Final Results - Part 3 of 5

RNS Number : 4307Z

Standard Life plc

07 March 2013

Standard Life plc

Preliminary Results 2012

Part 3 of 5

Section 2 - International Financial Reporting Standards (IFRS)

IFRS consolidated income statement

For the year ended 31 December 2012

		2012	2011
	Notes	£m	£m
Revenue
Gross earned premium		4,315	3,343
Premium ceded to reinsurers		(95)	(98)
Net earned premium		4,220	3,245
Investment return		13,982	4,911
Fee and commission income		906	855
Other income		77	75
Total revenue		19,185	9,086

Expenses
Claims and benefits paid		6,562	6,245
Claim recoveries from reinsurers		(590)	(620)
Net insurance benefits and claims		5,972	5,625
Change in reinsurance assets and liabilities	2.9	44	383
Change in insurance and participating liabilities	2.9	1,339	980
Change in investment contract liabilities	2.9	7,718	(757)
Change in unallocated divisible surplus	2.9	(39)	(87)
Expenses under arrangements with reinsurers		656	516
Administrative expenses
Restructuring and corporate transaction expenses	2.3	114	72
Other administrative expenses		1,574	1,591
Total administrative expenses	2.3	1,688	1,663
Change in liability for third party interest in consolidated funds		782	103
Finance costs		77	116
Total expenses		18,237	8,542

Share of profit from associates and joint ventures		48	51

Profit before tax		996	595

Tax expense attributable to policyholders' returns	2.4	218	217

Profit before tax attributable to equity holders' profits		778	378

Total tax expense	2.4	269	249
Less: Tax attributable to policyholders' returns	2.4	(218)	(217)
Tax expense attributable to equity holders' profits	2.4	51	32
Profit for the year		727	346

Attributable to:
Equity holders of Standard Life plc		698	298
Non-controlling interests		29	48
		727	346
Earnings per share
Basic (pence per share)	2.5	29.7	13.0
Diluted (pence per share)	2.5	29.5	12.9

IFRS consolidated statement of comprehensive income

For the year ended 31 December 2012

		2012	2011
	Notes	£m	£m
Profit for the year		727	346
Fair value losses on cash flow hedges		(1)	-
Actuarial (losses)/gains on defined benefit pension schemes		(97)	121
Effect of limit on defined benefit pension schemes' surpluses		27	(209)
Revaluation of land and buildings		5	(5)
Net investment hedge		18	13
Exchange differences on translating foreign operations		(65)	(53)
Equity movements transferred to unallocated divisible surplus	2.9	11	11
Aggregate equity holder tax effect of items recognised in comprehensive income	2.4	102	27
Other comprehensive income for the year		-	(95)
Total comprehensive income for the year		727	251

Attributable to:
Equity holders of Standard Life plc		698	203
Non-controlling interests		29	48
		727	251

Pro forma reconciliation of consolidated operating profit to IFRS profit for the year

For the year ended 31 December 2012

		2012	2011
	Notes	£m	£m
Operating profit before tax
UK and Europe		419	266
Standard Life Investments		145	125
Canada		355	187
Asia and Emerging Markets		5	(6)
Other		(24)	(28)
Operating profit before tax	2.2	900	544
Adjusted for the following items:
Short-term fluctuations in investment return and economic assumption changes		(29)	(139)
Restructuring and corporate transaction expenses		(109)	(70)
Impairment of intangible assets		-	(5)
Other operating profit adjustments		(4)	-
Non-operating loss before tax	2.2	(142)	(214)
Share of joint ventures' and associates' tax expense¹	2.2	(9)	-
Profit attributable to non-controlling interests	2.2	29	48
Profit before tax attributable to equity holders' profits		778	378
Tax (expense)/credit attributable to:
Operating profit	2.2	(124)	(87)
Adjusted items	2.2	73	55
Total tax expense attributable to equity holders' profits		(51)	(32)
Profit for the year		727	346

¹ In 2011, tax of £11m included in the share of profits or losses from joint ventures and associates was charged to operating profit before tax.

