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30.01.2008
New Business Results - twelve months to 31 December 2007

Read the full New Business Results – twelve months to 31 December 2007(218Kb).

• Worldwide life and pensions salesup 12% to £16,312m (2006: £14,599m).
  
  
• UK life and pensions sales up 15% to a record level of £13,174m (2006: £11,436m).
  
  -     Individual SIPP* sales up 24% to £4,538m (2006: £3,651m).
  
  -     Group Pensions sales up 29% to £2,574m (2006: £1,989m).
  
  -     Wrap funds under administration exceed £1bn (2006: £0.2bn).

• Standard Life Investments worldwide investment net inflows up 39% to £6,361m (2006: £4,578m).
  
  -     Third party funds under management up 24% to £47.7bn (31 December 2006: £38.5bn), driven by third party net inflows of £7.9bn (2006: £6.4bn)
  
  -     Total funds under management up 9% to £143.4bn (31 December 2006: £132.1bn). 

• We expect to achieve all our financial and efficiency targets for 2007.

Unless otherwise stated, all comparisons are in sterling, all sales figures are on a PVNBP basis and all comparators are with the twelve months of 2006.  *Individual SIPP includes Insured SIPP & Drawdown and Non-Insured SIPP.

Group Chief Executive Sandy Crombie said:

“The group’s performance in 2007 was good, consolidating the strong progress made in previous years.  We grew worldwide life and pensions sales by 12%, and Standard Life Investments continues to deliver strong growth, despite challenging market conditions in the second half of the year.  At our Preliminary results on 12 March 2008, we expect to report the achievement of all our financial and efficiency targets for 2007.

“The early indications are that some of the markets in which we operate will remain difficult in 2008.  We have however made a good start to 2008 and expect to improve our overall performance in the coming year.  Our confidence is based on our excellence in managing assets, industry-leading customer service, strong distribution relationships and the ongoing initiatives to improve efficiency.”

Standard Life group

The group’s new business performance during 2007 has been good, despite difficult market conditions in the second half of the year, with growth of 12% in worldwide life and pensions and a 39% increase in investment net inflows.  The moderation in the growth rate from that seen in the first half of 2007 was due to lower levels of UK new business, reflecting the impact of seasonality, uncertainties in the tax regime affecting bond products and volatility in financial markets. In addition, we secured an unusually large bulk TIP mandate in the final quarter of 2006.  Excluding the bulk TIP mandate, worldwide life and pensions sales increased by 19% to £16,312m (2006: £13,759m) for the full year.

Net flows were healthy during 2007 with net investment inflows of £6.4bn (2006: £4.6bn) and net inflows in our UK life and pensions operations of £2.5bn (2006: £3.2bn).

UK Financial Services

The new business performance of our UK financial services division reflects strong growth in the first half of the year, followed by resilient performance, in the face of difficult market conditions, in the second half.

Life and pensions new business volumes increased by 15% to a record level of £13,174m (2006: £11,436m), driven by 11% growth in pensions and a 38% increase in savings and investment sales.  Gross mortgage lending and healthcare sales increased by 22% and 10% respectively.

SIPP funds under administration have increased to £7.7bn at the year-end (31 December 2006: £4.3bn).  At 31 December 2007 we had 46,900 SIPP customers (31 December 2006: 25,200) with an average case size of £164,000. 

Individual SIPP sales increased by 24% to £4,538m (2006: £3,651m).  Second half SIPP sales were lower than the first half, largely reflecting expected seasonal trends as well as the difficult market conditions highlighted in our Q3 sales release.  Whilst market conditions remain challenging, we are encouraged by SIPP sales achieved in 2008 to date, which are higher than the strong prior year comparative. 

We remain confident in the prospects for the UK SIPP market.  We expect the fundamental attractions of SIPP, namely customer control, choice and flexibility, to underpin growth.  We continue to innovate our SIPP proposition, with developments such as a high-yielding cash account and the introduction of on-line servicing during the first quarter.  Further enhancements to our SIPP offering scheduled for 2008 include the launch of a GARS (Global Absolute Return Strategy) fund link, accepting protected rights and the launch of a variable annuity offering for the post-retirement market.  We believe our competitive advantages of our people, processes and platform, coupled with our ongoing programme of proposition enhancements, leave us well positioned to capitalise on the expected growth in this market. 

At 31 December 2007, funds under administration on Standard Life’s Wrap platform had increased to £1.1bn (31 December 2006: £0.2bn).  At the end of the year there were 209 IFA firms using the platform (31 December 2006: 88 firms) and 8,100 customers (31 December 2006: 900 customers) with an average fund size of £133,000.  In 2008 we plan to continue this strong growth in our IFA user base. 

Individual Pension sales decreased by 18% to £782m (2006: £951m).  This reflects heightened activity in 2006 post A-day and our decision not to pay commission on new business, which leads to sales being generated mainly from increments to existing policies.

