Half Year Results - 3 of 4
Standard Life plc
Half Year Results 2010
11 August 2010
Part 3 of 4
4 European Embedded Value (EEV)
EEV consolidated income statement
For the six months ended 30 June 2010
|
|
|
6 months 2010 |
Restated1 6 months 2009 |
Restated1 Full year 2009 |
|
|
Notes |
£m |
£m |
£m |
|
Covered business |
|
|
|
|
|
UK |
|
208 |
178 |
506 |
|
Canada |
|
123 |
89 |
192 |
|
International |
|
48 |
(10) |
29 |
|
HWPF TVOG |
|
(3) |
89 |
143 |
|
Covered business operating profit |
4.2(a) |
376 |
346 |
870 |
|
|
|
|
|
|
|
Global investment management2 |
4.6(b) |
21 |
10 |
42 |
|
UK |
|
(15) |
(11) |
(18) |
|
Group corporate centre costs |
|
(30) |
(25) |
(50) |
|
Other |
4.6(c) |
12 |
8 |
- |
|
Non-covered business operating loss |
|
(12) |
(18) |
(26) |
|
Operating profit before tax from continuing operations |
|
364 |
328 |
844 |
|
|
|
|
|
|
|
Non-operating items |
|
|
|
|
|
Long-term investment return and tax variances |
|
314 |
(477) |
70 |
|
Effect of economic assumption changes |
|
(197) |
33 |
(539) |
|
Restructuring and corporate transaction expenses3 |
|
(17) |
(28) |
(52) |
|
Other non-operating items |
|
(1) |
(6) |
(9) |
|
Consolidation adjustment for different accounting bases4 |
|
29 |
61 |
67 |
|
Profit/(loss) before tax from continuing operations |
|
492 |
(89) |
381 |
|
Tax attributable to: |
|
|
|
|
|
Operating profit |
|
(112) |
(101) |
(247) |
|
Non-operating items |
|
(37) |
110 |
122 |
|
Profit/(loss) after tax from continuing operations |
|
343 |
(80) |
256 |
|
(Loss)/profit after tax from discontinued operations |
|
(17) |
32 |
49 |
|
Total profit/(loss) after tax |
|
326 |
(48) |
305 |
1 The Group's banking business, Standard Life Bank plc, was sold on 1 January 2010. On 11 May 2010, the Group entered into an agreement to sell its healthcare business, Standard Life Healthcare Limited. Both businesses have been classified as discontinued operations. The presentation of the comparatives for the six months ended 30 June 2009 and the 12 months ended 31 December 2009 have been reclassified accordingly. Refer to Note 4.1 - Basis of preparation.
2 Global investment management operating profit before tax is stated after excluding profits of £28m (six months ended 30 June 2009: £17m; 12 months ended 31 December 2009: £33m) which have been generated by life and pensions business.
3 Refer to IFRS financial information Note 3.3 - Administrative expenses.
4 This adjustment reflects the removal of accounting differences for the Canada subordinated liability as explained in Note 4.16 - EEV methodology.
EEV earnings per share (EPS)
For the six months ended 30 June 2010
|
|
6 months 2010 |
Restated1 6 months 2009 |
Restated1 Full year 2009 |
|
EEV operating profit after tax from continuing operations (£m)2 |
252 |
227 |
597 |
|
|
|
|
|
|
Basic EPS (pence) from continuing operations |
11.3 |
10.4 |
27.1 |
|
Weighted average number of ordinary shares in issue (millions) |
2,230 |
2,184 |
2,201 |
|
|
|
|
|
|
Diluted EPS (pence) from continuing operations |
11.3 |
10.4 |
27.1 |
|
Weighted average number of ordinary shares on a diluted basis (millions) |
2,235 |
2,185 |
2,203 |
1 The Group's banking business, Standard Life Bank plc, was sold on 1 January 2010. On 11 May 2010, the Group entered into an agreement to sell its healthcare business, Standard Life Healthcare Limited. Both businesses have been classified as discontinued operations. The presentation of the comparatives for the six months ended 30 June 2009 and the 12 months ended 31 December 2009 have been reclassified accordingly. Refer to Note 4.1 - Basis of preparation.
2 EEV operating profit before tax from continuing operations of £364m (six months ended 30 June 2009: £328m; 12 months ended 31 December 2009: £844m) less attributed tax on operating profit from continuing operations of £112m (six months ended 30 June 2009: £101m; 12 months ended 31 December 2009: £247m).
EEV consolidated statement of comprehensive income
For the six months ended 30 June 2010
|
|
|
6 months 2010 |
Restated1 6 months 2009 |
Restated1 Full year 2009 |
|
|
Notes |
£m |
£m |
£m |
|
Profit/(loss) after tax |
|
326 |
(48) |
305 |
|
Less: (Loss)/profit after tax from discontinued operations |
|
(17) |
32 |
49 |
|
Profit/(loss) from continuing operations |
|
343 |
(80) |
256 |
|
Fair value gains on cash flow hedges2 |
|
- |
- |
1 |
|
Actuarial gains/(losses) on defined benefit pension schemes2 |
|
122 |
(80) |
(77) |
|
Exchange differences on translating foreign operations3 |
|
97 |
(174) |
26 |
|
Net investment hedge2 |
|
(16) |
15 |
(12) |
|
Aggregate tax effect of items not recognised in income statement |
|
(40) |
26 |
27 |
|
Other |
|
5 |
(14) |
13 |
|
Other comprehensive income/(expense) for the period |
|
168 |
(227) |
(22) |
|
Total comprehensive income/(expense) for the period attributable to equity holders from continuing operations |
|
511 |
(307) |
234 |
|
|
|
|
|
|
|
(Loss)/profit after tax from discontinued operations |
|
(17) |
32 |
49 |
|
Other comprehensive income from discontinued operations4 |
|
24 |
3 |
8 |
|
Total comprehensive income for the period attributable to equity holders from discontinued operations |
|
7 |
35 |
57 |
|
|
|
|
|
|
|
Total comprehensive income/(expense) for the period attributable to equity holders |
4.7 |
518 |
(272) |
291 |
1 The Group's banking business, Standard Life Bank plc, was sold on 1 January 2010. On 11 May 2010, the Group entered into an agreement to sell its healthcare business, Standard Life Healthcare Limited. Both businesses have been classified as discontinued operations. The presentation of the comparatives for the six months ended 30 June 2009 and the 12 months ended 31 December 2009 have been reclassified accordingly. Refer to Note 4.1 - Basis of preparation.
2 Consistent with the IFRS consolidated statement of comprehensive income for the six months ended 30 June 2010.
3 Exchange differences primarily relate to Canada £101m and International (£19m).
4 Refer to IFRS financial information Note 3.7 - Discontinued operations.
EEV consolidated statement of financial position
As at 30 June 2010
|
|
|
30 June 2010 |
30 June 2009 |
31 December 2009 |
|
|
Notes |
£m |
£m |
£m |
|
Covered business |
|
|
|
|
|
Free surplus |
|
1,226 |
1,020 |
925 |
|
Required capital |
|
1,012 |
806 |
956 |
|
Net worth |
|
2,238 |
1,826 |
1,881 |
|
|
|
|
|
|
|
Present value of in-force |
|
3,871 |
3,187 |
3,775 |
|
Cost of required capital |
|
(435) |
(324) |
(391) |
|
Total embedded value of covered business |
4.2(c) |
5,674 |
4,689 |
5,265 |
|
|
|
|
|
|
|
Non-covered business |
|
|
|
|
|
Global investment management |
|
214 |
156 |
195 |
|
UK |
|
172 |
(23) |
(19) |
|
Group corporate centre |
|
376 |
438 |
389 |
|
Other |
|
229 |
260 |
255 |
|
Discontinued operations |
|
105 |
337 |
343 |
|
Total net assets of non-covered business |
4.6(a) |
1,096 |
1,168 |
1,163 |
|
|
|
|
|
|
|
Consolidation adjustment for different accounting bases1 |
|
29 |
2 |
7 |
|
|
|
|
|
|
|
Total Group embedded value |
4.7 |
6,799 |
5,859 |
6,435 |
|
|
|
|
|
|
|
Equity |
|
|
|
|
|
Share capital |
|
226 |
221 |
224 |
|
Shares held by trusts |
|
(18) |
- |
- |
|
Share premium reserve |
|
932 |
847 |
888 |
|
Retained earnings on an IFRS basis |
|
807 |
537 |
685 |
|
Other reserves |
|
1,695 |
1,501 |
1,660 |
|
Additional retained earnings on an EEV basis |
|
3,157 |
2,753 |
2,978 |
|
Total equity2 |
|
6,799 |
5,859 |
6,435 |
1 This adjustment reflects the removal of accounting differences for the Canada subordinated liability as explained in Note 4.16 - EEV methodology.
2 Embedded value equity per share is 302p as at 30 June 2010 compared to 265p as at 30 June 2009 and 288p as at 31 December 2009, based on diluted share totals of 2,253m as at 30 June 2010 and 2,212m as at 30 June 2009 and 2,237m as at 31 December 2009.
The presentation of the 2009 comparatives reflects the reclassification of Standard Life Bank and Standard Life Healthcare as discontinued operations.
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. EEV reports the value of business in-force based on a set of best estimate assumptions, allowing for the impact of uncertainty inherent in future assumptions, the cost of holding required capital and the value of free surplus. The total profit recognised over the lifetime of a policy is the same as under International Financial Reporting Standards (IFRS), but the timing of recognition of profits is different.
EEV includes the net assets of the businesses that are owned by equity holders of Standard Life plc plus the present value of future profits expected to arise from in-force long-term insurance policies (PVIF) where these future profits are attributable to equity holders under the Scheme of Demutualisation (the Scheme) or from sales of new business since 10 July 2006.
The opening and closing EEV numbers, and therefore the profit arising in the period, for the covered business are determined on an after-tax basis. The tax assumptions are based upon the best estimate of the actual tax expected to arise. Profit before tax is derived by grossing up profit after tax at the long-term rate of corporation tax appropriate to each territory. While for some territories this rate does not equate to the actual effective rate of tax used in the calculation of after-tax profits, it provides a consistent grossing up basis upon which to compare results from one year to another and is in line with the Group's expectation of the rate of tax applicable to business sold after demutualisation.
A detailed description of EEV methodology is provided in Note 4.16. There have been no significant changes to EEV methodology from that adopted in the previous reporting period, except as noted below.
Covered business
A detailed description of EEV covered business is provided in Note 4.16 - EEV methodology.
The inclusion of the Asia businesses on an EEV basis was reflected for the first time in the EEV results for the 12 months to 31 December 2009 with an opening adjustment of £33m, which captured the PVIF and cost of capital as at 1 January 2009 and removed any intangibles.
Prior to the 12 months to 31 December 2009, the Asia businesses were included on an IFRS basis. This business was previously immaterial in the context of both the Group embedded value and the Group EEV operating profit, and therefore the Group was not required to report Asia on an EEV basis. The results for the six months to 30 June 2009 have not been restated.
Non-covered business
Following the Group's decision to replace IFRS underlying profit with IFRS operating profit as the chosen supplementary measure of IFRS performance, non-covered business EEV operating profit is represented by IFRS operating profit. See Note 3.1(a) - Accounting policies - Basis of preparation of the IFRS financial information for more detail.
Prior to this change, EEV operating profit for non-covered business was defined as IFRS normalised underlying profit. Comparatives for the 12 months to 31 December 2009 and the six months to 30 June 2009 have not been restated to reflect the inclusion of non-covered business on an IFRS operating profit basis, on the basis that a restatement would be immaterial in the context of the Group EEV operating profit for these periods.
Segmentation
Under the EEV Principles and Guidance we are required to provide business classifications which are consistent with those used for the primary statements. In the IFRS financial statements the Group's reportable segments have been identified in accordance with the way in which the Group is structured and managed, as required under IFRS 8. The EEV segmentation has been prepared in a consistent manner, whilst also distinguishing between covered and non-covered business. The Heritage With Profits Fund time value of options and guarantees (HWPF TVOG) is disclosed separately in EEV, as explained in Note 4.2(a) - Segmental analysis - covered business - Segmental EEV income statement.
Within the IFRS segmental analysis, UK operations primarily comprise life and pensions, UK non-covered mutual funds business and the non-covered UK pension scheme. UK operations previously also included the Group's banking business, Standard Life Bank plc, which was sold on 1 January 2010, and the Group's healthcare business, Standard Life Healthcare Limited. On 11 May 2010, the Group entered into an agreement to sell its healthcare business. See Note 3.16 - Events after the reporting period of the IFRS financial information. The banking and healthcare businesses have been classified as discontinued operations. UK non-covered business is shown within Note 4.6 - Non-covered business.
The EEV consolidated income statement presents EEV operating profit for continuing operations only and therefore excludes the results for the discontinued operations. The presentation of the comparatives has been restated accordingly. Prior to the exclusion of EEV operating profit from discontinued operations, total Group EEV operating profit before tax would have been £348m for the six months ended 30 June 2009, and £919m for the 12 months ended 31 December 2009.
