Trading Statement

RNS Number : 3518M

Standard Life plc

28 January 2009

 



Standard Life plc

New business results - twelve months to 31 December 2008

28 January 2009

Net flows resilient in the face of difficult market conditions 

• Worldwide life and pensions net inflows of £2.4bn1 (2007: £2.8bn)

• Worldwide third party net investment inflows, excluding money market funds, of £3.8bn (2007: £5.3bn)

New business sales supported by international performance

• Worldwide life and pensions sales 6% lower at £15.6bn (2007: £16.5bn)2

• UK life and pensions sales 9% lower at £12.2bn (2007: £13.4bn)2

• Canadian life and pensions sales 9%3 higher at £2.0bn (2007: £1.7bn)2 

• 17%3,4 increase in Asian sales volumes to £495m (2007: £266m)2

Preliminary results expected to show strong RoEV and solid cash generation

• Return on Embedded Value (RoEV)5 expected to be ahead of current market expectations6 and broadly similar to the 11.5% reported in 2007

• IFRS profitability expected to be lower due to significant volatility in investment markets

• Core capital and cash generation7 expected to remain robust 

Capital strength maintained

• Estimated FGD surplus of £3.5bn at 31 December 2008 has remained largely insensitive to volatile markets 
  (30 September 2008: £3.4bn)

Group Chief Executive Sir Sandy Crombie said: 

'I am pleased to report another solid set of new business results from Standard Life against an increasingly difficult economic backdrop. 

'We face challenging market conditions with a strong capital base, innovative and capital lite platform propositions, excellence in customer service, and strong distribution relationships. We remain confident in our ability to outperform in the profitable segments in which we operate.'

Unless otherwise stated, all sales figures are on a PVNBP basis and all comparisons are in sterling and with the twelve months ending 31 December 2007.  All figures are subject to audit.

Net flows resilient in the face of difficult market conditions 

Total net flows across our Worldwide life and pensions operations1 were £2.4bn (2007: £2.8bn), with the strong growth in our international operations partly offsetting the impact of continued difficult market conditions in the UK.

UK life and pensions net flows were £1.5bn (2007: £2.2bn), with lower inflows into institutional and insured pension products, and onshore bonds more than offsetting the strength of inflows into non-insured pension products and offshore bonds. During the year, net Pensions flows excluding volatile Institutional TIP flows amounted to £1.5bn (2007: £1.7bn), reflecting reduced transfer values.  In Savings and investments there was a net outflow of £663m (2007: net outflow of £502m) due to lower Investment bond sales that were affected by market uncertainty and CGT changes introduced early in the year. Against this, we have seen continued strong growth in Offshore bond net inflows.  Claims levels remain broadly in line with assumptions.

In Europe, net flows were 13% higher at £620m (2007: £548m), the strength of German gross inflows offsetting the impact of the weakness in Irish markets during the first three quarters. Canadian net inflows of £340m (2007: £39m) have increased significantly over the prior year level, reflecting higher inflows across Group savings and retirement products, which exceeded scheduled annuity payments, as well as strong retention in our individual product lines.

At Standard Life Investments flows have remained resilient during the period despite the economic uncertainty, with worldwide third party investment net inflows of £2.5bn (2007: £6.4bn). Excluding the more volatile flows in respect of our money market funds, inflows were £3.8bn (2007: £5.3bn).  This represents 15% of opening third party investment assets (excluding money market funds), a significant increase during a period of great volatility.  

New business sales supported by strong international performance

UK Financial Services

UK life and pensions sales of £12.2bn were 9% lower, with a 11% decrease in pension sales against a strong prior year comparator. During the fourth quarter, life and pensions sales were 25% lower at £2.4bn (2007: £3.2bn)2, principally due to lower transfer values.  Consistent with our strategy to manage our mortgage exposure, gross mortgage lending decreased by 70% to £1.1bn (2007: £3.7bn). Healthcare sales increased by 14% on an APE basis to £25m (2007: £22m).

