Half Yearly Report - Part 4 of 5

RNS Number : 2306O

Standard Life plc

05 August 2014

 



Standard Life plc

Half year results 2014

Part 4 of 5

4.    European Embedded Value

EEV consolidated income statement

For the six months ended 30 June 2014

	Covered business	Non-covered business	6 months 2014	Covered business	Non-covered business	6 months 2013	Full Year 2013
	£m	£m	£m	£m	£m	£m	£m
UK and Europe	197	7	204	228	3	231	381
Standard Life Investments1	43	37	80	36	35	71	149
Canada	113	(1)	112	110	(3)	107	287
Asia and Emerging Markets	20	-	20	14	(3)	11	14
Group corporate centre costs	-	(18)	(18)	-	(17)	(17)	(40)
Other	-	(14)	(14)	-	(14)	(14)	(29)
Look through elimination1	(43)	-	(43)	(36)	-	(36)	(79)
EEV operating profit after tax	330	11	341	352	1	353	683
EEV non-operating items
Long-term investment return and tax variances	39	-	39	(11)	-	(11)	234
Non-operating assumption changes	(104)	-	(104)	234	-	234	143
Restructuring and corporate transaction expenses	(17)	(5)	(22)	(21)	(8)	(29)	(58)
Other EEV non-operating items	-	(6)	(6)	-	(5)	(5)	(14)
EEV non-operating (loss)/profit after tax	(82)	(11)	(93)	202	(13)	189	305
Total EEV profit/(loss) after tax	248	-	248	554	(12)	542	988

¹      Standard Life Investments non-covered EEV operating profit after tax of £37m (six months ended 30 June 2013: £35m; 12 months ended 31 December 2013: £70m) represents operating profit after tax of £80m (six months ended 30 June 2013: £71m; 12 months ended 31 December 2013: £149m) after excluding post-tax profits of £43m (six months ended 30 June 2013: £36m; 12 months ended 31 December 2013: £79m) which have been generated by life and pensions covered business. Standard Life Investments operating profit after tax relating to third party business was £74m (six months ended 30 June 2013: £60m; 12 months ended 31 December 2013: £128m).

EEV earnings per share (EPS)

For the six months ended 30 June 2014

	6 months 2014	6 months 2013	Full year 2013
EEV operating profit after tax (£m)	341	353	683
Basic EPS (pence)	14.3	15.0	28.9
Weighted average number of ordinary shares outstanding (millions)	2,379	2,355	2,362
Diluted EPS (pence)	14.3	15.0	28.7
Weighted average number of ordinary shares outstanding for diluted earnings per share (millions)	2,384	2,359	2,378

EEV consolidated statement of comprehensive income

For the six months ended 30 June 2014

	6 months 2014	6 months 2013	Full year 2013
	£m	£m	£m
EEV profit after tax	248	542	988
Items that will not be reclassified subsequently to profit or loss:
Remeasurement (losses)/gains on defined benefit pension plans1	(14)	130	101
Equity holder tax effect relating to items that will not be reclassified subsequently to profit or loss1	5	(7)	(8)
Other	-	5	(22)
Total items that will not be reclassified subsequently to profit or loss	(9)	128	71
Items that may be reclassified subsequently to profit or loss:
Fair value losses on cash flow hedges1	1	(1)	-
Net investment hedge1	26	(8)	63
Fair value gains/(losses) on non-covered business financial assets designated as available-for-sale	9	(15)	(18)
Exchange differences on translating foreign operations2	(102)	67	(201)
Equity holder tax effect relating to items that may be reclassified subsequently to profit or loss	(2)	3	3
Total items that may be reclassified subsequently to profit or loss	(68)	46	(153)
EEV other comprehensive income for the year	(77)	174	(82)
Total EEV comprehensive income for the year	171	716	906

¹      Consistent with the IFRS consolidated statement of comprehensive income.

