ISSUED 22 January 216
Introduction Background AKG's Company Profile & Financial Strength Reports are designed to meet the information needs of advisers in assessing the relative strengths of onshore UK life companies, friendly societies and similar providers. Two different styles of report are published by AKG - FULL reports and SHORT reports. A FULL report is produced for each of the leading provider companies in the market, which participate in the production of the reports. For each remaining provider company which is covered, a SHORT report is produced. This is a FULL report. Each report collates relevant information from a range of sources such as a company s returns to the PRA, its Report & Accounts and material provided by the companies themselves, and incorporates expert independent assessment. For FULL report companies, the process is augmented by regular meetings and other communications with AKG. 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AKG information, comments and opinion, as expressed in the form of its analysis and ratings, do not establish or seek to establish suitability in any individual regard and AKG does not provide, explicitly or implicitly, through this report and its content, or any other assessment, rating or commentary, any form of investment advice or fiduciary service. AKG Financial Analytics Ltd 22 January 216
Index Main Company Page Standard Life Assurance Ltd 3 Additional Companies Page Standard Life Pension Funds Ltd 8 General Information Distribution Products Service Investment Annual Review Page 8 8 9 9 9 Group Overview Standard Life is a UK based financial services group focused on providing long-term savings and investment solutions on a global basis. It sold both its banking operation and its healthcare operation in 21. It operates in the UK, Europe, North America, Asia and Australia through its Standard Life, Standard Life Investments, Standard Life Wealth, Standard Life Savings and joint venture brands. It has around 4.5m customers worldwide, and a further 2m through its joint ventures in China (Heng An Standard Life) and India (HDFC Standard Life). Standard Life entered the offshore market with the launch of its Dublin based subsidiary, Standard Life International Ltd in January 26. In July 25 it acquired a shareholding in Tenet. It has also taken stakes in the intermediary service providers SimplyBiz (October 26) and ThreeSixty (25% in June 27 - increased to 1% in March 21). September 21 saw the company sell its stakes in 2plan, a branded distribution group, and the wealth management arm of RSM Bentley Jennison. The acquisitions of Vebnet (28 - employee benefits solutions), Aida Capital (21 - alternative investments) and Focus Solutions (211 - software provider) were aimed at strengthening the group's capabilities in its chosen markets. In May 215 Standard Life acquired Pearson Jones from Skipton Building Society. This was then rebranded as '1825' and now operates as a restricted national advice service. Following the demutualisation of The Standard Life Assurance Company (SLAC) and the flotation of Standard Life plc on the London Stock Exchange on 1 July 26, Standard Life Assurance Ltd (SLAL) operates in the UK alongside its now considerably smaller subsidiary, Standard Life Pension Funds Ltd (SLPF). The Standard Life Wrap is provided by Standard Life Savings Ltd. Other key businesses in the wider group, increasingly used within the broader strategic rationale, are Standard Life Investments, the group's fund management arm, which also acquired Ignis Asset Management from Phoenix in July 214, and Standard Life Wealth Ltd, the discretionary fund manager, which acquired the private client business of Newton Management Ltd (NML) in September 213. Standard Life's Canadian business was sold to Manulife for 2.2bn in January 215, enabling a 1.75bn return to shareholders, together with a share consolidation (9 for 11 shares). The group reported an IGD surplus of 2.6bn as at 3 June 215. Worldwide, the group had assets under administration of 32bn as at 3 September 215. Corporate Structure (simplified) Standard Life plc Standard Life Employee Services Ltd Standard Life Assurance Ltd Standard Life Wealth Ltd Standard Life Investments Ltd Heng An Standard Life Insurance Co Ltd (China JV 5%) HDFC Standard Life Insurance Co Ltd (India JV 26%) Standard Life International Ltd Standard Life Savings Ltd Standard Life Pension Funds Ltd Ratings Company Overall Financial Strength Ratings With Profits Non Profit Unit Linked Service Supporting Ratings Image & Strategy Annual Review Standard Life Assurance Ltd A Standard Life Pension Funds Ltd A AKG Financial Analytics Ltd Page 1 22 January 216
Summary Financial Data (for y/e: 31/12/14) Key Financial Data LT Admissible Assets (by Company) 212 213 214 's 's 's Standard Life Assurance Ltd 114,73,89 125,484,59 135,581,31 Standard Life Pension Funds Ltd 13,739 11,153 1,859 Total Assets 114,87,548 125,495,662135,592,169 New Business Data New Single Premiums (by Company) 212 213 214 's 's 's Standard Life Assurance Ltd 6,865,376 9,54,762 7,577,183 Standard Life Pension Funds Ltd 19,632 12,992 77,357 Total (Direct + External Reins) 6,975,8 9,157,754 7,654,54 LT Admissible Assets (by asset type) 212 213 214 's 's 's New Single Premiums (by business type) 212 213 214 's 's 's Fixed Interest Equities Property Linked Other Total Assets LT Liabs & Margins (by type) Non Linked Non Profit Non Linked With Profits Accum'lg With Profits Linked Surplus c/f Other liabilities Investment Reserves Total Liabilities/Margins 31,539,288 8,559,371 2,158,65 67,941,83 3,889,741 28,524,756 1,336,388 2,114,17 81,398,66 3,121,841 3,66,41 9,351,681 2,21,646 87,918,16 5,64,281 114,87,548 125,495,662 135,592,169 212 213 214 's 7,47,872 4,27,19 22,585,71 68,12,99 153,693 7,62,85 3,975,71 's 