Included within the International reporting segment are the Group's operations in Ireland and Germany, which were previously included in the 'Europe' segment. Also included are the Group's business in Hong Kong and the Group's joint venture businesses in India and China, which were previously included in the 'Asia' segment. This change in composition of reportable segments corresponds to changes made during the reporting period to the way in which the Group is managed and is consistent with the reportable segments in the IFRS financial information. The comparative information for the six months ended 30 June 2009 and the 12 months ended 31 December 2009 has been restated for the changes to the segmental reporting. The International results for the six months to 30 June 2009 have not been restated to include the Asia businesses on an EEV basis.
Impact of UK Budget Changes announced on 22 June 2010
As a result of the June Budget, legislation has been enacted that will:
a) Reduce the Corporation Tax Rate from 28% to 27% effective from 1 April 2011, and
b) Increase the rate of Value Added Tax (VAT) from 17.5% to 20% effective from 4 January 2011
These changes have been included within our best estimate assumptions for UK Corporation Tax and VAT as at 30 June 2010.
In the Budget statement, the government also announced an intention to make further reductions in Corporation Tax of 1% in 2012, 2013 and 2014. However, these reductions are subject to legislation in future years and have not been included within the best estimate assumptions at 30 June 2010.
Continuous Improvement Programme (CIP)
Included within total restructuring and corporate transaction expenses of £17m from continuing operations (six months to 30 June 2009: £28m; 12 months to 31 December 2009: £52m) is £11m (six months to 30 June 2009: £24m; 12 months to 31 December 2009: £43m) of costs attributable to the Group's Continuous Improvement Programme.
4.2 Segmental analysis - covered business
(a) Segmental EEV income statement
This note provides an analysis of EEV covered business as defined in Note 4.16 - EEV methodology.
|
|
|
UK |
Canada |
International |
HWPF TVOG |
Total |
|
6 months to 30 June 2010 |
Notes |
£m |
£m |
£m |
£m |
£m |
|
Contribution from new business |
4.3 |
103 |
31 |
27 |
- |
161 |
|
Contribution from in-force business: |
|
|
|
|
|
|
|
Expected return on existing business |
|
121 |
73 |
22 |
- |
216 |
|
Experience variances |
4.4 |
17 |
15 |
5 |
(3) |
34 |
|
Operating assumption changes |
4.5 |
- |
- |
1 |
- |
1 |
|
Development expenses |
|
(18) |
(4) |
(10) |
- |
(32) |
|
Expected return on free surplus |
|
(15) |
8 |
3 |
- |
(4) |
|
Operating profit/(loss) before tax |
|
208 |
123 |
48 |
(3) |
376 |
|
|
|
|
|
|
|
|
|
Investment return and tax variances |
|
258 |
8 |
3 |
45 |
314 |
|
Effect of economic assumption changes |
|
(101) |
(32) |
12 |
(76) |
(197) |
|
Restructuring costs |
|
(8) |
- |
(4) |
- |
(12) |
|
Profit/(loss) before tax |
|
357 |
99 |
59 |
(34) |
481 |
|
|
|
|
|
|
|
|
|
Attributed tax |
|
(101) |
(26) |
(13) |
10 |
(130) |
|
|
|
|
|
|
|
|
|
Profit/(loss) after tax |
|
256 |
73 |
46 |
(24) |
351 |
|
|
|
UK |
Canada |
International |
HWPF TVOG |
Total |
|
6 months to 30 June 2009 |
Notes |
£m |
£m |
£m |
£m |
£m |
|
Contribution from new business |
4.3 |
92 |
18 |
4 |
- |
114 |
|
Contribution from in-force business: |
|
|
|
|
|
|
|
Expected return on existing business |
|
105 |
67 |
17 |
- |
189 |
|
Experience variances |
4.4 |
4 |
4 |
(4) |
89 |
93 |
|
Operating assumption changes |
4.5 |
- |
- |
- |
- |
- |
|
Development expenses |
|
(10) |
(1) |
(4) |
- |
(15) |
|
Expected return on free surplus |
|
(13) |
1 |
(23) |
- |
(35) |
|
Operating profit/(loss) before tax |
|
178 |
89 |
(10) |
89 |
346 |
|
|
|
|
|
|
|
|
|
Investment return and tax variances |
|
(298) |
(53) |
(1) |
(125) |
(477) |
|
Effect of economic assumption changes |
|
96 |
(269) |
5 |
201 |
33 |
|
Restructuring costs |
|
(21) |
- |
(4) |
- |
(25) |
|
(Loss)/profit before tax |
|
(45) |
(233) |
(10) |
165 |
(123) |
|
|
|
|
|
|
|
|
|
Attributed tax |
|
12 |
63 |
(5) |
(46) |
24 |
|
|
|
|
|
|
|
|
|
(Loss)/profit after tax |
|
(33) |
(170) |
(15) |
119 |
(99) |
|
|
|
UK |
Canada |
International |
HWPF TVOG |
Total |
|
12 months to 31 December 2009 |
Notes |
£m |
£m |
£m |
£m |
£m |
|
Contribution from new business |
4.3 |
139 |
46 |
28 |
- |
213 |
|
Contribution from in-force business: |
|
|
|
|
|
|
|
Expected return on existing business |
|
204 |
132 |
39 |
- |
375 |
|
Experience variances |
4.4 |
148 |
4 |
(18) |
143 |
277 |
|
Operating assumption changes |
4.5 |
60 |
11 |
(3) |
- |
68 |
|
Development expenses |
|
(18) |
(6) |
(23) |
- |
(47) |
|
Expected return on free surplus |
|
(27) |
5 |
6 |
- |
(16) |
|
Operating profit before tax |
|
506 |
192 |
29 |
143 |
870 |
|
|
|
|
|
|
|
|
|
Investment return and tax variances |
|
(8) |
(31) |
47 |
62 |
70 |
|
Effect of economic assumption changes |
|
(243) |
(292) |
(13) |
9 |
(539) |
|
Restructuring costs |
|
(34) |
(1) |
(8) |
- |
(43) |
|
Profit/(loss) before tax |
|
221 |
(132) |
55 |
214 |
358 |
|
|
|
|
|
|
|
|
|
Attributed tax |
|
(62) |
34 |
(15) |
(60) |
(103) |
|
|
|
|
|
|
|
|
|
Profit/(loss) after tax |
|
159 |
(98) |
40 |
154 |
255 |
An analysis of profit after tax by territory is provided in Note 4.9 - Analysis of covered business EEV PVIF and net worth movements (net of tax).
Operating profit before tax for covered business is calculated using the expected long-term investment return which is based on opening economic assumptions. Investment variances, the effect of economic assumption changes and other non-operating items are excluded from the operating profit for the period and are reported as part of the total EEV profit.
The results for the 12 months to 31 December 2009 include the Asia businesses on an EEV basis for the first time. The Asia businesses are included within the International segment along with the Europe operations. The Asia businesses results for the six months to 30 June 2009 have not been restated and include a loss of £25m, within the expected return on free surplus, on an IFRS basis. Refer to Note 4.1 - Basis of preparation.
HWPF TVOG represents the time value of financial options and guarantees (TVOG) arising from the Heritage With Profits Fund (HWPF). Although the HWPF includes business written by the UK, Germany and Ireland, the Group manages the risk at an aggregate level. This is consistent with the Group's IFRS financial statements as disclosed in Note 39 - Risk management to the Group's Annual Report and Accounts 2009. The results for Canada and International include the cost of the Canada and Asia TVOG and the cost of TVOG arising on business written outside of the HWPF in Germany.
The increase in the expected return on existing business is primarily due to higher opening PVIF and higher opening risk discount rates.
Development costs of £18m in the UK mainly relate to product development on the corporate pension proposition and implementing legislative changes. The £10m of development costs in International include £4m that reflect the costs of developing the Asia businesses to build future growth, which are in addition to the full allowance for acquisition costs that are included within the new business contribution (NBC).
The (£15m) expected return on free surplus in the UK reflects the relatively low expected returns currently available on cash assets within free surplus, along with a higher expected increase in the value of subordinated debt liabilities relative to the expected return on the assets backing subordinated debt. The increase in the expected return on free surplus within Canada reflects the impact of an asset switch, which resulted in more real estate within free surplus.
Profits within investment return and tax variances in the UK include a £162m profit from differences in movements of subordinated debt liabilities and the assets that are backing the subordinated debt, as well as a £46m profit from the Contract For Differences - refer to Note 4.6(b). The £45m profit from HWPF TVOG reflects the impact of higher than expected returns, which reduced the burnthrough risk.
4.2 Segmental analysis - covered business continued
(a) Segmental EEV income statement continued
Effect of economic assumption changes was a loss of £197m. This included a profit of £258m from changes to risk discount rates (six months to 30 June 2009: loss £134m; 12 months to 31 December 2009: loss £214m), which are explained in Note 4.12(b) - Principal economic assumptions - deterministic calculations - covered business. This was offset by changes in investment return assumptions of (£380m) and a loss of £76m in HWPF TVOG, reflecting higher burnthrough costs from lower projected investment returns and higher volatility assumptions.
HWPF TVOG shows separate movements in investment variances and economic assumptions, whereas in practice, economic assumption changes are highly dependent on the same factors that give rise to investment variances, for example market yields. Therefore, the key consideration is the net effect of the two items rather than the individual items themselves. Further comments on the movement in TVOG are provided in Note 4.4 - Experience variances and Note 4.10 - Time value of options and guarantees (TVOG).
Restructuring expenses primarily represent the covered business costs associated with the CIP as described in Note 4.1 - Basis of preparation.
(b) Segmental analysis of movements in EEV
|
|
UK |
Canada |
International |
HWPF TVOG |
Total |
|
6 months to 30 June 2010 |
£m |
£m |
£m |
£m |
£m |
|
Opening EEV |
3,120 |
1,553 |
658 |
(66) |
5,265 |
|
Opening adjustments |
- |
- |
- |
- |
- |
|
Opening adjusted EEV |
3,120 |
1,553 |
658 |
(66) |
5,265 |
|
|
|
|
|
|
|
|
Profit/(loss) after tax |
256 |
73 |
46 |
(24) |
351 |
|
Internal capital transfers |
(2) |
- |
4 |
- |
2 |
|
Transfer back of surplus to Standard Life Investments |
(17) |
(1) |
(2) |
- |
(20) |
|
Transfer back of mutual funds net worth |
14 |
(2) |
- |
- |
12 |
|
Actuarial losses on defined benefit pension schemes |
- |
(24) |
- |
- |
(24) |
|
Foreign exchange differences |
- |
101 |
(19) |
- |
82 |
|
Aggregate tax effect of items not recognised in income statement |
- |
6 |
- |
- |
6 |
|
Other |
- |
- |
- |
- |
- |
|
Closing EEV |
3,371 |
1,706 |
687 |
(90) |
5,674 |
|
|
UK |
Canada |
International |
HWPF TVOG |
Total |
|
6 months to 30 June 2009 |
£m |
£m |
£m |
£m |
£m |
|
Opening EEV |
3,129 |
1,597 |
626 |
(220) |
5,132 |
|
Opening adjustments |
- |
- |
- |
- |
- |
|
Opening adjusted EEV |
3,129 |
1,597 |
626 |
(220) |
5,132 |
|
|
|
|
|
|
|
|
(Loss)/profit after tax |
(33) |
(170) |
(15) |
119 |
(99) |
|
Internal capital transfers |
(130) |
(2) |
(28) |
- |
(160) |
|
Transfer back of surplus to Standard Life Investments |
(10) |
(2) |
- |
- |
(12) |
|
Transfer back of mutual funds net worth |
10 |
(1) |
- |
- |
9 |
|
Actuarial losses on defined benefit pension schemes |
- |
(19) |
- |
- |
(19) |
|
Foreign exchange differences |
- |
(105) |
(70) |
- |
(175) |
|
Aggregate tax effect of items not recognised in income statement |
- |
6 |
- |
- |
6 |
|
Other |
5 |
- |
2 |
- |
7 |
|
Closing EEV |
2,971 |
1,304 |
515 |
(101) |
4,689 |
|
|
UK |
Canada |
International |
HWPF TVOG |
Total |
|
12 months to 31 December 2009 |
£m |
£m |
£m |
£m |
£m |
|
Opening EEV |
3,129 |
1,597 |
626 |
(220) |
5,132 |
|
Opening adjustments |
- |
- |
33 |
- |
33 |
|
Opening adjusted EEV |
3,129 |
1,597 |
659 |
(220) |
5,165 |
|
|
|
|
|
|
|
|
Profit/(loss) after tax |
159 |
(98) |
40 |
154 |
255 |
|
Internal capital transfers |
(175) |
(2) |
(1) |
- |
(178) |
|
Transfer back of surplus to Standard Life Investments |
(19) |
(3) |
(2) |
- |
(24) |
|
Transfer back of mutual funds net worth |
20 |
(1) |
- |
- |
19 |
|
Actuarial (losses)/gains on defined benefit pension schemes |
- |
(16) |
13 |
- |
(3) |
|
Foreign exchange differences |
- |
71 |
(51) |
- |
20 |
|
Aggregate tax effect of items not recognised in income statement |
- |
5 |
- |
- |
5 |
|
Other |
6 |
- |
- |
- |
6 |
|
Closing EEV |
3,120 |
1,553 |
658 |
(66) |
5,265 |
Internal capital transfers mainly reflect dividend transfers to Standard Life plc.
Opening adjustments in International for the 12 months to 31 December 2009 reflect the inclusion of the Asia businesses on an EEV basis for the first time. This adjustment is explained in more detail in Note 4.1 - Basis of preparation. The results for the six months to 30 June 2009 have not been restated and include Asia on an IFRS basis.