²      Exchange differences for the six months ended 30 June 2014 primarily relate to Canada (loss £71m) and Europe (loss £23m).

EEV consolidated statement of financial position

As at 30 June 2014

	Covered business	Non-covered business	30 June 2014	Covered business	Non-covered business	30 June 2013	31 December 2013
	£m	£m	£m	£m	£m	£m	£m
UK and Europe	4,229	544	4,773	4,276	607	4,883	5,079
Standard Life Investments	-	828	828	-	297	297	405
Canada	2,001	3	2,004	2,290	-	2,290	2,095
Asia and Emerging Markets	371	-	371	350	-	350	333
Group corporate centre	-	310	310	-	517	517	444
Other	-	72	72	-	7	7	67
Total Group embedded value	6,601	1,757	8,358	6,916	1,428	8,344	8,423
Analysed by:
Net worth	1,755	1,757	3,512	2,060	1,428	3,488	3,544
Present value of in-force (excluding TVOG)	5,468	-	5,468	5,616	-	5,616	5,553
Time value of options and guarantees (TVOG)	(117)	-	(117)	(152)	-	(152)	(100)
Cost of required capital	(505)	-	(505)	(608)	-	(608)	(574)
Total EEV net assets	6,601	1,757	8,358	6,916	1,428	8,344	8,423
IFRS equity			4,245			4,134	4,227
Additional retained earnings on an EEV basis			4,113			4,210	4,196
Total Group embedded value			8,358			8,344	8,423
Diluted closing number of ordinary shares outstanding (millions)			2,392			2,370	2,389
EEV per share (pence)			349			352	353

Notes to the EEV consolidated 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 by the CFO Forum of European Insurance Companies. 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.

A detailed description of EEV methodology is provided in Note 17 - EEV methodology included in the EEV financial information within the annual report and accounts 2013. There have been no significant changes to EEV methodology from that adopted in the previous reporting period, except as noted below.

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

EEV operating profit and EEV profit

Until 31 December 2013, EEV operating profit and EEV profit were disclosed on both a before and after tax basis. EEV profit before tax was derived by grossing up profit after tax at the long-term rate of corporation tax appropriate for each territory. From 1 January 2014, EEV profit and related metrics (including new business contribution and EEV operating profit) are only disclosed on an after tax basis and comparative amounts have been restated. Where EEV operating profit before tax has been included within the company's incentive arrangements, targets have been restated to an after tax basis.

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 Group financial statements, the Group's reportable segments have been identified in accordance with the way in which the Group is structured and managed, as required under IFRS 8 - Operating segments. The EEV segmentation has been prepared in a consistent manner, whilst also distinguishing between covered and non-covered business.

In November 2013, the Group announced that the results of Standard Life Wealth Limited (SLW) would be managed and reported as part of the Standard Life Investments segment from 1 January 2014. As a consequence, the results of SLW are now presented within the Standard Life Investments segment. Previously, this business was managed as part of the UK and Europe segment and reported within UK and Europe non-covered business. Comparative amounts for 30 June 2013 and 31 December 2013 have been prepared on the same basis to allow more meaningful comparison.

Standard Life Savings Limited

Standard Life Savings Limited, which was previously treated as a non-covered entity within UK and Europe with a look through in covered business relating to mutual funds profits, was transferred to covered business on the closing EEV consolidated statement of financial position at 31 December 2013. From 1 January 2014, there is no longer a look through and transfer back of net worth in respect of Standard Life Savings Limited.

Pensions Act 2014

The Pensions Act 2014 contains powers to allow the UK government to restrict charges in defined contribution workplace pensions, including a cap on management charges in default funds and the cessation of active member discounts for qualifying workplace pension schemes. The EEV results for the six months to 30 June 2014 include a provision of £160m (post-tax loss) within EEV non-operating profit, representing our best estimate of the reduction in EEV that will result from these regulatory changes.