7,9,652 3,36,76 21,877,18 81,469,312 229,875 7,8,817 4,783,283 's 7,918,862 2,538,591 24,422,318 88,49,542 397,46 7,953,864 4,311,946 114,87,548 125,495,662 135,592,169 Total (Direct + External Reins) New Regular Premiums (by Company) 152,393 6,132,481 69,134 965,975 984,7 6,975,8 115,837 8,75,942 9,157,754 87,327 6,583,143 7,654,54 212 213 214 's 's 's Standard Life Assurance Ltd 614,395 965,193 933,849 Standard Life Pension Funds Ltd Total (Direct + External Reins) 614,395 965,193 933,849 New Regular Premiums (by business type) Total (Direct + External Reins) 212 213 214 's 463 573,689 4,243 37,962 38,498 614,395 's 44 926,827 965,193 's 342 895,8 933,849 Net Inflow Data Net Inflow 212 213 214 (by Company) 's 's 's Standard Life Assurance Ltd -1,72,5 1,534,563-558,729 Standard Life Pension Funds Ltd 472-4,432 714 Net Inflow(-Outflow) -1,71,533 1,53,131-558,15 Net Inflow (by payment type) Premiums Death/disability pmts Surrenders Annuity Payments Maturities Net Inflow(-Outflow) 212 213 214 's 9,8,454 299,894 7,385,761 479,713 3,336,619-1,71,533 's 12,23,2 292,713 6,591,74 53,917 3,14,51 1,53,131 's 11,446,594 285,796 8,968,627 512,96 2,237,28-558,15 Net Inflow 212 213 214 (by business type) 's 's 's UK Pension Net Inflow(-Outflow) -2,686,897-2,465,57-1,813,489 282,657 3,98,344 427,46 72,77 896,844 828,428-1,71,533 1,53,131-558,15 The aggregate tables clearly show the rate at which Standard Life has grown in the UK in recent years, helped by rising investment markets and, in 213, a positive net inflow, albeit this returned to the previous negative trend in 214. SLAL is a very substantial company with in excess of 135bn of long term assets. The relative significance of business mix is also evident from the net flows, with life business showing ongoing substantial net outflows, whilst pensions and overseas show net inflows. Overall there was a net outflow of 558m in 214. Despite falling in 214, pensions business remained very much the dominant line in new business terms, but with a much reduced positive inflow of 427m in 214. The tables of long term business flows exclude inflows elsewhere in the group in respect of non-insured products and mutual funds within the UK. Globally, the group reported a reduced overall net inflow of 1.bn [213: 8.8bn], with inflows of 5.2bn from Standard Life Investments and 2.1bn in the UK and Europe business being offset by outflows of 2.6bn from the Ignis Absolute Return Government Bond Fund, 2.3bn from low revenue margin mandates and 1.6bn in outflows in assets managed for the Phoenix Group, which is in run-off. AKG Financial Analytics Ltd Page 2 22 January 216
Standard Life Assurance Ltd Corporate Data Company Type Ownership Open to New Business? Life Insurer Standard Life plc Yes Year Established 26 Head Office Website Standard Life House 3 Lothian Road Edinburgh EH1 2DH Tel: 131 225 2552 www.standardlife.com Key Personnel Group Chairman Group Chief Executive Director, Global Client Group Group Chief Financial Officer UK & Europe Chief Executive Officer UK & Europe Finance Director UK Chief Risk Officer Actuarial Function Holder With Profits Actuary G Grimstone K Skeoch C Clark L Savage P Matthews M Hesketh J Gill J Pears D Morrison Company Background The company commenced operations on 1 July 26 when The Standard Life Assurance Company (SLAC) demutualised and substantially all of its business, assets and liabilities, were transferred into Standard Life Assurance Ltd (SLAL). SLAL has branches in Ireland and Germany. Established in Edinburgh in 1825, SLAC was the largest mutual life assurer in Europe, having been a mutual since 1925. 24 saw SLAC transfer in business from its joint venture company Hannover Standard Life Ltd. In the same year, SLAC transferred, either directly or through reinsurance, substantially all its non profit Canadian business to its Canadian subsidiary, Standard Life Assurance Company of Canada. Total liabilities transferred were approximately 6bn. In February 28, SLAL reinsured 6.7bn of UK immediate annuity liabilities to Canada Life International Re. December 211 saw SLAL recapture over 6bn of unit linked business that it had previously reinsured with its subsidiary, Standard Life Investment Funds Ltd (SLIF). Overall Financial Strength A SLAL is still very much the flagship company within the group, and it has reached a very substantial size. The group's strategic focus may however result in other parts of the group growing at a faster pace in the future, and SLAL may even gradually reduce in absolute size. SLAL continues to maintain a reasonable level of solvency coverage, albeit reduced in 214, and AKG regards the company as a very strong component of a strong group. Reinsurance Approach Reinsurance premiums paid in 214 reduced to 1.4bn [213: 1.6bn], 77.2m [213: 84.4m] of which related to reinsurance within the group in 214. The company does not have any financing reinsurance. Treaties fall into two categories in 214 as follows: Intra group: 75m was paid in 214 to The Standard Life Assurance Company of Canada, since sold to Manulife, for liabilities arising from certain annuity and deposit administration business, under which reserves of around 1.3bn were reinsured. Group life business is reinsured with SLPF. External: SLAL reinsures 5.8bn of UK immediate annuity liabilities to Canada Life International Re, a subsidiary of Great-West Lifeco, under which 5.6bn of assets are deposited back to SLAL. This significantly reduces the longevity risk borne by shareholders and reduces volatility in the Heritage With Profits Fund. Unit linked reinsurance, previously out of SLIF, accounted for reinsurance premiums of 559m in 214 and ceded reserves of 4.4bn, of which 2.4bn is to BlackRock Life Ltd. Other treaties include treaties with Swiss Re Frankona, Cologne Re, Unum, Partner Re and