Half Yearly Report - Part 4 of 5

RNS Number : 2177L

Standard Life plc

08 August 2013

Standard Life plc

Half Year Results 2013

Part 4 of 5

4 European Embedded Value (EEV)

EEV consolidated income statement

For the six months ended 30 June 2013

		6 months 2013	6 months 2012 restated¹	Full year 2012 restated¹
	Notes	£m	£m	£m
Covered business
UK and Europe		287	346	803
Canada		144	210	315
Asia and Emerging Markets		15	8	10
Covered business EEV operating profit²	4.2(a)	446	564	1,128

UK and Europe		6	4	10
Standard Life Investments³	4.6(b)	46	34	62
Group corporate centre costs		(23)	(21)	(50)
Other	4.6(c)	(10)	7	8
Non-covered business EEV operating profit²		19	24	30
Consolidation adjustment for different accounting bases⁴		-	-	(75)
EEV operating profit before tax		465	588	1,083

EEV non-operating items
Long-term investment return and tax variances		(12)	161	498
Effect of economic assumption changes		289	136	(106)
Restructuring costs		(36)	(43)	(114)
Other EEV non-operating items		(11)	(6)	(18)
Consolidation adjustment for different accounting bases⁴		-	(70)	(42)
EEV non-operating profit before tax		230	178	218
EEV profit before tax		695	766	1,301
Tax attributable to:
EEV operating profit		(112)	(119)	(240)
EEV non-operating items		(41)	(38)	(42)
Total EEV profit after tax		542	609	1,019

¹The EEV comparative amounts have been restated to reflect retrospective application of changes to IAS 19 Employee benefits. Refer to Note 4.1 - Basis of preparation.

²The split of EEV operating profit for comparative periods presented has been updated to reflect changes in segmental reporting. Refer to Note 4.1 - Basis of preparation.

³Standard Life Investments non-covered EEV operating profit of £46m (six months ended 30 June 2012: £34m; 12 months ended 31 December 2012: £62m) represents operating profit of £93m (six months ended 30 June 2012: £68m; 12 months ended 31 December 2012: £145m) after excluding profits of £47m (six months ended 30 June 2012: £34m; 12 months ended 31 December 2012: £83m) which have been generated by life and pensions covered business. Standard Life Investments EEV operating profit therefore represents third party non-covered EEV operating profit. Refer to Note 4.6(b) - Standard Life Investments EEV operating profit before tax and Note 4.17 - EEV methodology.

⁴This adjustment reflects the removal of accounting differences for the Canada subordinated liability as explained in Note 4.17 - EEV methodology.

EEV earnings per share (EPS)

For the six months ended 30 June 2013

	6 months 2013	6 months 2012 restated¹	Full year 2012 restated¹
EEV operating profit after tax (£m)²	353	469	843

Basic EPS (pence)	15.0	20.0	35.9
Weighted average number of ordinary shares outstanding (millions)	2,355	2,344	2,351

Diluted EPS (pence)	15.0	20.0	35.6
Weighted average number of ordinary shares outstanding for diluted earnings per share (millions)	2,359	2,346	2,369

¹The EEV comparative amounts have been restated to reflect retrospective application of changes to IAS 19 Employee benefits. Refer to Note 4.1 - Basis of preparation.

²EEV operating profit before tax of £465m (six months ended 30 June 2012: £588m; 12 months ended 31 December 2012: £1,083m) less attributed tax on EEV operating profit of £112m (six months ended 30 June 2012: £119m; 12 months ended 31 December 2012: £240m).

EEV consolidated statement of comprehensive income

For the six months ended 30 June 2013

	6 months 2013	6 months 2012 restated¹	Full year 2012 restated¹
	£m	£m	£m
EEV profit after tax	542	609	1,019

Items that will not be reclassified subsequently to profit or loss:
Actuarial gains/(losses) on defined benefit pension schemes²	189	(152)	(64)
Effect of limit on defined benefit pension schemes' surpluses²	(59)	65	27
Equity holder tax effect relating to items that will not be reclassified subsequently to profit or loss	(7)	102	102
Other	5	-	(1)
Total items that will not be reclassified subsequently to profit or loss	128	15	64

Items that may be reclassified subsequently to profit or loss:
Fair value losses on cash flow hedges²	(1)	-	(1)
Net investment hedge²	(8)	6	18
Net change in non-covered business financial assets designated as available-for-sale	(15)	-	-
Exchange differences on translating foreign operations³	67	(54)	(86)
Equity holder tax effect relating to items that may be reclassified subsequently to profit or loss	3	-	-
Total items that may be reclassified subsequently to profit or loss	46	(48)	(69)
Other comprehensive income/(expense) for the period	174	(33)	(5)
Total comprehensive income for the period attributable to equity holders	716	576	1,014

¹The EEV comparative amounts have been restated to reflect retrospective application of changes to IAS 19 Employee benefits. Refer to Note 4.1 - Basis of preparation.

²Consistent with the IFRS consolidated statement of comprehensive income.

³Exchange differences primarily relate to Europe (£31m) and Canada (£26m).

EEV consolidated statement of financial position

As at 30 June 2013

		30 June 2013	30 June 2012 restated¹	31 December 2012 restated¹
	Notes	£m	£m	£m
Covered business
Free surplus		724	650	944
Required capital		1,336	1,436	1,348
Net worth		2,060	2,086	2,292

Present value of in-force		5,464	4,868	5,073
Cost of required capital		(608)	(638)	(648)
Total embedded value of covered business	4.2(c)	6,916	6,316	6,717

Non-covered business
UK and Europe		619	440	514
Standard Life Investments		285	255	255
Group corporate centre		517	507	640
Other		7	251	16
Total net assets of non-covered business	4.6(a)	1,428	1,453	1,425

Consolidation adjustment for different accounting bases²		-	37	-

Total Group embedded value	4.7(a)	8,344	7,806	8,142

Equity
Share capital		238	236	236
Shares held by trusts		(6)	(5)	(7)
Share premium reserve		1,110	1,110	1,110
Retained earnings on an IFRS basis		1,189	1,078	1,441
Other reserves		1,603	1,578	1,579
Additional retained earnings on an EEV basis		4,210	3,809	3,783
Total equity		8,344	7,806	8,142

¹The EEV comparative amounts have been restated to reflect retrospective application of changes to IAS 19 Employee benefits. Refer to Note 4.1 - Basis of preparation.

²This adjustment reflects the removal of accounting differences for the Canada subordinated liability as explained in Note 4.17 - EEV methodology.

EEV per share

As at 30 June 2013

	30 June 2013	30 June 2012 restated¹	31 December 2012 restated¹
Total Group embedded value (£m)	8,344	7,806	8,142

EEV per share (pence)	352	332	343
Diluted closing number of ordinary shares outstanding (millions)	2,370	2,354	2,373

¹The EEV comparative amounts have been restated to reflect retrospective application of changes to IAS 19 Employee benefits. Refer to Note 4.1 - Basis of preparation.

Notes to the EEV financial information

4.1 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 and the Revised Interim Transitional Guidance issued in September 2012. 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 (the Company) 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 4.17 - EEV methodology. There have been no significant changes to EEV methodology from that adopted in the previous reporting period.

The half year EEV supplementary financial statements have been reviewed but not audited. The EEV supplementary financial statements for the year ended 31 December 2012 were approved on 7 March 2013. The report of the auditors on that financial information was unqualified.

Covered business

A detailed description of EEV covered business is provided in Note 4.17 - EEV methodology.

No allowance has been made for the change in reserving or required capital bases anticipated under Solvency 2. This approach is in accordance with the Revised Interim Transitional Guidance for Embedded Value Reporting issued by the CFO Forum in September 2012.

Segmentation

In June 2012, changes were announced in the way the Group manages its business. Domestic business in Germany and Ireland which was previously reported in the International segment, was combined with the UK segment to form UK and Europe. The remaining components of International formed the new Asia and Emerging Markets segment. Segmental disclosures provided in the Group's half year results for the six months ended 30 June 2012 were presented in the reportable segments applicable prior to the announcement in June 2012 as the Group had been managed on that basis during the reporting period. The segmental disclosures provided in the Annual Report and Accounts for the year ended 31 December 2012 were presented on a basis incorporating the announcement in June 2012.

In February 2013, further changes were made. The offshore bond business in Ireland which was previously reported in Asia and Emerging Markets is now managed and reported as part of UK and Europe. Additionally, due to changes in the way the Group's segments are managed, some overhead costs which were previously reported in Other within non-covered business are now reported within Group corporate centre costs in non-covered business.

The IFRS reportable segments have been changed for the period ended 30 June 2013, as explained in IFRS condensed consolidated financial information Note 3.2(b) - Reportable segments - Group operating profit, revenue and asset information. EEV reporting segments have been amended and reflect the new IFRS reportable segments. Comparative amounts for 30 June 2012 and 31 December 2012 have been prepared on the new basis to allow more meaningful comparison.

Acquisition

On 27 February 2013, the Group announced that it had entered into an agreement with Newton Management Limited to acquire its private client division with assets under management of £3.6bn. The consideration of up to £83.5m will be ultimately contingent on the value of assets under management transferred to, and retained by, the Group. The transaction is expected to complete on 27 September 2013 subject to completion conditions being satisfied.