Events after the reporting period

As explained in Note 3.17 to the IFRS condensed consolidated financial information, on 1 July 2014, Standard Life Investments Holdings Limited (SLIH), a wholly owned subsidiary of the Company, acquired the entire share capital of Ignis Asset Management Limited (IAML). The final purchase consideration will be determined through a completion process which is not expected to finalise until September 2014. The required disclosures will be made in the annual report and accounts for the year ended 31 December 2014. The acquired business will be reported as non-covered business within the Standard Life Investments segment in the EEV consolidated financial information.

4.2  Analysis of movement in EEV

	Covered
	UK and Europe	Canada	Asia and Emerging Markets	Total non-covered		Total		Pence per share
6 months to 30 June 2014	£m	£m	£m	£m		£m		p
Opening EEV	4,538	2,094	333	1,458		8,423		353
New business contribution	91	14	16	-		121
Contribution from in-force business	112	59	11	-		182
Operating experience variances and assumption changes	1	44	-	-		45
Development costs	(7)	(4)	(7)	-		(18)
Non-covered business	-	-	-	11		11
EEV operating profit after tax	197	113	20	11		341		14
EEV non-operating (loss)/profit after tax	(151)	66	3	(11)		(93)		(4)
EEV profit after tax	46	179	23	-		248
Non-trading adjustments	(355)	(272)	15	299		(313)		(14)
Closing EEV	4,229	2,001	371	1,757		8,358		349

	Covered
	UK and Europe	Canada	Asia and Emerging Markets	Total non-covered	Total	Pence per share
6 months to 30 June 2013	£m	£m	£m	£m	£m	p
Opening EEV	4,103	2,317	297	1,425	8,142	343
New business contribution	131	13	18	-	162
Contribution from in-force business	90	65	10	-	165
Operating experience variances and assumption changes	16	37	(5)	-	48
Development costs	(9)	(5)	(9)	-	(23)
Non-covered business	-	-	-	1	1
EEV operating profit 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)	(14)
Closing EEV	4,276	2,290	350	1,428	8,344	352

Lower new business contribution in UK and Europe is partly due to lower sales of annuities following the 2014 Budget and lower sales of institutional pensions.

The contribution from in-force business has increased due to higher opening in-force and higher expected rates of return.

Operating experience variances and assumption changes profit after tax of £45m comprise operating experience variances profit after tax of £26m and operating assumption changes profit after tax of £19m. Operating experience variances include £18m in Canada from improved modelling and £12m favourable maintenance expense variances, of which £7m is in the UK and Europe and £7m is in Canada. Operating assumption changes of £19m include £15m in Canada from management actions to increase asset returns and reduce actuarial liabilities.

Development expenses of £18m have fallen by £5m from the comparable period, reflecting lower costs in all segments.

Non-covered business EEV operating profit after tax of £11m includes non-covered SLI profit after tax of £37m and Group corporate centre costs after tax of £18m.

EEV non-operating loss after tax of £93m includes a £160m loss from the impact of UK regulations that restrict charges in qualifying workplace pension schemes. The remaining non-operating profit of £67m includes favourable investment return and tax variances of £39m, profit from economic assumption changes of £56m, restructuring and corporate transaction expenses loss of £22m and other losses of £6m. Restructuring and corporate transaction expenses primarily relate to business unit restructuring programmes and costs arising from the acquisition of Ignis Asset Management Limited.

Non-trading adjustments include distributions to equity holders of £252m.