Hannover Re amongst others, in respect of risk business, with total premiums of 55m in 214. Analysis of Reserves 212 213 214 's 's 's Gross reserves Reinsurance ceded - external Reinsurance ceded - internal Net mathematical reserves Non Profit Business 115,184,995124,942,133 133,739,82 11,465,623 1,347,72 9,512,7 1,399,348 1,131,187 1,37,214 12,32,24113,463,243 122,92,581 General Net non profit reserves, which had increased by over 8% in 211 reflecting the annuity business reinsurance recapture from SLIF, increased by 12% in 214. Gross reserves amounted to 14.1bn in 214 [213: 13.bn]. Non Profit Reserves 212 213 214 's 's 's Total net NP reserves 311,73 6,563,664 595,55 7,47,872 281,816 6,22,62 588,774 7,9,652 279,758 7,16,922 622,182 7,918,862 Non Profit Financial Strength The company has significant non profit liabilities, of which it reinsures around 44% (7% pre the SLIF recapture). The free assets and the buffer provided by the with profits funds, parental support and the reinsurance arrangements, leaves non profit liabilities very secure. AKG Financial Analytics Ltd Page 3 22 January 216
Standard Life Assurance Ltd Unit Linked Business Approach Standard Life describes itself as a long-term savings and investment group and within this strategy, and in particular with its focus on SIPP business, this means that unit linked business is now the group's prime driver for new business. Previously reinsured to SLIF, unit linked business is now retained within SLAL, with responsibility for fund management residing with Standard Life Investments Ltd (SLI). SLAL has a number of reinsurance arrangements with life companies that provide external funds, including Aberdeen, Aviva Investors, Baillie Gifford, BlackRock, HSBC Life, JPMorgan, Legal & General, Schroders and UBS Global Asset Management. Outside of the life companies, FundZone, the group's mutual funds platform, offers a choice of more than 2, funds from over 9 fund managers. The group no longer offers funds under the 'Sigma' brand, its original mutual funds platform, although it remains available for top-up business. The MyFolio Fund range, launched in September 21 and now available to both retail and corporate clients, is a family of 25 risk-based portfolios, offering a choice of active and passive investment strategies across five risk levels and five investment styles. By 3 September 215 it had 7.2bn of assets [31 December 214: 5.9bn]. Linked Reserves 212 213 214 's 's 's Total net linked reserves 6,724,418 57,924,933 3,362,748 68,12,99 6,771,85 6,424,961 7,397,66 76,72,275 4,31,161 4,94,37 81,469,312 88,49,542 Unit Linked Financial Strength Standard Life has a very substantial and fast growing unit linked presence, which is written into SLAL, with any external fund links reinsured, reserves of 4.4bn, from SLAL to the third party fund manager. AKG believes the company's unit linked business to be very secure. With Profits Business Approach SLAL contains four with profits funds: The Heritage With Profits Fund (by far the most significant), which contains all the UK, Irish and German business written by SLAC prior to demutualisation (with the exception of some non profit business) plus the investment element of certain new UK and Irish with profits plans; the UK Smoothed Managed With Profits Fund; the German With Profits Fund and the German Smoothed Managed With Profits Fund. With Profits Reserves 212 213 214 's 's 's Total net WP reserves 6,162,763 12,735,399 7,938,891 26,837,53 4,762,998 4,74,879 12,387,679 12,347,667 7,752,62 1,529,63 24,93,28 26,952,176 Profit Sharing Philosophy Policyholders are entitled to all profits and losses and experience adjustments, excluding defined shareholder cashflows arising on specific blocks of business, arising in the Heritage With Profits Fund. Deductions are made from asset shares for the cost of guarantees, varying by the nature of the guarantee. In the UK Smoothed Managed With Profits Fund, policyholders are entitled to their asset share, after any further adjustment for smoothing. Shareholders are entitled to all other assets, including charges deducted from asset shares. In February 212, SLAL suspended making distributions from its inherited estate, which had commenced in July 27, but they were re-started in February 213. Asset Allocation As at December 214 there were seven different EBRs for UK with profits business varying, depending on the nature of the guarantees, from around 23% (for UWP policies with minimum growth rate guarantees) to 72% (for with profits bonds). Distribution of Surplus To Policyholders Other Transfers 212 213 214 's 518,982 's 543,579 152,361 's 564,178 195,48 Realistic Balance Sheet 212 213 214 's 's 's Working capital Risk capital margin Realistic excess available Working capital ratio RCM as % of assets Realistic xs available ratio.%.%.%.%.%.%.%.%.% With the exception of the Heritage With Profits Fund, working capital is either zero or not material. In 214, the working capital of the Heritage With Profits Fund reduced to.3bn [213:.6bn] before being set to zero because of the requirement to distribute the inherited estate over time. With Profits Financial Strength The presence of a number of major derivatives positions together with the reinsurance of immediate annuities means that the Heritage With Profits Fund has been extensively derisked. There is potential for additional capital support to be made available from reduced shareholder transfers and the wider group as a whole. AKG Financial Analytics Ltd Page 4 22 January 216