Group Pensions sales increased by 29% to £2,574m (2006: £1,989m), reflecting the strong levels of new and incremental business during the fourth quarter and the large group stakeholder scheme rewritten as a Group SIPP in the second quarter (£140m).  Group SIPP accounted for 27% of total Group Pensions sales during the year (2006: 14%).  At 31 December 2007 UK Group Pension funds under management had increased to £15.0bn (31 December 2006: £13.5bn).  At the end of 2007 we had a strong pipeline of new business, with a large scheme expected to transition during the first quarter.

Trustee Investment Plan (TIP) and Personal Pension Investment Plan (PPIP) new business decreased by 14% to £2,089m (2006: £2,428m).  However, this movement reflects the £840m bulk TIP mandate from Citigroup which was secured in the fourth quarter of 2006, and which accounted for 23% of total UK life and pensions sales in that quarter.  Excluding this transaction TIP and PPIP new business increased by 32% for the full year.

Savings and investments sales increased by 38% to £2,672m (2006: £1,937m).  Sales of Offshore Bonds, at £284m, were over seven times the level of the prior year (2006: £39m), and benefited from the launch of our retail portfolio bond and our distribution agreement with Fidelity.  Investment Bond sales fell marginally to £1,824m (2006: £1,862m).  This was despite the slowdown in the onshore market in the second half of the year, which was driven by weakness in global financial markets and uncertainty regarding proposed capital gains tax changes.  We await clarity on the capital gains tax proposal - any sales impact will be monitored and appropriate action taken where necessary.

Sales of Mutual Funds via our Wrap and FundZone platforms increased significantly during the year to £564m (2006: £36m) with strong growth rates in the first three quarters partially offset by market-driven lower sales levels in the final quarter.

Annuity sales increased by 13% to £494m (2006: £438m).  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 non-traditional IFA channels (consulting actuaries, employee benefit consultants and banks) and other new channels (including multi-tie and single-tie arrangements) represented 41% of new business (2006: 34%).

Net flows for life and pensions business were £2.5bn during 2007 (2006: £3.2bn).  Within this total, net pensions flows were £2.7bn (2006: £3.6bn).  Excluding volatile institutional TIP flows, underlying net pensions flows were £1.7bn (2006: £1.9bn).  Net outflows for our savings and investments portfolio were £0.2bn during the period (2006: net outflow of £0.4bn).  Claims activity across our life and pensions portfolios remains above long-term assumed levels, despite an improvement in recent weeks.  In line with normal industry practice, we will review our operating assumptions as part of the year end process.

Gross mortgage lending increased by 22% to £3,652m (2006: £2,995m) with sales volumes resilient to difficult market conditions throughout the year.  At the end of the year mortgages under management stood at £11.3bn (31 December 2006: £10.4bn).  Our mortgage portfolio remains of the highest quality with an arrears rate of 0.18% at 31 December 2007, compared with an industry average of 1.15% at the end of the third quarter. 

Healthcare sales rose by 10% to £22m (2006: £20m) on an annual premium equivalent (APE) basis.  Following the launch of our SME product we expect further progress in this market over the coming months. 

Europe

Life and pensions sales in Europe increased by 35% in constant currency to £1,179m (2006: £866m).  

Sales in Ireland increased by 38% in constant currency to £457m (2006: £330m) reflecting the continued popularity of our new products, self investment options inspired by the UK SIPP platform, and our improved standing amongst financial advisers.   We have increased the proportion of single premium sales, which have greater profitability and lower capital strain.

In Germany sales were up by 34% on a constant currency basis to £722m (2006: £536m) due to the success of our new unit-linked product, Maxxellence and initiatives to strengthen distribution. 

Canada

New business in our Canadian operations fell by 19% in constant currency to £1,657m (2006: £2,091m).  Excluding exceptionally large transactions, underlying sales volumes fell by 8%.  This underlying trend reflects our focus on margin over volume as well as the planned realignment of our distribution capability, which reduced sales levels earlier this year.  Sales in Canada increased during the fourth quarter relative to the third quarter, principally reflecting a large Group Savings and Retirement mandate, which transitioned during the period.

Group Savings and Retirement sales decreased by 27% in constant currency to £841m (2006: £1,188m).  Fourth quarter sales volumes benefited from a £196m mandate from Bombardier Recreational Products (BRP).  Competition within the market remains aggressive and quote activity across all segments has reduced. 

Individual Insurance, Savings & Retirement sales were down 20% in constant currency to £357m (2006: £460m) reflecting 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. 

Group Insurance sales were up 26% in constant currency to £175m (2006: £143m).  Sales volumes for 2007 increased in the fourth quarter, reflecting our success in the disability insurance segment following our strategic repositioning in that market. 

Asia Pacific

Combined sales from our joint ventures in India and China and our Hong Kong operations have increased in constant currency by 67%7 on a PVNBP basis and by 91% on an APE basis.  Standard Life’s share of these sales was £302m (2006: £206m) on a PVNBP basis. 