The Group's chosen supplementary measure of performance is operating profit. The Directors believe that operating profit provides a more meaningful indication of the long-term operating performance of the Group. To align the measure of the Group's performance with the long-term nature of its business, operating profit excludes items which create short-term volatility. Operating profit includes the impact of significant actions taken by management during the year. Refer to accounting policy (b) for further details.

IFRS consolidated statement of financial position

As at 31 December 2012

		2012	2011
	Notes	£m	£m
Assets
Intangible assets		214	200
Deferred acquisition costs		904	920
Investments in associates and joint ventures		328	326
Investment property	2.11	8,565	8,743
Property, plant and equipment		156	160
Pension and other post-retirement benefit assets	2.10	339	342
Deferred tax assets		178	210
Reinsurance assets	2.9	6,912	6,818
Loans	2.11	3,299	3,219
Derivative financial assets	2.11	2,150	2,212
Equity securities and interests in pooled investment funds	2.11	65,812	58,531
Debt securities	2.11	73,301	67,176
Receivables and other financial assets	2.11	1,717	1,851
Other assets		284	228
Cash and cash equivalents	2.11	9,942	9,187
Total assets		174,101	160,123
Equity
Share capital	2.8(a)	236	235
Shares held by trusts	2.8(b)	(7)	(19)
Share premium reserve		1,110	1,110
Retained earnings		1,437	1,030
Other reserves		1,579	1,605
Equity attributable to equity holders of Standard Life plc		4,355	3,961
Non-controlling interests		341	358
Total equity		4,696	4,319
Liabilities
Non-participating contract liabilities	2.9	113,251	102,558
Participating contract liabilities	2.9	31,618	32,553
Reinsurance liabilities	2.9	381	245
Deposits received from reinsurers		6,136	6,036
Third party interest in consolidated funds		12,037	8,428
Borrowings		108	170
Subordinated liabilities	2.17	1,868	1,186
Pension and other post-retirement benefit provisions	2.10	135	115
Deferred income		352	388
Deferred tax liabilities		43	145
Income tax liabilities		150	149
Derivative financial liabilities		853	1,102
Other financial liabilities		2,323	2,603
Other liabilities		150	126
Total liabilities		169,405	155,804
Total equity and liabilities		174,101	160,123

IFRS consolidated statement of changes in equity

For the year ended 31 December 2012

		Share capital	Shares held by trusts	Share premium reserve	Retained earnings	Other reserves	Total equity attributable to equity holders of Standard Life plc	Non-controlling interests	Total equity
2012	Notes	£m	£m	£m	£m	£m	£m	£m	£m
1 January		235	(19)	1,110	1,030	1,605	3,961	358	4,319
Profit for the year		-	-	-	698	-	698	29	727
Other comprehensive income for the year		-	-	-	32	(32)	-	-	-
Total comprehensive income for the year		-	-	-	730	(32)	698	29	727
Distributions to equity holders		-	-	-	(331)	-	(331)	-	(331)
Issue of share capital other than in cash	2.8	1	-	-	-	-	1	-	1
Reserves credit for employee share-based payment schemes		-	-	-	-	25	25	-	25
Transfer to retained earnings for vested employee share-based payment schemes		-	-	-	25	(25)	-	-	-
Shares acquired by employee trusts		-	(5)	-	-	-	(5)	-	(5)
Shares distributed by employee trusts		-	17	-	(17)	-	-	-	-
Other movements in non-controlling interests in the year		-	-	-	-	-	-	(46)	(46)
Aggregate tax effect of items recognised directly in equity	2.4	-	-	-	-	6	6	-	6
31 December		236	(7)	1,110	1,437	1,579	4,355	341	4,696