Standard Life Assurance Ltd Key Financial Data (for y/e: 31/12/14) Long Term Business Admissible Assets 212 's 213 's 214 's Long Term Business Liabilities & Margins 212 's 213 's 214 's Fixed Interest Equities Property Linked Other Total Assets 31,539,288 8,559,371 2,158,65 67,941,83 3,876,2 28,524,756 1,336,388 2,114,17 81,398,66 3,11,688 3,66,41 9,351,681 2,21,646 87,918,16 5,629,422 114,73,89 125,484,59 135,581,31 Long term assets continue to grow, increasing a further 8% in 214, boosted by investment performance more than offsetting a net outflow. Property exposure remains relatively low reflecting a need to improve short term flexibility and medium term liquidity in the light of the general run off of the with profits book. LT Capital Resources Core tier one capital Tier one waivers Other tier one capital Tier one deductions Total tier one capital Tier two capital Adjustments and deductions Total Capital Resources 212 213 214 's 's 's 5,6,347 621,825-678,875 5,543,297 52,373-91,755 5,953,915 6,329,459 63,799-59,1 6,37,248 52,417-9,575 6,782,9 5,75,489 316,577-568,251 5,453,815 52,417-94,33 5,861,92 Non Linked Non Profit Non Linked With Profits Accum'lg With Profits Linked Surplus c/f Other liabilities Investment Reserves Total Liabilities/Margins 7,47,872 4,262,851 22,585,71 68,12,99 153,693 7,613,514 3,975,71 7,9,652 3,33,988 21,877,18 81,469,312 229,875 7,,382 4,783,283 7,918,862 2,535,192 24,422,318 88,49,542 397,46 7,946,44 4,311,946 114,73,89 125,484,59 135,581,31 The GAO provision increased in 214 to 137m [213: 1m]. The company also holds additional reserves of 87m [213: 82m] in respect of GMP guarantees. The Mortgage Endowment Promise became a contractual guarantee on demutualisation, against which the company now holds a reserve of 524m [213: 463m]. Other liabilities reflects the deposit back of 5.6bn in relation to the annuity reinsurance to Canada Life International Re. Key Revenue Items INCOME Premiums Investment Income Investment Increase 212 213 214 's 's 's 9,799,565 3,327,46 6,819,177 12,22,272 3,345,46 7,87,421 11,445,63 3,45,42 8,485,584 CR outside the fund 1,819,643 1,763,131 1,147,559 EXPENDITURE Capital resources, which had improved in 213, reduced by 14% to 5.9bn in 214. Commissions Policy claims 268,78 11,51,57 22,98 1,487,79 19,474 12,4,359 Expenses 78,949 986,244 1,12,397 LT Free Assets Available Capital Resources Capital Resources Req't (CRR) Free Assets (Published) Financial Engineering Free Assets (Exc Fin Eng) 212 213 214 's 's 's 5,953,915 6,782,9 5,861,91 3,92,719 3,846,135 3,636,71 2,861,196 2,935,955 2,225,191 2,861,196 2,935,955 2,225,191 Transfer to P&L Increase in fund 28,286 7,378,893 232,361 1,99,276 12,424 1,471,311 Lower new business volumes meant that net premiums reduced by 5% in 214, to 11.4bn, whilst net claims increased by 14% to 12.bn, due mainly to a rise in net surrenders from 6.6bn to 9.bn. The result was a net outflow of 559m [213: 1.5bn net inflow]. LT Free Asset Ratios 212 213 214 % % % FAR (Published) 2.5 2.3 1.6 FAR (Exc Fin Eng) LT CRR Coverage Ratios CRRCR (Published) CRRCR (Exc Fin Eng) 2.5 2.3 1.6 212 192.5 192.5 213 214 % % % 176.3 176.3 161.2 161.2 The CRR reduced by 5% in 214 as the WPICC decreased by 315m. However, available capital resources fell by a larger amount, leading to a reduction in solvency coverages. The CRR coverage remained reasonable. Expense Ratios 212 213 214 New business (% APE) 32.6 18. 19.6 Renewal (% reg premiums) 16.3 22.7 21.2 Renewal (% p.a. of mean fund).57.73.67 The expense ratios have been distorted in recent years by the various reinsurance transactions. Thus, whilst overall expenses appeared to increase markedly in 213 compared with 212, up over 2m, the 212 figure was itself reduced by one-off 'negative' expenses of some 1m. Overall costs and associated expense ratios were broadly similar to 213 in 214. Overall, the group reports that it is lowering its unit costs. AKG Financial Analytics Ltd Page 5 22 January 216
Standard Life Assurance Ltd New Business Data (for y/e: 31/12/14) Single 's Regular 's New Single Premiums 212 213 214 's 's 's Investment Bonds With Profits Unitised WP Unit Linked Endowment With Profits Guaranteed Bonds Unitised WP Unit Linked 696 253,14 1 1,265 ISA / tax exempt Annuities Miscellaneous 63,942 536 Total Investment 318,278 1,295 Protection Whole Life Term IP Critical Illness Long Term Care Miscellaneous With Profits Unitised WP Unit Linked Ordinary Pension Individual 29 11 49 281 Total Protection 351 Pensions Individual CPA Miscellaneous With Profits Unitised WP Unit Linked 3 72,125 2,274,889 147,418 1 25 25,425 569,423 CPA (Impaired Life) 15,783 Bulk Transfer Annuities Total Pensions 2,51,245 594,881 Group Business Pension Life IP Critical Illness Miscellaneous 4,141,329 8 337,283 41 Total (Direct + External Reins) Growth Rate 152,393 6,22,849 69,134 6,865,376 1.7% 115,837 7,972,95 965,975 9,54,762 31.9% 87,327 6,55,786 984,7 7,577,183-16.3% Reins Accepted (Intra-Group) 8,, 7,, 6,, 5,, 4,, 3,, 2,, 1,, 212 213 214 New Regular Premiums 212 213 214 's 's 's Total (Direct + External Reins) Growth Rate 463 573,689 4,243 614,395-12.6% 44 926,827 37,962 965,193 57.1% 342 895,8 38,498 933,849-3.2% Reins Accepted (Intra-Group) 1,, 8, 6, 4, 2, 212 213 214 Wtihin SLAL, the level of new single premiums, of which 86% relates to pensions business, reduced by 16%. Regular premium new business, of which 96% is pensions business, reduced by 3%. Retail fee business increased by 4% to 6.1bn PVNBP, whilst corporate pensions reduced by 14% to 5.1bn. Standard Life has implemented over 3, schemes and gained access to over half a million new customers since the introduction of auto enrolment in 212. Worldwide life and pensions sales reduced, in PVNBP terms, by 7% from 22.9bn to 21.2bn. In the UK, PVNBP also decreased, by 1%, from 17.bn to 15.3bn. APE reduced by 1%. Total Group Business 4,141,329 337,324 TOTAL DIRECT BUSINESS 6,969,852 933,851 Direct (incl above) External Reins (excl above) Intra-Group Reins (excl above) 983,324 38,5 67,327 Industrial Branch (incl above) AKG Financial Analytics Ltd Page 6 22 January 216
