| Standard Life new business sales drop 10% |
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29/10/2009 11:42 (22 Day 18:58 minutes ago) | |||||
"Standard Life has continued to deliver a reliable underlying performance in the first nine months of the year, despite the challenging market conditions. I am particularly pleased with the strong growth in assets, especially in the third quarter. This should benefit the Group's profits and cashflow in the years to come and is a testament to our track record, demonstrating the confidence shown in us by our customers.
Unless otherwise stated, all sales figures are on a PVNBP basis and all comparisons are in sterling and with the nine months ending 30 September 2008.
Strong growth in assets as markets recover
Third party assets under management at Standard Life Investments have increased to a record level of £54.1bn. Good long term investment performance and the diversity of our fund range have led to significant growth in third party net investment inflows with a substantial contribution from our international operations as we expand our global presence. During the third quarter total assets under management increased by £15.3bn to £136.9bn.
"Within our life and pensions operations we have also seen strong growth in assets under administration with resilient customer run rates and positive net inflows demonstrating the strength of our propositions, excellence in customer service and strong distribution relationships. While markets have recovered sharply in recent months, average equity market levels over the nine month period were 25%4 lower than the prior year which has had an inevitable impact on net flows and new business sales. Nevertheless, net flows across our life and pensions operations have improved in the third quarter, with strong growth in our retail product lines in Canada following the successful repositioning of the business," Standard Life says.
Worldwide life and pensions operations
UK Financial Services
We continue to see strong growth in our individual SIPP customer base and assets under administration. During the period the total number of customer accounts increased to 79,100 (31 December 2008: 65,900, 30 June 2009: 74,700). The strength of our customer run rate and the recent recovery in financial markets have increased SIPP assets under administration to £11.0bn (31 December 2008: £8.7bn, 30 June 2009: £9.7bn)2. Across our SIPP portfolio the average case size was £139,000 (31 December 2008: £131,000, 30 June 2009: £130,000). The lower average market levels over the period have had an inevitable impact on incoming transfer values, which continue to represent the majority of new business. This has been reflected in net inflows, which were lower at £1.3bn (2008: £1.9bn), and a 25% reduction in new business sales to £2.2bn (2008: £2.9bn). During the period we have seen a modest increase in SIPP outflows. This has been driven by customers increasingly using the flexible features within the product such as taking tax free cash and income drawdown. These outflows remain consistent with our expectations.
In group pensions, net inflows and positive market movements have driven an increase in UK group pensions assets under administration to £17.1bn (31 December 2008: £14.4bn, 30 June 2009: £14.7bn)5. The quality, sustainability and flexibility of our proposition, combined with the financial strength of the Group, continue to act as key differentiators and enable us to win profitable new business. The number of new schemes implemented during the period was 317 (2008: 380). Increments into existing schemes have been impacted by current economic conditions, including lower average levels of salary increases and recruitment across the UK. This trend, combined with lower average asset values has been reflected in lower net inflows of £962m (2008: £1,201m) and a 17% reduction in new business sales. Volumes in our flexible group SIPP increased by 35% and accounted for 50% of total group pensions sales (2008: 31%).
As reported in our Interim Results 2009, regular premium contributions in respect of the 18,000 member BT scheme generated £347m of PVNBP in the first half of 2009. Single premium asset transfers for the BT scheme of £220m were received during October and will be reflected in our reported sales figures for Q4. We are particularly pleased that three quarters of the active members have chosen to transfer to the scheme.
Demand for mutual funds sold through our UK life and pensions business on our Wrap, Sigma and Fundzone platforms remains strong with net inflows increasing to £538m (2008: £257m) and sales 48% higher at £830m (2008: £559m).
Assets under administration on our Wrap platform increased to £3.0bn (31 December 2008: £1.7bn, 30 June 2009: £2.3bn)6. At the end of the quarter there were 532 IFA firms using the platform (31 December 2008: 409, 30 June 2009: 484) and 26,600 customers (31 December 2008: 16,900, 30 June 2009: 23,000) with an average fund size of £111,000 (31 December 2008: £101,000, 30 June 2009: £101,000)6. We continue to see strong momentum in our Wrap offering, with a strong pipeline of IFA firms in the process of adopting the platform.
A number of endowment policies that were written during the early 1980s reached maturity during the period. This led to a net outflow of £1.1bn (2008: net outflow of £1.2bn) in respect of pre-Demutualisation life products. The vast majority of these products are conventional with profits contracts, which generate minimal shareholder margin. Excluding these flows, UK life and pensions net inflows amounted to £1.4bn during the period (2008: £2.3bn) within worldwide life and pensions net inflows of £2.3bn (2008: £3.4bn).
Claims levels across our UK life and pensions operations remain broadly in line with assumptions, with lower claims in respect of individual pensions leading to a reduced net outflow from this product line.
Savings balances in our banking operations have increased to £5.6bn (31 December 2008: £5.0bn, 30 June 2009: £5.5bn) with business accounts performing well during 2009. This total includes combined SIPP and Wrap balances of £1.8bn (31 December 2008: £1.5bn, 30 June 2009: £1.8bn).
