30.10.2008
Interim Management Statement - nine months to 30 September 2008
Unless otherwise stated, all sales figures are on a Present Value of New Business Premiums (PVNBP) basis and all comparisons are in sterling and with the nine months ending 30 September 2007.
Strong net flows in testing market conditions
- Worldwide life and pensions net inflows of £2.3bn1 (2007: £2.4bn)
- Worldwide third party net investment inflows, excluding money market funds, of £3.2bn (2007: £4.8bn)
New business sales demonstrate robust business model
- Worldwide life and pensions sales marginally higher at £12.4bn (2007: £12.3bn)
Balance sheet resilient
- Financial Groups Directive (FGD) surplus of £3.4bn at 30 September 2008 (30 June 2008: £3.5bn)
- A further 40% fall in equity markets from 30 September 2008 would result in an FGD surplus of £1.9bn
Group Chief Executive Sandy Crombie said:
“I am pleased to report that Standard Life has produced a solid performance in the first nine months of 2008, despite the market turbulence. The conservative investment management policies we have adopted over the past few years have resulted in a balance sheet that is both strong and resilient.
“While markets are volatile and may remain that way for some time, we are well positioned to continue to attract institutional and retail assets due to our innovative product set, excellence in customer service and strong distribution relationships.”
Strong net flows in testing market conditions
Total net flows across our Worldwide life and pensions operations1 were only 2% lower at £2.3bn, the strong growth in our international operations offsetting the continued difficult market conditions in the UK.
UK life and pensions net flows were 15% lower at £1.7bn. Within this total, net Pensions flows excluding volatile Institutional TIP flows were 2% lower at £1.3bn (2007: £1.4bn), reflecting reduced transfer values. In Savings and investments there was a net outflow of £243m (2007: net outflow of £99m) due to lower Investment bond sales that were affected by market uncertainty and recent CGT changes. Against this, we have seen continued strong growth in Offshore bond net inflows. Claims levels across our pensions and with profits portfolios continue to trend downwards and are within long-term assumptions. Claims levels of unit-linked bonds remain consistent with the short-term lapse provision set up at the 2007 year-end.
In Europe, net flows strengthened by 7% to £351m, due to higher German net inflows from regular premium business. Canadian net flows of £292m have increased by 371%, reflecting higher inflows across Group savings and retirement products, which exceeded scheduled annuity payments.
Standard Life Investments has performed well during the period despite the economic uncertainty, with worldwide third party investment net inflows of £1.7bn (2007: £6.1bn). Excluding volatile flows into our money market funds, inflows were £3.2bn (2007: £4.8bn).
New business sales demonstrate robust business model
UK Financial Services
UK life and pensions sales of £9.8bn were 5% lower in the first nine months of 2008, driven by a 6% decrease in pension sales against a strong prior year comparator. Due to normal seasonality across our key product lines, the third quarter is traditionally the weakest of the year. During this quarter, life and pensions sales were 14% lower at £2.6bn (2007: £3.1bn), the impact of expected seasonal trends exaggerated by lower transfer values. Consistent with our strategy to manage our mortgage exposure, gross mortgage lending decreased by 65% to £0.9bn (2007: £2.7bn). Healthcare sales increased by 19% on an APE basis to £19m (2007: £16m).
Individual SIPP funds under administration increased by 13% to £8.7bn2 (31 December 2007: £7.7bn), as the impact of net inflows of £1.9bn (2007: £2.7bn) was partly offset by a market-driven reduction in underlying asset values. During the period SIPP customer numbers increased by 30% to 61,000 (31 December 2007: 46,900) with average case sizes across our SIPP portfolio of £142,000 at the end of September (31 December 2007: £164,000).
Individual SIPP sales of £2.9bn were 19% lower than a strong prior year period that reflected heightened activity post A-day. Third quarter sales were 20% lower at £815m. This is largely due to the impact of market movements on average incoming transfer values, which continue to represent the majority of total SIPP sales.
Group pensions sales increased by 10% to £2.3bn, reflecting strong levels of new and incremental business and a large scheme (£224m) won during the first quarter. Group SIPP volumes increased by 31% and accounted for 31% of total Group pensions sales (2007: 26%). At 30 September 2008, UK Group pensions funds under management were £14.6bn (31 December 2007: £15.0bn), the strong growth in new business volumes being offset by negative market movements.