Standard Life Pension Funds Ltd Corporate Data Company Type Ownership Open to New Business? Life Insurer Standard Life plc Yes Year Established 198 Key Personnel Director Director Director Actuarial Function Holder J Gill M Hesketh P Matthews J Pears Company Background Whilst ultimately owned by Standard Life plc, the company's immediate parent is SLAL. Following the demutualisation of SLAC the company continued to transact UK pension fund business and to provide management services to pension funds based in the UK and Republic of Ireland. It is directly owned by the Heritage With Profits Fund within SLAL. Key Financial Data (for y/e: 31/12/14) Long Term Business Admissible Assets Fixed Interest Equities Property Linked Other Total Assets LT Free Assets Available Capital Resources Capital Resources Req't (CRR) Free Assets (Published) Financial Engineering Free Assets (Exc Fin Eng) 212 's 13,739 13,739 213 's 11,153 11,153 214 's 1,859 1,859 212 213 214 's 's 's 8,19 2,984 3,146 2,92 77,125 74,58 8,29 77,125 77,24 74,58 1,931 8,29 Only a very small volume of business now remains in the company. Around 3.4m of with profits group life contracts issued by SLAL are reinsured into the company. Conversely, around 8.8m of non profit group annuity business written by SLPF are reinsured 1% to SLAL. Until December 214, the company also had a sizeable amount (around 1.5bn at the end of 214, plus a further 255m written in 214) of Trustee Investment Plan business in force, although this business had been fully reinsured to SLAC (and to SLIF prior to 31 December 211). This whole block of this business was, however, transferred to another provider in December 214, leading to a reduction in total gross reserves from 1.6bn in December 213 to 12.2m in December 214. A triennial cash bonus of 5m in respect of group life assurance contracts was paid in 213, calculated by reference to the surplus arising in the fund over the three years ending December 212. LT CRR Coverage Ratios CRRCR (Published) CRRCR (Exc Fin Eng) Long Term Business Liabilities & Margins Non Linked Non Profit Non Linked With Profits Accum'lg With Profits Linked Surplus c/f Other liabilities Investment Reserves Total Liabilities/Margins 212 213 214 % % % 2,684.6 2,454. 376.7 2,684.6 2,454. 376.7 212 213 214 's 's 's 7,168 2,718 3,399 6,571 8,435 7,46 13,739 11,153 1,859 The company made a distribution of 68.4m to SLAL in December 214. Overall Financial Strength A The company is now extremely small, with gross mathematical reserves at the end of 214 of 12.2m and net reserves of only 3.4m, relating to the with profits group life contracts reinsured from SLAL. Presumably it may be a candidate for rationalisation into SLAL before too long. The distribution to SLAL in 214 led to a significant drop in available capital resources, from 77m to 11m, and a corresponding fall in solvency coverages, which had historically been very high. Solvency levels remained good, however, especially as the EU minimum solvency requirement bites. Available capital resources are all held outside of the long term fund. The company does not have traditional equity share capital but is supported by 5k of non-interest bearing loan capital. Gross premium income (mainly arising from the now transferred Trustee Investment Plan business) increased by 147% to 256m in 214, although net earned premiums amounted only to 1m. Gross surrenders increased significantly, from 74m to 1.8bn, because of the transfer out of the Trustee Investment Plan business. The company declared a pre-tax profit of 2.3m [213: 3.5m loss]. New Business Data New Single Premiums 212 213 214 's 's 's Total (Direct + External Reins) Growth Rate Reins Accepted (Intra-Group) 19,632 19,632 12.7% 12,992 12,992-6.1% 77,357 77,357-24.9% New Regular Premiums 212 213 214 's 's 's Total (Direct + External Reins) Growth Rate Reins Accepted (Intra-Group) AKG Financial Analytics Ltd Page 7 22 January 216
Distribution Method In recent years Standard Life has widened its distribution offering and sought to build better awareness with its existing end customers. In part this has been in acknowledgement of how distribution and customer behaviours have changed and it has been a manifestation and evolution to a strategy of greater vertical integration. Standard Life's distribution strategy is now to occupy a greater width of the value chain within its chosen proposition areas and deliver to customer needs in a more integrated fashion. This has meant the company has had to bring in capability from elsewhere, notably its acquisitions of Aida Capital, Focus, Vebnet, threesixty and 1825 (formerly Pearson Jones) as well as the further development of Standard Life Wealth. It has restructured to deliver this integration under the 'Take to Market' approach, which sees proposition and support pulled together to leverage activity within each of its Corporate, Retail and Direct distribution segments. Further, the integrated role of Standard Life Investments and Standard Life Wealth now forms an increasing part of the overall acquisition strategy for profitable new business. Distribution Split Intermediary Direct Regular Premium % Single Premium % 96. 92.6 4. 