(c) Segmental analysis of opening and closing EEV
|
|
|
UK |
Canada |
International |
HWPF TVOG |
Total |
|
6 months to 30 June 2010 |
|
£m |
£m |
£m |
£m |
£m |
|
Analysis of EEV |
|
|
|
|
|
|
|
Free surplus |
|
673 |
161 |
91 |
- |
925 |
|
PVIF |
|
2,359 |
937 |
545 |
(66) |
3,775 |
|
Required capital |
|
139 |
770 |
47 |
- |
956 |
|
Cost of capital |
|
(51) |
(315) |
(25) |
- |
(391) |
|
Opening adjusted EEV |
|
3,120 |
1,553 |
658 |
(66) |
5,265 |
|
|
|
|
|
|
|
|
|
Analysis of EEV |
|
|
|
|
|
|
|
Free surplus |
|
944 |
199 |
83 |
- |
1,226 |
|
PVIF |
|
2,359 |
1,025 |
577 |
(90) |
3,871 |
|
Required capital |
|
134 |
825 |
53 |
- |
1,012 |
|
Cost of capital |
|
(66) |
(343) |
(26) |
- |
(435) |
|
Closing EEV |
|
3,371 |
1,706 |
687 |
(90) |
5,674 |
4.2 Segmental analysis - covered business continued
(c) Segmental analysis of opening and closing EEV continued
|
|
|
UK |
Canada |
International |
HWPF TVOG |
Total |
|
6 months to 30 June 2009 |
|
£m |
£m |
£m |
£m |
£m |
|
Analysis of EEV |
|
|
|
|
|
|
|
Free surplus |
|
899 |
154 |
182 |
- |
1,235 |
|
PVIF |
|
2,173 |
939 |
453 |
(220) |
3,345 |
|
Required capital |
|
95 |
737 |
12 |
- |
844 |
|
Cost of capital |
|
(38) |
(233) |
(21) |
- |
(292) |
|
Opening adjusted EEV |
|
3,129 |
1,597 |
626 |
(220) |
5,132 |
|
|
|
|
|
|
|
|
|
Analysis of EEV |
|
|
|
|
|
|
|
Free surplus |
|
805 |
98 |
117 |
- |
1,020 |
|
PVIF |
|
2,091 |
792 |
405 |
(101) |
3,187 |
|
Required capital |
|
111 |
682 |
13 |
- |
806 |
|
Cost of capital |
|
(36) |
(268) |
(20) |
- |
(324) |
|
Closing EEV |
|
2,971 |
1,304 |
515 |
(101) |
4,689 |
|
|
|
UK |
Canada |
International |
HWPF TVOG |
Total |
|
12 months to 31 December 2009 |
|
£m |
£m |
£m |
£m |
£m |
|
Analysis of EEV |
|
|
|
|
|
|
|
Free surplus |
|
899 |
154 |
124 |
- |
1,177 |
|
PVIF |
|
2,173 |
939 |
528 |
(220) |
3,420 |
|
Required capital |
|
95 |
737 |
29 |
- |
861 |
|
Cost of capital |
|
(38) |
(233) |
(22) |
- |
(293) |
|
Opening adjusted EEV |
|
3,129 |
1,597 |
659 |
(220) |
5,165 |
|
|
|
|
|
|
|
|
|
Analysis of EEV |
|
|
|
|
|
|
|
Free surplus |
|
673 |
161 |
91 |
- |
925 |
|
PVIF |
|
2,359 |
937 |
545 |
(66) |
3,775 |
|
Required capital |
|
139 |
770 |
47 |
- |
956 |
|
Cost of capital |
|
(51) |
(315) |
(25) |
- |
(391) |
|
Closing EEV |
|
3,120 |
1,553 |
658 |
(66) |
5,265 |
Opening adjusted EEV in International for the 12 months to 31 December 2009 reflects the inclusion of the Asia businesses on an EEV basis for the first time. The opening adjustment is explained in more detail in Note 4.1 - Basis of preparation. The results for the six months to 30 June 2009 have not been restated and include Asia on an IFRS basis.
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 4.16 - EEV methodology.
New business contribution (NBC) and the present value of new business premium (PVNBP) margins are shown after the effect of required capital.
|
|
NBC |
Single premiums |
Annualised regular premiums |
PVNBP |
PVNBP multiplier1 |
PVNBP margin2 |
|
6 months to 30 June 2010 |
£m |
£m |
£m |
£m |
% |
|
|
Individual pensions3 |
14 |
2,006 |
52 |
2,173 |
3.2 |
0.7 |
|
Corporate pensions3 |
24 |
609 |
295 |
1,751 |
3.9 |
1.4 |
|
Institutional pensions |
25 |
1,835 |
3 |
1,842 |
2.3 |
1.4 |
|
Savings and investments |
4 |
845 |
15 |
954 |
7.3 |
0.4 |
|
Annuities |
36 |
209 |
- |
209 |
- |
17.1 |
|
Protection |
- |
- |
- |
1 |
- |
6.0 |
|
UK |
103 |
5,504 |
365 |
6,930 |
3.9 |
1.5 |
|
Canada |
31 |
748 |
66 |
1,581 |
12.6 |
2.0 |
|
Wholly owned |
13 |
547 |
33 |
832 |
8.6 |
1.6 |
|
Joint ventures |
14 |
38 |
62 |
288 |
4.0 |
5.0 |
|
International |
27 |
585 |
95 |
1,120 |
5.6 |
2.5 |
|
Total covered business |
161 |
6,837 |
526 |
9,631 |
5.3 |
1.7 |
1 The PVNBP multiplier is calculated as the total of PVNBP less single premiums, divided by annualised regular premiums.
2 PVNBP margins are calculated as the ratio of the new business contribution to the present value of new business premiums and are based on the underlying unrounded numbers.
3 Individual pensions include Retail Trustee Investment Plan. This was previously included in Corporate pensions. The 2010 impact on PVNBP is £15m.
|
|
NBC |
Single premiums |
Annualised regular premiums |
PVNBP |
PVNBP multiplier1 |
PVNBP margin2 |
|
6 months to 30 June 2009 |
£m |
£m |
£m |
£m |
% |
|
|
Individual pensions3 |
14 |
1,647 |
47 |
1,829 |
3.9 |
0.7 |
|
Corporate pensions3 |
29 |
394 |
287 |
1,517 |
3.9 |
1.9 |
|
Institutional pensions |
7 |
907 |
18 |
944 |
2.1 |
0.8 |
|
Savings and investments |
(4) |
577 |
15 |
696 |
7.9 |
(0.6) |
|
Annuities |
46 |
258 |
- |
258 |
- |
17.8 |
|
Protection |
- |
- |
1 |
2 |
2.0 |
16.5 |
|
UK |
92 |
3,783 |
368 |
5,246 |
4.0 |
1.8 |
|
Canada |
18 |
537 |
53 |
1,352 |
15.4 |
1.3 |
|
Wholly owned4 |
4 |
361 |
25 |
594 |
9.3 |
0.8 |
|
Joint ventures5 |
- |
40 |
46 |
260 |
4.8 |
- |
|
International4 |
4 |
401 |
71 |
854 |
6.4 |
0.8 |
|
Total covered business |
114 |
4,721 |
492 |
7,452 |
5.6 |
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 the new business contribution to the present value of new business premiums and are based on the underlying unrounded numbers.
3 Individual pensions include Retail Trustee Investment Plan. This was previously included in Corporate pensions. The impact on PVNBP for the six months to 30 June 2009 is £10m.
4 Prior to the 12 months to 31 December 2009, the Asia businesses were included within the EEV results on an IFRS basis. The International results for the six months to 30 June 2009 have not been restated to include the Asia businesses on an EEV basis. The PVNBP margin represents the previously published PVNBP margin for the Europe businesses for the six months to 30 June 2009.
5 Single premiums in India have been restated by £5m to reflect the reclassification of regular premiums to single premiums. The impact on regular premiums is £nil. The impact on PVNBP for the six months to 30 June 2009 is £1m.
4.3 Analysis of new business contribution continued
|
|
NBC |
Single premiums |
Annualised regular premiums |
PVNBP1 |
PVNBP multiplier2 |
PVNBP Margin3 |
|
12 months to 31 December 2009 |
£m |
£m |
£m |
£m |
% |
|
|
Individual pensions4 |
7 |
3,096 |
79 |
3,388 |
3.7 |
0.2 |
|
Corporate pensions4 |
34 |
908 |
437 |
2,640 |
4.0 |
1.3 |
|
Institutional pensions |
25 |
2,253 |
17 |
2,296 |
2.5 |
1.1 |
|
Savings and investments |
(3) |
1,256 |
19 |
1,406 |
7.9 |
(0.2) |
|
Annuities |
76 |
448 |
- |
448 |
- |
17.1 |
|
Protection |
- |
- |
1 |
2 |
2.0 |
11.9 |
|
UK |
139 |
7,961 |
553 |
10,180 |
4.0 |
1.4 |
|
Canada |
46 |
1,232 |
88 |
2,460 |
14.0 |
1.9 |
|
Wholly owned |
17 |
881 |
58 |
1,430 |
9.5 |
1.2 |
|
Joint ventures5 |
11 |
72 |
96 |
478 |
4.2 |
2.3 |
|
International |
28 |
953 |
154 |
1,908 |
6.2 |
1.5 |
|
Total covered business |
213 |
10,146 |
795 |
14,548 |
5.5 |
1.5 |
1 The PVNBP new business sales are different from those in the full year new business press release issued on 3 February 2010 as they incorporate year end non-economic assumption changes.
2 The PVNBP multiplier is calculated as the total of PVNBP less single premiums, divided by annualised regular premiums.
3 PVNBP margins are calculated as the ratio of the new business contribution to the present value of new business premiums and are based on the underlying unrounded numbers.
4 Individual pensions include Retail Trustee Investment Plan. This was previously included in Corporate pensions. The 2009 impact on PVNBP is £22m.
5 Single premiums in India have been restated by £8m to reflect the reclassification of regular premiums to single premiums. The impact on regular premiums is negative £2m. The impact on PVNBP for the 12 months to 31 December 2009 is £2m.
The results for the 12 months to 31 December 2009 include the Asia businesses on an EEV basis for the first time. The results for the six months to 30 June 2009 have not been restated and include Asia on an IFRS basis. Refer to Note 4.1 - Basis of preparation.
4.4 Experience variances
|
|
UK |
Canada |
International |
HWPF TVOG |
Total |
|
6 months to 30 June 2010 |
£m |
£m |
£m |
£m |
£m |
|
Lapses |
(9) |
- |
3 |
- |
(6) |
|
Maintenance expenses |
(3) |
(2) |
1 |
- |
(4) |
|
Mortality and morbidity |
2 |
11 |
2 |
- |
15 |
|
Tax |
(7) |
2 |
(1) |
- |
(6) |
|
Other |
34 |
4 |
- |
(3) |
35 |
|
Total |
17 |
15 |
5 |
(3) |
34 |
Positive lapse experience in International arises from better than expected experience in Germany and Ireland. The lapse experience loss of £9m in the UK includes the effect of increased pension lapse activity related to the change in minimum retirement ages.
Mortality profits in Canada arise from a release of annuity reserves following an exercise to validate the policy data.
Tax variances in the UK reflect the overall experience arising from tax management and the change in tax assets.
'Other' UK variances include the impact of reserve releases and other modelling changes, as well as the benefit of increased average management fees and experience profits on the vesting of deferred annuities.
For the 12 months to 31 December 2009, 'Other' UK variances included a £111m benefit from reduction in market risk plus the EEV operating profit benefit from a £63m release of deferred annuity reserves, offset by £38m of modelling changes for life business. The £143m of 'Other' HWPF TVOG variances primarily reflected the benefits of changes in asset allocations and hedging arrangements which reduced the HWPF burnthrough risk. The latter contributed £89m of 'Other' HWPF TVOG variances for the six months to 30 June 2009.
|
|
UK |
Canada |
International |
HWPF TVOG |
Total |
|
6 months to 30 June 2009 |
£m |
£m |
£m |
£m |
£m |
|
Lapses |
- |
- |
(8) |
- |
(8) |
|
Maintenance expenses |
(2) |
(5) |
2 |
- |
(5) |
|
Mortality and morbidity |
3 |
9 |
1 |
- |
13 |
|
Tax |
11 |
2 |
8 |
- |
21 |
|
Other |
(8) |
(2) |
(7) |
89 |
72 |
|
Total |
4 |
4 |
(4) |
89 |
93 |
|
|
UK |
Canada |
International |
HWPF TVOG |
Total |
|
12 months to 31 December 2009 |
£m |
£m |
£m |
£m |
£m |
|
Lapses |
1 |
- |
(5) |
- |
(4) |
|
Maintenance expenses |
(8) |
- |
4 |
- |
(4) |
|
Mortality and morbidity |
2 |
18 |
(1) |
- |
19 |
|
Tax |
26 |
(5) |
8 |
- |
29 |
|
Other |
127 |
(9) |
(24) |
143 |
237 |
|
Total |
148 |
4 |
(18) |
143 |
277 |
The results for the 12 months to 31 December 2009 include the Asia businesses on an EEV basis for the first time. The results for the six months to 30 June 2009 have not been restated and include Asia on an IFRS basis. Refer to Note 4.1 - Basis of preparation.