4.3  Analysis of movement in net worth

(a)     Covered and non-covered business

	6 months 2014					6 months 2013				Full Year 2013
	Total covered		Non- covered	Total Group		Total covered		Non-covered	Total Group	Total Group
	Free surplus	Required capital	Free surplus	EEV net worth		Free surplus	Required capital	Free surplus	EEV net worth	EEV net worth
	£m	£m	£m	£m		£m	£m	£m	£m	£m
Opening EEV net worth	843	1,243	1,458	3,544		944	1,348	1,425	3,717	3,717
Expected return	311	26	-	337		328	3	-	331	632
New business strain	(210)	56	-	(154)		(189)	58	-	(131)	(266)
Other operating movement	152	(96)	11	67		41	(11)	1	31	216
EEV operating capital and cash generation	253	(14)	11	250		180	50	1	231	582
EEV non-operating capital and cash generation	(32)	21	(11)	(22)		14	(79)	(13)	(78)	(148)
Total EEV capital and cash generation	221	7	-	228		194	(29)	(12)	153	434
Internal capital transfers	(446)	-	446	-		(399)	-	399	-	-
Distributions to equity holders	-	-	(252)	(252)		-	-	(532)	(532)	(656)
Look through transfers	(51)	-	51	-		(44)	-	44	-	-
Foreign exchange differences	(14)	(35)	1	(48)		9	17	-	26	(121)
Remeasurement (losses)/gains on defined benefit pension plans	(18)	-	4	(14)		29	-	101	130	101
Other non-trading adjustments	5	-	49	54		(9)	-	3	(6)	69
Closing EEV net worth	540	1,215	1,757	3,512		724	1,336	1,428	3,488	3,544
Analysed by:
UK and Europe	268	280	544	1,092		297	250	607	1,154	1,282
Standard Life Investments	-	-	828	828		-	-	297	297	405
Canada	233	882	3	1,118		377	1,037	-	1,414	1,274
AEM	39	53	-	92		50	49	-	99	72
Other	-	-	382	382		-	-	524	524	511
Closing EEV net worth	540	1,215	1,757	3,512		724	1,336	1,428	3,488	3,544

4.3  Analysis of movement in net worth continued

(b)     Covered business operating net worth movement analysis

	6 months 2014					6 months 2013				Full year 2013 Total
	UK and Europe	Canada	Asia and Emerging Markets	Total		UK and Europe	Canada	Asia and Emerging Markets	Total
	£m	£m	£m	£m		£m	£m	£m	£m	£m
Free surplus movement:
Expected return	227	50	34	311		229	70	29	328	626
New business strain	(113)	(60)	(37)	(210)		(103)	(55)	(31)	(189)	(386)
Other operating movement	58	99	(5)	152		36	19	(14)	41	269
Total	172	89	(8)	253		162	34	(16)	180	509
Required capital movement:
Expected return	2	22	2	26		2	-	1	3	6
New business strain	7	45	4	56		10	44	4	58	120
Other operating movement	1	(96)	(1)	(96)		2	(15)	2	(11)	(52)
Total	10	(29)	5	(14)		14	29	7	50	74
Operating net worth movement:
Expected return	229	72	36	337		231	70	30	331	632
New business strain	(106)	(15)	(33)	(154)		(93)	(11)	(27)	(131)	(266)
Other operating movement	59	3	(6)	56		38	4	(12)	30	217
Total	182	60	(3)	239		176	63	(9)	230	583

4.4  Analysis of movement in PVIF (including TVOG and cost of required capital)

	6 months 2014					6 months 2013				Full year 2013 Total
	UK and Europe	Canada	Asia and Emerging Markets	Total		UK and Europe	Canada	Asia and Emerging Markets	Total
	£m	£m	£m	£m		£m	£m	£m	£m	£m
Opening EEV PVIF	3,797	821	261	4,879		3,384	815	226	4,425	4,425
PVIF generated from new business	197	29	50	276		224	24	45	293	524
Expected movement in PVIF	(117)	(13)	(26)	(156)		(141)	(5)	(20)	(166)	(322)
Other PVIF operating movement	(65)	37	(1)	(29)		(31)	28	(2)	(5)	(101)
Total PVIF operating movement	15	53	23	91		52	47	23	122	101
PVIF non-operating movement	(111)	40	1	(70)		268	4	(5)	267	454
Foreign exchange differences	(20)	(28)	(6)	(54)		25	10	7	42	(81)
Other PVIF movement	-	-	-	-		-	-	-	-	(20)
Closing EEV PVIF	3,681	886	279	4,846		3,729	876	251	4,856	4,879