Individual SIPP funds under administration increased by 13% to £8.7bn8 (31 December 2007: £7.7bn), as the impact of net inflows of £2.5bn (2007: £3.4bn) was partly offset by a market-driven reduction in underlying asset values. During the year SIPP customer numbers increased by 41% to 65,900 (31 December 2007: 46,900) with average case sizes across our SIPP portfolio of £131,000 at the end of December (31 December 2007: £164,000).  During the fourth quarter, SIPP customer numbers increased by 4,900 which compares favourably with the third quarter increase of 3,500.  Individual SIPP sales of £3.8bn were 17% lower, largely due to the impact of market movements on average incoming transfer values, which continue to represent the majority of total SIPP sales.  

Group pensions sales decreased by 5% to £2.8bn, principally reflecting lower asset values and increment levels.  Group SIPP volumes increased by 21% and accounted for 31% of total Group pensions sales (2007: 27%). At 31 December 2008, UK Group pensions funds under management were £13.8bn (31 December 2007: £15.0bn), the impact of stronger net inflows being more than offset by negative market movements.  While market conditions remain challenging, the quality and flexibility of our Corporate Pensions proposition, combined with the financial strength of the Group, continue to act as key differentiators and enable us to win new business in our chosen markets. Recent notable wins include a large Group SIPP scheme with 20,000 members, which we secured in December and expect to transition in April of this year.  

Savings and investments sales decreased by 4% to £2.7bn, with fourth quarter sales 20% lower due to the continued turbulent market environment. The continued popularity of our International portfolio bond, which benefited from increased Irish governmental guarantees on cash deposits, helped Offshore bond sales increase by 133% to £661m. Sales of Mutual funds sold on our Wrap, Sigma and Fundzone platforms increased by 8% to £731m. Sales of Investment bonds were 29% lower at £1.3bn. This reflects the changes in CGT rules introduced earlier in the year as well as ongoing market uncertainty, the latter of which led to the 67% fall in sales noted in the fourth quarter.

At 31 December 2008, funds under administration on Standard Life's Wrap platform had increased by 64% to £1.8bn 
(31 December 2007: £1.1bn). At the end of the quarter there were 409 IFA firms using the platform (31 December 2007: 209 firms) and 16,900 customers (31 December 2007: 8,100 customers) with an average fund size of £107,000 
(31 December 2007: £133,000).  

At 31 December 2008, mortgages under management stood at £9.7bn (31 December 2007: £11.3bn), with an arrears rate of 0.40%, which is less than a quarter of the Council of Mortgage Lenders industry average of 1.63% reported at 30 September 2008.

Savings balances in our banking operations have increased to £5.0bn (31 December 2007: £4.6bn). This total includes combined SIPP and Wrap balances of £1.5bn (31 December 2007: £0.6bn).

Europe

Life and pensions sales in Europe were 27%3 lower, with the fourth quarter trend broadly similar. In Ireland, sales of £417m were 21%3 lower, driven by decreasing property prices and a weak domestic stock market.  During the fourth quarter Irish sales increased by 61%3 to £189m, due to competitive terms offered on our pension contracts, our comprehensive deposit account offering and increased demand for our innovative post retirement products.  Sales in Germany of £580m for the twelve month period were 31%3 lower than the prior year, with weak market sentiment exacerbating the impact of changes in insurance contract regulations introduced at the beginning of the year and the recent introduction of transparency rules.

Canada

Canadian sales have grown in 2008 following the successful repositioning of the business. Canadian new business increased by 9%3 to £2.0bn despite the adverse impact of the recent financial crisis on retail sales, which has been reflected in the lower sales reported in the fourth quarter. Sales of Group savings and retirement products benefited from a number of mid-size mandates throughout the year and a large defined benefit administration mandate secured in the second quarter.  A large mandate secured during the fourth quarter of 2007 has distorted quarterly sales trends. Excluding this mandate, Group savings and retirement sales in the fourth quarter were 17% higher than the prior year. A 30%3 increase in Group insurance sales reflects our continued success in the disability insurance segment.