4.5 Operating assumption changes
|
|
UK |
Canada |
International |
HWPF TVOG |
Total |
|
6 months to 30 June 2010 |
£m |
£m |
£m |
£m |
£m |
|
Lapses |
- |
- |
- |
- |
- |
|
Maintenance expenses |
- |
- |
1 |
- |
1 |
|
Mortality and morbidity |
- |
- |
- |
- |
- |
|
Tax |
- |
- |
- |
- |
- |
|
Other |
- |
- |
- |
- |
- |
|
Total |
- |
- |
1 |
- |
1 |
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.
For the 12 months to 31 December 2009, positive lapse assumption changes in UK and Canada mainly arose from the improved persistency of pension business. The £26m loss in International reflected higher paid up assumptions in Germany and higher lapse rates for offshore business.
4.5 Operating assumption changes continued
|
|
UK |
Canada |
International |
HWPF TVOG |
Total |
|
6 months to 30 June 2009 |
£m |
£m |
£m |
£m |
£m |
|
Lapses |
- |
- |
- |
- |
- |
|
Maintenance expenses |
- |
- |
- |
- |
- |
|
Mortality and morbidity |
- |
- |
- |
- |
- |
|
Tax |
- |
- |
- |
- |
- |
|
Other |
- |
- |
- |
- |
- |
|
Total |
- |
- |
- |
- |
- |
|
|
UK |
Canada |
International |
HWPF TVOG |
Total |
|
12 months to 31 December 2009 |
£m |
£m |
£m |
£m |
£m |
|
Lapses |
69 |
34 |
(26) |
- |
77 |
|
Maintenance expenses |
(18) |
(8) |
16 |
- |
(10) |
|
Mortality and morbidity |
7 |
4 |
1 |
- |
12 |
|
Tax |
1 |
- |
- |
- |
1 |
|
Other |
1 |
(19) |
6 |
- |
(12) |
|
Total |
60 |
11 |
(3) |
- |
68 |
The results for the 12 months to 31 December 2009 include the Asia businesses on an EEV basis for the first time. The results for the six months to 30 June 2009 have not been restated and include Asia on an IFRS basis. Refer to Note 4.1 - Basis of preparation.
4.6 Non-covered business
Non-covered business EEV operating profit is represented by IFRS operating profit as adjusted for Standard Life Investments (global investment management) look through profits and the return on mutual funds which are recognised in covered business. Refer to Note 4.1 - Basis of preparation.
UK non-covered primarily comprises UK non-covered mutual funds business and the non-covered UK pension scheme. The Group's banking business, Standard Life Bank plc, was sold on 1 January 2010. On 11 May 2010, the Group entered into an agreement to sell its healthcare business, Standard Life Healthcare Limited. Both businesses have been classified as discontinued operations. The presentation of the comparatives for the six months ended 30 June 2009 and the year ended 31 December 2009 have been restated accordingly. Refer to Note 4.1 - Basis of preparation.
(a) Segmental analysis - non-covered business
|
|
Global investment management |
UK |
Discontinued operations |
Other including Group corporate centre |
Total non-covered business |
|
6 months to 30 June 2010 |
£m |
£m |
£m |
£m |
£m |
|
Opening EEV net assets |
195 |
(19) |
343 |
644 |
1,163 |
|
Opening adjustments |
- |
34 |
- |
(34) |
- |
|
Opening adjusted EEV net assets |
195 |
15 |
343 |
610 |
1,163 |
|
|
|
|
|
|
|
|
(Loss)/profit after tax |
14 |
(25) |
(17) |
(19) |
(47) |
|
Transfer back of net worth from covered business |
20 |
(14) |
- |
2 |
8 |
|
Foreign exchange differences |
3 |
- |
- |
12 |
15 |
|
Internal capital transfers |
(18) |
96 |
(245) |
165 |
(2) |
|
Distributions to equity holders |
- |
- |
- |
(180) |
(180) |
|
Other |
- |
100 |
24 |
15 |
139 |
|
Closing EEV net assets |
214 |
172 |
105 |
605 |
1,096 |
The opening adjustment of £34m represents the reclassification of Other non-covered to UK non-covered business during the period.
On 15 May 2009, the Group's equity holders approved the introduction of the Scrip dividend scheme, effective for the final 2008 dividend payment onwards. Investors taking part in the Scrip scheme receive their dividend entitlement in the form of new shares issued in lieu of cash dividends. For the 6 months ended 30 June 2010, dividends paid comprise £46m (six months to 30 June 2009: £58m; 12 months to 31 December 2009: £102m) settled by the issue of shares under the Scrip scheme, and £134m paid in cash (six months to 30 June 2009: £110m; 12 months to 31 December 2009: £158m).
The 'other' movement in the UK EEV net assets relates to the UK non-covered pension scheme surplus of £146m (six months to 30 June 2009: £60m deficit; 12 months to 31December 2009: £73m deficit) and the pension scheme deferred tax liability of £46m (six months to 30 June 2009: £19m deferred tax asset; 12 months to 31 December 2009: £23m deferred tax asset).
'Other' movements in Other including Group corporate centre predominantly relate to the £46m issue of share capital other than in cash in relation to the Scrip dividend paid by Standard Life plc, offset by shares acquired by employee trusts of (£32m).
|
|
Global investment management |
UK |
Discontinued operations |
Other including Group corporate centre |
Total non-covered business |
|
6 months to 30 June 2009 |
£m |
£m |
£m |
£m |
£m |
|
Opening EEV net assets |
143 |
31 |
309 |
672 |
1,155 |
|
Opening adjustments |
- |
- |
- |
- |
- |
|
Opening adjusted EEV net assets |
143 |
31 |
309 |
672 |
1,155 |
|
|
|
|
|
|
|
|
Profit/(loss) after tax |
2 |
(13) |
32 |
(14) |
7 |
|
Transfer back of net worth from covered business |
12 |
(10) |
- |
1 |
3 |
|
Foreign exchange differences |
(1) |
- |
- |
2 |
1 |
|
Internal capital transfers |
- |
9 |
(7) |
158 |
160 |
|
Distributions to equity holders |
- |
- |
- |
(168) |
(168) |
|
Other |
- |
(40) |
3 |
47 |
10 |
|
Closing EEV net assets |
156 |
(23) |
337 |
698 |
1,168 |
|
|
Global investment management |
UK |
Discontinued operations |
Other including Group corporate centre |
Total non-covered business |
|
12 months to 31 December 2009 |
£m |
£m |
£m |
£m |
£m |
|
Opening EEV net assets |
143 |
31 |
309 |
672 |
1,155 |
|
Opening adjustments |
- |
- |
- |
- |
- |
|
Opening adjusted EEV net assets |
143 |
31 |
309 |
672 |
1,155 |
|
|
|
|
|
|
|
|
Profit/(loss) after tax |
26 |
(26) |
49 |
(48) |
1 |
|
Transfer back of net worth from covered business |
24 |
(20) |
- |
1 |
5 |
|
Foreign exchange differences |
1 |
- |
- |
5 |
6 |
|
Internal capital transfers |
- |
46 |
(23) |
155 |
178 |
|
Distributions to equity holders |
- |
- |
- |
(260) |
(260) |
|
Other |
1 |
(50) |
8 |
119 |
78 |
|
Closing EEV net assets |
195 |
(19) |
343 |
644 |
1,163 |
4.6 Non-covered business continued
(b) Global investment management EEV profits before tax
Global investment management profits are included in EEV on a look through basis. This means that the profits from global investment management generated from the life and pensions business are allocated to covered business. However, the excluded life and pensions profits include £13m (six months to 30 June 2009: £6m; 12 months to 31 December 2009: £19m) of profits relating to products which are actively marketed and sold to third parties through global investment management distribution channels. If these profits are added to the third party profits disclosed for non-covered business, there are £34m (six months to 30 June 2009: £16m; 12 months to 31 December 2009: £61m) of third party related profits for global investment management.
|
|
6 months 2010 |
6 months 2009 |
Full year 2009 |
|
|
£m |
£m |
£m |
|
Life and pensions look through profits before tax |
28 |
17 |
33 |
|
Less: Third party related life and pensions profits before tax |
13 |
6 |
19 |
|
Life and pensions look through profits before tax excluding third party profits |
15 |
11 |
14 |
|
|
|
|
|
|
Third party related life and pensions profits before tax |
13 |
6 |
19 |
|
Third party related profits before tax |
21 |
10 |
42 |
|
Total third party related profits before tax |
34 |
16 |
61 |
|
|
|
|
|
|
Total EEV operating profit before tax |
49 |
27 |
75 |
|
|
|
|
|
|
Non-operating items1 |
(1) |
(8) |
(11) |
|
Total EEV profit before tax |
48 |
19 |
64 |
1 The non-operating loss items for the six months to 30 June 2010 include £1m net negative fair value movement in respect of the liability remaining following the restructuring of a sub-fund of the Standard Life Investments (Global Liquidity Funds) plc and the 'Contract for Differences' written in September 2008 which limited this liability for Standard Life Investments (six months to 30 June 2009: £6m; 12 months to 31 December 2009: £9m). The losses for all periods relating to the non-life net negative fair value movement and the fair value movement of assets brought directly on to the statement of financial position are also excluded from IFRS operating profit along with £nil costs relating to the CIP programme and other restructuring costs (six months to 30 June 2009: £2m; 12 months to 31 December 2009: £2m).
(c) Other EEV operating profits before tax
|
|
6 months 2010 |
6 months 2009 |
Full year 2009 |
|
|
£m |
£m |
£m |
|
Canada non-life subsidiaries |
- |
(2) |
(1) |
|
Mutual funds transferred to covered business |
(3) |
(2) |
(2) |
|
Canada non-life subsidiaries excluding transfers to covered business |
(3) |
(4) |
(3) |
|
|
|
|
|
|
Standard Life plc income/(expense) |
3 |
1 |
(2) |
|
Other |
12 |
11 |
5 |
|
Other non-covered business EEV operating profit before tax |
12 |
8 |
- |
Canada non-life subsidiaries are included within the Canada segment of the IFRS financial statements.
Included within 'other' are the head office costs relating to the International businesses. These costs are included within the International segment of the IFRS financial statements.
4.7 EEV reconciliation of movements in consolidated statement of financial position
|
|
6 months 2010 |
6 months 2009 |
Full year 2009 |
|
|
£m |
£m |
£m |
|
Opening EEV |
6,435 |
6,245 |
6,245 |
|
Opening adjustments |
- |
- |
33 |
|
Opening adjusted EEV |
6,435 |
6,245 |
6,278 |
|
|
|
|
|
|
Total comprehensive income/(expense) for the period attributable to equity holders |
518 |
(272) |
291 |
|
Distributions to equity holders |
(180) |
(168) |
(260) |
|
Issue of share capital other than in cash |
46 |
58 |
102 |
|
Shares acquired by employee trusts |
(32) |
- |
- |
|
Reserves credit for employee share-based payment schemes |
8 |
(4) |
24 |
|
Shares gifted to charity |
4 |
- |
- |
|
Closing EEV |
6,799 |
5,859 |
6,435 |
The opening adjustment for the 12 months to 31 December 2009 reflects the inclusion of the Asia businesses on an EEV basis for the first time. The EEV results for the six months to 30 June 2009 have not been restated and include Asia on an IFRS basis.
4.8 Reconciliation of EEV net assets to IFRS net assets
|
|
30 June 2010 |
30 June 2009 |
Full year 2009 |
|
|
£m |
£m |
£m |
|
Net assets on an EEV basis |
6,799 |
5,859 |
6,435 |
|
|
|
|
|
|
Present value of in-force life and pensions business net of cost of capital |
(3,436) |
(2,863) |
(3,384) |
|
EEV net worth |
3,363 |
2,996 |
3,051 |
|
|
|
|
|
|
Adjustment of long-term debt to market value |
(158) |
(403) |
(101) |
|
Canada marked to market |
(84) |
20 |
(49) |
|
Deferred acquisition costs net of deferred income reserve |
363 |
331 |
358 |
|
Deferred tax differences |
125 |
150 |
157 |
|
Adjustment for share of joint ventures |
36 |
- |
35 |
|
Consolidation adjustment for different accounting bases1 |
(29) |
(2) |
(7) |
|
Other |
26 |
14 |
13 |
|
Net assets attributable to equity holders on an IFRS basis |
3,642 |
3,106 |
3,457 |
1 This adjustment reflects the removal of accounting differences for the Canada subordinated liability as explained in Note 4.16 - EEV methodology.
Reconciling items are shown net of tax where appropriate.