4.1 Basis of preparation continued

Amendment to IAS 19 Employee benefits

As described in Note 3.1 - Accounting policies (a) Basis of preparation within the IFRS condensed consolidated financial information, the amendment to IAS 19 Employee Benefits which is effective for accounting periods beginning on or after 1 January 2013 has impacted the IFRS accounting for the Group's defined benefit pension schemes. In accordance with our EEV Methodology, the Group's pension schemes are accounted for within the EEV results using their IFRS values. The main impact on the Group's IFRS condensed consolidated financial information of the amendment to IAS 19 is that the expected returns on plan assets and the unwind of the discount rate on the defined benefit obligation are no longer separately recognised in profit or loss. Instead, interest on the net defined benefit asset or liability is recognised in profit or loss, calculated using the discount rate used to measure the net pension obligation or asset. Additionally, the amended standard no longer permits entities to defer past service costs. Past service costs must be recognised immediately in profit or loss. The amendment has been applied retrospectively and prior period comparatives have therefore been restated. Within the EEV Income Statement for the 12 months ended 31 December 2012, EEV operating profit has reduced by £33m (six months ended 30 June 2012: £16m), Other Comprehensive Income for the 12 months ended 31 December 2012 has increased by £33m (six months ended 30 June 2012: £16m) and EEV net assets as at 31 December 2012 have increased by £4m (30 June 2012: £4m).

Impact of UK budget changes announced on 20 March 2013

The Finance Act 2013, which was enacted on 17 July 2013, reduced the UK corporation tax rate to 20% with effect from 1 April 2015. This reduced rate has been used as our best estimate assumption for UK corporation tax as at 30 June 2013.

4.2 Segmental analysis - covered business

(a) Segmental EEV income statement

This Note provides an analysis of EEV covered business as defined in Note 4.17 - EEV methodology.

		UK and Europe	Canada	Asia and Emerging Markets	Total
6 months 2013	Notes	£m	£m	£m	£m
Contribution from new business	4.3	161	18	22	201
Contribution from in-force business:
Expected return on existing business		119	78	10	207
Experience variances	4.4	19	26	(8)	37
Operating assumption changes	4.5	4	20	-	24
Development expenses		(11)	(6)	(10)	(27)
Expected return on free surplus		(5)	8	1	4
EEV operating profit before tax		287	144	15	446

Investment return and tax variances		(21)	14	(5)	(12)
Effect of economic assumption changes		332	(43)	-	289
Restructuring costs		(25)	(1)	-	(26)
EEV profit before tax		573	114	10	697

EEV attributed tax		(115)	(27)	(1)	(143)

EEV profit after tax		458	87	9	554

An analysis of EEV profit after tax by territory is provided in Note 4.9 (c) - Analysis of covered business EEV net worth and PVIF movements (net of tax).

EEV 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 EEV non-operating items are excluded from EEV operating profit and are reported as part of total EEV profit.

The £23m higher contribution from new business primarily reflects a £24m increase from UK and Europe. The overall PVNBP margin was 1.6% (30 June: 2012: 1.8%), with reduced margins in UK and Europe and Canada partly offset by increased margins in Asia and Emerging Markets.

The expected return on existing business of £207m is £5m higher than for the six months to 30 June 2012.

Details of experience variances and operating assumption changes are provided in Note 4.4 - Experience variances and Note 4.5 - Operating assumption changes.

Development costs of £27m were £3m lower than the prior period. The £3m increase in Asia and Emerging Market development costs includes £2m of increased investment spend to expand our operations into new markets.

The £4m expected return on free surplus reflects the relatively low expected returns currently available on cash assets within free surplus. The figure is net of interest payments on subordinated debt liabilities.

Investment return and tax variances generated a loss of £12m, whilst the effect of economic assumption changes was an overall gain of £289m. Within the changes to economic assumptions, the impact of changes to the long term corporation tax rate in the UK was a profit of £125m, refer to Note 4.1 - Basis of preparation. Increased risk free rates were the main driver for both a loss of £357m from higher risk discount rates, which is explained in Note 4.13 - Principal economic assumptions - deterministic calculations - covered business, and for a profit of £512m from the use of higher future assumed investment returns.

Restructuring costs of £26m primarily represent the covered business costs associated with a number of business unit restructuring programmes and Solvency 2.

		UK and Europe	Canada	Asia and Emerging Markets	Total
6 months 2012 (restated)¹	Notes	£m	£m	£m	£m
Contribution from new business	4.3	137	26	15	178
Contribution from in-force business:
Expected return on existing business		113	80	9	202
Experience variances	4.4	115	110	(9)	216
Operating assumption changes	4.5	-	-	-	-
Development expenses		(15)	(8)	(7)	(30)
Expected return on free surplus		(4)	2	-	(2)
EEV operating profit before tax		346	210	8	564

Investment return and tax variances		157	(2)	6	161
Effect of economic assumption changes		(17)	146	7	136
Restructuring costs		(36)	(1)	-	(37)
EEV profit before tax		450	353	21	824

EEV attributed tax		(104)	(88)	(3)	(195)

EEV profit after tax		346	265	18	629

¹The EEV comparative amounts have been restated to reflect retrospective application of changes to IAS 19 Employee benefits. Refer to Note 4.1 - Basis of preparation.

		UK and Europe	Canada	Asia and Emerging Markets	Total
Full year 2012 (restated)¹	Notes	£m	£m	£m	£m
Contribution from new business	4.3	267	45	27	339
Contribution from in-force business:
Expected return on existing business		223	155	17	395
Experience variances	4.4	285	293	(10)	568
Operating assumption changes	4.5	56	(164)	(7)	(115)
Development expenses		(29)	(16)	(18)	(63)
Expected return on free surplus		1	2	1	4
EEV operating profit before tax		803	315	10	1,128

Investment return and tax variances		359	128	11	498
Effect of economic assumption changes		(235)	118	11	(106)
Restructuring costs		(101)	(2)	-	(103)
EEV profit before tax		826	559	32	1,417

EEV attributed tax		(189)	(135)	(4)	(328)

EEV profit after tax		637	424	28	1,089

¹The EEV comparative amounts have been restated to reflect retrospective application of changes to IAS 19 Employee benefits. Refer to Note 4.1- - Basis of preparation.

4.2 Segmental analysis - covered business continued

(b) Segmental analysis of movements in EEV

	UK and Europe	Canada	Asia and Emerging Markets	Total
6 months 2013	£m	£m	£m	£m
Opening covered business EEV	4,103	2,317	297	6,717

EEV profit after tax	458	87	9	554
Internal capital transfers	(275)	(159)	35	(399)
Transfer back of surplus to Standard Life Investments	(35)	(1)	-	(36)
Transfer back of mutual funds net worth	(5)	(3)	-	(8)
Actuarial gains on defined benefit pension schemes	-	29	-	29
Foreign exchange differences	31	27	9	67
Aggregate tax effect of items not recognised in income statement	-	(8)	-	(8)
Other	(1)	1	-	-
Total other movements	(285)	(114)	44	(355)
Closing covered business EEV	4,276	2,290	350	6,916

	UK and Europe	Canada	Asia and Emerging Markets	Total
6 months 2012 (restated)¹	£m	£m	£m	£m
Opening covered business EEV	3,818	1,716	257	5,791

EEV profit after tax	346	265	18	629
Internal capital transfers	(172)	135	16	(21)
Transfer back of surplus to Standard Life Investments	(25)	-	-	(25)
Transfer back of mutual funds net worth	(1)	(1)	-	(2)
Actuarial losses on defined benefit pension schemes	-	(9)	-	(9)
Foreign exchange differences	(18)	(21)	(10)	(49)
Aggregate tax effect of items not recognised in income statement	-	4	-	4
Other	(3)	(1)	2	(2)
Total other movements	(219)	107	8	(104)
Closing covered business EEV	3,945	2,088	283	6,316

¹The EEV comparative amounts have been restated to reflect retrospective application of changes to IAS 19 Employee benefits. Refer to Note 4.1 - Basis of preparation.

	UK and Europe	Canada	Asia and Emerging Markets	Total
Full year 2012 (restated)¹	£m	£m	£m	£m
Opening covered business EEV	3,818	1,716	257	5,791

EEV profit after tax	637	424	28	1,089
Internal capital transfers	(247)	236	22	11
Transfer back of surplus to Standard Life Investments	(60)	(2)	-	(62)
Transfer back of mutual funds net worth	(3)	(3)	-	(6)
Actuarial losses on defined benefit pension schemes	(12)	(9)	-	(21)
Foreign exchange differences	(16)	(49)	(16)	(81)
Aggregate tax effect of items not recognised in income statement	-	4	-	4
Other	(14)	-	6	(8)
Total other movements	(352)	177	12	(163)
Closing covered business EEV	4,103	2,317	297	6,717

¹The EEV comparative amounts have been restated to reflect retrospective application of changes to IAS 19 Employee benefits. Refer to Note 4.1 - Basis of preparation.

	UK and Europe	Canada	Asia and Emerging Markets	Total
30 June 2013	£m	£m	£m	£m
Analysis of EEV
Free surplus	473	441	30	944
PVIF	3,494	1,351	228	5,073
Required capital	246	1,061	41	1,348
Cost of capital	(110)	(536)	(2)	(648)
Opening covered business EEV	4,103	2,317	297	6,717

Analysis of EEV
Free surplus	297	377	50	724
PVIF	3,838	1,373	253	5,464
Required capital	250	1,037	49	1,336
Cost of capital	(109)	(497)	(2)	(608)
Closing covered business EEV	4,276	2,290	350	6,916

	UK and Europe	Canada	Asia and Emerging Markets	Total
30 June 2012 (restated)¹	£m	£m	£m	£m
Analysis of EEV
Free surplus	739	(99)	15	655
PVIF	2,984	1,229	210	4,423
Required capital	203	1,059	34	1,296
Cost of capital	(108)	(473)	(2)	(583)
Opening covered business EEV	3,818	1,716	257	5,791

Analysis of EEV
Free surplus	617	4	29	650
PVIF	3,211	1,439	218	4,868
Required capital	225	1,173	38	1,436
Cost of capital	(108)	(528)	(2)	(638)
Closing covered business EEV	3,945	2,088	283	6,316

¹The EEV comparative amounts have been restated to reflect retrospective application of changes to IAS 19 Employee benefits. Refer to Note 4.1 - Basis of preparation.