7.4 Image and Strategy In the UK, Standard Life managed its transition from a mutual to a proprietary office with some success and creating a largely different business. Despite these changes it has remained highly regarded in the intermediary market having worked hard to improve its communication and having recognised the need to maintain service levels against an ongoing backdrop of the need to cut costs. Standard Life's product strategy has changed substantially in recent years and it has of late been deliberate in positioning itself away from being seen as a provider of a product (the old life company raison d être) to that of a provider which can deliver and administer efficient propositions in the asset accumulation space for a range of distribution mechanisms, with an emphasis on capital efficient and cash generative products, whilst at the same time maintaining positive aspects of its heritage and reputation. Standard Life has been successful in this and has broadly in recent years been able to anticipate market changes and deliver (both internally and externally) in time to respond to them. It has also successfully managed to embed an understanding of its strategy and corporate persona with its staff. As a result it is well positioned. However, external challenges have only increased and Standard Life continues to have to work hard and relatively fast to maintain and grow a successful position. Its strategy for growth outside of the UK continues with its relatively modest Indian and Chinese joint ventures and in developing the footprint of Standard Life Investments in other markets. However, the mature Canadian business was disposed of in January 215, making business more weighted towards the UK until these other 'entry stage' developments grow significantly to scale. Products/Proposition Overall Product Philosophy Standard Life continues to develop its products within its core strategy, in particular its market-leading SIPP offering, which, together with its FundZone supermarket platform, offers its SIPP customers over 2, funds. A full range of online services and Safer Haven fund options aim to meet the challenges of equity market turbulence and low investor confidence. A plan to launch a new 'guaranteed income' option on its SIPP was postponed due to the underlying stockmarket and economic conditions. June 29 saw the company launch its tailored investment bond, offering a flexible and transparent funded commission structure. In February 21 the company launched active money personal pension, part of the active money lifeplan. February 211 saw the launch of Lifelens, Standard Life's Corporate Benefits solution and the company now offers both retail and corporate versions of its 'MyFolio' multi-manager investment solution. Auto-Enrolment led to the introduction of a new corporate investment proposition in March 212. Products Currently Marketed Investment Products Written in Standard Life Assurance Ltd Purchased Life Annuites Single Premium Bonds With Profits Bonds Pension Products Written in Standard Life Assurance Ltd Compulsory Purchase Annuities SIPP (including Drawdown) Protected Rights (including Drawdown) Personal Pension Plans Stakeholder SSAS Group Products Written in Standard Life Assurance Ltd Group AVC Group Personal Pensions Group Stakeholder Trustee Buy Out Plan Group SIPP Written in Standard Life Pension Funds Ltd Trustee Investment Plan Product Awards and Benchmarks The company has won a number of awards for its products over past years. Including recently: Auto Enrolment Innovation provider of the year 213 in the Professional Pensions Awards, and Best Retirement Solution Provider 212 at the Money Marketing Financial Services Awards 212. AKG Financial Analytics Ltd Page 8 22 January 216
Service Approach Service remains core to the overall proposition, with Standard Life aiming to deliver market leading service whilst continuing to strip out significant amounts of cost. Standard Life has for a long time been highly regarded for service. It faces the continued challenge of maintaining this with an increased emphasis on profitability and expense control, whilst at the same time deepening its level of service in key distribution areas to reflect an emphasis on relationship rather than transactions. To drive the importance of service further, and to look at aspects afresh, the service operation was restructured in early 214 under the leadership of a new MD for Operations, John McGigan, who joined the organisation from outside of financial services. Some changes in structure have resulted with a move to a client hub and processing hub approach. Technology including a growing use of 'robotics' now plays a demonstrable part in connecting the different elements of Standard Life s distribution offering and current priorities include increased automated delivery through migrating tasks to digital solutions and further development of "self service". e-business Standard Life believes in increasing its capability through technology and in many ways sees itself as a technology driven organisation. This is clearly an important element given its need to simultaneously maintain high service levels, whilst driving costs down further. Unit costs and policy servicing costs do appear to reflect success in the company's goal of leveraging technology and creating genuinely scalable components. Further, its approach and development have resulted in a number of accolades. Corporate pensions business utilises technology to a significant extent, something which is manifest in its 'Lifelens' development, creating a single customer portal for the corporate market. Standard Life is involved with a number of the major portals and industry aggregators. It also offers intermediaries direct integration between their back office systems and its administration systems, primarily for client data management and commission data. Service Standards & Awards Standard Life has a reputation for winning service awards and accolades and this continues. Its e-commerce proposition is also well regarded and has earnt the company a number of awards. Outsourcing The company does not currently outsource any of its core customer service functions, preferring to keep control of these functions in-house. Investment Overall Approach Most funds are managed by Standard Life Investments who believe that it is possible to achieve consistent long-term out performance within acceptable levels of risk