4.9 Analysis of covered business EEV PVIF and net worth movements (net of tax)
(a) Total
|
|
Free surplus |
Required capital |
Net worth |
PVIF net of cost of capital |
Total |
|
6 months to 30 June 2010 |
£m |
£m |
£m |
£m |
£m |
|
Opening EEV |
925 |
956 |
1,881 |
3,384 |
5,265 |
|
|
|
|
|
|
|
|
Contribution from new business |
(132) |
23 |
(109) |
231 |
122 |
|
Contribution from in-force business: |
|
|
|
|
|
|
Expected return on existing business |
(1) |
17 |
16 |
140 |
156 |
|
Expected return transfer to net worth |
317 |
(30) |
287 |
(287) |
- |
|
Experience variances |
25 |
(19) |
6 |
17 |
23 |
|
Operating assumption changes |
- |
- |
- |
1 |
1 |
|
Development expenses |
(24) |
- |
(24) |
- |
(24) |
|
Expected return on free surplus |
(3) |
- |
(3) |
- |
(3) |
|
Operating profit/(loss) after tax |
182 |
(9) |
173 |
102 |
275 |
|
Investment return and tax variances |
239 |
9 |
248 |
(20) |
228 |
|
Effect of economic assumption changes |
(96) |
6 |
(90) |
(53) |
(143) |
|
Restructuring expenses |
(9) |
- |
(9) |
- |
(9) |
|
Profit after tax |
316 |
6 |
322 |
29 |
351 |
|
Internal capital transfers |
2 |
- |
2 |
- |
2 |
|
Transfer back of surplus to Standard Life Investments |
(20) |
- |
(20) |
- |
(20) |
|
Transfer back of mutual funds net worth |
12 |
- |
12 |
- |
12 |
|
Actuarial losses on defined benefit pension schemes |
(24) |
- |
(24) |
- |
(24) |
|
Foreign exchange differences |
9 |
50 |
59 |
23 |
82 |
|
Aggregate tax effect of items not recognised in income statement |
6 |
- |
6 |
- |
6 |
|
Other |
- |
- |
- |
- |
- |
|
Closing EEV |
1,226 |
1,012 |
2,238 |
3,436 |
5,674 |
|
|
Free surplus |
Required capital |
Net worth |
PVIF net of cost of capital |
Total |
|
6 months to 30 June 2009 |
£m |
£m |
£m |
£m |
£m |
|
Opening EEV |
1,235 |
844 |
2,079 |
3,053 |
5,132 |
|
|
|
|
|
|
|
|
Contribution from new business |
(96) |
24 |
(72) |
155 |
83 |
|
Contribution from in-force business: |
|
|
|
|
|
|
Expected return on existing business |
(1) |
19 |
18 |
118 |
136 |
|
Expected return transfer to net worth |
290 |
(30) |
260 |
(261) |
(1) |
|
Experience variances |
20 |
3 |
23 |
43 |
66 |
|
Operating assumption changes |
- |
- |
- |
- |
- |
|
Development expenses |
(11) |
- |
(11) |
- |
(11) |
|
Expected return on free surplus |
(32) |
- |
(32) |
- |
(32) |
|
Operating profit after tax |
170 |
16 |
186 |
55 |
241 |
|
Investment return and tax variances |
(217) |
29 |
(188) |
(155) |
(343) |
|
Effect of economic assumption changes |
47 |
(28) |
19 |
3 |
22 |
|
Restructuring expenses |
(19) |
- |
(19) |
- |
(19) |
|
(Loss)/profit after tax |
(19) |
17 |
(2) |
(97) |
(99) |
|
Internal capital transfers |
(160) |
- |
(160) |
- |
(160) |
|
Transfer back of surplus to Standard Life Investments |
(12) |
- |
(12) |
- |
(12) |
|
Transfer back of mutual funds net worth |
9 |
- |
9 |
- |
9 |
|
Actuarial losses on defined benefit pension schemes |
(19) |
- |
(19) |
- |
(19) |
|
Foreign exchange differences |
(27) |
(55) |
(82) |
(93) |
(175) |
|
Aggregate tax effect of items not recognised in income statement |
6 |
- |
6 |
- |
6 |
|
Other |
7 |
- |
7 |
- |
7 |
|
Closing EEV |
1,020 |
806 |
1,826 |
2,863 |
4,689 |
The EEV results for the six months to 30 June 2009 have not been restated and include the Asia businesses on an IFRS basis. The IFRS opening and closing net assets for this business were included within the operating and closing free surplus, and the IFRS underlying loss after tax included within Expected return on free surplus.
4.9 Analysis of covered business EEV PVIF and net worth movements (net of tax) continued
(b) UK and HWPF TVOG
|
|
Free surplus |
Required capital |
Net worth |
PVIF net of cost of capital |
Total |
|
6 months to 30 June 2010 |
£m |
£m |
£m |
£m |
£m |
|
Opening EEV |
673 |
139 |
812 |
2,242 |
3,054 |
|
|
|
|
|
|
|
|
Contribution from new business |
(67) |
10 |
(57) |
131 |
74 |
|
Contribution from in-force business: |
|
|
|
|
|
|
Expected return on existing business |
(1) |
2 |
1 |
85 |
86 |
|
Expected return transfer to net worth |
189 |
(1) |
188 |
(188) |
- |
|
Experience variances |
24 |
(19) |
5 |
5 |
10 |
|
Operating assumption changes |
- |
- |
- |
- |
- |
|
Development expenses |
(13) |
- |
(13) |
- |
(13) |
|
Expected return on free surplus |
(11) |
- |
(11) |
- |
(11) |
|
Operating profit/(loss) after tax |
121 |
(8) |
113 |
33 |
146 |
|
Investment return and tax variances |
246 |
(2) |
244 |
(25) |
219 |
|
Effect of economic assumption changes |
(85) |
5 |
(80) |
(47) |
(127) |
|
Restructuring expenses |
(6) |
- |
(6) |
- |
(6) |
|
Profit/(loss) after tax |
276 |
(5) |
271 |
(39) |
232 |
|
Internal capital transfers |
(2) |
- |
(2) |
- |
(2) |
|
Transfer back of surplus to Standard Life Investments |
(17) |
- |
(17) |
- |
(17) |
|
Transfer back of mutual funds net worth |
14 |
- |
14 |
- |
14 |
|
Actuarial gains on defined benefit pension schemes |
- |
- |
- |
- |
- |
|
Foreign exchange differences |
- |
- |
- |
- |
- |
|
Aggregate tax effect of items not recognised in income statement |
- |
- |
- |
- |
- |
|
Other |
- |
- |
- |
- |
- |
|
Closing EEV |
944 |
134 |
1,078 |
2,203 |
3,281 |
|
|
Free surplus |
Required capital |
Net worth |
PVIF net of cost of capital |
Total |
|
6 months to 30 June 2009 |
£m |
£m |
£m |
£m |
£m |
|
Opening EEV |
899 |
95 |
994 |
1,915 |
2,909 |
|
|
|
|
|
|
|
|
Contribution from new business |
(54) |
11 |
(43) |
109 |
66 |
|
Contribution from in-force business: |
|
|
|
|
|
|
Expected return on existing business |
(1) |
2 |
1 |
74 |
75 |
|
Expected return transfer to net worth |
188 |
(2) |
186 |
(186) |
- |
|
Experience variances |
18 |
8 |
26 |
40 |
66 |
|
Operating assumption changes |
- |
- |
- |
- |
- |
|
Development expenses |
(7) |
- |
(7) |
- |
(7) |
|
Expected return on free surplus |
(9) |
- |
(9) |
- |
(9) |
|
Operating profit after tax |
135 |
19 |
154 |
37 |
191 |
|
Investment return and tax variances |
(175) |
- |
(175) |
(130) |
(305) |
|
Effect of economic assumption changes |
86 |
(3) |
83 |
132 |
215 |
|
Restructuring expenses |
(15) |
- |
(15) |
- |
(15) |
|
Profit after tax |
31 |
16 |
47 |
39 |
86 |
|
Internal capital transfers |
(130) |
- |
(130) |
- |
(130) |
|
Transfer back of surplus to Standard Life Investments |
(10) |
- |
(10) |
- |
(10) |
|
Transfer back of mutual funds net worth |
10 |
- |
10 |
- |
10 |
|
Actuarial gains on defined benefit pension schemes |
- |
- |
- |
- |
- |
|
Foreign exchange differences |
- |
- |
- |
- |
- |
|
Aggregate tax effect of items not recognised in income statement |
- |
- |
- |
- |
- |
|
Other |
5 |
- |
5 |
- |
5 |
|
Closing EEV |
805 |
111 |
916 |
1,954 |
2,870 |
4.9 Analysis of covered business EEV PVIF and net worth movements (net of tax) continued
(c) Canada
|
|
Free surplus |
Required capital |
Net worth |
PVIF net of cost of capital |
Total |
|
6 months to 30 June 2010 |
£m |
£m |
£m |
£m |
£m |
|
Opening EEV |
161 |
770 |
931 |
622 |
1,553 |
|
|
|
|
|
|
|
|
Contribution from new business |
(10) |
9 |
(1) |
24 |
23 |
|
Contribution from in-force business: |
|
|
|
|
|
|
Expected return on existing business |
- |
15 |
15 |
39 |
54 |
|
Expected return transfer to net worth |
71 |
(30) |
41 |
(41) |
- |
|
Experience variances |
6 |
- |
6 |
5 |
11 |
|
Operating assumption changes |
- |
- |
- |
- |
- |
|
Development expenses |
(3) |
- |
(3) |
- |
(3) |
|
Expected return on free surplus |
6 |
- |
6 |
- |
6 |
|
Operating profit/(loss) after tax |
70 |
(6) |
64 |
27 |
91 |
|
Investment return and tax variances |
(9) |
11 |
2 |
4 |
6 |
|
Effect of economic assumption changes |
(12) |
1 |
(11) |
(13) |
(24) |
|
Restructuring expenses |
- |
- |
- |
- |
- |
|
Profit after tax |
49 |
6 |
55 |
18 |
73 |
|
Internal capital transfers |
- |
- |
- |
- |
- |
|
Transfer back of surplus to Standard Life Investments |
(1) |
- |
(1) |
- |
(1) |
|
Transfer back of mutual funds net worth |
(2) |
- |
(2) |
- |
(2) |
|
Actuarial losses on defined benefit pension schemes |
(24) |
- |
(24) |
- |
(24) |
|
Foreign exchange differences |
10 |
49 |
59 |
42 |
101 |
|
Aggregate tax effect of items not recognised in income statement |
6 |
- |
6 |
- |
6 |
|
Other |
- |
- |
- |
- |
- |
|
Closing EEV |
199 |
825 |
1,024 |
682 |
1,706 |
|
|
Free surplus |
Required capital |
Net worth |
PVIF net of cost of capital |
Total |
|
6 months to 30 June 2009 |
£m |
£m |
£m |
£m |
£m |
|
Opening EEV |
154 |
737 |
891 |
706 |
1,597 |
|
|
|
|
|
|
|
|
Contribution from new business |
(13) |
12 |
(1) |
14 |
13 |
|
Contribution from in-force business: |
|
|
|
|
|
|
Expected return on existing business |
- |
17 |
17 |
32 |
49 |
|
Expected return transfer to net worth |
64 |
(29) |
35 |
(35) |
- |
|
Experience variances |
7 |
(5) |
2 |
1 |
3 |
|
Operating assumption changes |
- |
- |
- |
- |
- |
|
Development expenses |
(1) |
- |
(1) |
- |
(1) |
|
Expected return on free surplus |
1 |
- |
1 |
- |
1 |
|
Operating profit/(loss) after tax |
58 |
(5) |
53 |
12 |
65 |
|
Investment return and tax variances |
(47) |
29 |
(18) |
(20) |
(38) |
|
Effect of economic assumption changes |
(42) |
(25) |
(67) |
(130) |
(197) |
|
Restructuring expenses |
- |
- |
- |
- |
- |
|
Loss after tax |
(31) |
(1) |
(32) |
(138) |
(170) |
|
Internal capital transfers |
(2) |
- |
(2) |
- |
(2) |
|
Transfer back of surplus to Standard Life Investments |
(2) |
- |
(2) |
- |
(2) |
|
Transfer back of mutual funds net worth |
(1) |
- |
(1) |
- |
(1) |
|
Actuarial losses on defined benefit pension schemes |
(19) |
- |
(19) |
- |
(19) |
|
Foreign exchange differences |
(7) |
(54) |
(61) |
(44) |
(105) |
|
Aggregate tax effect of items not recognised in income statement |
6 |
- |
6 |
- |
6 |
|
Other |
- |
- |
- |
- |
- |
|
Closing EEV |
98 |
682 |
780 |
524 |
1,304 |
4.9 Analysis of covered business EEV PVIF and net worth movements (net of tax) continued
(d) International
|
|
Free surplus |
Required capital |
Net worth |
PVIF net of cost of capital |
Total |
|
6 months to 30 June 2010 |
£m |
£m |
£m |
£m |
£m |
|
Opening EEV |
91 |
47 |
138 |
520 |
658 |
|
|
|
|
|
|
|
|
Contribution from new business |
(55) |
4 |
(51) |
76 |
25 |
|
Contribution from in-force business: |
|
|
|
|
|
|
Expected return on existing business |
- |
- |
- |
16 |
16 |
|
Expected return transfer to net worth |
57 |
1 |
58 |
(58) |
- |
|
Experience variances |
(5) |
- |
(5) |
7 |
2 |
|
Operating assumption changes |
- |
- |
- |
1 |
1 |
|
Development expenses |
(8) |
- |
(8) |
- |
(8) |
|
Expected return on free surplus |
2 |
- |
2 |
- |
2 |
|
Operating profit/(loss) after tax |
(9) |
5 |
(4) |
42 |
38 |
|
Investment return and tax variances |
2 |
- |
2 |
1 |
3 |
|
Effect of economic assumption changes |
1 |
- |
1 |
7 |
8 |
|
Restructuring expenses |
(3) |
- |
(3) |
- |
(3) |
|
Profit/(loss) after tax |
(9) |
5 |
(4) |
50 |
46 |
|
Internal capital transfers |
4 |
- |
4 |
- |
4 |
|
Transfer back of surplus to Standard Life Investments |
(2) |
- |
(2) |
- |
(2) |
|
Transfer back of mutual funds net worth |
- |
- |
- |
- |
- |
|
Actuarial gains on defined benefit pension schemes |
- |
- |
- |
- |
- |
|
Foreign exchange differences |
(1) |
1 |
- |
(19) |
(19) |
|
Aggregate tax effect of items not recognised in income statement |
- |
- |
- |
- |
- |
|
Other |
- |
- |
- |
- |
- |
|
Closing EEV |
83 |
53 |
136 |
551 |
687 |
|
|
Free surplus |
Required capital |
Net worth |
PVIF net of cost of capital |
Total |
|
6 months to 30 June 2009 |
£m |
£m |
£m |
£m |
£m |
|
Opening EEV |
182 |
12 |
194 |
432 |
626 |
|
|
|
|
|
|
|
|
Contribution from new business |
(29) |
1 |
(28) |
32 |
4 |
|
Contribution from in-force business: |
|
|
|
|
|
|
Expected return on existing business |
- |
- |
- |
12 |
12 |
|
Expected return transfer to net worth |
38 |
1 |
39 |
(40) |
(1) |
|
Experience variances |
(5) |
- |
(5) |
2 |
(3) |
|
Operating assumption changes |
- |
- |
- |
- |
- |
|
Development expenses |
(3) |
- |
(3) |
- |
(3) |
|
Expected return on free surplus |
(24) |
- |
(24) |
- |
(24) |
|
Operating (loss)/profit after tax |
(23) |
2 |
(21) |
6 |
(15) |
|
Investment return and tax variances |
5 |
- |
5 |
(5) |
- |
|
Effect of economic assumption changes |
3 |
- |
3 |
1 |
4 |
|
Restructuring expenses |
(4) |
- |
(4) |
- |
(4) |
|
(Loss)/profit after tax |
(19) |
2 |
(17) |
2 |
(15) |
|
Internal capital transfers |
(28) |
- |
(28) |
- |
(28) |
|
Transfer back of surplus to Standard Life Investments |
- |
- |
- |
- |
- |
|
Transfer back of mutual funds net worth |
- |
- |
- |
- |
- |
|
Actuarial gains on defined benefit pension schemes |
- |
- |
- |
- |
- |
|
Foreign exchange differences |
(20) |
(1) |
(21) |
(49) |
(70) |
|
Aggregate tax effect of items not recognised in income statement |
- |
- |
- |
- |
- |
|
Other |
2 |
- |
2 |
- |
2 |
|
Closing EEV |
117 |
13 |
130 |
385 |
515 |
The EEV results for the six months to 30 June 2009 have not been restated and include the Asia businesses on an IFRS basis. The IFRS opening and closing net assets for this business were included within the operating and closing free surplus, and the IFRS underlying loss after tax included within Expected return on free surplus.