	UK and Europe	Canada	Asia and Emerging Markets	Total
31 December 2012 (restated)¹	£m	£m	£m	£m
Analysis of EEV
Free surplus	739	(99)	15	655
PVIF	2,984	1,229	210	4,423
Required capital	203	1,059	34	1,296
Cost of capital	(108)	(473)	(2)	(583)
Opening covered business EEV	3,818	1,716	257	5,791

Analysis of EEV
Free surplus	473	441	30	944
PVIF	3,494	1,351	228	5,073
Required capital	246	1,061	41	1,348
Cost of capital	(110)	(536)	(2)	(648)
Closing covered business EEV	4,103	2,317	297	6,717

¹The EEV comparative amounts have been restated to reflect retrospective application of changes to IAS 19 Employee benefits. Refer to Note 4.1 - Basis of preparation.

4.3 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 4.17 - EEV methodology.

New business contribution (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
6 months 2013	Fee (F) -Spread/risk (S/R)	£m	£m	£m	£m	PVNBP multiplier¹	%
Individual pensions	F	15	1,638	32	1,744	3.3	0.9
Savings and investments	F	15	1,256	13	1,363	8.2	1.1
Annuities	S/R	27	186	-	186	-	14.9
Protection	S/R	-	-	-	1	-	-
Retail		57	3,080	45	3,294	4.8	1.8
Corporate pensions	F	15	518	499	2,818	4.6	0.5
Institutional pensions	F	80	3,085	10	3,120	3.5	2.6
Corporate		95	3,603	509	5,938	4.6	1.6
UK		152	6,683	554	9,232	4.6	1.7
Europe		9	775	18	970	10.8	0.9
UK and Europe		161	7,458	572	10,202	4.8	1.6
Fee	F	7	671	16	1,074	25.2	0.7
Spread/risk	S/R	11	121	20	454	16.7	2.4
Canada		18	792	36	1,528	20.4	1.2
Wholly owned	F	13	9	30	210	6.7	6.1
Joint ventures		9	44	54	281	4.4	3.0
Asia and Emerging Markets		22	53	84	491	5.2	4.3
Total covered business		201	8,303	692	12,221	5.7	1.6

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 NBC to PVNBP and are based on the underlying unrounded numbers.

	Fee (F) -Spread/risk (S/R)	NBC	Single premiums	Annualised regular premiums	PVNBP	PVNBP multiplier¹	PVNBP Margin²
6 months 2012	Fee (F) -Spread/risk (S/R)	£m	£m	£m	£m	PVNBP multiplier¹	%
Individual pensions	F	10	1,735	45	1,895	3.6	0.6
Savings and investments	F	12	872	15	990	7.9	1.2
Annuities	S/R	36	200	-	200	-	17.8
Protection	S/R	-	-	-	1	-	-
Retail		58	2,807	60	3,086	4.7	1.9
Corporate pensions	F	30	566	320	1,995	4.5	1.5
Institutional pensions	F	38	1,953	-	1,953	-	2.0
Corporate		68	2,519	320	3,948	4.5	1.7
UK		126	5,326	380	7,034	4.5	1.8
Europe		11	671	15	854	12.2	1.3
UK and Europe		137	5,997	395	7,888	4.8	1.7
Fee	F	9	642	33	1,268	19.0	0.7
Spread/risk	S/R	17	103	26	512	15.7	3.3
Canada		26	745	59	1,780	17.5	1.5
Wholly owned	F	8	5	20	125	6.0	6.1
Joint ventures		7	49	52	284	4.5	2.5
Asia and Emerging Markets		15	54	72	409	4.9	3.6
Total covered business		178	6,796	526	10,077	6.2	1.8

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 NBC to PVNBP and are based on the underlying unrounded numbers.

	Fee (F) -Spread/risk (S/R)	NBC	Single premiums	Annualised regular premiums	PVNBP	PVNBP multiplier¹	PVNBP Margin²
Full year 2012	Fee (F) -Spread/risk (S/R)	£m	£m	£m	£m	PVNBP multiplier¹	%
Individual pensions	F	5	3,085	78	3,347	3.4	0.1
Savings and investments	F	23	1,756	23	1,958	8.8	1.2
Annuities	S/R	71	462	-	462	-	15.3
Protection	S/R	-	-	-	1	-	-
Retail		99	5,303	101	5,768	4.6	1.7
Corporate pensions	F	51	892	535	3,397	4.7	1.5
Institutional pensions	F	99	3,896	2	3,897	0.5	2.5
Corporate		150	4,788	537	7,294	4.7	2.1
UK		249	10,091	638	13,062	4.7	1.9
Europe		18	1,405	40	1,873	11.7	1.0
UK and Europe		267	11,496	678	14,935	5.1	1.8
Fee	F	16	1,545	57	2,555	17.7	0.6
Spread/risk	S/R	29	208	52	1,029	15.8	2.8
Canada		45	1,753	109	3,584	16.8	1.3
Wholly owned	F	14	8	41	252	6.0	5.4
Joint ventures		13	76	104	522	4.3	2.6
Asia and Emerging Markets		27	84	145	774	4.8	3.5
Total covered business		339	13,333	932	19,293	6.4	1.8

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 NBC to PVNBP and are based on the underlying unrounded numbers.

4.4 Experience variances

	UK and Europe	Canada	Asia and Emerging Markets	Total
6 months 2013	£m	£m	£m	£m
Lapses	(12)	-	(5)	(17)
Maintenance expenses	(1)	(5)	(2)	(8)
Mortality and morbidity	2	-	-	2
Tax	14	23	-	37
Other	16	8	(1)	23
Total	19	26	(8)	37

UK and Europe lapse variances include negative £14m from UK business, mainly due to the impact of transfers within our pension business and increased paid up activity.

Positive tax variances of £14m in UK and Europe and £23m in Canada include gains of £11m in Europe and £11m in Canada following the settlement of various prior year tax matters and adjustments to prior year tax provisions.

Other UK and Europe variances include £19m of gains in the UK. These include an £11m profit from management actions to reduce the impact of foreign currency exposure on actuarial reserves and a £14m profit from improved modelling of future management charges.

For the six months ended 30 June 2012, Canada other variances of £99m includes a gain of £112m from revised modelling of future cash flows, primarily for segregated fund business. UK and Europe other variances of £118m includes a £107m benefit to HWPF TVOG from asset strategy changes and improved modelling of German business.

4.4 Experience variances continued

For the 12 months ended 31 December 2012, the overall total of £546m of other variances includes £520m of gains from management actions. These consist of £96m in UK and Europe from a professional indemnity insurance claim; £119m variances in UK and Europe HWPF TVOG primarily from asset strategy changes and improved modelling of German business; £67m in UK and Europe from management actions that resulted in the use of higher investment returns for annuities; £90m in Canada from revised modelling of future cash flows, primarily for segregated fund business; and £148m in Canada from the sale of properties and a renegotiation of an existing reinsurance arrangement.

	UK and Europe	Canada	Asia and Emerging Markets	Total
6 months 2012 (restated)¹	£m	£m	£m	£m
Lapses	(8)	-	(7)	(15)
Maintenance expenses	(6)	9	-	3
Mortality and morbidity	5	-	1	6
Tax	6	2	-	8
Other	118	99	(3)	214
Total	115	110	(9)	216

¹ The EEV comparative amounts have been restated to reflect changes to IAS 19 Employee benefits. Refer to Note 4.1 - Basis of preparation.

	UK and Europe	Canada	Asia and Emerging Markets	Total
Full year 2012 (restated)¹	£m	£m	£m	£m
Lapses	(6)	-	(9)	(15)
Maintenance expenses	(8)	11	1	4
Mortality and morbidity	(5)	-	1	(4)
Tax	14	23	-	37
Other	290	259	(3)	546
Total	285	293	(10)	568

¹ The EEV comparative amounts have been restated to reflect changes to IAS 19 Employee benefits. Refer to Note 4.1 - Basis of preparation.

4.5 Operating assumption changes

	UK and Europe	Canada	Asia and Emerging Markets	Total
6 months 2013	£m	£m	£m	£m
Lapses	-	-	(5)	(5)
Maintenance expenses	-	-	4	4
Mortality and morbidity	-	-	-	-
Tax	-	-	(1)	(1)
Other	4	20	2	26
Total	4	20	-	24

In general, operating assumptions for the main classes of business, including most expense and other non-economic assumptions, are reviewed on an annual basis. The impact of this review will be reflected in the full year results. The main exception is India where the joint venture reviews assumptions as part of its 31 March year end. These assumption changes are reflected in the Group's EEV results as at 30 June 2013. Other assumption changes reflect EEV operating non-economic assumption changes not resulting from the annual review of operating assumptions.

The £20m other assumption changes in Canada includes £16m from an update of commission assumptions.

For the 12 months ended 31 December 2012, Canada lapse assumption losses of £53m arose from the impact of assuming higher surrenders within Group pension business, reflecting recent experience. The £50m gains from mortality assumption changes in Canada mainly arose from annuities. The adverse £139m other assumption changes in Canada include losses of £45m from the decision to impose a minimum inflation rate on expenses; £17m from a reduction in expected fee income from our existing group savings and retirement contracts; and £72m from assuming that we will earn lower fee income on the funds invested from future deposits.

	UK and Europe	Canada	Asia and Emerging Markets	Total
6 months 2012	£m	£m	£m	£m
Lapses	-	-	(1)	(1)
Maintenance expenses	-	-	1	1
Mortality and morbidity	-	-	-	-
Tax	-	-	-	-
Other	-	-	-	-
Total	-	-	-	-

	UK and Europe	Canada	Asia and Emerging Markets	Total
Full year 2012	£m	£m	£m	£m
Lapses	(3)	(53)	(7)	(63)
Maintenance expenses	23	(22)	-	1
Mortality and morbidity	7	50	1	58
Tax	-	-	-	-
Other	29	(139)	(1)	(111)
Total	56	(164)	(7)	(115)

4.6 Non-covered business

Non-covered business EEV operating profit is represented by operating profit¹ as adjusted for Standard Life Investments look through profits and the return on mutual funds which are recognised in covered business. Refer to Note 4.17 - EEV methodology.