		Share capital	Shares held by trusts	Share premium reserve	Retained earnings	Other reserves	Total equity attributable to equity holders of Standard Life plc	Non-controlling interests	Total equity
2011	Notes	£m	£m	£m	£m	£m	£m	£m	£m
1 January		228	(21)	976	1,094	1,626	3,903	335	4,238
Profit for the year		-	-	-	298	-	298	48	346
Other comprehensive income for the year		-	-	-	(61)	(34)	(95)	-	(95)
Total comprehensive income for the year		-	-	-	237	(34)	203	48	251
Distributions to equity holders		-	-	-	(303)	-	(303)	-	(303)
Issue of share capital other than in cash	2.8	7	-	134	-	-	141	-	141
Reserves credit for employee share-based payment schemes		-	-	-	-	24	24	-	24
Transfer to retained earnings for vested employee share-based payment schemes		-	-	-	11	(11)	-	-	-
Shares acquired by employee trusts		-	(7)	-	-	-	(7)	-	(7)
Shares distributed by employee trusts		-	9	-	(9)	-	-	-	-
Other movements in non-controlling interests in the year		-	-	-	-	-	-	(25)	(25)
31 December		235	(19)	1,110	1,030	1,605	3,961	358	4,319

IFRS consolidated statement of cash flows

For the year ended 31 December 2012

		2012	2011
	Notes	£m	£m
Cash flows from operating activities
Profit before tax		996	595
Change in operating assets		(14,319)	(1,926)
Change in operating liabilities		11,342	4,026
Adjustment for non-cash movements in investment income		(6)	(28)
Change in unallocated divisible surplus		(39)	(87)
Non-cash and items relating to investing and financing activities		84	107
Taxation paid		(284)	(297)
Net cash flows from operating activities		(2,226)	2,390

Cash flows from investing activities
Purchase of property, plant and equipment		(18)	(15)
Acquisition of subsidiaries net of cash acquired		-	(41)
Acquisition of investments in associates and joint ventures		(16)	(23)
Proceeds from sale of intangible assets		-	1
Purchase of intangible assets		(38)	(40)
Net cash flows from investing activities		(72)	(118)

Cash flows from financing activities
Proceeds from other borrowings		-	5
Repayment of other borrowings		(42)	(35)
Proceeds from subordinated liabilities		747	-
Repayment of subordinated liabilities		(50)	(591)
Capital flows from third party interest in consolidated funds and non-controlling interests		2,983	2,177
Distributions paid to non-controlling interests		(75)	(65)
Shares acquired by trusts		(5)	(7)
Interest paid		(77)	(125)
Ordinary dividends paid	2.6	(331)	(162)
Net cash flows from financing activities		3,150	1,197

Net increase in cash and cash equivalents		852	3,469
Cash and cash equivalents at the beginning of the year		9,125	5,701
Effects of exchange rate changes on cash and cash equivalents		(79)	(45)
Cash and cash equivalents at the end of the year ¹		9,898	9,125

Supplemental disclosures on cash flows from operating activities
Interest paid		11	11
Interest received		2,694	2,832
Dividends received		1,822	1,575
Rental income received on investment properties		595	634

¹Comprises £9,942m (2011: £9,187m) of cash and cash equivalents and £44m (2011: £62m) of overdrafts which are reported in borrowings in the statement of financial position.

Notes to the IFRS financial information

2.1 Accounting policies

(a) Basis of preparation

The preliminary results have been prepared using International Financial Reporting Standards (IFRS) issued by the International Accounting Standards Board (IASB) as endorsed by the European Union (EU), with interpretations issued by the IFRS Interpretations Committee and with those parts of the Companies Act 2006 applicable to companies reporting under IFRS.

The accounting policies as set out in the Group's Annual Report and Accounts for the year ended 31 December 2012 have been applied in the preparation of this preliminary announcement. The Group's accounting policies have not changed since the issue of the Annual Report and Accounts 2011.

The Group has adopted the following amendments to IFRSs, International Accounting Standards (IAS) and interpretations which are effective from 1 January 2012 and management considers that the implementation of these amendments and interpretations has had no significant impact on the Group's financial statements:

· Amendment to IFRS 1 First time adoption of IFRS - Severe Hyperinflation and Removal of Fixed Dates for First-time Adopters

· Amendment to IFRS 7 Financial instruments: Disclosures - Transfer of financial assets

(b) Operating profit

The Group's chosen supplementary measure of performance is operating profit. Operating profit excludes impacts arising from short-term fluctuations in investment return and economic assumption changes. It is calculated based on expected returns on investments backing equity holder funds, with consistent allowance for the corresponding expected movements in equity holder liabilities. Impacts arising from the difference between the expected return and actual return on investments, and the corresponding impact on equity holder liabilities except where they are directly related to a significant management action, are excluded from operating profit and are presented within profit before tax. The impact of certain changes in economic assumptions is also excluded from operating profit and is presented within profit before tax.