4.10 Time value of options and guarantees (TVOG)
|
|
30 June 2010 |
30 June 2009 |
31 December 2009 |
|
|
£m |
£m |
£m |
|
UK and Europe HWPF |
(90) |
(101) |
(66) |
|
Canada |
(31) |
(31) |
(23) |
|
International |
(17) |
- |
(17) |
|
Total |
(138) |
(132) |
(106) |
The results for the 12 months to 31 December 2009 include the Asia businesses on an EEV basis for the first time. The results for the six months to 30 June 2009 have not been restated and include the Asia businesses on an IFRS basis, therefore no TVOG is shown.
The UK and Europe HWPF TVOG reflects the value of shareholder exposure to the policyholder guarantees within the HWPF. The value of this exposure has increased during 2010 due to the impact of market movements, in particular from the effect of revised economic assumptions at June.
4.11 Market value of subordinated liabilities within covered business
|
|
30 June 2010 |
30 June 2009 |
31 December 2009 |
|
|
£m |
£m |
£m |
|
UK |
(1,513) |
(1,245) |
(1,682) |
|
Canada |
(281) |
(211) |
(244) |
|
Total |
(1,794) |
(1,456) |
(1,926) |
Subordinated liabilities within EEV covered business are based on the market value of the debt. The free surplus shown in Note 4.2(c) - Segmental analysis - covered business - Segmental analysis of opening and closing EEV is net of these liabilities.
The reduction in the value of the UK subordinated debt liability reflects the increase in relevant credit spreads during 2010. The £37m increase in the Canada subordinated debt liability includes £16m from currency movements. The impact of these movements is reflected in non-operating profit in UK and Canada as shown in Note 4.2(a). For Canada, however, this has been offset by the Group EEV consolidation adjustment in respect of Canada subordinated liability, as shown in the EEV consolidated income statement.
4.12 Principal economic assumptions - deterministic calculations - covered business
(a) Gross investment returns and expense inflation
|
|
UK |
Canada |
Europe |
|
At 30 June 2010 |
% |
% |
% |
|
Gross investment returns |
|
|
|
|
Risk free |
3.38 |
3.33 |
2.58 |
|
Corporate bonds |
3.95* |
** |
n/a |
|
Equities |
6.38 |
8.60 |
5.58 |
|
Property |
5.38 |
8.60 |
4.58 |
|
|
|
|
|
|
Other |
|
|
|
|
Expense inflation: |
3.70 |
*** |
|
|
Germany |
|
|
2.10 |
|
Ireland |
|
|
2.82 |
* Excludes corporate bond returns on annuities. For annuities in UK equity holder funds, the overall investment return, after allowing for assumed defaults, is 4.92% for annuities that are level or subject to fixed escalations and 3.38% for annuities where escalations are linked to a price index.
** Current holdings are assumed to yield in future years the earned rate for the year preceding the valuation. Future reinvestments are assumed to be in government bonds.
*** 0.809% in 2010. The rate in subsequent years is based on a moving 30-year bond yield less a variable deduction.
|
|
UK |
Canada |
Europe |
|
At 30 June 2009 |
% |
% |
% |
|
Gross investment returns |
|
|
|
|
Risk free |
3.72 |
3.63 |
3.39 |
|
Corporate bonds |
4.90* |
** |
n/a |
|
Equities |
6.72 |
8.60 |
6.39 |
|
Property |
5.72 |
8.60 |
5.39 |
|
|
|
|
|
|
Other |
|
|
|
|
Expense inflation: |
3.33 |
*** |
|
|
Germany |
|
|
1.89 |
|
Ireland |
|
|
2.80 |
* Excludes corporate bond returns on annuities. For annuities in UK equity holder funds, the overall investment return, after allowing for assumed defaults, is 6.78% for annuities that are level or subject to fixed escalations and 3.72% for annuities where escalations are linked to a price index.
** Current holdings are assumed to yield in future years the earned rate for the year preceding the valuation. Future reinvestments are assumed to be in government bonds.
*** 1.71% in 2009. The rate in subsequent years is based on a moving 30-year bond yield less a variable deduction.
|
|
UK |
Canada |
Europe |
|
At 31 December 2009 |
% |
% |
% |
|
Gross investment returns |
|
|
|
|
Risk free |
4.11 |
3.85 |
3.39 |
|
Corporate bonds |
4.71* |
** |
n/a |
|
Equities |
7.11 |
8.60 |
6.39 |
|
Property |
6.11 |
8.60 |
5.39 |
|
|
|
|
|
|
Other |
|
|
|
|
Expense inflation: |
3.97 |
*** |
|
|
Germany |
|
|
2.62 |
|
Ireland |
|
|
3.34 |
* Excludes corporate bond returns on annuities. For annuities in UK equity holder funds, the overall investment return, after allowing for assumed defaults, is 5.36% for annuities that are level or subject to fixed escalations and 4.11% for annuities where escalations are linked to a price index.
** Current holdings are assumed to yield in future years the earned rate for the year preceding the valuation. Future reinvestments are assumed to be in government bonds.
*** 1.367% in 2009. The rate in subsequent years is based on a moving 30-year bond yield less a variable deduction.
4.12 Principal economic assumptions - deterministic calculations - covered business continued
(b) Risk discount rates - in-force business
|
|
UK HWPF |
UK equity holder owned funds |
Canada |
Europe HWPF |
Europe equity holder owned funds |
|
At 30 June 2010 |
% |
% |
% |
% |
% |
|
Risk margin - in-force business |
|
|
|
|
|
|
Risk margin before cost of capital adjustment: |
|
|
|
|
|
|
Market risk |
1.80 |
1.50 |
2.60 |
1.80 |
1.50 |
|
Non-market risk |
1.70 |
1.80 |
2.80 |
1.70 |
1.80 |
|
Total |
3.50 |
3.30 |
5.40 |
3.50 |
3.30 |
|
Cost of capital adjustment |
- |
(0.50) |
(1.90) |
- |
(0.50) |
|
Risk margin after cost of capital adjustment |
3.50 |
2.80 |
3.50 |
3.50 |
2.80 |
|
|
|
|
|
|
|
|
Risk discount rates - in-force business |
|
|
|
|
|
|
Risk free |
3.38 |
3.38 |
3.33 |
2.58 |
2.58 |
|
Risk margin |
3.50 |
2.80 |
3.50 |
3.50 |
2.80 |
|
Risk discount rate1 |
6.88 |
6.18 |
6.83 |
6.08 |
5.38 |
1 Using the value of in-force business as weights, the average risk discount rates for UK and Europe were 6.62% and 5.77% respectively. The weighted average for Europe includes an allowance for Standard Life International Limited (SLIL) which uses the same risk discount rate assumptions as UK business.
|
|
UK HWPF |
UK equity holder owned funds |
Canada |
Europe HWPF |
Europe equity holder owned funds |
|
At 30 June 2009 |
% |
% |
% |
% |
% |
|
Risk margin - in-force business |
|
|
|
|
|
|
Risk margin before cost of capital adjustment: |
|
|
|
|
|
|
Market risk |
1.80 |
1.50 |
2.70 |
1.80 |
1.50 |
|
Non-market risk |
1.60 |
1.50 |
2.40 |
1.60 |
1.50 |
|
Total |
3.40 |
3.00 |
5.10 |
3.40 |
3.00 |
|
Cost of capital adjustment |
- |
(0.40) |
(1.40) |
- |
(0.40) |
|
Risk margin after cost of capital adjustment |
3.40 |
2.60 |
3.70 |
3.40 |
2.60 |
|
|
|
|
|
|
|
|
Risk discount rates - in-force business |
|
|
|
|
|
|
Risk free |
3.72 |
3.72 |
3.63 |
3.39 |
3.39 |
|
Risk margin |
3.40 |
2.60 |
3.70 |
3.40 |
2.60 |
|
Risk discount rate1 |
7.12 |
6.32 |
7.33 |
6.79 |
5.99 |
1 Using the value of in-force business as weights, the average risk discount rates for UK and Europe were 6.83% and 6.36% respectively. The weighted average for Europe includes an allowance for SLIL which uses the same risk discount rate assumptions as UK business.
|
|
UK HWPF |
UK equity holder owned funds |
Canada |
Europe HWPF |
Europe equity holder owned funds |
|
At 31 December 2009 |
% |
% |
% |
% |
% |
|
Risk margin - in-force business |
|
|
|
|
|
|
Risk margin before cost of capital adjustment: |
|
|
|
|
|
|
Market risk |
1.80 |
1.50 |
2.50 |
1.80 |
1.50 |
|
Non-market risk |
1.70 |
1.80 |
2.80 |
1.70 |
1.80 |
|
Total |
3.50 |
3.30 |
5.30 |
3.50 |
3.30 |
|
Cost of capital adjustment |
- |
(0.50) |
(2.00) |
- |
(0.50) |
|
Risk margin after cost of capital adjustment |
3.50 |
2.80 |
3.30 |
3.50 |
2.80 |
|
|
|
|
|
|
|
|
Risk discount rates - in-force business |
|
|
|
|
|
|
Risk free |
4.11 |
4.11 |
3.85 |
3.39 |
3.39 |
|
Risk margin |
3.50 |
2.80 |
3.30 |
3.50 |
2.80 |
|
Risk discount rate1 |
7.61 |
6.91 |
7.15 |
6.89 |
6.19 |
1 Using the value of in-force business as weights, the average risk discount rates for UK and Europe were 7.38% and 6.56% respectively. The weighted average for Europe includes an allowance for SLIL which uses the same risk discount rate assumptions as UK business.
At June 2010 market risk margins and cost of capital adjustments have been updated to reflect changes in the mix of business and asset allocation. Non-market risk margins are updated once a year and any changes will be reflected in the full year results.
The impact of the changes in risk discount rates has been included in the effect of economic assumption changes shown in Note 4.2(a). The amounts within these totals that relate to the changes in risk discount rates are: for UK: profit £161m; for Canada: profit £62m; and for International: profit £35m. These profits reflect the benefit of reduced risk discount rates which are mainly driven by reductions in risk free rates.