Asia Pacific

We have continued to see growth within our Indian and Chinese joint ventures and our Hong Kong operation. Combined sales across these operations increased by 17%3,4 on a PVNBP basis to £495m and by 49%3,4 on an APE basis to £118m despite volatile market conditions.  

In India, sales increased by 4%3,4 on a PVNBP basis and by 40%3,4 on an APE basis.  Standard Life's share of these sales was £345m (2007: £187m)2.  This growth was achieved despite the weaker economic conditions, which have recently started to influence activity across the Indian insurance sector.

In China, sales volumes increased by 69%3 on a PVNBP and 82%3 on an APE basis, reflecting strong growth in group products and in bank distribution and continued business expansion in major cities within existing provinces. Standard Life's share of these sales was £109m (2007: £55m)2.  

New business sales in Hong Kong were £41m (2007: £24m)2, representing an increase of 56%3 on a PVNBP basis and 154%3 on an APE basis.  

Standard Life Investments

At Standard Life Investments institutional business wins were strong, dominated by fixed income and Global Absolute Return Strategy (GARS) mandates, which accounted for nearly three quarters of gross institutional investment inflows.  This change in business mix, away from equities and retail sales into GARS and fixed income, contributed significantly to institutional sales and reflects Standard Life Investments' strength of offering in these areas.  While retail sales were affected by the industry downturn, net sales were positive over the year.  

Third party funds under management have held up well in the face of weak markets, decreasing by 5% to £45.5bn 
(31 December 2007: £47.7bn) during the twelve month period in which the FTSE All Share Index fell by 33%. Total funds under management decreased by 14% to £123.8bn (31 December 2007: £143.4bn). Excluding the impact of the UK annuity reinsurance transaction, which reduced funds under management by £6.7bn, total funds under management reduced by 9%. 

Despite a dip in short term UK equity performance due to market volatility the money weighted average investment performance over 3, 5, and 10 year periods continues to be above median. The strength of our investment process across a range of OEICs and unit trusts is demonstrated by the fact that 19 out of 25 eligible and actively managed funds were rated 'A' or above by Standard & Poor's, including the complete range of eligible fixed income OEIC funds.

The pipeline for institutional new business is strong and significantly higher than at the end of September 2008. Looking ahead, we are confident that we will continue to win institutional mandates with an increasing demand for Global Absolute Return Strategy and fixed income products.  

Preliminary results expected to show strong RoEV and solid cash generation

Standard Life is due to report its preliminary results for the year ending 31 December 2008 on 12 March 2009.  

At that time we expect to report a total RoEV5 that is ahead of current market expectations6 and broadly similar to the 11.5% reported in 2007. Within this, we expect new business contribution and Core RoEV to be lower than reported in 2007, reflecting the reduction in overall sales volumes and changes to business mix. Total RoEV is expected to benefit from resilient performances from our non-life business units, efficiency gains from our continuous improvement programme, and value created from active management of our back book.

As expected, the significant weakness and volatility in investment markets in 2008 will reduce our IFRS profitability, due principally to lower asset values. 

Our core capital and cash generation7 is expected to remain robust, maintaining strong coverage of new business strain.

Capital strength maintained

The Financial Groups Directive (FGD) surplus has remained largely insensitive to volatile markets and at 31 December 2008 was estimated to be £3.5bn, broadly unchanged from £3.4bn as at 30 September 2008.  The insensitivity of the FGD surplus reflects the structure of the Group post Demutualisation as well as the extensive hedging strategy in place.

As reported in previous quarters, we have put in place a number of measures to manage our mortgage exposure during the ongoing period of difficult credit market conditions. These led to net outflows of £1.6bn from our mortgage business. Our banking operation remains well capitalised with a very high quality mortgage book, has access to a diverse range of funding sources with no securitisation maturities until 2011, and has actively reduced its funding requirements during the year.  

Standard Life group outlook

Conditions across all our markets will remain challenging during 2009 with the combination of weakening economic conditions and an unprecedented level of dislocation in financial markets. 

Against this backdrop, our strong capital base, innovative and capital lite platform propositions, excellence in customer service, and strong distribution relationships give us confidence in our ability to outperform in the profitable segments in which we operate.