(a) Segmental analysis - non-covered business

	UK and Europe	Standard Life Investments	Other including Group corporate centre	Total non-covered business
6 months 2013	£m	£m	£m	£m
Opening EEV non-covered business net assets	514	255	656	1,425
EEV (loss)/profit after tax	-	34	(46)	(12)
Transfer back of net worth from covered business	5	36	3	44
Foreign exchange differences	-	-	-	-
Internal capital transfers	(2)	(42)	443	399
Distributions to equity holders	-	-	(532)	(532)
Other	102	2	-	104
Closing EEV non-covered business net assets	619	285	524	1,428

The transfer back of net worth from covered business represents the transfer of profits and losses in relation to Standard Life Investments, the UK mutual funds business (within UK and Europe non-covered, Standard Life Savings Limited) and the Canada mutual funds business (within Other including Group corporate centre non-covered), necessary to reconcile the opening and closing EEV net assets. For further detail refer to Note 4.17 - EEV methodology - Transfer back of net worth from covered business.

The £102m other movement in the UK and Europe EEV net assets mainly relates to the change in the UK non-covered pension scheme of positive £101m (six months ended 30 June 2012: negative £76m; 12 months ended 31 December 2012: negative £13m) and the associated deferred tax asset of £nil (six months ended 30 June 2012: positive £99m; 12 months ended 31 December 2012: positive £98m).

¹ Refer to 7 Glossary.

4.6 Non-covered business continued

(a) Segmental analysis - non-covered business continued

	UK and Europe	Standard Life Investments	Other including Group corporate centre	Total non-covered business
6 months 2012 (restated)¹	£m	£m	£m	£m
Opening EEV non-covered business net assets	393	256	903	1,552
EEV profit/(loss) after tax	24	24	(16)	32
Transfer back of net worth from covered business	1	25	1	27
Foreign exchange differences	-	(2)	(3)	(5)
Internal capital transfers	(2)	(49)	72	21
Distributions to equity holders	-	-	(216)	(216)
Other	24	1	17	42
Closing EEV non-covered business net assets	440	255	758	1,453

¹ The EEV comparative amounts have been restated to reflect retrospective application of changes to IAS 19 Employee benefits. Refer to Note 4.1 - Basis of preparation.

	UK and Europe	Standard Life Investments	Other including Group corporate centre	Total non-covered business
Full year 2012 (restated)¹	£m	£m	£m	£m
Opening EEV non-covered business net assets	393	256	903	1,552
EEV profit/(loss) after tax	27	43	(51)	19
Transfer back of net worth from covered business	3	62	3	68
Foreign exchange differences	-	(3)	(2)	(5)
Internal capital transfers	(2)	(106)	97	(11)
Distributions to equity holders	-	-	(331)	(331)
Other	93	3	37	133
Closing EEV non-covered business net assets	514	255	656	1,425

¹ The EEV comparative amounts have been restated to reflect retrospective application of changes to IAS 19 Employee benefits. Refer to Note 4.1 - Basis of preparation.

(b) Standard Life Investments EEV operating profit before tax

Standard Life Investments non-covered business profits are included in EEV on a look through basis. This means that the profits from Standard Life Investments which are generated from life and pensions business are allocated to covered business. Therefore, the difference between third party non-covered business EEV operating profit before tax of £46m (30 June 2012: £34m; 31 December 2012: £62m) and operating profit for the Standard Life Investments business of £93m (30 June 2012: £68m; 31 December 2012: £145m) is the profit allocated to covered business.

	6 months 2013	6 months 2012	Full year 2012
	£m	£m	£m
Standard Life Investments third party non-covered business EEV operating profit before tax	46	34	62
Third party related covered business EEV operating profit before tax	33	20	56
Total third party business EEV operating profit before tax	79	54	118

Other covered business EEV operating profit before tax	14	14	27
Standard Life Investments operating profit before tax	93	68	145

Total Standard Life Investments EEV operating profit allocated to covered business of £47m (30 June 2012: £34m; 31 December 2012: £83m) consists of third party related covered business EEV operating profit of £33m (30 June 2012: £20m; 31 December 2012: £56m) and other covered business EEV operating profit of £14m (30 June 2012: £14m; 31 December 2012: £27m).

Third party related covered business EEV operating profits relate to products actively marketed and sold to third parties through Standard Life Investments distribution channels. If these profits are added to the Standard Life Investments third party non-covered business EEV operating profits of £46m (30 June 2012: £34m; 31 December 2012: £62m) there are £79m (30 June 2012: £54m; 31 December 2012: £118m) of total third party related profits for Standard Life Investments.

The proportion of Standard Life Investments operating profit before tax generated from third parties reflects new business flows into higher margin third party products and outflows from captive products.

	6 months 2013	6 months 2012	Full year 2012
	£m	£m	£m
Canada non-life subsidiaries	1	1	1
Mutual funds transferred to covered business	(4)	(3)	(6)
Canada non-life subsidiaries excluding transfers to covered business	(3)	(2)	(5)

Group centre interest and financing	(2)	11	17
Other	(5)	(2)	(4)
Other non-covered business EEV operating (loss)/profit before tax	(10)	7	8

Canada non-life subsidiaries are included within the Canada segment of the IFRS condensed consolidated financial information.

4.7 Movements in total EEV

(a) Analysis of profit and loss movements

	Covered
	UK and Europe	Canada	Asia and Emerging Markets	Total non-covered	Group elimination	Total	Pence per share
6 months 2013	£m	£m	£m	£m	£m	£m	p
Opening EEV	4,103	2,317	297	1,425	-	8,142	343
New business contribution	161	18	22	-	-	201
Contribution from in-force business	126	126	(7)	-	-	245
Non-covered business	-	-	-	19	-	19
EEV operating profit before tax	287	144	15	19	-	465

Tax on EEV operating profit	(59)	(34)	(1)	(18)	-	(112)
EEV operating profit/(loss) after tax	228	110	14	1	-	353	15
EEV non-operating profit/(loss) after tax	230	(23)	(5)	(13)	-	189	8
EEV profit/(loss) after tax	458	87	9	(12)	-	542
Non-trading adjustments	(285)	(114)	44	15	-	(340)
Closing EEV	4,276	2,290	350	1,428	-	8,344	352

	Covered
	UK and Europe	Canada	Asia and Emerging Markets	Total non-covered	Group elimination	Total	Pence per share
6 months 2012 (restated)¹	£m	£m	£m	£m	£m	£m	p
Opening EEV	3,818	1,716	257	1,552	89	7,432	316
New business contribution	137	26	15	-	-	178
Contribution from in-force business	209	184	(7)	-	-	386
Non-covered business	-	-	-	24	-	24
EEV operating profit before tax	346	210	8	24	-	588

Tax on EEV operating profit	(80)	(52)	(2)	15	-	(119)
EEV operating profit after tax	266	158	6	39	-	469	20

EEV non-operating profit/(loss) after tax	80	107	12	(7)	(52)	140	6
EEV profit/(loss) after tax	346	265	18	32	(52)	609

Non-trading adjustments	(219)	107	8	(131)	-	(235)
Closing EEV	3,945	2,088	283	1,453	37	7,806	332

¹ The EEV comparative amounts have been restated to reflect retrospective application of changes to IAS 19 Employee benefits. Refer to Note 4.1 - Basis of preparation.

4.7 Movements in total EEV continued

(a) Analysis of profit and loss movements continued

	Covered
	UK and Europe	Canada	Asia and Emerging Markets	Total non-covered	Group elimination	Total	Pence per share
Full year 2012 (restated)¹	£m	£m	£m	£m	£m	£m	p
Opening EEV	3,818	1,716	257	1,552	89	7,432	316
New business contribution	267	45	27	-	-	339
Contribution from in-force business	536	270	(17)	-	-	789
Non-covered business	-	-	-	30	(75)	(45)
EEV operating profit/(loss) before tax	803	315	10	30	(75)	1,083

Tax on EEV operating profit	(187)	(76)	(1)	6	18	(240)
EEV operating profit/(loss) after tax	616	239	9	36	(57)	843	36

EEV non-operating profit/(loss) after tax	21	185	19	(17)	(32)	176	7
EEV profit/(loss) after tax	637	424	28	19	(89)	1,019

Non-trading adjustments	(352)	177	12	(146)	-	(309)
Closing EEV	4,103	2,317	297	1,425	-	8,142	343

¹ The EEV comparative amounts have been restated to reflect retrospective application of changes to IAS 19 Employee benefits. Refer to Note 4.1 - Basis of preparation.

(b) Analysis of non-trading adjustments

	6 months 2013	6 months 2012 restated¹	Full year 2012 restated¹
	£m	£m	£m
Items included in other comprehensive income	174	(33)	(5)
Other items:
Distributions to equity holders	(532)	(216)	(331)
Issue of share capital other than in cash	2	1	1
Shares acquired by employee trusts	(2)	(2)	(5)
Shares distributed by employee trusts	(1)	1	-
Reserves credit for employee share-based payment schemes	17	12	25
Aggregate tax effect of items recognised directly in equity	2	2	6
Total EEV non-trading adjustments	(340)	(235)	(309)

¹ The EEV comparative amounts have been restated to reflect retrospective application of changes to IAS 19 Employee benefits. Refer to Note 4.1 - Basis of preparation.