Operating profit also excludes the impact of the following items:

· Restructuring costs and significant corporate transaction expenses

· Impairment of intangible assets

· Profit or loss arising on the disposal of a subsidiary, joint venture or associate

· Amortisation of intangibles acquired in business combinations

· Items which are one-off in nature and outside the control of management and, which due to their size or nature, are not indicative of the long-term operating performance of the Group

The preliminary announcement for the year ended 31 December 2012 does not constitute statutory accounts as defined in Section 434 of the UK Companies Act 2006. PricewaterhouseCoopers LLP have audited the consolidated statutory accounts for the Group for the years ended 31 December 2011 and 31 December 2012 and their reports were unqualified and did not contain a statement under Section 498(2) or (3) of the UK Companies Act 2006. The Group's consolidated statutory accounts for the year ended 31 December 2011 have been filed with the Registrar of Companies. The Group's Annual Report and Accounts for the year ended 31 December 2012 will be available from 2 April 2013.

2.2 Segmental analysis

(a) Basis of segmentation

The Group's reportable segments have been identified in accordance with the way in which the Group is structured and managed. The Group's reportable segments are as follows:

UK and Europe

UK and Europe operations provide a broad range of pensions, protection, savings and investment products to individual and corporate customers in the UK, Germany, Austria and Ireland.

Standard Life Investments

Investment management services are provided by Standard Life Investments to the Group's other reportable segments. Standard Life Investments also provides a range of investment products for individuals and institutional customers through a number of different investment vehicles. This segment includes the Group's share of the results of HDFC Asset Management Company Limited.

Canada

The operations in Canada provide long-term savings, investment and insurance solutions to individuals, and group benefit and retirement plan members.

Asia and Emerging Markets

The businesses included in Asia and Emerging Markets offer a range of life and pension products and comprise wholly owned operations in Ireland and Hong Kong and investments in joint ventures (JVs) in India and China.

Other

This primarily includes the group corporate centre and related activities.

(b) Reportable segments - group operating profit, revenue and asset information

IFRS 8 Operating Segments requires that the information presented in the financial statements is based on information provided to the 'Chief Operating Decision Maker'. The Chief Operating Decision Maker for the Group is the executive team.

The information used by the executive team to manage the business of the Group has evolved and the segmental analysis has been updated to reflect the financial information now reviewed by the executive team. The key performance metrics of the Group include operating profit and assets under administration (AUA), which are analysed in the tables that follow by reportable segment.

In June 2012, changes were announced in the way the Group manages its businesses. The domestic businesses in Germany and Ireland, previously reported in the International segment, have been combined with the UK to create UK and Europe. The other components of International now form Asia and Emerging Markets. These changes provide stronger focus in our chosen markets and will help drive further value in each of the markets in which the Group operates. The reportable segments have therefore been changed for the year ended 31 December 2012.

Comparative amounts have also been prepared on the same basis to allow more meaningful comparison with the prior year.

The Global investment management segment has been renamed Standard Life Investments.

Income statement and asset information is presented by reportable segment in the tables that follow.

(b)(i) Analysis of Group operating profit by segment

As described beneath the pro forma reconciliation of consolidated operating profit to IFRS profit for the year, operating profit is considered to present an indication of the long-term operating performance of the Group. Operating profit is the key measure utilised by the Group's management in their evaluation of segmental performance and is therefore also presented by reportable segment.