Savings and investments sales increased by 2% to £2.1bn, though the third quarter saw a drop of 29% in the face of the turbulent market environment. The continued popularity of our retail portfolio bond helped increase Offshore bond sales by 158%. Sales of Mutual funds sold on our Wrap and Fundzone platforms increased by 21% to £493m. However, sales of Investment bonds continued to be impacted by the combination of market uncertainty and the changes in CGT rules and were 20% lower at £1.2bn.
At 30 September 2008, funds under administration on Standard Life’s Wrap platform had increased by 45% to £1.6bn (31 December 2007: £1.1bn). At the end of the quarter there were 334 IFA firms using the platform (31 December 2007: 209 firms) and 14,300 customers (31 December 2007: 8,100 customers) with an average fund size of £114,000 (31 December 2007: £133,000).
At 30 September 2008 mortgages under management stood at £10.1bn (31 December 2007: £11.3bn), with an arrears rate of 0.30%, which is a fifth of the Council of Mortgage Lenders industry average reported at 30 June 2008.
Savings balances in our banking operations continue to increase with total savings balances at 30 September 2008 of £4.8bn (31 December 2007: £4.6bn). This total includes combined SIPP and Wrap balances of £1.3bn (31 December 2007: £0.6bn).
Europe
Life and pensions sales in Europe were 29%3 lower with the third quarter trend broadly matching this rate. In Ireland, sales of £228m were 44%3 lower, driven by decreasing property prices and a weak domestic stock market. Sales in Germany of £402m were 16%3 lower and were affected by changes in insurance contract regulations introduced at the beginning of the year and the recent introduction of transparency rules.
Canada
Canadian sales continue to grow following the successful repositioning of the business. Canadian new business increased by 32%3 to £1.6bn despite the adverse impact of the recent financial crisis on retail sales, which has reduced the overall growth reported in the third quarter to 1%. Sales of Group savings and retirement products benefited from a number of mid-size mandates and a large defined benefit administration mandate secured in the second quarter. Stronger sales in Group insurance reflect our continued success in the disability insurance segment.
Asia Pacific
We have continued to see strong growth within our Indian and Chinese joint ventures and our Hong Kong operation. Combined sales across these operations increased by 31%3,4 on a PVNBP basis to £413m and by 74%3,4 on an APE basis to £91m despite volatile market conditions.
In India, sales increased by 18%3,4 on a PVNBP basis and by 66%3,4 on an APE basis. Standard Life’s share of these sales was £315m (2007: £147m). The number of financial consultants appointed by the joint venture has increased to approximately 188,000 (31 December 2007: 132,000).
In China, sales volumes increased by 81%3 on both a PVNBP and an APE basis, reflecting strong growth in group products and in bank distribution and continued business expansion in major cities within existing provinces. Standard Life’s share of these sales was £66m (2007: £33m).
New business sales in Hong Kong were £32m (2007: £13m), representing an increase of 137%3 on a PVNBP basis and 245%3 on an APE basis.
Standard Life Investments
Third party funds under management remained resilient in the face of extremely volatile markets, decreasing by 6% to £44.7bn (31 December 2007: £47.7bn) during the nine month period in which the FTSE All Share Index fell by 24%. Total funds under management decreased by 14% to £123.6bn (31 December 2007: £143.4bn). Excluding the impact of the UK annuity reinsurance transaction, which reduced funds under management by £6.7bn, total funds under management reduced by 10%.
Money weighted average investment performance over 3, 5 and 10 year periods continues to be comfortably above median and remains a key driver of our strong institutional sales and pipeline. The strength of performance across a range of OEICs and Unit trusts is demonstrated by the high proportion of eligible funds, (19 out of 24), rated ‘A’ or above by Standard & Poor’s.
Balance sheet resilient
The Financial Groups Directive (FGD) surplus of £3.4bn at 30 September 2008 (30 June 2008: £3.5bn, 31 December 2007: £3.6bn) has been insensitive to equity market movements, with a period end solvency cover of 223% (30 June 2008: 206%, 31 December 2007: 166%). The insensitivity of the FGD surplus reflects the structure of the Group post Demutualisation as well as the extensive hedging strategy in place. Our FGD surplus is still strong in the event of further market weakness.
|
£bn |
|---|---|
| FGD surplus at 30 September 2008 | 3.4 |
A further 20% fall in equity markets |
3.3 |
A further 30% fall in equity markets |
2.6 |
A further 40% fall in equity markets |
1.9 |
The Heritage With Profits Fund had a residual estate of £0.9bn at 30 September 2008 (30 June 2008: £1.2bn, 31 December 2007: £1.5bn). In order to maintain fairness for all with profits policyholders, Standard Life announced a reduction to final bonuses and an increase in market value reductions for certain with profit policies on 29 October 2008.