4.5  PVNBP, new business contribution and margin

	6 months 2014					6 months 2013				Full year 2013 Total
	UK and Europe	Canada	Asia and Emerging Markets	Total		UK and Europe	Canada	Asia and Emerging Markets	Total
	£m	£m	£m	£m		£m	£m	£m	£m	£m
PVNBP - Fee	8,848	1,127	215	10,190		9,999	1,074	210	11,283	21,280
PVNBP - Spread/Risk and Other	102	386	223	711		203	454	281	938	1,623
PVNBP - Total	8,950	1,513	438	10,901		10,202	1,528	491	12,221	22,903
New business contribution - Fee	81	10	7	98		107	5	10	122	185
New business contribution - Spread/Risk and Other	10	4	9	23		24	8	8	40	73
NBC - Total	91	14	16	121		131	13	18	162	258
PVNBP margin - Fee	0.9	0.9	3.2	1.0		1.1	0.5	5.1	1.1	0.9
PVNBP margin - Spread/Risk and Other	10.1	1.1	4.3	3.4		11.6	1.8	2.7	4.2	4.5
PVNBP margin - Total	1.0	0.9	3.8	1.1		1.3	0.9	3.7	1.3	1.1

4.6  Monetisation profile of closing PVIF¹ and new business PVIF¹

	In-force							New business
6 months 2014	PVIF	1-5	6-10	11-15	16-20	21+		PVIF	1-5	6-10	11-15	16-20	21+
	£m	£m	£m	£m	£m	£m		£m	£m	£m	£m	£m	£m
UK and Europe	6,422	1,930	1,482	1,048	708	1,254		340	110	75	55	40	60
Canada	4,057	583	504	459	382	2,129		132	22	18	16	14	62
AEM	441	184	100	72	44	41		78	33	18	9	9	9
Total undiscounted	10,920	2,697	2,086	1,579	1,134	3,424		550	165	111	80	63	131
Total discounted	5,468	2,341	1,362	776	422	567		306	147	72	39	23	25

¹    PVIF excludes TVOG and cost of required capital.

4.7  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 2014	£m	£m	£m	£m	£m	£m
Operating profit/(loss) before tax	188	104	69	6	(28)	339
Tax on operating profit	(31)	(24)	(17)	2	(4)	(74)
Operating profit/(loss) after tax1	157	80	52	8	(32)	265
Impact of different treatment of assets and actuarial reserves	(26)	-	(1)	(2)	-	(29)
DAC and DIR2, intangibles, tax and other	15	-	8	(9)	-	14
Look through to investment management	43	(43)	-	-	-	-
EEV operating capital and cash generation	189	37	59	(3)	(32)	250
EEV operating profit after tax - PVIF3	15	-	53	23	-	91
EEV operating profit/(loss) after tax	204	37	112	20	(32)	341

¹    Group operating profit after tax consists of: Group operating profit before tax of £339m, tax charge on operating profit of (£73m) and share of joint ventures' and associates' tax expense of (£1m).

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

³    Including TVOG and cost of required capital.

4.7  Reconciliation of operating profit to EEV operating capital and cash generationcontinued 

	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	180	95	59	(1)	(29)	304
Tax on operating profit	(39)	(24)	(5)	-	(2)	(70)
Operating profit/(loss) after tax	141	71	54	(1)	(31)	234
Impact of different treatment of assets and actuarial reserves	(31)	-	-	1	-	(30)
DAC and DIR, intangibles, tax and other	34	-	5	(12)	-	27
Look through to investment management	35	(36)	1	-	-	-
EEV operating capital and cash generation	179	35	60	(12)	(31)	231
EEV operating profit after tax - PVIF	52	-	47	23	-	122
EEV operating profit/(loss) after tax	231	35	107	11	(31)	353