4.8 Reconciliation of EEV net assets to IFRS net assets and IGD regulatory capital resources

	30 June 2013	30 June 2012 restated¹	31 December 2012 restated¹
	£m	£m	£m
Net assets on an EEV basis	8,344	7,806	8,142
Present value of in-force life and pensions business net of cost of capital	(4,856)	(4,230)	(4,425)
EEV net worth	3,488	3,576	3,717

Adjustment of long-term debt to market value	67	(57)	77
Canada marked to market adjustment	-	(19)	(19)
Sterling reserves	57	17	25
Valuation movement in available-for-sale assets backing investment contract liabilities	(8)	-	-
Deferred acquisition costs net of deferred income reserve	412	373	382
Deferred tax differences	72	98	129
Adjustment for share of joint ventures	23	21	22
Consolidation adjustment for different accounting bases²	-	(37)	-
Other	23	25	26
Net assets attributable to equity holders on an IFRS basis	4,134	3,997	4,359
Valuation adjustments for IGD	(1,194)	(869)	(1,034)
External subordinated liabilities	1,888	1,122	1,868
Capital in long-term business funds	3,254	2,923	2,796
IGD regulatory capital resources³	8,082	7,173	7,989

¹ The comparative amounts have been restated to reflect retrospective application of changes to IAS 19 Employee benefits. Refer to Note 4.1 - Basis of preparation.

² This adjustment reflects the removal of accounting differences for the Canada subordinated liability as explained in Note 4.17 - EEV methodology.

³ 30 June 2013 and 30 June 2012 based on estimated regulatory returns. 31 December 2012 based on final regulatory returns.

Reconciling items are shown net of tax where appropriate.

4.9 Group EEV capital and cash generation

(a) Analysis of Group EEV capital and cash generation

		Free surplus movement	Required capital movement	EEV net worth movement
6 months 2013	Notes	£m	£m	£m
Capital and cash generation from existing business		328	3	331
New business strain		(189)	58	(131)
Other covered business operating capital and cash generation		41	(11)	30
Covered business operating capital and cash generation	4.9(c)	180	50	230
Non-covered business operating capital and cash generation		1	-	1
EEV operating capital and cash generation	4.9(b)	181	50	231

Non-operating capital and cash generation:
Covered business		14	(79)	(65)
Non-covered business		(13)	-	(13)
EEV non-operating capital and cash generation		1	(79)	(78)

Total EEV capital and cash generation		182	(29)	153

4.9 Group EEV capital and cash generation continued

(a) Analysis of Group EEV capital and cash generation continued

		Free surplus movement	Required capital movement	EEV net worth movement
6 months 2012	Notes	£m	£m	£m
Capital and cash generation from existing business		322	(13)	309
New business strain		(153)	46	(107)
Other covered business operating capital and cash generation		3	35	38
Covered business operating capital and cash generation	4.9(c)	172	68	240
Non-covered business operating capital and cash generation		39	-	39
EEV operating capital and cash generation	4.9(b)	211	68	279

Non-operating capital and cash generation
Covered business		(120)	87	(33)
Non-covered business		(59)	-	(59)
EEV non-operating capital and cash generation		(179)	87	(92)

Total EEV capital and cash generation		32	155	187

		Free surplus movement	Required capital movement	EEV net worth movement
Full year 2012	Notes	£m	£m	£m
Capital and cash generation from existing business		636	(23)	613
New business strain		(325)	109	(216)
Other covered business operating capital and cash generation		389	(64)	325
Covered business operating capital and cash generation		700	22	722
Non-covered business operating capital and cash generation		(21)	-	(21)
EEV operating capital and cash generation	4.9(b)	679	22	701

Non-operating capital and cash generation
Covered business		(320)	57	(263)
Non-covered business		(49)	-	(49)
EEV non-operating capital and cash generation		(369)	57	(312)

Total EEV capital and cash generation		310	79	389

(b) Reconciliation of operating profit to EEV operating capital and cash generation

	UK and Europe	Standard Life Investments	Canada	Asia and Emerging Markets	Other	Total
6 months 2013	£m	£m	£m	£m	£m	£m
Operating profit/(loss) before tax	182	93	59	(1)	(29)	304
Tax on operating profit	(40)	(23)	(5)	-	(2)	(70)
Operating profit/(loss) after tax¹	142	70	54	(1)	(31)	234

Impact of different treatment of assets and actuarial reserves	(31)	-	-	1	-	(30)
DAC and DIR², intangibles, tax and other	34	-	5	(12)	-	27
Look through to investment management	35	(36)	1	-	-	-
EEV operating capital and cash generation	180	34	60	(12)	(31)	231

EEV operating profit after tax - PVIF	52	-	47	23	-	122
EEV operating profit/(loss) after tax	232	34	107	11	(31)	353

¹ Group operating profit after tax consists of: Group operating profit before tax of £304m, tax on operating profit of £66m and share of joint ventures' and associates' tax expense of £4m.

² Deferred acquisition costs (DAC) and deferred income reserve (DIR).

	UK and Europe	Standard Life Investments	Canada	Asia and Emerging Markets	Other	Total
6 months 2012 (restated)¹	£m	£m	£m	£m	£m	£m
Operating profit/(loss) before tax	152	68	71	3	(8)	286
Tax on operating profit	30	(18)	(13)	2	2	3
Operating profit/(loss) after tax	182	50	58	5	(6)	289

Impact of different treatment of assets and actuarial reserves	(11)	-	5	(1)	-	(7)
DAC and DIR², intangibles, tax and other	1	-	6	(10)	-	(3)
Look through to investment management	25	(25)	-	-	-	-
EEV operating capital and cash generation	197	25	69	(6)	(6)	279

EEV operating profit after tax - PVIF	95	-	88	7	-	190
EEV operating profit/(loss) after tax	292	25	157	1	(6)	469

¹ The comparative amounts have been restated to reflect retrospective application of changes to IAS 19 Employee benefits. Refer to Note 4.1 - Basis of preparation.

² Deferred acquisition costs (DAC) and deferred income reserve (DIR).

	UK and Europe	Standard Life Investments	Canada	Asia and Emerging Markets	Other	Total
Full year 2012 (restated)¹	£m	£m	£m	£m	£m	£m
Operating profit/(loss) before tax	393	145	353	3	(27)	867
Tax on operating profit	(15)	(38)	(79)	-	(1)	(133)
Operating profit/(loss) after tax	378	107	274	3	(28)	734

Impact of different treatment of assets and actuarial reserves	(15)	-	-	(4)	-	(19)
DAC and DIR², intangibles, tax and other³	(5)	-	59	(11)	(57)	(14)
Look through to investment management	60	(62)	2	-	-	-
EEV operating capital and cash generation	418	45	335	(12)	(85)	701

EEV operating profit after tax - PVIF	229	-	(100)	13	-	142
EEV operating profit/(loss) after tax	647	45	235	1	(85)	843

¹ The comparative amounts have been restated to reflect retrospective application of changes to IAS 19 Employee benefits. Refer to Note 4.1 - Basis of preparation.

² Deferred acquisition costs (DAC) and deferred income reserve (DIR).

³ The £59m DAC and DIR, intangibles, tax and other item in Canada includes £57m relating to the elimination of the consolidation adjustment for different accounting bases, following the redemption of inter-Group subordinated liabilities. There is an offsetting adjustment in Other.

4.9 Group EEV capital and cash generation continued

Total

		Free surplus	Required capital	Net worth	PVIF net of cost of capital	Total
6 months 2013	Notes	£m	£m	£m	£m	£m
Opening EEV		944	1,348	2,292	4,425	6,717
Contribution from new business		(189)	58	(131)	293	162
Contribution from in-force business:
Expected return on existing business		-	18	18	145	163
Expected return transfer to net worth		326	(15)	311	(311)	-
Experience variances		61	(11)	50	(20)	30
Operating assumption changes		7	-	7	11	18
Development expenses		(27)	-	(27)	4	(23)
Expected return on free surplus		2	-	2	-	2
EEV operating profit after tax	4.9(a)	180	50	230	122	352
Investment return and tax variances		(113)	(40)	(153)	142	(11)
Effect of economic assumption changes		148	(39)	109	125	234
Restructuring costs		(21)	-	(21)	-	(21)
EEV profit/(loss) after tax	4.2(b)	194	(29)	165	389	554
Internal capital transfers		(399)	-	(399)	-	(399)
Transfer back of surplus to Standard Life Investments		(36)	-	(36)	-	(36)
Transfer back of mutual funds net worth		(8)	-	(8)	-	(8)
Actuarial gains on defined benefit pension schemes		29	-	29	-	29
Foreign exchange differences		9	17	26	41	67
Aggregate tax effect of items not recognised in income statement		(8)	-	(8)	-	(8)
Other		(1)	-	(1)	1	-
Closing EEV		724	1,336	2,060	4,856	6,916

		Free surplus	Required capital	Net worth	PVIF net of cost of capital	Total
6 months 2012 (restated)¹	Notes	£m	£m	£m	£m	£m
Opening EEV		655	1,296	1,951	3,840	5,791
Contribution from new business		(153)	46	(107)	247	140
Contribution from in-force business:
Expected return on existing business		-	21	21	134	155
Expected return transfer to net worth		326	(34)	292	(292)	-
Experience variances		27	35	62	100	162
Operating assumption changes		(1)	-	(1)	1	-
Development expenses		(23)	-	(23)	-	(23)
Expected return on free surplus		(4)	-	(4)	-	(4)
EEV operating profit after tax	4.9(a)	172	68	240	190	430
Investment return and tax variances		(46)	43	(3)	128	125
Effect of economic assumption changes		(47)	44	(3)	105	102
Restructuring costs		(27)	-	(27)	(1)	(28)
EEV profit after tax	4.2(b)	52	155	207	422	629
Internal capital transfers		(21)	-	(21)	-	(21)
Transfer back of surplus to Standard Life Investments		(25)	-	(25)	-	(25)
Transfer back of mutual funds net worth		(2)	-	(2)	-	(2)
Actuarial losses on defined benefit pension schemes		(9)	-	(9)	-	(9)
Foreign exchange differences		(3)	(15)	(18)	(31)	(49)
Aggregate tax effect of items not recognised in income statement		4	-	4	-	4
Other		(1)	-	(1)	(1)	(2)
Closing EEV		650	1,436	2,086	4,230	6,316

¹ The EEV comparative amounts have been restated to reflect retrospective application of changes to IAS 19 Employee benefits. Refer to Note 4.1 - Basis of preparation.