We have put in place a number of measures to manage our mortgage exposure during the ongoing period of difficult credit market conditions, and these led to net outflows of £1.2bn from our mortgage business. Following the second maturity from the Lothian securitisation programme, which took place on 24 October 2008, there are no securitisation maturities until 2011. Our banking operation remains well capitalised with a very high quality mortgage book, has access to a diverse range of funding sources and has actively reduced its funding requirements during the year.
Acquisition of Vebnet
On 16 September 2008 Standard Life announced that agreement had been reached on a £24.2m cash offer to acquire the entire issued and to be issued share capital of Vebnet (Holdings) plc. Following the satisfaction of all relevant terms this offer became wholly unconditional on 10 October 2008.
Vebnet has a well established position in the UK employee benefits and online reward market and has developed business activities in Europe and Asia. Vebnet has 145 corporate clients and 293,000 employee users of its flexible benefits proposition. The transaction is consistent with Standard Life's strategy to accelerate the development of its corporate business through strengthening its customer base, opening up new routes to market and developing its existing product range.
Standard Life group outlook
Conditions across all our markets remain difficult with the combination of weakening economic conditions and an unprecedented level of dislocation in financial markets. Retail investors are likely to remain cautious, preferring to allocate their funds to cash and lower risk assets. Institutional mandates are still expected to grow, albeit at a lower level than the rate of growth seen over the past five years.
Standard Life remains strong and is well-positioned to weather the difficult market and economic conditions.
Download the full Interim Management Statement - nine months to 30 September 2008
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Contacts
For further information please contact:
Institutional Equity Investors
Gordon Aitken 0131 245 6799
Duncan Heath 0131 245 4742
Paul De’Ath 0131 245 9893
Retail Equity Investors
Computershare 0845 113 0045
Media
Barry Cameron 0131 245 6165 / 07712 486 463
Nicola McGowan 0131 245 4016 / 07782 191341
Neil Bennett (Maitland) 020 7379 5151 / 07900 000 777
Debt Investors
Andy Townsend 0131 245 7260
Notes to editors
- Worldwide life and pensions net inflows do not include net inflows in respect of our Asia Pacific joint ventures and our Hong Kong subsidiary.
- Analysis of Individual SIPP funds under administration.
30 Sep
200831 Dec
2007Change£m £m £m % Insured Standard Life funds 2,655 2,752 (97) (4) Insured external funds 1,485 1,671 (186) (11) Collectives – Standard Life Investments 905 834 71 9 Collectives – Funds Network 680 603 77 13 Cash 839 484 355 73 Non collectives 2,092 1,332 760 57 Total 8,656 7,676 980 13 Insured 4,140 4,423 (283) (6) Non-insured 4,516 3,253 1,263 39 Total 8,656 7,676 980 13
Of the £8.7bn funds under administration at 30 September 2008, £0.7bn relate to funds on the Wrap platform.
- Comparisons for our International businesses are given on a constant currency basis.
- The growth percentages quoted for India, Asia Pacific life and pensions and Total worldwide life and pensions reflect the growth in sales in HDFC Standard Life Insurance Limited, rather than the growth in Standard Life’s share of the joint venture. Sales quoted reflect Standard Life’s share of the joint venture.
- There will be a conference call today for newswires and online publications at 8.00am hosted by David Nish, Group Finance Director, Keith Skeoch, Chief Executive of Standard Life Investments, and Paul Matthews, Managing Director of Distribution for UK Financial Services. Dial in telephone number +44 (0)20 7162 0025. Callers should quote Standard Life Media Call.
- There will be a conference call today for investors and analysts at 9.30am hosted by David Nish, Group Finance Director, Keith Skeoch, Chief Executive of Standard Life Investments, and Paul Matthews, Managing Director of Distribution for UK Financial Services. Dial in telephone number +44 (0)20 7162 0025. Callers should quote Standard Life Analysts & Investors Call. The conference ID number is 811976. A recording of this call will be available for replay for one week by dialing +44 (0)20 7031 4064 (access code 811976).