		UK and Europe	Standard Life Investments¹	Canada	Asia and Emerging Markets	Other	Elimination	Total
31 December 2012	Notes	£m	£m	£m	£m	£m	£m	£m
Fee based revenue		831	408	172	54	-	(194)	1,271
Spread/risk margin		112	-	393	-	-	-	505
Total income		943	408	565	54	-	(194)	1,776
Acquisition expenses		(202)	-	(79)	(11)	-	-	(292)
Maintenance expenses		(461)	(281)	(240)	(46)	-	194	(834)
Group corporate centre costs		-	-	-	-	(47)	-	(47)
Capital management		43	-	109	-	23	-	175
Share of joint ventures' and associates' profit before tax¹		-	18	-	8	-	-	26
Other		96	-	-	-	-	-	96
Operating profit/(loss) before tax		419	145	355	5	(24)	-	900
Tax on operating profit		(17)	(33)	(75)	3	(2)	-	(124)
Share of joint ventures' and associates' tax expense²		-	(5)	(4)	-	-	-	(9)
Operating profit/(loss) after tax		402	107	276	8	(26)	-	767
Adjusted for the following items:
Short-term fluctuations in investment return and economic assumption changes	2.7	(4)	-	(19)	(1)	(5)	-	(29)
Restructuring and corporate transaction expenses	2.3	(93)	(3)	(3)	(3)	(7)	-	(109)
Impairment of intangible assets		-	-	-	-	-	-	-
Other operating profit adjustments		-	-	-	-	(4)	-	(4)
Total non-operating items		(97)	(3)	(22)	(4)	(16)	-	(142)
Tax on non-operating items		50	1	17	1	4	-	73
Profit for the year attributable to equity holders of Standard Life plc		355	105	271	5	(38)	-	698
Profit attributable to non-controlling interests								29
Profit for the year								727

¹ The share of profit from HDFC Asset Management Company Limited is now reflected in share of joint ventures' and associates' profit before tax. This was previously included in fee based revenue. Share of joint ventures' and associates' profit before tax includes the Group's share of the results of HDFC Standard Life Insurance Company Limited, Heng An Standard Life Insurance Company Limited and HDFC Asset Management Company Limited.

² In 2011, tax of £11m included in the share of profits or losses from joint ventures and associates was charged to operating profit before tax.

Each operating segment reports total income as its measure of revenue in its analysis of operating profit. Fee based revenue consists of income generated primarily from asset management charges, premium based charges and transactional charges. Spread/risk margin reflects the margin earned on spread/risk business and includes net earned premiums, claims and benefits paid, net investment return using long-term assumptions and reserving changes.

Eliminations relate to inter-segment transactions, which are entered into under normal commercial terms and conditions that would be available to unrelated third parties.

The Group has a widely diversified policyholder base and is therefore not reliant on any individual customers.

2.2 Segmental analysis continued

(b) Reportable segments - group operating profit, revenue and asset information continued

(b)(i) Analysis of Group operating profit by segment continued

		UK and Europe	Standard Life Investments¹	Canada	Asia and Emerging Markets	Other	Elimination	Total
31 December 2011	Notes	£m	£m	£m	£m	£m	£m	£m
Fee based revenue		798	368	166	45	-	(172)	1,205
Spread/risk margin		78	-	281	-	-	-	359
Total income		876	368	447	45	-	(172)	1,564
Acquisition expenses		(226)	-	(78)	(21)	-	-	(325)
Maintenance expenses		(459)	(258)	(220)	(32)	(3)	172	(800)
Group corporate centre costs		-	-	-	-	(50)	-	(50)
Capital management		11	-	38	-	25	-	74
Share of joint ventures' and associates' profit before tax¹		-	15	-	2	-	-	17
Other		64	-	-	-	-	-	64
Operating profit/(loss) before tax		266	125	187	(6)	(28)	-	544
Tax on operating profit		(26)	(30)	(31)	2	(2)	-	(87)
Operating profit/(loss) after tax		240	95	156	(4)	(30)	-	457
Adjusted for the following items:
Short-term fluctuations in investment return and economic assumption changes	2.7	(59)	1	(72)	-	(9)	-	(139)
Restructuring and corporate transaction expenses	2.3	(51)	(5)	(2)	(1)	(11)	-	(70)
Impairment of intangible assets		-	-	-	-	(5)	-	(5)
Other operating profit adjustments		-	-	-	-	-	-	-
Total non-operating items		(110)	(4)	(74)	(1)	(25)	-	(214)
Tax on non-operating items		29	1	19	-	6	-	55
Profit for the year attributable to equity holders of Standard Life plc		159	92	101	(5)	(49)	-	298
Profit attributable to non-controlling interests								48
Profit for the year								346