(c) Risk discount rates - new business
|
|
UK HWPF |
UK equity holder owned funds |
Canada |
Europe HWPF |
Europe equity holder owned funds |
|
6 months to 30 June 2010 |
% |
% |
% |
% |
% |
|
Risk margin - new business |
|
|
|
|
|
|
Risk margin before cost of capital adjustment: |
|
|
|
|
|
|
Market risk |
1.70 |
1.40 |
1.10 |
1.70 |
1.40 |
|
Non-market risk |
0.50 |
1.80 |
1.90 |
0.50 |
1.80 |
|
Total |
2.20 |
3.20 |
3.00 |
2.20 |
3.20 |
|
Cost of capital adjustment |
- |
(0.40) |
(0.40) |
- |
(0.40) |
|
Risk margin after cost of capital adjustment |
2.20 |
2.80 |
2.60 |
2.20 |
2.80 |
|
|
|
|
|
|
|
|
Risk discount rates - new business |
|
|
|
|
|
|
Risk free1 |
4.11 |
4.11 |
3.85 |
3.39 |
3.39 |
|
Risk margin |
2.20 |
2.80 |
2.60 |
2.20 |
2.80 |
|
Risk discount rate2 |
6.31 |
6.91 |
6.45 |
5.59 |
6.19 |
1 As the new business contribution is calculated using start of period economic assumptions, the risk free rates shown here represent market yields at 31 December 2009.
2 Using the value of in-force business as weights, the average risk discount rates for UK and Europe were 6.82% and 6.46% respectively. The weighted average for Europe includes an allowance for SLIL which uses the same risk discount rate assumptions as UK business.
4.12 Principal economic assumptions - deterministic calculations - covered business continued
(c) Risk discount rates - new business continued
|
|
UK HWPF |
UK equity holder owned funds |
Canada |
Europe HWPF |
Europe equity holder owned funds |
|
6 months to 30 June 2009 |
% |
% |
% |
% |
% |
|
Risk margin - new business |
|
|
|
|
|
|
Risk margin before cost of capital adjustment: |
|
|
|
|
|
|
Market risk |
2.10 |
1.80 |
1.70 |
2.10 |
1.80 |
|
Non-market risk |
0.40 |
1.50 |
1.90 |
0.40 |
1.50 |
|
Total |
2.50 |
3.30 |
3.60 |
2.50 |
3.30 |
|
Cost of capital adjustment |
- |
(0.40) |
(0.40) |
- |
(0.40) |
|
Risk margin after cost of capital adjustment |
2.50 |
2.90 |
3.20 |
2.50 |
2.90 |
|
|
|
|
|
|
|
|
Risk discount rates - new business |
|
|
|
|
|
|
Risk free1 |
3.42 |
3.42 |
3.07 |
2.95 |
2.95 |
|
Risk margin |
2.50 |
2.90 |
3.20 |
2.50 |
2.90 |
|
Risk discount rate2 |
5.92 |
6.32 |
6.27 |
5.45 |
5.85 |
1 As the new business contribution is calculated using start of period economic assumptions, the risk free rates shown here represent market yields at 31 December 2008.
2 Using the value of in-force business as weights, the average risk discount rates for UK and Europe were 6.25% and 5.93% respectively. The weighted average for Europe includes an allowance for SLIL which uses the same risk discount rate assumptions as UK business.
|
|
UK HWPF |
UK equity holder owned funds |
Canada |
Europe HWPF |
Europe equity holder owned funds |
|
12 months to 31 December 2009 |
% |
% |
% |
% |
% |
|
Risk margin - new business |
|
|
|
|
|
|
Risk margin before cost of capital adjustment: |
|
|
|
|
|
|
Market risk |
1.70 |
1.40 |
1.50 |
1.70 |
1.40 |
|
Non-market risk |
0.50 |
1.80 |
1.90 |
0.50 |
1.80 |
|
Total |
2.20 |
3.20 |
3.40 |
2.20 |
3.20 |
|
Cost of capital adjustment |
- |
(0.40) |
(0.20) |
- |
(0.40) |
|
Risk margin after cost of capital adjustment |
2.20 |
2.80 |
3.20 |
2.20 |
2.80 |
|
|
|
|
|
|
|
|
Risk discount rates - new business |
|
|
|
|
|
|
Risk free1 |
3.42 |
3.42 |
3.07 |
2.95 |
2.95 |
|
Risk margin |
2.20 |
2.80 |
3.20 |
2.20 |
2.80 |
|
Risk discount rate2 |
5.62 |
6.22 |
6.27 |
5.15 |
5.75 |
1 As the new business contribution is calculated using start of period economic assumptions, the risk free rates shown here represent market yields at 31 December 2008.
2 Using the value of in-force business as weights, the average risk discount rates for UK and Europe were 6.11% and 5.83% respectively. The weighted average for Europe includes an allowance for SLIL which uses the same risk discount rate assumptions as UK business.
(d) International - Asia
The PVIF and cost of required capital of the Asia businesses is calculated using a 'risk neutral' approach whereby projected investment returns and discount rates are based on risk free rates. The risk free rates used were:
|
|
30 June 2010 |
31 December 2009 |
|
|
% |
% |
|
India |
7.50 |
7.50 |
|
China |
3.38 |
3.66 |
|
Hong Kong |
2.45 |
2.45 |
As a result of this risk neutral approach there is no requirement to hold a market risk margin within the risk discount rate.
Non-market risk has been allowed for via a specific deduction to the PVIF, based on a non-market risk 'cost of capital' approach. This has reduced the PVIF at 30 June 2010 by £28m (31 December 2009: £21m). Similarly, the 2010 pre-tax NBC has been reduced by £10m (12 months to 31 December 2009: £12m) as an allowance for non-market risk.
4.13 Principal economic assumptions - stochastic calculations
The level of the TVOG is generally calculated using a stochastic projection. This requires an economic scenario generator (ESG) which projects the relevant fund under a large number of different future economic scenarios. A detailed description of the methodology applied in the relevant funds is provided in Note 4.16 - EEV methodology.
Characteristics of ESG used for HWPF TVOG calculations - UK and Europe
The ESG simulates future economic environments in a market consistent manner. The outputs of the ESG include:
· Cash account index
· Gross redemption yield term structure
· Equity total return index
· Property total return index
· Gilt total return index
· Corporate bond total return index
· Equity dividend yields
· Property rental yields
· Price inflation
· Earnings inflation
The ESG allows option-pricing techniques to be used to value the TVOG.
Parameters used in ESG
Cash and bond returns
These variables are calibrated using the following instruments:
· Repo rates and government strips
· A range of swaption prices
Inflation
This variable is calibrated using the yields obtained on inflation swaps.
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.
4.13 Principal economic assumptions - stochastic calculations continued
Dividend and rental yields
Dividend yields are derived from current market observable yields (FTSE All Stocks for UK and Euro Stoxx 50 for Europe) and a long-term best estimate.
Rental yields are derived from rental income on our actual portfolio of Property (with three month lag) and a long-term best estimate.
Correlations
The principal correlations in the ESG are between equity, bond and property returns.
The average simulated internal UK economy correlations between the major asset classes are:
· Equity/property = 0.09
· Equity/bonds = 0.14
· Property/bonds = 0.1
The average simulated cross economy correlations between the major asset classes are:
· UK Equity/EU Equity = 0.80
· UK Equities/EU Bonds = 0.12
· UK Bonds/EU Equities = 0.15
Note 4.10 - Time value of options and guarantees (TVOG) also shows the value of TVOG in Canada and International, which are in addition to the HWPF TVOG. Where material, these values are also calculated using ESG similar to that used for the HWPF TVOG calculation.
4.14 Foreign exchange
A description of the approach to the currency translation for foreign entities is provided in Note 4.16 - EEV methodology.
The principal exchange rates applied are:
|
Local currency: £ |
Closing 30 June 2010 |
Average to 30 June 2010 |
Closing 30 June 2009 |
Average to 30 June 2009 |
Closing 31 December 2009 |
Average to 31 December 2009 |
|
Canada |
1.590 |
1.602 |
1.913 |
1.802 |
1.693 |
1.778 |
|
Ireland |
1.221 |
1.153 |
1.174 |
1.113 |
1.126 |
1.118 |
|
Germany |
1.221 |
1.153 |
1.174 |
1.113 |
1.126 |
1.118 |
|
India |
69.486 |
70.310 |
78.891 |
73.592 |
75.148 |
75.388 |
|
China |
10.146 |
10.460 |
11.249 |
10.226 |
11.025 |
10.649 |
|
Hong Kong |
11.650 |
11.916 |
12.763 |
11.604 |
12.522 |
12.086 |
4.15 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.
4.16 EEV methodology
Covered business
For the purposes of EEV reporting, a distinction is drawn between covered business to which EEV methodology is applied and non-covered business where results and balances are based on those determined under IFRS and included in the IFRS financial statements, unless otherwise stated.
The Group's covered business is its life assurance and pensions businesses in the UK, Canada and International (Germany including Austria, Ireland, Hong Kong and joint venture businesses in China and India), as well as the current and future profits and losses from Standard Life Investments arising on its management of funds relating to the life and pensions businesses.
UK covered business also includes:
· Non-insured self invested personal pension (SIPP) business
· Those elements of Wrap business that are contained within a long-term product wrapper i.e. bonds, SIPPs and mutual funds
· Mutual funds sold by the UK business
Canada covered business also includes mutual funds.
International covered business consists of:
· The Group's Germany branch of Standard Life Assurance Limited (SLAL)
· The Group's Ireland branch of SLAL
· The Group's offshore business, which is sold by Standard Life International Limited (SLIL)
· The results of the Group's business in Hong Kong (Standard Life Asia Limited)
· The Group's share of results in the joint venture in India, HDFC Standard Life Insurance Company Limited, at 26% for the six months to 30 June 2010 (during the 12 months to 31 December 2009 and 6 months to 30 June 2009: 26%)
· The Group's share of results in the joint venture in China, Heng An Standard Life Insurance Company Limited, at 50% for the six months to 30 June 2010 (during the 12 months to 31 December 2009 and 6 months to 30 June 2009: 50%)
Cash flows emerging in the period on covered business that do not reside within a life and pensions company on a statutory basis are transferred back to the relevant non-covered entity for disclosure within their closing net assets. This treatment is applied to both the return from global investment management and the return on certain mutual funds included in covered business.
The Group's non-covered business mainly includes the business of Standard Life Bank, Standard Life Healthcare, Standard Life plc, the third party global investment management business of Standard Life Investments, the non-covered business of Standard Life Savings and other non-life and pensions entities. The Group's banking business, Standard Life Bank plc, was sold on 1 January 2010. On 11 May 2010, the Group entered into an agreement to sell its healthcare business, Standard Life Healthcare Limited. Both businesses have been classified as discontinued operations.
Non-covered business EEV operating profit is represented by IFRS operating profit as adjusted for Standard Life Investments (global investment management) look through profits and the return on mutual funds which are recognised in covered business.
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 below.
Allowance is made for external reinsurance and reinsurance within the Group. The cash flows include the profits and losses arising in Group companies providing global investment management and other services where these relate to covered business. This is referred to as the 'look through' into service company expenses.
The projected cash flows are discounted to the valuation date using a risk discount rate which is intended to make sufficient allowance for the risks associated with the emergence of these cash flows, other than those risks allowed for elsewhere in the EEV calculations. In particular, a deduction is made from the present value of the best estimate cash flows to reflect the risks associated with the existence of financial options and guarantees, this deduction being assessed using stochastic techniques as described below.
Free surplus
The free surplus is the market value of any assets allocated to, but not required to support, the in-force covered business at the valuation date. In the UK, this comprises the market value of the assets in the equity holders' fund, plus the value of the equity holders' interests in the surplus of the long-term fund, after appropriate allowance for tax, less the required capital supporting the covered business.
For some assets and liabilities where market value is not the normal basis for accounting, as in Canada, the free surplus is restated to market value, adjusted as required to allow for the present value of any tax which would become payable if the assets were realised.
4.16 EEV methodology continued
Allowance for risk
Under the EEV Principles and Guidance, risks within the covered business are allowed for in the following ways:
· Application of risk discount rates to projected cash flows, which are derived by adding a risk margin to a risk free rate
· Holding of required capital for the covered business, determined by reference to both regulatory requirements and internal economic capital assessments
· Allowing for TVOG
Risk discount rates
Under the EEV methodology, a risk discount rate is required to calculate the present value of expected future distributable profits as a single value at a particular date. The risk discount rate comprises a risk free rate which reflects the time value of money and a risk margin allowing for the risk that experience in future years may differ from that assumed. In particular, a risk margin is added to allow for the risk that expected additional returns on certain asset classes are not achieved.
Risk discount rates have been determined as the risk free government bond yield plus a risk margin. The risk margins have been determined for market risk and non-market risk separately. For market risk, we have opted for an approach whereby the risk margin is determined such that the PVIF (excluding the allowance for the TVOG) calculated using expected 'real world' asset returns equates with the PVIF calculated using 'risk neutral' investment returns and discount rates. In this way, the benefits of assuming higher than risk free returns on future cash flows are offset by using a higher discount rate. However, when returns above the risk free rate arise from the additional returns available from investing in illiquid assets, namely corporate bonds and mortgages, where they are matched to appropriate liabilities, these are not offset in determining the discount rate. Allowance has then been made for non-market risk by applying stress tests to the PVIF using our internal capital model, and quantifying an additional risk margin based on the results of the stress tests.
The main elements of non-market risk which are stress tested are lapse, mortality, expense and credit risk assumptions. Benefits of diversification between risk types are allowed for in deriving the risk margins in line with our internal capital model.