	UK and Europe	Standard Life Investments	Canada	Asia and Emerging Markets	Other	Total
Full year 2013	£m	£m	£m	£m	£m	£m
Operating profit/(loss) before tax	375	197	251	(6)	(66)	751
Tax on operating profit	(47)	(48)	(51)	-	(3)	(149)
Operating profit/(loss) after tax	328	149	200	(6)	(69)	602
Impact of different treatment of assets and actuarial reserves	(30)	-	(4)	(2)	-	(36)
DAC and DIR, intangibles, tax and other	33	-	5	(22)	-	16
Look through to investment management	78	(79)	1	-	-	-
EEV operating capital and cash generation	409	70	202	(30)	(69)	582
EEV operating profit/(loss) after tax - PVIF	(28)	-	85	44	-	101
EEV operating profit/(loss) after tax	381	70	287	14	(69)	683

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

	30 June 2014	30 June 2013	31 December 2013
	£m	£m	£m
Net assets on an EEV basis	8,358	8,344	8,423
Present value of in-force life and pensions business net of cost of capital	(4,846)	(4,856)	(4,879)
EEV net worth	3,512	3,488	3,544
Adjustment of long-term debt to market value	113	67	100
Sterling reserves	100	57	55
Valuation movement in available-for-sale assets backing investment contract liabilities	(2)	(8)	(10)
Deferred acquisition costs net of deferred income reserve	431	412	423
Deferred tax differences	40	72	65
Adjustment for share of joint ventures	20	23	20
Other	31	23	30
Net assets attributable to equity holders on an IFRS basis	4,245	4,134	4,227
Valuation adjustments for IGD	(1,338)	(1,194)	(1,278)
External subordinated liabilities	1,841	1,888	1,861
Capital in long-term business funds	3,445	3,254	3,590
IGD regulatory capital resources1	8,193	8,082	8,400

¹    31 December 2013 based on final regulatory returns, 30 June 2014 and 30 June 2013 based on estimated regulatory returns.

4.9  Time Value of Options and Guarantees (TVOG)

	30 June  2014	30 June 2013	31 December 2013
	£m	£m	£m
UK and Europe	(54)	(96)	(55)
Canada	(56)	(49)	(40)
Asia and Emerging Markets	(7)	(7)	(5)
Total	(117)	(152)	(100)

UK and Europe TVOG reflects the value of shareholder exposure to with profit policyholder guarantees. The total comprises £42m for guarantees in the HWPF and £12m for guarantees in the GWPF. The value of this exposure has decreased by £1m during 2014, comprising a post-tax operating loss of £8m and a post-tax non-operating profit of £9m. The operating loss consists of a loss of £7m from revised investment mix and a loss of £1m from new business, whilst the non-operating profit largely reflects favourable market movements.

The table above 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 calculated using an economic scenario generator similar to that used for the UK and Europe TVOG calculation, although market observed data is not always available at all durations.

The Canada TVOG grew by £16m, mainly due to new business written in the period.

Equity-implied and 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 implied volatilities are set out in the following table:

Volatilities		30 June  2014		30 June 2013		31 December 2013
		UK Sterling	Euro	UK Sterling	Euro	UK Sterling	Euro
	Option term (years)	Swap term (years)		Swap term (years)		Swap term (years)
Swaption-implied volatilities		10	20	10	20	10	20
	10	17.9%	20.8%	18.1%	19.7%	17.7%	19.2%
	15	16.9%	19.5%	16.1%	19.2%	16.4%	18.2%
	20	15.7%	17.6%	14.6%	17.5%	14.9%	17.1%
	25	14.5%	n/a	13.5%	n/a	13.7%	n/a
		30 June 2014		30 June 2013		31 December  2013
Equity-implied volatilities	Option term (years)	UK equities	European equities	UK equities	European equities	UK equities	European equities
	10	20.4%	20.1%	25.7%	23.6%	22.3%	22.8%
	15	21.5%	20.3%	26.2%	23.5%	22.6%	22.7%
	20	22.2%	20.4%	26.7%	24.2%	23.0%	23.3%
	25	23.2%	21.1%	27.6%	24.6%	23.9%	23.6%

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 2014 (30 June 2013: 15%; 31 December 2013: 15%).