For the full Press Release, including detailed financial tables, please click here:

http://www.rns-pdf.londonstockexchange.com/rns/3518M_-2009-1-27.pdf

For further information please contact:
Institutional Equity Investors:
Gordon Aitken	0131 245 6799
Duncan Heath	0131 245 4742
Paul De'Ath	0131 245 9893
Retail Equity Investors:
Computershare	0845 113 0045
Media:
Barry Cameron	0131 245 6165 / 07712 486 463
Nicola McGowan	0131 245 4016 / 07782 191341
Neil Bennett (Maitland)	020 7379 5151 / 07900 000 777
Debt Investors:
Andy Townsend	0131 245 7260
Alan Coutts	0131 245 0201

  Notes to Editors

1	Worldwide life and pensions net inflows do not include net inflows in respect of our Asia Pacific joint ventures and our Hong Kong subsidiary.
2	Present value of New Business Premiums (PVNBP) is calculated as 100% of single premiums plus the expected present value of new regular premiums. The 2008 PVNBP figures are shown prior to any year end changes to non-economic assumptions. The 2008 preliminary results to be reported on 12 March will include the impact of any such assumption changes.  The comparative 2007 PVNBP figures include 2007 year end changes to non-economic assumptions and are as reported in the 2007 preliminary results.  This is different to the New business press release issued on 30 January 2008 for the 12 months to 31 December 2007 where PVNBP figures were shown prior to year end changes to non-economic assumptions. The effect of changes to year end non-economic assumptions was an increase in total PVNBP of £111m in the final PVNBP results published in the 2007 preliminary results.
3	Comparisons for our International businesses are given on a constant currency basis.
4	The growth percentages quoted for India, Asia Pacific life and pensions and Total worldwide life and pensions reflect the growth in sales in HDFC Standard Life Insurance Limited, rather than the growth in Standard Life's share of the joint venture. Sales quoted reflect Standard Life's share of the joint venture.
5	RoEV is defined as post tax operating profit on an EEV basis, comprising core, efficiency and back book items, expressed as a percentage of the opening embedded value, adjusted for dividends paid to equity holders.
6	The current market expectation for 2008 RoEV has been calculated as 10.1% using Reuters' 'EPS pre exceptionals' mean consensus for Standard Life of 27.7p as at 23 January 2009.
7	Core capital and cash generation is defined as the movement in net worth arising from new business, from the expected return on existing business, and from core development expenses, along with the operating profits from non-covered business. Core development expenses are defined as those which relate to covered business, excluding those directly related to back book management initiatives.

8	Analysis of Individual SIPP funds under administration.
	31 Dec 2008 31 Dec 2007 Change £m £m £m % Insured Standard Life funds 2,559 2,752 (193) (7) Insured external funds 1,268 1,671 (403) (24) Collectives - Standard Life Investments 864 834 30 4 Collectives - Funds Network 656 603 53 9 Cash 869 484 385 80 Non collectives 2,443 1,332 1,111 83 Total 8,659 7,676 983 13 Insured 3,827 4,423 (596) (13) Non-insured 4,832 3,253 1,579 49 Total 8,659 7,676 983 13 Of the £8.7bn funds under administration at 31 December 2008, £0.8bn relate to funds on the Wrap platform.
9	There will be a conference call today for newswires and online publications at 8.00am hosted by David Nish, Group Finance Director, Keith Skeoch, Chief Executive of Standard Life Investments, and Paul Matthews, Managing Director of Distribution for UK Financial Services. Dial in telephone number [phone]. Callers should quote Standard Life Media Call.
10	There will be a conference call today for investors and analysts at 9.30am hosted by David Nish, Group Finance Director, Keith Skeoch, Chief Executive of Standard Life Investments, and Paul Matthews, Managing Director of Distribution for UK Financial Services. Dial in telephone number [phone]. Callers should quote Standard Life Analysts & Investors Call. The conference ID number is 823447. A recording of this call will be available for replay for one week by dialing [phone] (access code 823447).

 

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