by adding value at both asset allocation and stock selection levels. Within risk parameters set for each fund, specific investment decisions follow a top down approach, consistent across all funds, with an emphasis on 'in house' research. Standard Life Investments can point to some good recent fund performance, and a host of awards year on year. Since 213 the funds managed by SLI on behalf of external clients have exceeded the group's own funds. Standard Life Investments acquired Ignis Asset Management in March 214 from Phoenix Holdings, for 39m. Outside of the life companies, FundZone, the group's mutual funds platform offers a choice of over 2, funds. Funds Under Management Total long term assets within the life companies in the group amounted to 136bn at 31 December 214 [213: 125bn]. As at 3 September 215, total group assets under administration stood at 32bn [31 December 214: 297bn] with Standard Life Investments having 25.6bn under management, of which 168.6bn were third party assets and with Standard Life's Wrap having assets under administration of 23.6bn. SLI also has a 4% stake in HDFC Asset Management, with 15.8bn under management as at 3 June 215 [31 December 214: 15.1bn]. Annual Review Standard Life has undergone a significant transformation since its demutualisation, moving from being Europe s largest mutual insurance company to one focused on providing investment solutions to customers and clients around the world. In 214, Ignis Asset Management was bought in the UK and the group agreed the sale of its Canadian life insurance business to Manulife, completed early in 215 and enabling a return of around 1.75bn to shareholders, together with a share consolidation (9 for 11 shares). SLAL generated a pre-tax profit of 543m in 214 [213: 484m] and recommended a dividend of 19m [213: 296m]. Surplus assets and solvency coverages reduced. Across the group, including its wrap proposition, assets under administration continue to grow, helped by improving markets and an overall but reduced net inflow. New business volumes, in PVNBP terms, were down overall, although UK retail fee business saw an increase. Group pre-tax operating profits reduced by 2% to 735m [213: 751m]. Group Embedded Value increased to 9.2bn [213: 8.4bn]. The sale of the Canadian business has reduced the volatility of the group's earnings by greatly increasing the proportion of earnings coming from asset management and fee based business. This change lies at the core of the group's strategy. Standard Life Investments, which started life as the investment department of an insurance company, is now firmly at the heart of its strategy providing investment solutions to clients globally. The Group's IGD surplus reduced from 3.8bn to 2.9bn in 214. David Nish stood down as Group CEO in August 215, succeeded by Keith Skeoch. AKG Financial Analytics Ltd Page 9 22 January 216
Guide to AKG Ratings Financial Strength Ratings - Introduction The aim of AKG s financial strength ratings is to assist advisers and others to assess the relative strengths of individual provider companies. AKG s concept of financial strength starts with the fundamental issue of a company s ability to meet all of its guaranteed payments to policyholders, but extends beyond this by aiming to factor in the degree to which a policyholder s expectations are likely to be met - or even exceeded - in the long-term. For performance-related products, where the eventual return generally depends largely upon a company s success in consistently delivering superior investment performance, and in containing expense charges, a company s ability to meet expectations is likely to be heavily dependent upon whether or not it is able to sustain its operations in the relevant market, and whether or not it can maintain, or improve, its competitive position. As a result, AKG believes that, ideally, the evaluation of financial strength should depend upon the type of product under consideration. A particular company may be judged as very strong in the context of one particular product line, but it may be weaker in another context. An illustration of this concept is a company that currently only markets unit linked business, but which has a very small closed block of with profits business, written many years ago. Such a company may be judged as good for unit linked business, whilst considered poor in respect of with profits business. Since the inception of AKG s Company Profiles and Financial Strength Reports, AKG has consistently promoted and developed the concept of providing financial strength ratings separately for each of the three major product categories - With Profits, Non Profit and Unit Linked. All AKG s financial strength ratings should be used with care, since even the more detailed approach described above represents something of a simplification. To illustrate this point, for example, the 'Non Profit' category covers a multiplicity of different products. It is clear that slightly different criteria should be used for, say, short-term policies with fully guaranteed terms (e.g. Guaranteed Bonds), than for longer-term policies with terms that can be varied at the company's discretion (e.g. Renewable or Reviewable Term). AKG assesses financial strength using consistent methodology and objective measures wherever possible, and based on the detailed analysis of the company s particular strengths and weaknesses. The objectives and criteria for each of the financial strength ratings are summarised below: With Profits Financial Strength Rating The objective is to assess the overall strength of the company s with profits funds. The initial concern is the company's ability to meet its ongoing guaranteed, or promised, commitments, i.e. existing sum assured and bonuses. However, the company's ability to continue to compete