4.10  Principal economic assumptions - deterministic calculations - covered business

	30 June 2014		30 June 2013		31 December 2013
	In-force business	New business	In-force business	New business	In-force business	New business
	%	%	%	%	%	%
Risk-free rate:
UK / SLIL	2.78	3.01	2.42	1.74	3.01	1.74
Europe	1.25	1.94	1.73	1.32	1.94	1.32
Canada	2.74	3.16	2.83	2.32	3.16	2.32
Hong Kong	1.88	1.92	1.65	0.91	1.92	0.91
India1	8.30		7.98		8.01
China1	4.37		3.93		4.94
Corporate bond returns, excluding Canada2:
UK	3.41	3.76	3.00	2.34	3.76	2.34
Hong Kong	2.48	2.73	2.44	1.66	2.73	1.66
Total investment returns (annuities):
UK non index-linked annuities	3.94	_3	4.19	_3	4.26	_3
UK index-linked annuities	3.49	_3	3.44	_3	3.69	_3
Equity returns:
Canada	8.60		8.60		8.60
Other	Risk-free rate + 3%pa		Risk-free rate + 3%pa		Risk-free rate + 3%pa
Property returns:
Canada	8.60		8.60		8.60
Other	Risk-free rate + 2%pa		Risk-free rate + 2%pa		Risk-free rate + 2%pa
Risk discount rate risk margin:
UK HWPF	4.10	2.90	4.50	2.50	4.10	2.70
UK PBF	2.40	3.40	2.30	2.60	2.40	3.10
Europe HWPF	2.80	2.50	2.50	3.30	2.80	2.50
Europe PBF	1.50	1.60	1.30	1.50	1.50	1.60
SLIL	2.40	2.60	2.20	2.10	2.20	2.30
Canada	4.00	2.70	3.60	2.70	3.40	2.70
Hong Kong	2.90	2.90	2.90	2.90	2.90	2.90
Risk discount rate:
UK HWPF	6.88	5.91	6.92	4.24	7.11	4.44
UK PBF	5.18	6.41	4.72	4.34	5.41	4.84
Europe HWPF	4.05	4.44	4.23	4.62	4.74	3.82
Europe PBF	2.75	3.54	3.03	2.82	3.44	2.92
SLIL	5.18	5.61	4.62	3.84	5.21	4.04
Canada	6.74	5.86	6.43	5.02	6.56	5.02
Hong Kong	4.78	4.82	4.55	3.81	4.82	3.81
Expense inflation:
UK / SLIL	3.88	4.00	3.64	3.39	4.00	3.39
Europe (Germany)	1.37	1.60	1.59	1.87	1.60	1.87
Europe (Ireland)	2.46	2.69	2.56	2.84	2.69	2.84
Canada4	1.50	1.50	1.50	1.50	1.50	1.50
Hong Kong	2.50	2.50	2.50	2.50	2.50	2.50

¹    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.

²    For Canada, with the exception of available-for--sale (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.

³    For UK immediate annuity new business, economic assumptions are updated every quarter.

⁴    This represents the current rate. The rate in subsequent years is based on a moving 30-year bond yield less a 2% deduction, subject to a floor of 1.50%.

Risk discount rate risk margins have been updated at 30 June 2014 to reflect the impact of market movements. Allowances for non-market risk are unchanged from those used at 31 December 2013, these are reviewed once a year and any changes will be reflected in the annual report and accounts for the year ended 31 December 2014.