UK and Europe

		Free surplus	Required capital	Net worth	PVIF net of cost of capital	Total
6 months 2013	Notes	£m	£m	£m	£m	£m
Opening EEV		473	246	719	3,384	4,103

Contribution from new business		(103)	10	(93)	224	131
Contribution from in-force business:
Expected return on existing business		-	2	2	93	95
Expected return transfer to net worth		234	-	234	(234)	-
Experience variances		46	2	48	(35)	13
Operating assumption changes		3	-	3	-	3
Development expenses		(13)	-	(13)	4	(9)
Expected return on free surplus		(5)	-	(5)	-	(5)
EEV operating profit after tax		162	14	176	52	228
Investment return and tax variances		(119)	(7)	(126)	109	(17)
Effect of economic assumption changes		114	(6)	108	159	267
Restructuring costs		(20)	-	(20)	-	(20)
EEV profit after tax		137	1	138	320	458
Other movements	4.2(b)	(313)	3	(310)	25	(285)
Closing EEV		297	250	547	3,729	4,276

4.9 Group EEV capital and cash generation continued

		Free surplus	Required capital	Net worth	PVIF net of cost of capital	Total
6 months 2012	Notes	£m	£m	£m	£m	£m
Opening EEV		739	203	942	2,876	3,818

Contribution from new business		(81)	12	(69)	177	108
Contribution from in-force business:
Expected return on existing business		-	2	2	85	87
Expected return transfer to net worth		220	-	220	(220)	-
Experience variances		31	3	34	53	87
Development expenses		(11)	-	(11)	-	(11)
Expected return on free surplus		(5)	-	(5)	-	(5)
EEV operating profit after tax		154	17	171	95	266
Investment return and tax variances		10	2	12	109	121
Effect of economic assumption changes		(57)	4	(53)	39	(14)
Restructuring costs		(26)	-	(26)	(1)	(27)
EEV profit after tax		81	23	104	242	346
Other movements	4.2(b)	(203)	(1)	(204)	(15)	(219)
Closing EEV		617	225	842	3,103	3,945

Canada

		Free surplus	Required capital	Net worth	PVIF net of cost of capital	Total
6 months 2013	Notes	£m	£m	£m	£m	£m
Opening EEV		441	1,061	1,502	815	2,317

Contribution from new business		(55)	44	(11)	24	13
Contribution from in-force business:
Expected return on existing business		-	15	15	44	59
Expected return transfer to net worth		64	(15)	49	(49)	-
Experience variances		21	(15)	6	16	22
Operating assumption changes		3	-	3	12	15
Development expenses		(5)	-	(5)	-	(5)
Expected return on free surplus		6	-	6	-	6
EEV operating profit after tax		34	29	63	47	110
Investment return and tax variances		6	(33)	(27)	37	10
Effect of economic assumption changes		34	(33)	1	(33)	(32)
Restructuring costs		(1)	-	(1)	-	(1)
EEV profit/(loss) after tax		73	(37)	36	51	87
Other movements	4.2(b)	(137)	13	(124)	10	(114)
Closing EEV		377	1,037	1,414	876	2,290

		Free surplus	Required capital	Net worth	PVIF net of cost of capital	Total
6 months 2012 (restated)¹	Notes	£m	£m	£m	£m	£m
Opening EEV		(99)	1,059	960	756	1,716

Contribution from new business		(42)	27	(15)	35	20
Contribution from in-force business:
Expected return on existing business		-	18	18	42	60
Expected return transfer to net worth		75	(34)	41	(41)	-
Experience variances		(3)	34	31	52	83
Development expenses		(6)	-	(6)	-	(6)
Expected return on free surplus		1	-	1	-	1
EEV operating profit after tax		25	45	70	88	158
Investment return and tax variances		(59)	41	(18)	16	(2)
Effect of economic assumption changes		9	40	49	61	110
Restructuring costs		(1)	-	(1)	-	(1)
EEV profit/(loss) after tax		(26)	126	100	165	265
Other movements	4.2(b)	129	(12)	117	(10)	107
Closing EEV		4	1,173	1,177	911	2,088

¹ The EEV comparative amounts have been restated to reflect retrospective application of changes to IAS 19 Employee benefits. Refer to Note 4.1 - Basis of preparation.

Asia and Emerging Markets

		Free surplus	Required capital	Net worth	PVIF net of cost of capital	Total
6 months 2013	Notes	£m	£m	£m	£m	£m
Opening EEV		30	41	71	226	297

Contribution from new business		(31)	4	(27)	45	18
Contribution from in-force business:
Expected return on existing business		-	1	1	8	9
Expected return transfer to net worth		28	-	28	(28)	-
Experience variances		(6)	2	(4)	(1)	(5)
Operating assumption changes		1	-	1	(1)	-
Development expenses		(9)	-	(9)	-	(9)
Expected return on free surplus		1	-	1	-	1
EEV operating profit/(loss) after tax		(16)	7	(9)	23	14
Investment return and tax variances		-	-	-	(4)	(4)
Effect of economic assumption changes		-	-	-	(1)	(1)
EEV profit/(loss) after tax		(16)	7	(9)	18	9
Other movements	4.2(b)	36	1	37	7	44
Closing EEV		50	49	99	251	350

4.9 Group EEV capital and cash generation continued

		Free surplus	Required capital	Net worth	PVIF net of cost of capital	Total
6 months 2012	Notes	£m	£m	£m	£m	£m
Opening EEV		15	34	49	208	257

Contribution from new business		(30)	7	(23)	35	12
Contribution from in-force business:
Expected return on existing business		-	1	1	7	8
Expected return transfer to net worth		31	-	31	(31)	-
Experience variances		(1)	(2)	(3)	(5)	(8)
Operating assumption changes		(1)	-	(1)	1	-
Development expenses		(6)	-	(6)	-	(6)
EEV operating profit/(loss) after tax		(7)	6	(1)	7	6
Investment return and tax variances		3	-	3	3	6
Effect of economic assumption changes		1	-	1	5	6
EEV profit/(loss) after tax		(3)	6	3	15	18
Other movements	4.2(b)	17	(2)	15	(7)	8
Closing EEV		29	38	67	216	283

4.10 Time value of options and guarantees (TVOG)

	30 June 2013	30 June 2012	31 December 2012
	£m	£m	£m
UK and Europe	(96)	(167)	(156)
Canada	(49)	(73)	(58)
Asia and Emerging Markets	(7)	(11)	(7)
Total	(152)	(251)	(221)

The UK and Europe TVOG reflects the value of shareholder exposure to with profit policyholder guarantees. The total comprises £79m for guarantees in the HWPF and £17m for guarantees in the German With Profits Fund (GWPF). The value of this exposure has reduced by £60m during the six months ended 30 June 2013. This arose from a post-tax operating loss of £9m, consisting of a loss of £5m from revised modelling and a £4m loss from new business, along with a post-tax non-operating profit of £69m which largely reflects favourable assumption changes, particularly from the impact of increased risk free yields.

4.11 Market value of subordinated liabilities within covered business

	30 June 2013	30 June 2012	31 December 2012
	£m	£m	£m
UK and Europe	(1,213)	(1,052)	(1,207)
Canada	(258)	(286)	(260)
Total	(1,471)	(1,338)	(1,467)

Subordinated liabilities within EEV covered business are based on the market value of the debt. The free surplus shown in Note 4.2 - Segmental analysis - Covered business (c) Segmental analysis of opening and closing EEV is net of these liabilities.

UK and Europe subordinated liabilities include Euro denominated subordinated guaranteed bonds.

The impact of market value fluctuations in subordinated liabilities within covered business is reflected in non-operating profit as shown in Note 4.2(a) - Segmental EEV income statement.

4.12 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 and the PVIF net of cost of capital impact from new business.

(a) PVIF emergence

In-force business
	PVIF	Cash emerging during years (£m)
30 June 2013	£m	1-5	6-10	11-15	16-20	20+
UK and Europe	6,431	1,990	1,472	1,037	700	1,232
Canada	4,625	541	520	471	443	2,650
Asia and Emerging Markets	364	171	91	52	32	18
Total undiscounted	11,420	2,702	2,083	1,560	1,175	3,900
Total discounted	5,616	2,358	1,377	786	449	646

New business
	PVIF		Cash emerging during years (£m)
30 June 2013	£m	1-5	6-10	11-15	16-20	20+
UK and Europe	340	106	79	58	40	57
Canada	135	10	16	14	12	83
Asia and Emerging Markets	64	31	15	7	6	5
Total undiscounted	539	147	110	79	58	145
Total discounted	324	136	79	46	28	35

(b) Reconciliation to closing PVIF

In-force business	Reconciliation of discounted PVIF
	PVIF	TVOG	Total
30 June 2013	£m	£m	£m
UK and Europe	3,934	(96)	3,838
Canada	1,422	(49)	1,373
Asia and Emerging Markets	260	(7)	253
Total	5,616	(152)	5,464

See also Note 4.2(c) - Segmental analysis - covered business - Segmental analysis of opening and closing EEV, and Note 4.10 - Time value of options and guarantees (TVOG).

4.12 PVIF monetisation profile continued

(b) Reconciliation to closing PVIF continued

New business	Reconciliation of discounted PVIF
	PVIF	Cost of capital	TVOG	Total
30 June 2013	£m	£m	£m	£m
UK and Europe	233	(5)	(4)	224
Canada	45	(10)	(11)	24
Asia and Emerging Markets	46	-	(1)	45
Total	324	(15)	(16)	293

See also Note 4.9(c) - Analysis of covered business EEV net worth and PVIF movements (net of tax).

As outlined in Note 4.1 - 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 under Solvency 2.