(b)(ii) Total income

The following table provides a reconciliation of total income, as presented in the analysis of Group operating profit by segment, to total revenue, as presented on the IFRS consolidated income statement:

	2012	2011
	£m	£m
Fee based revenue	1,271	1,205
Spread/risk margin	505	359
Total income as presented in the analysis of Group operating profit by segment	1,776	1,564
Consolidation/policyholder adjustments	279	244
Tax movement attributable to policyholder returns	218	217
Net insurance benefits and claims	5,972	5,625
Change in reinsurance assets and liabilities	44	383
Change in insurance and participating liabilities	1,339	980
Investment return credited and related benefits on non-participating investment liabilities	7,718	(757)
Change in unallocated divisible surplus	(39)	(87)
Expenses under arrangements with reinsurers	656	516
Change in liability for third party interest in consolidated funds	782	103
Non-operating items	(98)	(168)
Other	538	466
Total revenue as presented on the IFRS consolidated income statement	19,185	9,086

Consolidation adjustments mainly relates to amounts attributable to third party interest in consolidated funds which are included in the IFRS consolidated income statement but excluded from total income. Non-operating items are the adjustments that relate to total income which reconcile operating profit to profit for the year as shown in the analysis of Group operating profit by segment in Note 2.2(b)(i).

(b)(iii) Total expenses

The following table provides a reconciliation of total operating expenses, as presented in the analysis of Group operating profit by segment, to total expenses, as presented on the IFRS consolidated income statement:

	2012	2011
	£m	£m
Acquisition expenses	292	325
Maintenance expenses	834	800
Group corporate centre costs	47	50
Total operating expenses as presented in the analysis of Group operating profit by segment	1,173	1,175
Consolidation adjustments	264	224
Net insurance benefits and claims	5,972	5,625
Change in reinsurance assets and liabilities	44	383
Change in insurance and participating liabilities	1,339	980
Change in investment contract liabilities	7,718	(757)
Change in unallocated divisible surplus	(39)	(87)
Expenses under arrangements with reinsurers	656	516
Change in liability for third party interest in consolidated funds	782	103
Finance costs	77	116
Non-operating items	113	75
Other	138	189
Total expenses as presented on the IFRS consolidated income statement	18,237	8,542

Consolidation adjustments mainly relates to expenses attributable to third party interests in consolidated funds which are included in the total expenses consolidated income statement but excluded from total operating expenses. Finance costs are included in capital management in the analysis of Group operating profit by segment.

Non-operating items are the adjustments that relate to total expenses which reconcile operating profit to profit for the year as shown in the analysis of Group operating profit by segment in Note 2.2(b)(i).

(b)(iv) Analysis of assets under administration by segment

Group AUA presents a measure of the total assets of the Group including those administered on behalf of customers and institutional clients. AUA represents the IFRS gross assets of the Group adjusted to include third party AUA, which is not included in the IFRS consolidated statement of financial position. In addition, certain assets on the IFRS consolidated statement of financial position are excluded from the definition, including reinsurance assets, deferred acquisition costs and intangible assets.

As a long-term savings and investments business, AUA is a key driver of shareholder value and is consequently one of the key measures utilised by the executive team in their evaluation of segmental performance. AUA is therefore presented by reportable segment (in billions).