5.    Independent review report to Standard Life plc

Report on the interim financial statements

Our conclusion

We have reviewed the interim financial statements, defined below, in the half year results of Standard Life plc for the six months ended 30 June 2014. Based on our review, nothing has come to our attention that causes us to believe that;

·   The IFRS condensed consolidated interim financial information are not prepared, in all material respects, in accordance with International Accounting Standard 34 as adopted by the European Union and the Disclosure and Transparency Rules of the United Kingdom's Financial Conduct Authority.

·   The EEV consolidated financial information is not prepared, in all material respects, in accordance with the EEV basis set out in Note 4.1.

This conclusion is to be read in the context of what we say in the remainder of this report.

What we have reviewed

The interim financial statements, which are prepared by Standard Life plc, comprise:

IFRS condensed consolidated interim financial information, including:

·   The IFRS condensed consolidated statement of financial position as at 30 June 2014

·   The IFRS condensed consolidated income statement and statement of comprehensive income for the period then ended

·   The IFRS condensed consolidated statement of cash flows for the period then ended

·   The IFRS condensed consolidated statement of changes in equity for the period then ended

·   The explanatory notes to the IFRS condensed consolidated interim financial information.

EEV consolidated financial information, including:

·   The European Embedded Value (EEV) consolidated income statement, the EEV earnings per share statement, the EEV consolidated statement of comprehensive income, the EEV consolidated statement of financial position, and related notes.

As disclosed in Note 3.1, the financial reporting framework that has been applied in the preparation of the full IFRS annual financial statements of the group is applicable law and International Financial Reporting Standards (IFRSs) as adopted by the European Union.

The IFRS condensed consolidated interim financial information included in the half year results have been prepared in accordance with International Accounting Standard 34, Interim Financial Reporting, as adopted by the European Union and the Disclosure and Transparency Rules of the United Kingdom's Financial Conduct Authority.

As disclosed in Note 4.1, EEV consolidated financial information has been prepared on the European Embedded Value (EEV) basis.

What a review of interim financial statements involves

We conducted our review in accordance with International Standard on Review Engagements (UK and Ireland) 2410, 'Review of Interim Financial Information Performed by the Independent Auditor of the Entity' issued by the Auditing Practices Board for use in the United Kingdom. A review of interim financial information consists of making enquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures.

A review is substantially less in scope than an audit conducted in accordance with International Standards on Auditing (UK and Ireland) and,consequently, does notenable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion.

We have read the other information contained in the half year resultsand considered whether it contains any apparent misstatements or material inconsistencies with the information in the interim financial statements.

Responsibilities for interim financial statements and the review

Our responsibilities and those of the directors

The half year results, including the interim financial statements, is the responsibility of, and has been approved by, the Directors. The Directors are responsible for preparing the half year results in accordance with the Disclosure and Transparency Rules of the United Kingdom's Financial Conduct Authority and, in respect of the EEV consolidated financial information in accordance with the EEV basis set out in Note 4.1.

Our responsibility is to express to the Company a conclusion on the interim financial statements in the half year results based on our review. This report, including the conclusion, has been prepared for and only for the Company for the purposes of, in relation to the IFRS condensed consolidated interim financial information, complying with the Disclosure and Transparency Rules of the Financial Conduct Authority and, in relation to the EEV consolidated financial information, as set out in our engagement letter dated 31 July 2014 and for no other purposes. We do not, in giving this conclusion, accept or assume responsibility for any other purpose or to any other person to whom this report is shown or into whose hands it may come save where expressly agreed by our prior consent in writing.

PricewaterhouseCoopers LLP

Chartered Accountants

Edinburgh

5 August 2014

(a)   The maintenance and integrity of the Standard Life plc website is the responsibility of the Directors; the work carried out by the auditors does not involve consideration of these matters and, accordingly, the auditors accept no responsibility for any changes that may have occurred to the financial statements since they were initially presented on the website.

(b)   Legislation in the United Kingdom governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions.

 

END

 

 

IR EAEPLEELLEAF