26.10.2007
New Business Results - nine months to 30 September 2007
- Worldwide life and pensions sales1 up 21% to £11,669m (2006: £9,690m).
- UK life and pensions sales up 27% to £9,850m (2006: £7,777m)
- Individual SIPP* sales up 43% to £3,577m (2006: £2,506m).
- Group Pensions sales up 31% to £2,000m (2006: £1,532m).
- Standard Life Investments worldwide investment net inflows up 95% to £6,078m (2006: £3,121m).
- Third party funds under management up 24% to £47.7bn (31 December 2006: £38.5bn).
- Total funds under management up 8% to £142.2bn (31 December 2006: £132.1bn).
- On track to meet our target of a 9 – 10% return on embedded value in 2007 and increasing thereafter.
All comparisons are in sterling unless otherwise stated2. All sales figures are on a PVNBP basis unless otherwise stated. All comparators are with the first nine months of 2006 unless otherwise stated. *Individual SIPP includes Insured SIPP & Drawdown and Non-Insured SIPP.
Group Chief Executive Sandy Crombie said:
"Our performance has been strong this year. Worldwide life and pensions sales are up 21%, with strong growth in our UK and European operations despite more challenging conditions, particularly in the UK, during the third quarter.
Standard Life Investments continues to make great progress and our investment net flows have increased substantially in spite of the recent volatility seen in global financial markets.
The Group’s success has been driven by industry-leading customer service, sustained investment outperformance and an innovative suite of products.
These qualities will underpin our future growth and help deliver continuing strong performance.”
Standard Life group
The Group’s new business performance in the first nine months of 2007 has been strong, with growth of 21% in worldwide life and pensions and a 95% increase in investment net inflows. The moderation in growth rate from that seen in recent quarters was due to lower levels of UK new business in the third quarter, reflecting the impact of seasonality, recent volatility in financial markets, competitor pricing activity, and a tougher 2006 Q3 comparator.
We remain confident of achieving our previously announced margin targets and are on track to meet our target of a
9 – 10% return on embedded value in 2007 and increasing thereafter.
UK Financial Services
Our UK financial services division has enjoyed strong growth in the first nine months of 2007. Life and pensions new business volumes increased by 27% to £9,850m, driven by a 28% growth in pensions and a 23% increase in life sales. Gross mortgage lending and healthcare sales increased by 28% and 7% respectively.
Individual SIPP sales increased by 43% to £3,577m (2006: £2,506m), resulting in SIPP funds under administration growing to £7.1bn3 at the end of the third quarter (31 December 2006: £4.3bn). At 30 September 2007 we had 41,700 SIPP customers (31 December 2006: 25,200) with an average case size of £169,000. Our third quarter SIPP sales were lower than the second quarter, reflecting seasonality and the action by some competitors to increase commission rates on traditional pension products. We continue to invest in our SIPP proposition, with enhancements such as online servicing due to be launched in 2008. We believe our competitive advantages of superior customer service and the ability to invest in improving our proposition will enhance our market-leading status in the SIPP market.
Standard Life’s Wrap proposition continues to be rolled out and developed with IFAs. At 30 September 2007, funds under administration on the Wrap platform had increased to £0.8bn3 (31 December 2006: £0.2bn). At the end of the third quarter there were 183 IFA firms using the platform (31 December 2006: 88 firms) and 5,900 customers (31 December 2006: 900 customers) with an average fund size of £138,000. We expect total funds under administration on the Wrap platform to exceed £1.0bn during the fourth quarter.
Group Pensions sales increased by 31% to £2,000m (2006: £1,532m). Group SIPP accounted for 27% of total Group Pensions sales during the 9 month period (2006: 13%). As previously disclosed, Group Pension sales in the second quarter benefited from the rewrite of a group stakeholder scheme as a Group SIPP and significant DWP rebates. At 30 September 2007 UK corporate pension funds under management increased to £15.0bn (31 December 2006: £13.5bn).
Trustee Investment Plan (TIP) and Personal Pension Investment Plan (PPIP) new business increased by 26% to £1,557m4 (2006: £1,231m) driven by strong investment performance.
Life sales increased by 23% to £1,656m (2006: £1,348m) partly due to a 13% increase in Investment Bond sales to £1,488m (2006: £1,322m). In addition, sales of our Offshore Bond, at £168m, were over six times the level reported in the prior year period (2006: £26m), helped by the launch of our retail portfolio bond and our distribution agreement with Fidelity. The impact of recent capital gains tax proposals may subdue sales of investment bonds while the new tax regime is clarified but should benefit mutual fund sales through FundZone.
Annuity sales increased by 19% to £381m (2006: £320m). 94% of annuity sales came from customers with maturing Standard Life pensions (2006: 93%).
We continue to strengthen our distribution capability in the UK life and pensions market by diversifying across channels whilst maintaining strong growth in the traditional IFA sector. Sales generated through channels other than traditional IFAs represented 41% of new business (2006: 28%) reflecting growth through Consulting Actuaries, multi-tie and single-tie distribution arrangements.
Net flows for life and pensions business were £1.5bn during the first 9 months of 2007 (2006: £2.3bn)5. Within this total, net pensions flows were £2.1bn (2006: £2.5bn). Excluding institutional TIP, underlying net pensions flows were £1.4bn (2006: £1.8bn). Net life outflows were £0.6bn during the period (2006: net outflow of £0.2bn).
Gross mortgage lending increased by 28% to £2,697m (2006: £2,111m) with sales in the third quarter benefiting from the launch of new products and expected seasonal trends. At the end of the third quarter mortgages under management stood at £11.0bn (31 December 2006: £10.4bn). Our mortgage portfolio remains of the highest quality with an arrears rate of 0.17% at 30 September 2007, compared with an industry average at the end of the second quarter of 1.15%.