4.13 Principal economic assumptions - deterministic calculations - covered business

(a) Gross investment returns and expense inflation

	UK HWPF/PBF¹	Europe HWPF/PBF¹	SLIL²	Canada	Hong Kong
30 June 2013	%	%	%	%	%
Gross investment returns
Risk free	2.42	1.73	2.42	2.83	1.65
Corporate bonds	3.00³	n/a	n/a	⁴	2.44
Equities	5.42	4.73	5.42	8.60	4.65
Property	4.42	3.73	4.42	8.60	n/a

Other
Expense inflation:	3.64		3.64	1.50⁵	2.50
Germany		1.59
Ireland		2.56

¹ Proprietary Business Fund (PBF) denotes the equity holder owned fund in SLAL.

² SLIL denotes Standard Life International Limited.

³ Excludes corporate bond returns on annuities. For annuities in UK equity holder owned funds, the overall investment return, after allowing for assumed defaults, is 4.19% for annuities that are level or subject to fixed escalations and 3.44% for annuities where escalations are linked to a price index.

⁴ With the exception of AFS assets used to back investment contract liabilities at amortised cost, current holdings are assumed to yield in future years the earned rate for the year preceding the valuation and future reinvestments are assumed to be in a mixture of government and corporate bonds. For AFS assets used to back investment contract liabilities at amortised cost, yields are calculated at acquisition and subsequent changes are ignored.

⁵ 1.50% in 2013. The rate in subsequent years is based on a moving 30-year bond yield less a 2% deduction, with a floor of 1.50%.

	UK HWPF/PBF¹	Europe HWPF/PBF¹	SLIL²	Canada	Hong Kong
30 June 2012	%	%	%	%	%
Gross investment returns
Risk free	1.71	1.58	1.71	1.99	0.92
Corporate bonds	2.57³	n/a	n/a	⁴	3.23
Equities	4.71	4.58	4.71	8.60	3.92
Property	3.71	3.58	3.71	8.60	n/a

Other
Expense inflation:	3.12		3.12	0.00⁵	2.50
Germany		1.64
Ireland		2.53

¹ Proprietary Business Fund (PBF) denotes the equity holder owned fund in SLAL.

² SLIL denotes Standard Life International Limited.

³ Excludes corporate bond returns on annuities. For annuities in UK equity holder owned funds, the overall investment return, after allowing for assumed defaults, is 3.96% for annuities that are level or subject to fixed escalations and 2.48% for annuities where escalations are linked to a price index.

⁴Current holdings are assumed to yield in future years the earned rate for the year preceding the valuation. Future reinvestments are assumed to be in a mixture of government and corporate bonds.

⁵0.00% in 2012. The rate in subsequent years is based on a moving 30-year bond yield less a 3% deduction.

	UK HWPF/PBF¹	Europe HWPF/PBF¹	SLIL²	Canada	Hong Kong
31 December 2012	%	%	%	%	%
Gross investment returns
Risk free	1.74	1.32	1.74	2.32	0.91
Corporate bonds	2.34³	n/a	n/a	⁴	1.66
Equities	4.74	4.32	4.74	8.60	3.91
Property	3.74	3.32	3.74	8.60	n/a

Other
Expense inflation:	3.39		3.39	1.50⁵	2.50
Germany		1.87
Ireland		2.84

¹ Proprietary Business Fund (PBF) denotes the equity holder owned fund in SLAL.

² SLIL denotes Standard Life International Limited.

³ Excludes corporate bond returns on annuities. For annuities in UK equity holder owned funds, the overall investment return, after allowing for assumed defaults, is 3.81% for annuities that are level or subject to fixed escalations and 3.06% for annuities where escalations are linked to a price index.

⁴With the exception of AFS assets used to back investment contract liabilities at amortised cost, current holdings are assumed to yield in future years the earned rate for the year preceding the valuation and future reinvestments are assumed to be in a mixture of government and corporate bonds. For AFS assets used to back investment contract liabilities at amortised cost, yields are calculated at acquisition and subsequent changes are ignored.

⁵1.50% in 2013. The rate in subsequent years is based on a moving 30-year bond yield less a 2% deduction, with a floor of 1.50%.

(b) Risk discount rates - in-force business

	UK HWPF	UK PBF¹	Europe HWPF	Europe PBF¹	SLIL²	Canada	Hong Kong
30 June 2013	%	%	%	%	%	%	%
Risk discount rates - in-force business
Risk free	2.42	2.42	1.73	1.73	2.42	2.83	1.65
Risk margin	4.50	2.30	2.50	1.30	2.20	3.60	2.90
Risk discount rate³	6.92	4.72	4.23	3.03	4.62	6.43	4.55

¹ Proprietary Business Fund (PBF) denotes the equity holder owned fund in SLAL.

² SLIL denotes Standard Life International Limited.

³ Using the value of in-force business as weights, the average risk discount rates for UK and Europe were 5.65% and 3.47% respectively.

4.13 Principal economic assumptions - deterministic calculations - covered business continued

(b) Risk discount rates - in-force business continued

	UK HWPF	UK PBF¹	Europe HWPF	Europe PBF¹	SLIL²	Canada	Hong Kong
30 June 2012	%	%	%	%	%	%	%
Risk discount rates - in-force business
Risk free	1.71	1.71	1.58	1.58	1.71	1.99	0.92
Risk margin	4.50	2.50	2.00	1.40	2.10	4.40	3.10
Risk discount rate³	6.21	4.21	3.58	2.98	3.81	6.39	4.02

¹ Proprietary Business Fund (PBF) denotes the equity holder owned fund in SLAL.

² SLIL denotes Standard Life International Limited.

³ Using the value of in-force business as weights, the average risk discount rates for UK and Europe were 5.19% and 3.29% respectively.

	UK HWPF	UK PBF¹	Europe HWPF	Europe PBF¹	SLIL²	Canada	Hong Kong
31 December 2012	%	%	%	%	%	%	%
Risk discount rates - in-force business
Risk free	1.74	1.74	1.32	1.32	1.74	2.32	0.91
Risk margin	4.50	2.30	2.50	1.30	2.40	3.90	2.90
Risk discount rate³	6.24	4.04	3.82	2.62	4.14	6.22	3.81

¹ Proprietary Business Fund (PBF) denotes the equity holder owned fund in SLAL.

² SLIL denotes Standard Life International Limited.

³ Using the value of in-force business as weights, the average risk discount rates for UK and Europe were 5.03% and 3.09% respectively.

Risk margins have been updated at 30 June 2013 to reflect the impact of market movements. Allowances for non-market risk are unchanged from those used at 31 December 2012, these are reviewed once a year and any changes will be reflected in the 2013 full year results.

The impact of the other changes in risk discount rates has been included in the effect of economic assumption changes shown in Note 4.2(a) - Segmental analysis - covered business - segmented EEV income statement. The amounts within these totals that relate to the changes in risk discount rate are for UK and Europe: loss £278m, for Canada: loss £77m, for Asia and Emerging Markets: loss £2m.

	UK HWPF	UK PBF¹	Europe HWPF	Europe PBF¹	SLIL²	Canada	Hong Kong
6 months 2013	%	%	%	%	%	%	%
Risk discount rates - new business
Risk free³	1.74	1.74	1.32	1.32	1.74	2.32	0.91
Risk margin	2.50	2.60	3.30	1.50	2.10	2.70	2.90
Risk discount rate⁴	4.24	4.34	4.62	2.82	3.84	5.02	3.81

¹ Proprietary Business Fund (PBF) denotes the equity holder owned fund in SLAL.

² SLIL denotes Standard Life International Limited.

³ 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 2012.

⁴ Using the value of in-force for new business as weights, the average risk discount rates for UK and Europe were 4.33% and 2.83% respectively.

	UK HWPF	UK PBF¹	Europe HWPF	Europe PBF¹	SLIL²	Canada	Hong Kong
6 months 2012	%	%	%	%	%	%	%
Risk discount rates - new business
Risk free³	1.93	1.93	1.83	1.83	1.93	2.17	1.09
Risk margin	3.10	2.80	3.30	2.20	2.20	2.50	3.10
Risk discount rate⁴	5.03	4.73	5.13	4.03	4.13	4.67	4.19

¹ Proprietary Business Fund (PBF) denotes the equity holder owned fund in SLAL.

² SLIL denotes Standard Life International Limited.

³ 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 2011.

⁴Using the value of in-force for new business as weights, the average risk discount rates for UK and Europe were 4.76% and 4.06% respectively.

	UK HWPF	UK PBF¹	Europe HWPF	Europe PBF¹	SLIL²	Canada	Hong Kong
Full year 2012	%	%	%	%	%	%	%
Risk discount rates - new business
Risk free³	1.93	1.93	1.83	1.83	1.93	2.17	1.09
Risk margin	2.50	2.60	3.30	1.70	2.10	2.70	2.90
Risk discount rate⁴	4.43	4.53	5.13	3.53	4.03	4.87	3.99

¹ Proprietary Business Fund (PBF) denotes the equity holder owned fund in SLAL.

² SLIL denotes Standard Life International Limited.

³ 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 2011.

⁴ Using the value of in-force for new business as weights, the average risk discount rates for UK and Europe were 4.52% and 3.60% respectively.

(d) Asia and Emerging Markets - joint ventures

The PVIF and cost of required capital of the Asian joint ventures are 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:


	30 June 2013	30 June 2012	31 December 2012
	%	%	%
India	7.98	8.30	8.41
China	3.93	3.93	3.93

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 PVIF, based on a non-market risk 'cost of capital' approach. This has reduced the PVIF of the India and China JV businesses at 30 June 2013 by £27m (30 June 2012: £23m; 31 December 2012: £25m). Similarly, the 30 June 2013 pre-tax NBC has been reduced by £4m (30 June 2012: £3m; 31 December 2012: £6m) as an allowance for non-market risk.

4.14 Principal economic assumptions - stochastic calculations

The level of 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 4.17 - EEV methodology.

Characteristics of ESG used for HWPF and GWPF 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 TVOG.

Parameters used in ESG

Cash and bond returns

These variables are calibrated using government strips.

