31 Dec 2009
	£m	£m
Canada non-segregated funds commercial mortgage book	2,811	2,374
Standard Life Bank retail mortgage book	-	7,464
Other	12	38
Total	2,823	9,876

The Canadian mortgage book has an average loan to value of 45% (31 December 2009: 46%).

4.7 Fair value hierarchy of financial instruments

To provide further information on the approach used to determine the fair value of certain financial assets and derivative financial liabilities measured as at fair value on the Group's IFRS statement of financial position, the fair value of these financial instruments has been categorised below to reflect the following fair value hierarchy:

Level 1: Fair values measured using quoted prices (unadjusted) in active markets for identical assets or liabilities

Level 2: Fair values measured using inputs other than quoted prices included within level 1 that are observable for the asset or liability, either directly (i.e. as prices) or indirectly (i.e. derived from prices)

Level 3: Fair values measured using inputs that are not based on observable market data (unobservable inputs)

Total

	Fair value hierarchy
	Level 1		Level 2		Level 3		Total
	31 Dec 2010	31 Dec 2009	31 Dec 2010	31 Dec 2009	31 Dec 2010	31 Dec 2009	31 Dec 2010	31 Dec 2009
	£m	£m	£m	£m	£m	£m	£m	£m
Equity securities	59,059	49,621	40	17	1,208	1,220	60,307	50,858
Debt securities	25,147	26,158	33,102	27,845	1,486	1,515	59,735	55,518
Derivative financial assets	435	398	908	970	-	-	1,343	1,368
Derivative financial liabilities	(95)	(81)	(829)	(818)	-	-	(924)	(899)
Total	84,546	76,096	33,221	28,014	2,694	2,735	120,461	106,845

Level 1 financial instruments principally include equity securities listed on a recognised exchange, certain government and supranational institution bonds and exchange traded futures and options.

Level 2 financial instruments principally include certain government bonds, listed or publicly quoted corporate bonds, commercial paper, certificates of deposit and derivative instruments which are not exchange traded. Corporate bonds have generally been classified as level 2 as the composite price provided by external pricing providers may include, as an input, quotes provided by some banks that are not based on actual transaction prices.

Level 3 financial instruments principally include unlisted equity securities, being predominantly interests in private equity funds, listed or publicly quoted corporate bonds for which prices are not available from external pricing providers or where such prices are considered to be stale (including some asset backed securities) or are based on single broker indicative quotes and unquoted bonds where credit spreads, being a significant input to the valuation technique, are obtained from a broker or estimated internally.

Shareholder exposure

	Fair value hierarchy
	Level 1		Level 2		Level 3		Total
	31 Dec 2010	31 Dec 2009	31 Dec 2010	31 Dec 2009	31 Dec 2010	31 Dec 2009	31 Dec 2010	31 Dec 2009
	£m	£m	£m	£m	£m	£m	£m	£m
Equity securities	554	469	-	-	10	10	564	479
Debt securities	551	747	8,467	7,843	968	749	9,986	9,339
Derivative financial assets	-	-	298	455	-	-	298	455
Derivative financial liabilities	(2)	-	(30)	(151)	-	-	(32)	(151)
Total	1,103	1,216	8,735	8,147	978	759	10,816	10,122

Policyholder (participating) exposure

	Fair value hierarchy
	Level 1		Level 2		Level 3		Total
	31 Dec 2010	31 Dec 2009	31 Dec 2010	31 Dec 2009	31 Dec 2010	31 Dec 2009	31 Dec 2010	31 Dec 2009
	£m	£m	£m	£m	£m	£m	£m	£m
Equity securities	8,606	7,527	-	-	729	624	9,335	8,151
Debt securities	17,969	19,029	11,543	10,729	371	450	29,883	30,208
Derivative financial assets	334	391	271	327	-	-	605	718
Derivative financial liabilities	(8)	(16)	(122)	(446)	-	-	(130)	(462)
Total	26,901	26,931	11,692	10,610	1,100	1,074	39,693	38,615

4.7 Fair value hierarchy of financial instruments continued

Policyholder (unit linked) exposure

	Fair value hierarchy
	Level 1		Level 2		Level 3		Total
	31 Dec 2010	31 Dec 2009	31 Dec 2010	31 Dec 2009	31 Dec 2010	31 Dec 2009	31 Dec 2010	31 Dec 2009
	£m	£m	£m	£m	£m	£m	£m	£m
Equity securities	48,341	40,679	40	17	68	63	48,449	40,759
Debt securities	5,943	5,899	11,794	8,893	132	303	17,869	15,095
Derivative financial assets	72	6	263	159	-	-	335	165
Derivative financial liabilities	(62)	(54)	(507)	(193)	-	-	(569)	(247)
Total	54,294	46,530	11,590	8,876	200	366	66,084	55,772

Third party interest in consolidated funds and non-controlling interests exposure

	Fair value hierarchy
	Level 1		Level 2		Level 3		Total
	31 Dec 2010	31 Dec 2009	31 Dec 2010	31 Dec 2009	31 Dec 2010	31 Dec 2009	31 Dec 2010	31 Dec 2009
	£m	£m	£m	£m	£m	£m	£m	£m
Equity securities	1,558	946	-	-	401	523	1,959	1,469
Debt securities	684	483	1,298	380	15	13	1,997	876
Derivative financial assets	29	1	76	29	-	-	105	30
Derivative financial liabilities	(23)	(11)	(170)	(28)	-	-	(193)	(39)
Total	2,248	1,419	1,204	381	416	536	3,868	2,336

4.8 Total expenses and operating cost base

	2010	2009
	£m	£m
Total expenses per IFRS income statement	17,622	16,728

Less: Claims, commissions and changes in provisions and liabilities	(15,694)	(14,880)
Less: IFRS adjustments and amortisation	(892)	(906)
Less: Finance costs	(113)	(115)
Total operating cost base in respect of continuing operations	923	827

Movement in the operating cost base

	UK	Canada	International	Global investment management	Other	Total
	£m	£m	£m	£m	£m	£m
Opening operating cost base	426	147	97	189	55	914
Remove costs relating to discontinued businesses	(87)	-	-	-	-	(87)
Opening operating cost base in respect of continuing operations	339	147	97	189	55	827
Inflation¹	7	3	1	9	3	23
Foreign exchange impact²	-	16	(3)	-	-	13
Organic growth³	30	9	8	31	-	78
Efficiency savings⁴	(27)	(8)	(7)	(20)	1	(61)
Movement in investing for growth costs⁵	20	4	-	20	(1)	43
Closing operating cost base in respect of continuing operations	369	171	96	229	58	923

¹ Notional level of inflation that would have impacted the operating cost base during the year. Blended rate used for staff and non-staff costs of 2.5% for 2010 (2009: 2.3%).

² Adjustment to opening cost base as a result of movement in the average exchange rate.

³Movement in the cost base implied by the growth of the organisation - a combination of PVNBP and policies in-force movements used for the life and pensions businesses and assets under management used for Standard Life Investments.

⁴Difference between the movement in the cost base implied by the organic growth calculation and the actual change that has taken place, plus realised savings from cost initiatives and other reductions.

⁵Movements in the operating cost base, which are specifically identifiable and relate to investing for growth.

4.9 Growth investment spend

	2010	2009	Movement
	£m	£m	£m
Growth investment in operating cost base	149	106	43
Growth investment capitalised	36	5	31
Additional investment in joint venture businesses	16	17	(1)
Total growth investment spend	201	128	73

This information is provided by RNS

The company news service from the London Stock Exchange

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