successfully in the with profits market is also particularly relevant, given that closed funds are sometimes bad news for policyholders. In such situations, overall expenses tend to increase as a proportion of the fund and investment performance may well deteriorate. These, together with other factors, may make it difficult for companies in such situations to maintain competitive bonus rates at future declarations, although existing declared bonuses are not affected (other than possibly by MVRs). The main criteria taken into account are: capital base and free asset position, with profits realistic balance sheet position, the amount of with profits business in-force, parental strength (and likely attitude towards supporting the company), and image and strategy. NOTE: More detailed analysis of with profits companies is included in AKG s Office With Profits Report. Excellent Very good Good Adequate Poor Not rated Non Profit Financial Strength Rating The objective is to assess the company's ability to meet all guaranteed payments arising from such contracts as term plans, annuities etc. The main criteria taken into account are: free assets, structure (and size) of funds within the company, parental strength (and likely attitude towards supporting the company), and image and strategy. Excellent Very good Good Adequate Poor Not rated AKG Financial Analytics Ltd 22 January 216
Guide to AKG Ratings Unit Linked Financial Strength Rating Whilst this is essentially a non profit line, and the primary objective is to assess the company's ability to meet all guaranteed payments arising, AKG also seeks to take into account the extent to which the company is likely to be able to sustain its unit linked operations, and whether or not it is likely to be able to maintain, or improve, its competitive position. Thus strategic issues are also relevant, because of their bearing on the quality of investment management offered, and because of companies' rights to increase charges etc. The main criteria taken into account are: free assets, structure (and size) of funds within the company, parental strength (and likely attitude towards supporting the company), typical fund performance achievements, and image and strategy. Overall Financial Strength Rating The objective is to provide a simple broad-brush indication of the general financial strength of a company. In addition to an assessment of the company s ability to meet all of its guaranteed payments to policyholders, AKG also aims to factor in the degree to which policyholders expectations are likely to be met - or even exceeded - in the long-term. This involves an assessment of a company s ability to survive in its current form for the long term. The overall rating inherently reflects the mix of business in-force within the company, since different types of policyholder have different expectations, and the company s particular strengths and weaknesses in respect of its key product areas. The rating takes into account those of the following criteria which are relevant (depending upon the company's mix of business in-force): capital base and free asset position, with profits realistic balance sheet position, structure (and size) of funds within the company, parental strength (and likely attitude towards supporting the company), typical fund performance achievements, and image and strategy. A B+ B B- C D Excellent Very good Good Adequate Poor Not rated Superior Very strong Strong Satisfactory Weak Very Weak Supporting Ratings - Introduction Supporting ratings are provided only in full reports, and are assessed at the brand level. AKG assesses three key supporting areas, using consistent methodology and objective measures wherever possible. The aim is to assist advisers and others to consider the relative merits of the brands that they deal with. AKG's objectives and criteria for each of these ratings are summarised below: Service Rating The objective is to assess the quality of the organisation's service to the intermediary market in respect of the brand concerned. Criteria taken into account include: performance in surveys, awards and benchmarking exercises (external and internal), the organisation's philosophy, service charters, the extent of investments designed to improve service, and feedback from intermediaries. Image and Strategy Rating The objective is to assess the effectiveness of the means by which the organisation currently positions itself to distribute its products for the brand concerned and the plans it has to maintain and/or develop its position. Criteria taken into account include: overall trends in the company s market share position, brand visibility and reputation, feedback from intermediaries and industry commentators, and AKG s view of the company s general strategy. Excellent Very good Good Adequate Poor Not rated Excellent Very good Good Adequate Poor Not rated Annual Review Rating This is an end of year view for the last year for which Report and Accounts, returns to the PRA, etc., are available, together with comment on any significant post-balance sheet events. It is an assessment of how the brand has fared against its peers, and how it is perceived externally. Criteria taken into account include: increase/decrease in market shares, expense containment, publicity - good or bad, press or market commentary, regulatory fines, and competitive position. Excellent Very good Good Adequate Poor Not rated AKG Financial Analytics Ltd 22 January 216
AKG Financial Analytics Ltd Anderton House, 92 South Street Dorking, Surrey RH4 2EW Tel No: +44 () 136 876439 Fax No: +44 () 136 885325 e-mail: akg@akg.co.uk www.akg.co.uk AKG is an independent organisation specialising in the provision of assessment, ratings, information and consultancy to the financial services industry AKG Financial Analytics Ltd 216