Inflation

This variable is calibrated based on the relationship between 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 a three month lag).

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 (please note the different displayed Swap terms for UK and Euro):

	30 June 2013		30 June 2012		31 December 2012
UK Sterling	Swap term (years)		Swap term (years)		Swap term (years)
Option term (years)	10	15	10	15	10	15
10	18.1%	18.0%	17.6%	15.8%	17.1%	17.0%
15	16.1%	16.0%	16.5%	15.1%	15.3%	15.3%
20	14.6%	14.4%	15.0%	13.7%	14.1%	14.0%
25	13.5%	13.4%	13.7%	12.5%	13.1%	13.0%

	30 June 2013		30 June 2012		31 December 2012
Euro	Swap term (years)		Swap term (years)		Swap term (years)
Option term (years)	15	20	15	20	15	20
10	20.0%	19.7%	19.6%	19.0%	18.9%	18.7%
15	19.8%	19.2%	18.8%	17.9%	18.7%	18.1%
20	18.4%	17.5%	17.0%	16.0%	17.4%	16.5%
25	16.7%	n/a	15.8%	n/a	16.0%	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)	30 June 2013	30 June 2012	31 December 2012
10	25.7%	27.2%	26.1%
15	26.2%	27.4%	26.4%
20	26.7%	27.9%	26.8%
25	27.6%	28.9%	27.7%

European equities
Term (years)	30 June 2013	30 June 2012	31 December 2012
10	23.6%	25.5%	24.2%
15	23.5%	25.4%	24.1%
20	24.2%	26.1%	24.6%
25	24.6%	26.4%	24.8%

Property-implied volatilities

The 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 30 June 2013, 15% for 31 December 2012 and 15% for 30 June 2012.

Note 4.10 - Time value of options and guarantees (TVOG) also shows the value of TVOG in Canada and Asia and Emerging Markets, which are in addition to the UK and Europe TVOG. Where material, these values are also calculated using ESG similar to that used for the HWPF and GWPF TVOG calculations, although market observed data is not always available at all durations.

4.15 Foreign exchange

The principal exchange rates applied are:

Local currency: £	Closing 30 June 2013	Average to 30 June 2013	Closing 30 June 2012	Average to 30 June 2012	Closing 31 December 2012	Average to 31 December 2012
Canada	1.600	1.577	1.599	1.590	1.619	1.591
Europe	1.167	1.180	1.236	1.215	1.233	1.231
India	90.090	85.470	87.574	82.833	89.061	84.877
China	9.309	9.581	9.966	9.981	10.127	10.017
Hong Kong	11.765	12.009	12.166	12.259	12.599	12.331

4.16 Sensitivity analysis - economic and non-economic assumptions

The sensitivities specified by the EEV Principles and Guidance are reported in the year end results. These are not updated for half year reporting.

4.17 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 condensed consolidated financial information, unless otherwise stated.

The Group's covered business is its life assurance and pensions businesses in the UK and Europe (UK, Germany including Austria and Ireland), Canada and Asia and Emerging Markets (Hong Kong, Singapore, Dubai and the India and China JV businesses), 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 and Europe 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

· 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 Standard Life International Limited (SLIL)

4.17 EEV methodology continued

Canada covered business also includes mutual funds.

Asia and Emerging Markets covered business consists of:

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

· International savings and investment business in Singapore and Dubai

· The Group's share of results in the JV in India, HDFC Standard Life Insurance Company Limited, at 26% for the six months ended 30 June 2013 (during the 12 months ended 31 December 2012: 26%)

· The Group's share of results in the JV in China, Heng An Standard Life Insurance Company Limited, at 50% for the six months ended 30 June 2013 (during the 12 months ended 31 December 2012: 50%)

Non-covered business

The Group's non-covered business predominantly consists of the third party 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.

Non-covered business EEV operating profit is represented by operating profit as adjusted for Standard Life Investments look through profits and the return on mutual funds which are recognised in covered business.

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 condensed consolidated financial information 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 - Operating segments. The EEV segmentation has been prepared in a consistent manner, whilst also distinguishing between covered and non-covered business.

Transfer back of net worth from covered business

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 (Standard Life Investments, UK and Europe non-covered and other non-covered) and are instead included within the EEV results of the covered businesses.

The capitalised values of the future profits and losses from such service companies are included in the opening and closing embedded value for the relevant businesses, 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.

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 investment management and other services where these relate to covered business. This is referred to as the 'look through' into service companies.

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, 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 PVIF (excluding the allowance for TVOG) calculated using expected 'real world' asset returns equates with 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 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.

Separate risk discount rates have been calculated for in-force and new business and for the principal geographic segments (UK, Germany, Ireland onshore, SLIL, Canada and Hong Kong). 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 inter-fund arrangements) and on policies that are in equity holder owned funds. For HWPF policies, there is a significant inter-fund arrangement in respect of mortality surpluses on annuities. 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 4.13 - Principal economic assumptions - deterministic calculations - covered business.

Within the EEV results for the India and China JV businesses, PVIF and cost of required capital are 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 PVIF using a 'cost of capital' approach on the risk capital arising from the key sources of non-market risk. For the India and China JV businesses, this methodology would give a similar result to the methodology used in the UK, Europe, Canada and Hong Kong, 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 at least 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. Required capital used in the EEV is also net of any capital that is assumed to be available from subordinated liabilities.

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 170% of minimum continuing capital and surplus requirements (MCCSR)

· Asia and Emerging Markets - required capital is generally 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.

4.17 EEV methodology continued

Time value of financial options and guarantees (TVOG)

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 Prudential Regulation 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 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 TVOG is calculated

The level of 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

UK and Europe - other

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, some of which 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 TVOG has been calculated using stochastic techniques. TVOG has reduced both NBC and closing PVIF for Germany.

An adjustment is made within free surplus to allow for the potential cost of a selection of guaranteed annuity benefits on unit linked and smoothed-managed business 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. TVOG has reduced both NBC and closing PVIF for Canada.

Asia and Emerging Markets

TVOG in the Asia businesses within Asia and Emerging Markets 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 international savings and investment business, which is sold via branches in Singapore and Dubai, is included within Asia and Emerging Markets results but has the same other economic assumptions as the SLIL International bond business.

Details of the assumptions used for this reporting period are provided in Note 4.13 - 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 in full on an annual basis. Other non-economic assumption changes, not relating to the full annual review of non-economic assumptions, may be reflected in the half year results, for example non-economic assumption changes resulting from management action or modelling changes.

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 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.

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

Restructuring costs are consistent with those identified in the Group operating profit adjustments. Refer to the IFRS condensed consolidated financial information Note 3.3 - Administrative expenses for further detail. In addition, restructuring costs for covered business include associated impacts on PVIF and cost of required capital.

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

Expenses - pension schemes

Pension schemes have been included in accordance with International Accounting Standard (IAS) 19 Employee Benefits and IFRIC 14 IAS 19 - The Limit on a Defined Benefit Asset, Minimum Funding Requirements.

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 company-specific considerations, along with data provided by the Continuous Mortality Investigation Bureau in the UK and the Canadian Institute of Actuaries in Canada.

Assumptions regarding option take-up, surrenders and withdrawals are assumed to vary, where appropriate, according to the investment scenario under consideration when deriving 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 using the approach used for the published new business figures as follows:

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

· 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 (with the exception of vesting annuities for tax layer 1 deferred annuities sold before September 2009). NBC 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

4.17 EEV methodology continued

For Canada, business is deemed to be new business if a contract has been issued during the reporting period. NBC 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 approach is annuity business in the UK and Ireland where, to ensure consistency between the economic assumptions used in 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 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 PVNBP is discounted using the relevant opening risk free rate rather than the risk discount rate.

Tax

The opening and closing EEV numbers for 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. EEV attributable tax and EEV profit before tax are derived by grossing up EEV 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 EEV 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.

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

Assets designated as available-for-sale under IFRS

The Group has designated certain financial assets used to back subordinated liabilities and investment contract liabilities as available-for-sale (AFS) under IFRS accounting.

Where AFS assets are held by an EEV covered business entity and these assets are used to back investment contract liabilities accounted for under local solvency regulations at amortised cost, then the assets are also included within EEV on an amortised cost basis and EEV operating profit reflects the long-term investment return on the assets calculated at acquisition.

Where AFS assets are held by an EEV covered business entity and these assets are used to back subordinated liabilities which are accounted for in EEV at market value, then the assets are also included within EEV on a market value basis. EEV operating profit reflects the long-term investment return on the assets and unrealised gains and losses are included within EEV non-operating profit.

Where AFS assets are held by an EEV non-covered entity, unrealised gains and losses do not impact EEV profit and are recorded within the EEV consolidated statement of comprehensive income.

Subordinated liabilities

The liabilities in respect of the UK subordinated debt plus the subordinated debt issued by Canada form part of covered business and have been deducted at market value within EEV.

For Canada, previously issued subordinated liabilities were owned by a non-covered subsidiary of the Group, where the asset was valued on an amortised cost basis. Total Group EEV was adjusted to exclude the difference between the market value and the amortised cost value. During the year ended 31 December 2012, the subordinated liability was fully redeemed and the consolidation adjustment for different accounting bases is therefore no longer required.

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

Foreign exchange

Embedded value and other items within the EEV consolidated 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 EEV consolidated statement of comprehensive income 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 4.15 - Foreign exchange.

EEV capital and cash generation

Covered business EEV operating capital and cash generation represents the EEV operating profit net worth (free surplus and required capital) on an after-tax basis. Non-covered business EEV operating capital and cash generation represents non-covered operating profit after tax as adjusted for Standard Life Investments look through profits after tax and the after-tax return on mutual funds which are recognised in covered business.

EEV non-operating capital and cash generation comprises covered business non-operating profit items (non-operating net worth movement after tax) and non-covered business non-operating profit items on an after-tax basis.

This information is provided by RNS

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