	UK and Europe	Standard Life Investments	Canada	Asia and Emerging Markets	Other	Elimination¹	Total
31 December 2012	£bn	£bn	£bn	£bn	£bn	£bn	£bn
Assets under administration
Fee based	121	83	16	4	-	(43)	181
Spread/risk	16	-	10	-	-	-	26
Assets not backing products in long-term savings business	6	-	2	-	-	-	8
Joint ventures	-	-	-	1	-	-	1
Other corporate assets	-	-	-	-	2	-	2
Total assets under administration	143	83	28	5	2	(43)	218
Third party AUA							(65)
Reinsurance assets							7
Deferred acquisition costs							1
Assets attributable to third party interest in consolidated funds and non-controlling interests							13
Other							-
Total assets per IFRS consolidated statement of financial position							174

¹ In order to be consistent with the presentation of new business information, certain products are included in both Standard Life Investments AUA and other segments. Therefore, at a Group level an elimination adjustment is required to remove any duplication, in addition to other necessary consolidation adjustments.

2.2 Segmental analysis continued

(b) Reportable segments - group operating profit, revenue and asset information continued

(b)(iv) Analysis of assets under administration by segment continued

The third party AUA adjustment mainly relates to the investment products element of third party funds under management and non-insured SIPP AUA which are not included in the IFRS consolidated statement of financial position. Assets attributable to third party interest in consolidated funds and non-controlling interests are included in the IFRS consolidated statement of financial position but excluded from Group's AUA.

	UK and Europe	Standard Life Investments	Canada	Asia and Emerging Markets	Other	Elimination¹	Total
31 December 2011	£bn	£bn	£bn	£bn	£bn	£bn	£bn
Assets under administration
Fee based	110	72	14	3	-	(36)	163
Spread/risk	15	-	10	-	-	-	25
Assets not backing products in long-term savings business	6	-	2	-	-	-	8
Joint ventures	-	-	-	1	-	-	1
Other corporate assets	-	-	-	-	2	(1)	1
Total assets under administration	131	72	26	4	2	(37)	198
Third party AUA							(55)
Reinsurance assets							7
Deferred acquisition costs							1
Assets attributable to third party interest in consolidated funds and non-controlling interests							10
Other							(1)
Total assets per IFRS consolidated statement of financial position							160

Total revenue as presented on the IFRS consolidated income statement split by geographic location in which it was earned is as follows:

	2012	2011
	£m	£m
UK	12,540	4,767
Canada	3,363	2,633
Rest of the world	3,282	1,686
Total	19,185	9,086

The revenue of the operating businesses is allocated based on customer location. The return on investment funds is allocated based on where funds are registered.

(d) Non-current non-financial assets by geographical location

	2012	2011
	£m	£m
UK	7,126	7,242
Canada	1,391	1,413
Rest of the world	418	448
Total	8,935	9,103

Non-current non-financial assets for this purpose consist of investment property, property, plant and equipment and intangible assets (excluding intangible assets arising from insurance or participating investment contracts).

2.3 Administrative expenses

		2012	2011
	Notes	£m	£m
Restructuring and corporate transaction expenses		114	72
Interest expense		17	19
Commission expenses		394	393
Staff costs and other employee-related costs		612	569
Recovery under insurance claim	2.13	(98)	-
Other administrative expenses		646	656
		1,685	1, 709
Acquisition costs deferred during the year		(202)	(178)
Impairment of deferred acquisition costs		3	-
Amortisation of deferred acquisition costs		180	132
Release of deferred acquisition costs		22	-
Total administrative expenses		1,688	1,663

Included in staff costs and other employee related costs in 2011 is a credit of £64m resulting from a change in the basis of future pension discretionary increases in the UK staff pension scheme.

During the year to 31 December 2012, certain non-participating investment contracts were reclassified as non-participating insurance contracts due to a change in the benefits available under the contracts. As a result of the reclassification deferred income of £26m has been released and recognised in the consolidated income statement in fee and commission income. Deferred acquisition costs of £22m that were considered recovered by the fees that had previously been deferred have also been released, resulting in a net increase of £4m in profit before tax.

In addition to interest expense of £17m (2011: £19m), interest expense of £77m (2011: £116m) was incurred in respect of subordinated liabilities and £36m (2011: £42m) in respect of deposits from reinsurers. For the year ended 31 December 2012, total interest expense is £130m (2011: £177m).