Consistent with our strategy to manage our mortgage exposure, gross mortgage lending decreased by 78% to £210m (2008: £946m). Mortgages under management stood at £8.2bn (31 December 2008: £9.7bn, 30 June 2009: £8.8bn), with an arrears rate of 0.78%, which is less than a third of the Council of Mortgage Lenders industry average of 2.62% reported at 30 June 2009.
Healthcare sales were 21% lower at £15m (2008: £19m) on an APE basis reflecting adverse economic conditions and our strategy of only writing profitable business.
Europe
In Ireland, sales of £589m (2008: £661m) were 15% lower in constant currency. Domestic sales increased by 29% in constant currency, driven by increased sales of post-retirement products during the second quarter ahead of planned changes to tax legislation. However, offshore bond sales were 42% lower at £252m (2008: £433m) due to the impact of the weak economic conditions experienced during the year.
Sales in Germany of £265m (2008: £402m) were 43% lower than the prior year in constant currency. This reflects weak consumer confidence and a continuing preference for the German domestic life insurers. Net flows of £492m were more resilient and were 4% higher (2008: £471m) due to strong inflows of regular premiums from the in-force book.
Canada
Canadian sales were 12% higher in constant currency at £1,938m (2008: £1,562m) with sales in the third quarter significantly higher than those recorded during the same period in 2008. Group savings and retirement sales of £964m were 7% lower in constant currency due to the distorting impact of a large defined benefit administration mandate secured in 2008. Within the Group savings and retirement total, sales of our core defined contribution offering increased by 41% in constant currency to £810m (2008: £519m).
Individual insurance, savings and retirement new business has increased by 58% in constant currency to £442m (2008: £252m) with strong sales growth of 153% achieved in the third quarter amid early signs of a recovery in the previously challenging Canadian retail market. However, the market for mutual funds remains challenging, where new business sales over the period were 22% lower in constant currency at £155m (2008: £180m).
Group insurance new business has also increased by 82% in constant currency to £377m (2008: £187m). This increase is due to changes to renewal assumptions, which were made as part of the year end process and were reflected in our 2008 Preliminary Results.
Asia
Sales in India increased by 1% in constant currency as we continue to refocus the business for greater profitability. Standard Life's share of these sales was £301m (2008: £275m)8.
In China, sales volumes decreased by 9% in constant currency. Standard Life's share of these sales was £78m (2008: £66m). The lower sales reflect reduced consumer confidence caused by the economic downturn.
Hong Kong has continued to enjoy strong growth due to the success of its new unit-linked savings product, with new business sales in constant currency increasing by 72% to £69m (2008: £32m).
Global investment management
Despite volatile markets Standard Life Investments achieved strong third party net inflows of £4.3bn, £3.2bn of which relates to investment products only, representing a 75% increase over the equivalent period last year and an annualised 13% of opening third party assets under management. Over 85% of the net inflows came from outside the UK, further emphasising Standard Life Investments' growing global capability.
In UK and Europe, we have seen strong client demand for our Fixed Interest and Global Absolute Return Strategy (GARS) products, while sales of our mutual fund and SICAV9 ranges showed very significant increases on the same period last year with net inflows of retail mutual funds of £444m (2008: net inflow £57m).
While conditions remain challenging within the UK market for segregated institutional mandates, we have seen strong growth in institutional flows across our international markets. Total European net flows rose to £913m (2008: net inflow £373m), with a significant increase in net flows in India of £1,630m (2008: £219m)10reflecting greater traction into higher margin cash funds. In addition we have seen strong inflows into Canadian institutional business of £1,021m (2008: net outflow £102m).
The money-weighted active investment performance over all time periods (1, 3, 5 and 10 years) continues to be comfortably above median for our third party business. The strength of our investment process across a range of OEICs and unit trusts is demonstrated by the proportion of eligible actively managed funds (21 out of 29) rated ‘A' or above by Standard & Poor's.
Of particular note is the outstanding performance of the UK Equity Recovery Fund (OEIC), which has returned 110% since its launch on 6 March this year, and the UK Equity Unconstrained Fund (OEIC), which has produced a return of over 95% during the year to date.
The pipeline for institutional and retail business remains encouraging with fixed interest and GARS products attracting a lot of interest. We also continue to see very positive demand for our mutual funds in the UK and for our SICAVS9 in continental Europe.
Capital strength maintained
Other developments
On 19 October 2009 we announced that David Nish will succeed Sir Sandy Crombie as Group Chief Executive with effect from 1 January 2010.
On 26 October 2009 we announced that we had entered into an agreement to sell Standard Life Bank plc ("Standard Life Bank") to Barclays Bank PLC ("Barclays"). We also announced that Standard Life and Barclays UK Retail Banking have agreed heads of terms to enter into a strategic agreement to explore joint opportunities in the UK retail long-term savings and investments sector.
Standard Life Group outlook
While the outlook for the UK savings and investment market remains challenging in the short term, we are confident in the prospects for our pensions businesses and Wrap proposition. We see opportunities for our Asian business and in Canada have a good pipeline of business developing around our core defined contribution proposition.
Standard Life Investments continues to see strong demand for Fixed Interest and Global Absolute Return Strategy (GARS) products which will further increase our global capability.
Our continued ability to attract positive net inflows, combined with the recent upturn in market levels, has led to strong growth in assets across the Group. If sustained, this will lead to higher revenues and cash profits.
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