Healthcare sales rose by 7% to £16m (2006: £15m) on an annual premium equivalent (APE) basis. Following the recent launch of our SME product we expect further progress in this market over the coming months.
We have to date seen an increase in UK life and pensions sales during the month of October compared to September. However, against a backdrop of more volatile investment markets, increased cost of debt, lower expected returns from commercial property and new uncertainties in the tax regime affecting bond products, we expect slower market growth in the fourth quarter compared with the previous year. During this period, we expect to at least maintain our market leading position.
Europe
Life and pensions sales in Europe remained buoyant in the third quarter with sales for the first nine months increasing by 50% in constant currency to £771m (2006: £521m).
In Germany sales were up by 30% on a constant currency basis to £417m (2006: £325m) due to the success of our new unit-linked product, Maxxellence and initiatives to strengthen distribution. In July, we introduced a basic variant of the Maxxellence product, which has broadened the reach of the offering.
Sales in Ireland increased by 82% in constant currency to £354m (2006: £196m). This reflects the continued popularity of our new products, self investment options inspired by the UK SIPP platform, and our improved standing amongst financial advisers.
As a consequence of current market volatility, we expect the short-term growth rate across our European operations to slow from the levels seen in recent quarters.
Canada
Our Canadian operations have returned to growth during the third quarter, following the planned realignment of our distribution capability, which reduced sales levels earlier this year. An 18% increase in third quarter sales in constant currency to £266m (2006: £228m), driven by strong growth in all product lines, demonstrates that this initiative is starting to deliver.
Over the full nine month period, however, sales in our Canadian business were down 27% in constant currency to £855m (2006: £1,253m) reflecting our continuing focus on value over volume in a competitive market as well as a number of large transactions which boosted the prior year figure. Excluding these transactions, underlying sales volumes declined by 2% on a constant currency basis.
Group Savings and Retirement sales during the nine month period decreased by 37% in constant currency to £481m (2006: £820m). However, the comparative period contains two large transactions, which accounted for £319m. Competition within the market remains aggressive and quote activity across all segments is slowing down. Nevertheless, sales increased by 13% during the third quarter. A number of large schemes, which have already been secured, should result in a further recovery when they are reflected in the fourth quarter sales.
Individual Insurance, Savings & Retirement sales were down 19% in constant currency to £262m (2006: £348m). This reflects the continuing realignment of our sales operations and the inclusion in the prior year of unprofitable Universal Life sales, which the company no longer writes. Sales during the third quarter increased by 10% compared to the prior year. A further increase in sales levels is expected in Q4 as we continue to rebuild our sales capacity and increase our presence with wealth management distributors.
Group Insurance sales were up 40% in constant currency to £112m (2006: £85m), reflecting our success in the health insurance segment and the repositioning of our strategy. We are making significant progress with our new disability consulting offering with a large client recently secured and expected to be reflected in the first quarter sales next year.
The ongoing rebuilding of our retail sales force and confirmed sales in Group Savings and Retirement will provide the necessary momentum for a positive start to 2008.
Asia Pacific
Combined sales from our joint ventures in India and China and our Hong Kong operations have increased by 65% in constant currency. Standard Life’s share of these sales was £193m (2006: £139m)6.
Sales from our Indian joint venture HDFC Standard Life Insurance Limited increased by 44% in constant currency. Standard Life’s share of these sales was £147m (2006: £124m). The number of financial consultants appointed by the joint venture has increased to 99,300, an increase of 14,800 during the third quarter.
Sales generated by our Chinese joint venture, Heng An Standard Life, more than doubled in constant currency, reflecting our continued expansion in major cities within existing provinces. Standard Life’s share of these sales was £33m (2006: £15m). During the third quarter we further developed our presence within the Chinese market through the opening of a new branch in Liaoning province and launched unit-linked products for distribution through the employed salesforce and banks.
We expect further strong growth in our Asia Pacific operations, driven by new product launches, wider distribution and market expansion.
Standard Life Investments
Standard Life Investments has continued to perform well despite volatility in global financial markets in the third quarter. Worldwide investment net inflows increased by 95% to £6,078m (2006: £3,121m).
Strong sales of institutional and retail business led to UK net inflows increasing by 83% to £5,223m (2006: £2,849m). Retail mutual fund inflows increased by 52% to £1,401m (2006: £920m) despite a marked slowdown in gross inflows during the third quarter, which can be directly linked to the recent volatility in global financial markets. Inflows into Private Equity funds increased substantially by 174% to £460m (2006: £168m), principally due to a large mandate from CalPers7 of €400m (£279m), which transitioned during the third quarter. Segregated fund inflows increased by 112% to £2,071m (2006: £978m) partly due two large bond mandates, which transitioned during the third quarter.
We experienced a strengthening of net inflows in respect of our Canadian and International operations to £365m (2006: £72m) and £490m (2006: £200m) respectively, the trend in Canada reflecting a number of liability driven investment mandates won during the period.
Total assets under management increased by 8% to £142.2bn at 30 September 2007 (31 December 2006: £132.1bn). This increase has been driven by third party assets under management, which have increased by 24% to £47.7bn (31 December 2006: £38.5bn) on the back of strong third party net inflows.
Investment performance has held up well despite volatile market conditions, with 19 of our 23 mutual funds above median, and 4 of these in the top decile over a 12 month period. In addition, during the year to 31 August, 20 of our 23 pooled pension funds were above median, with 3 of these funds in the top decile.
The outlook for Standard Life Investments remains positive with strong third party inflows, driven by institutional funds, expected to sustain continued growth in third party assets under management.
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