Sales from our Indian joint venture HDFC Standard Life Insurance Limited increased in constant currency by 43% on a PVNBP basis and by 75% on an APE basis.  The number of financial consultants appointed by the joint venture has increased to approximately 132,000, an increase of 33,000 during the fourth quarter.   At year end, we increased our stake in the joint venture to 26%, which is the maximum permitted by the Indian Regulator.  The joint venture has also announced its intention to IPO part of the business by the end of 2009.

Sales generated by our Chinese joint venture, Heng An Standard Life increased in constant currency by 121% on a PVNBP basis and by 118% on an APE basis, reflecting our continued expansion in major cities.  During the fourth quarter Heng An Standard Life moved into a top 10 position by market share amongst the Sino-foreign JV group in China.  Our joint venture was also the first life insurance company in China to launch a group pension plan product that attracts tax relief. 

Standard Life Investments

Standard Life Investments has continued to attract strong levels of new business throughout the year, despite the challenging market faced in the second half.  Worldwide investment net inflows for the year increased by 39% to £6,361m (2006: £4,578m).

Strong sales of institutional and retail business led to UK net inflows increasing by 34% to £5,439m (2006: £4,050m).  Retail mutual fund inflows increased by 13% to £1,460m (2006: £1,287m) despite a slowdown in gross inflows during the second half, which can be directly linked to the recent volatility in global financial markets.  Inflows into Private Equity funds increased by 31% to £464m (2006: £354m), due to the large mandate of €400m (£279m) from CalPers which transitioned during the third quarter.  Segregated fund inflows increased by 64% to £2,322m (2006: £1,417m) partly due to two large bond mandates in the third quarter.

Over the year we experienced a strengthening of net inflows in respect of our Canadian and International operations to £400m (2006: £104m) and £522m (2006: £424m) respectively. 

Third party assets under management have increased by 24% to £47.7bn (31 December 2006: £38.5bn) driven by strong third party net inflows of £7.9bn (2006: £6.4bn), which accounted for 87% of this increase.  Total assets under management increased by 9% to £143.4bn at 31 December 2007 (31 December 2006: £132.1bn). 

Investment performance has been steady with 13 of the 23 pooled pension funds outperforming their respective peer groups during the twelve months to 31 December 2007. The majority of our 24 OEICs and Unit Trusts continued to outperform their peer group with seven funds achieving top quartile performance with the European Equity Growth Fund returning top decile performance.  Management of the range was also recognised with 18 of the 24 actively managed funds rated ‘A’ or above by Standard & Poor’s.

Standard Life group outlook

At our 2007 Preliminary results we expect to report the achievement of all our financial and efficiency targets for the year, along with increased cash flow, driven by growth in sales and the continued delivery of operational improvements. 

Volatile investment markets, the downturn in the commercial property sector, and uncertainties in the tax regime affecting bond products are expected to continue to have an impact on the UK market during the first quarter. 

However we expect to maintain our market leading position, due to our ongoing development of propositions that are attractive in the current market environment and the resilience of our distribution channels. Early indications from January 2008 support this expectation, with UK life and pensions sales achieved to date higher than the strong prior year comparative.

In recent weeks, we launched Standard Life Wealth, a new discretionary investment management business which further broadens our offering in the UK financial services market.  Standard Life Wealth will target individuals, charities and small or executive pension schemes with at least £2m of investable assets.

Internationally, the prospects for 2008 are encouraging. In Europe market conditions continue to be difficult but while we expect the rate of growth will slow compared to that seen in 2007, we anticipate 2008 will be ahead of last year.  In Canada the ongoing rebuilding of our retail sales force and already secured sales will provide a more positive start to 2008 than the prior year.  In Asia Pacific we expect further strong growth in our operations driven by new product launches, wider distribution and market expansion. We expect to see continued strong growth in the Indian market due to an increase in household incomes, favourable demographics and increased penetration of rural markets. In China we expect continued product innovation as our joint venture utilises its geographical advantage of being based in the Tianjin Binhai New Area Insurance Pilot Zone.

The outlook for Standard Life Investments remains positive, despite volatile markets and the industry wide slow down in mutual fund sales experienced during the fourth quarter of 2007.  Strong third party inflows, driven by institutional funds, are expected to sustain continued growth in third party assets under management.

We look forward to 2008 with confidence.

Read the full New Business Results – twelve months to 31 December 2007(218Kb).

Ends

For further information please contact:

Institutional Equity Investors:

Gordon Aitken
0131 245 6799

Duncan Heath
0131 245 4742

Retail Equity Investors:

Computershare
0845 113 0045

Media:

Barry Cameron
0131 245 6165 / 07712 486 463

Neil Bennett (Maitland)
020 7379 5151 / 07900 000 777

Debt Investors:

Andy Townsend
0131 245 7260

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