Separate risk discount rates have been calculated for in-force and new business and for the principal geographic segments (UK, Europe and Canada). Within the UK and Europe, separate risk margins are calculated for profits emerging on policies inside the HWPF (regardless of whether these profits emerge directly from the HWPF or by reassurance into other Group entities) and on policies that are in equity holder owned funds. For HWPF policies, there is a significant inter-Group reassurance agreement in respect of mortality surpluses on annuities, which are reassured out of the HWPF. The HWPF risk margin anticipates diversification benefits including the annuity mortality risk, since the overall capital structure also benefits from this diversification.
The risk margins are also reduced to allow for any cost of required capital (excluding double taxation cost) which is already reflected within the EEV.
Market risk margins are reviewed at each valuation date, allowing for changes in risk profile arising from movements in asset mix. Non-market risk margins are reviewed in detail once a year.
The values of the risk discount rates used for this reporting period are provided in Note 4.12 - Principal economic assumptions - deterministic calculations - covered business.
In Asia, the PVIF and cost of required capital is calculated using a 'risk neutral' approach whereby projected investment returns and discount rates are based on risk free rates. As a result, there is no need for an additional market risk margin in the discount rate. Non-market risk is deducted directly from the PVIF using a 'cost of capital' approach on the risk capital arising from the key sources of non-market risk. For the Asia business, this methodology would give a similar result to the methodology used in the UK, Europe and Canada since the calibration of a risk discount rate would have allowed for the market and non-market risks.
Required capital
Required capital represents the amount of assets over and above those required to back the liabilities in respect of the covered business whose distribution to equity holders is restricted. As a minimum, this will represent the capital requirement of the local regulator.
The levels of required capital are reviewed in detail once a year.
We have set required capital to be the higher of regulatory capital and our own internally assessed risk-based capital requirement. In determining the required capital for the purposes of assessing EEV, the Group excludes any capital which is provided by the existing surplus in the HWPF, as this capital is provided by policyholders. Any required capital in excess of that provided by the existing surplus in the HWPF would need to be provided by assets in the equity holders' funds. As part of the annual assessment, projections of the expected surplus in the HWPF, on best estimate assumptions, are carried out to assess whether this is sufficient to cover the level of required capital in respect of the HWPF.
The levels of required capital in the current EEV calculations are therefore as follows:
· UK and Europe (business in HWPF) - no capital requirement in excess of statutory reserves or asset shares is valued in the EEV
· UK and Europe (business in equity holder owned funds) - 100% of EU minimum regulatory capital, which is higher in aggregate than Standard Life's internal risk-based capital requirement
· Canada - the level of required capital is taken as 150% of minimum continuing capital and surplus requirements (MCCSR)
· Asia - required capital is based on the local statutory capital requirements
The cost of required capital has been calculated using assumptions consistent with those used in the value of in-force (VIF) calculations.
Time value of financial options and guarantees (TVOG)
The TVOG represents the potential additional cost to equity holders where a financial option exists which affects policyholder benefits and is exercisable at the option of the policyholder.
UK and Europe - HWPF
The main source of TVOG in the Group EEV arises from the HWPF. Under the terms of the Scheme, equity holder cash flows from the HWPF are held back if required to cover HWPF liabilities on the Financial Services Authority realistic or regulatory basis. This option for the UK, Germany and Ireland results in the loss of cash flows when the HWPF has insufficient assets to pay guaranteed policy benefits. The main options and guarantees within the HWPF in respect of UK and Europe business relate to with profits business and include minimum guaranteed rates of return.
The value of the TVOG arising from the HWPF at any point in time will be sensitive to:
· The level of the residual estate (working capital in the HWPF)
· Investment conditions in terms of bond yields, equity and property values, and implied market volatility
· The investment profile of the assets backing the applicable policies, the residual estate and non profit business in the fund at the time the TVOG is calculated
The level of the TVOG has been calculated by a model which projects the HWPF under a large number of different future economic scenarios. Particular features of this calculation are:
· The projected economic scenarios and the methodology used to discount equity holder cash flows are based on market consistent assumptions
· The total cost includes an allowance for non-market risk
· Changes in policyholder behaviour are allowed for according to the particular economic scenario
· Changes in management actions, including the dynamic guarantee deductions, are allowed for according to the particular economic scenario, such actions being expected to be consistent with the way that the HWPF will be managed in future as described in the Scheme and in the Principles and Practices of Financial Management (PPFM)
· Each projection allows for the gradual release of the residual estate over time to policyholders where there are sufficient funds to do so
UK and Europe
Most with profits business written post demutualisation is managed in a number of new with profits funds. For the present reporting period, the only significant volumes of this type of new business have arisen in Germany. These policies have guarantees relating to benefits available on the policy maturity date. These guarantees increase each year with the addition of bonuses.
Equity holder assets are at risk if the resources of these with profits funds are insufficient to pay the guaranteed benefits. The level of the TVOG has been calculated using stochastic techniques. The TVOG has reduced both the NBC as well as the closing PVIF for Europe.
An adjustment is made to allow for TVOG arising on a selection of guaranteed annuity benefits on unit-linked and smoothed-managed businesses within Germany.
4.16 EEV methodology continued
Canada
The main options and guarantees within the Canada business are in respect of minimum investment returns, guaranteed maturity and death benefits, and vested bonuses, which apply to certain investment and insurance contracts.
Asia
The TVOG in the Asia businesses within International arises from guarantees and options given to with profits business written in India and China.
Other economic assumptions
The assumed investment returns reflect our estimates of expected returns on principal asset classes, and are, in general, based on market conditions at the date of calculation of the EEV.
The inflation rates assumed are, in general, based on the market implied long-term price inflation plus a margin to allow for salary inflation.
The Group's offshore business, which is sold by SLIL, is included within International results but has the same economic assumptions as UK covered business.
Details of the assumptions used for this reporting period are provided in Note 4.12 - Principal economic assumptions - deterministic calculations - covered business.
Non-economic assumption changes
Non-economic assumptions for the main classes of business, including most expense assumptions, are reviewed on an annual basis.
Expense assumptions
Expense assumptions on a per policy basis have been derived based on an analysis of management expenses performed by each business, and are split between acquisition and maintenance assumptions.
In determining future expenses in relation to covered business, no allowance has been made in the EEV or the NBC for any allocation of Group corporate centre costs.
Development expenses represent specific expenses incurred which are considered temporary in nature and are not expected to occur again.
Costs related to restructuring have been excluded from the EEV results where it has been agreed that these costs are to be met by the HWPF and therefore would not form part of the surplus cash flows.
Global investment management expenses are also allowed for, and the assumptions for these reflect the actual investment expenses of Standard Life Investments in providing global investment management services to the life and pensions business rather than the investment fees actually charged.
Restructuring expenses for covered and non-covered business include the current year cost of the Continuous Improvement Programme (CIP) and any additional restructuring expenses consistent with those identified in the IFRS operating profit adjustments. The total restructuring expenses are included together with the cost of any corporate activity in restructuring and corporate transaction expenses.
Acquisition costs used within the calculation of the NBC reflect the full acquisition expenses incurred in writing new business in the period.
Expenses - pension scheme deficits
Pension scheme deficits have been included in accordance with International Accounting Standard (IAS) 19 Employee Benefits. IFRIC 14 IAS 19 - The Limit on a Defined Benefit Asset, Minimum Funding Requirements and their Interaction was adopted by the Group from 1 January 2008. The interpretation provides guidance on assessing the limit in IAS 19 Employee Benefits on the amount of any surplus that can be recognised as an asset and explains how the pension asset or liability may be affected by a statutory or contractual minimum funding requirement.
Other non-economic experience assumptions
Assumptions are made in respect of future levels of mortality, morbidity, premium terminations, option take-up, surrenders and withdrawals. The assumptions reflect our best estimates of the likely future experience, and are based on recent experience and relevant industry data, where available.
Annuitant mortality assumptions use a combination of base mortality rates, which are generally set by reference to recent experience, and expected future changes in mortality. The latter uses data provided by the Continuous Mortality Investigation Bureau in the UK and the Canadian Institute of Actuaries in Canada along with other company specific considerations.
Assumptions regarding option take-up, surrenders and withdrawals are assumed to vary, where appropriate, according to the investment scenario under consideration when deriving the TVOG, to reflect our best estimate of how policyholder behaviour may vary in such circumstances.
New business
Definition of new business
New business includes new policies written during the period and some increments to existing policies.
For the UK, classification as new or existing business is determined as follows (using the approach used for the published new business figures):
· New recurrent single premium business is classified as new regular premium business to the extent that it is deemed likely to renew
· Department of Work and Pensions (DWP) rebates are deemed to be new single premiums
· Pensions vesting into annuity contracts under existing group defined benefits contracts are not included as new business
· Pensions vesting under other group contracts and individual pensions are included as new business
· Products substituted due to the exercise of standard contract terms are not deemed to be new business
· All increments and indexations to existing policies, including new members, and increments and indexations paid by existing members of group schemes, are deemed to be new business
For Germany, new business comprises new contracts written into the equity holder owned funds during the period.
The new business contribution for Germany is calculated assuming a specific level of future premium indexation. Similarly, it is assumed that premiums on 'Low Start' policies increase at the end of the low start period.
For Ireland, new business is determined as follows:
· New contracts written during the period are included as new business
· New premiums on recurrent single premium contracts are included as new business
· Pensions vesting into annuity contracts under existing group defined benefits contracts are not included as new business
· Pensions vesting under other group contracts and individual pensions are included as new business
· All increments and indexations to existing policies, including new members, and increments and indexations paid by existing members of group schemes, are deemed to be new business
For Canada, business is deemed to be 'new business' if a contract has been issued during the reporting period. The new business contribution also includes the value of renewal premiums for a new contract, where the renewal premiums are (i) contractual, (ii) non-contractual but reasonably predictable, or (iii) recurrent single premiums that are pre-defined and reasonably predictable. The present value of future net income attributable to renewal premiums on existing group pension and savings contracts, including those from new members, is not included as new business. Since all deposits (new and renewal) in individual segregated funds business attract a new business/first year commission, this business is treated as new business for EEV purposes.
For Asia, 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.
4.16 EEV methodology continued
New business contribution (NBC)
The contribution generated by new business written during the period is the present value of the projected stream of after-tax distributable profit from that business. NBC before tax is calculated by grossing up the contribution after tax at the full corporation tax rate for UK business and at other equivalent rates of tax for other countries. NBC is calculated as at the end of the reporting period.
The economic assumptions used are those at the start of the reporting period, and the non-economic assumptions are those at the end of the reporting period. An exception to this policy is annuity business in the UK and Ireland where, to ensure consistency between the economic assumptions used in the NBC and those used in pricing the business and in the calculation of mathematical reserves, the economic assumptions used are the average rates for each quarter during the reporting period, and the asset allocations are those used in the pricing basis.
Present value of new business premiums (PVNBP)
New business sales are expressed as the PVNBP. The PVNBP calculation is equal to total single premium sales received in the period plus the discounted value of regular premiums expected to be received over the term of the new contracts, and is expressed at the point of sale. The premium volumes and projection assumptions used to calculate the present value of regular premiums for each product are the same as those used to calculate NBC, except that the PVNBP is discounted using the relevant opening risk free rate rather than the risk discount rate.
Tax
The opening and closing EEV numbers for the covered business are determined on an after-tax basis. The tax assumptions used are based upon the best estimate of the actual tax expected to arise. Attributable tax and profit before tax are derived by grossing up profit after tax at the long-term rate of corporation tax appropriate to each territory. While for some territories this rate does not equate to the actual effective rate of tax used in the calculation of after-tax profits, it provides a consistent grossing up basis upon which to compare results from one year to another and is in line with the Group's expectation of the rate of tax applicable to new business.
During 2009, a loan was made to the HWPF by Standard Life plc, repayment of which is contingent on the emergence of recourse cash flows and surplus in the HWPF ('contingent loan agreement'). A transfer to equity holders was then made to transfer the remaining unallocated surplus to equity holders without equity holder tax arising. As a result of this the market risk associated with unallocated surplus was reduced. Future transfers to equity holders from the HWPF will, in the first instance, take the form of repayments under the contingent loan agreement. Such transfers can be made without equity holder tax arising for a number of years. Over time the actual effective tax rate on these transfers to equity holders will move toward the standard rate of corporation tax.
For non-covered business, attributed tax is consistent with the IFRS financial statements, unless otherwise stated.
Subordinated liabilities
The liabilities in respect of the UK subordinated guaranteed bonds and Mutual Assurance Capital Securities plus the subordinated debt issued by Canada form part of covered business and have been deducted at market value within the EEV. The Canada subordinated liability is owned by a non-covered subsidiary of the Group, where the asset is valued on an amortised cost basis. Total Group EEV has been adjusted to exclude the difference between the market value and the amortised cost value of the Canada subordinated liability.
For non-covered business, no adjustment is made to the IFRS valuation of debt.
Foreign exchange
Embedded value and other items within the statement of financial position denominated in foreign currencies have been translated to Sterling using the appropriate closing exchange rates. NBC and other items within the income statement have been translated using the appropriate average exchange rates. Gains and losses arising from foreign exchange differences on consolidation are presented separately within the EEV consolidated statement of comprehensive income.
Details of the exchange rates applied are provided in Note 4.14 - Foreign exchange.
This information is provided by RNS
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