Total restructuring costs incurred during the year were £114m (2011: £72m), relating to a number of business unit restructuring programmes, Solvency 2 and the Retail Distribution Review. Of the restructuring costs, £109m (2011: £70m) is adjusted when determining operating profit before tax, with the remaining £5m (2011: £2m) incurred by the Heritage With Profits Fund.

2.4 Tax expense

The tax expense is attributed as follows:

	2012	2011
	£m	£m
Tax expense attributable to policyholders' returns	218	217
Tax expense attributable to equity holders' profits	51	32
Total tax expense	269	249

The Finance Act 2012 reduced the UK corporation tax rate to 23% with effect from 1 April 2013 and this rate has been applied in calculating the UK deferred tax position at 31 December 2012. The draft 2013 Finance Bill contains a provision to make a further 2% reduction in the UK rate of corporation tax which would result in the rate being 21% from 1 April 2014. These reductions have not been included in the calculation of deferred tax as they are subject to legislation being enacted in future years.

The new tax regime for UK life companies is effective from 1 January 2013. The basis of the regime will move from the FSA regulatory return to the statutory accounts. The deferred tax position of Standard Life Assurance Ltd (SLAL) has been updated to reflect the new regime. The transition to the new regime does not have a material impact on SLAL's deferred tax position.

The share of tax of associates and joint ventures is £9m (2011: £11m) and is included in profit before tax in the IFRS consolidated income statement in 'Share of profit from associates and joint ventures'.

2.4 Tax expense continued

The total tax expense is split as follows:

	2012	2011
	£m	£m
Income tax:
UK	224	269
Double tax relief	(2)	(2)
Overseas	43	31
Adjustment to tax expense in respect of prior years	(32)	12
Total income tax	233	310

Deferred tax:
Deferred tax expense/(credit) arising from the current year	36	(61)
Total deferred tax	36	(61)

Total tax expense attributable to operations	269	249

Attributable to equity holders' profits	51	32

The adjustment to tax expense in respect of prior periods includes a current tax receivable amount of £37m of policyholder tax due to a correction made in a prior year tax return.

Unrecognised tax losses of £1m from previous years were used to reduce income tax expense (2011: £nil). Unrecognised losses and timing differences of £14m were used to reduce the deferred tax expense (2011: £12m).

Deferred tax of £26m (2011: £26m) has not been recognised for the withholding tax and other taxes that would be payable on the unremitted earnings of certain subsidiaries.

Tax relating to components of other comprehensive income is as follows:

	2012	2011
	£m	£m
Tax credit on defined benefit pension schemes	(102)	(27)
Tax relating to each component of other comprehensive income	(102)	(27)

Tax relating to items taken directly to equity is as follows:

	2012	2011
	£m	£m
Deferred tax on reserves for employee share-based payment shares	(6)	-
Tax relating to items taken directly to equity	(6)	-

2.5 Earnings per share

(a) Basic earnings per share

Basic earnings per share is calculated by dividing profit attributable to ordinary equity holders by the weighted average number of ordinary shares outstanding during the year. The weighted average number of ordinary shares outstanding during the year is the weighted average number of shares in issue less the weighted average number of shares owned by employee share trusts that have not vested unconditionally to employees.

	2012	2011
Profit attributable to equity holders of Standard Life plc (£m)	698	298

Weighted average number of ordinary shares outstanding (millions)	2,351	2,301

Basic earnings per share (pence per share)	29.7	13.0

(b) Diluted earnings per share

Diluted earnings per share is calculated by adjusting the weighted average number of ordinary shares outstanding to assume conversion of all dilutive potential ordinary shares. The Group has one category of dilutive potential ordinary shares - share awards and share options awarded to employees.

For share options, a calculation is made to determine the number of shares that could be acquired at fair value (determined as the average annual market share price of the Company's shares) based on the monetary value of the subscription rights attached to outstanding share options. The number of shares calculated is compared with the number of shares that could be issued, or purchased, assuming the exercise of the share options.

	2012	2011
Profit attributable to equity holders of Standard Life plc (£m)	698	298

Weighted average number of ordinary shares outstanding for diluted earnings per share (millions)¹	2,369	2,314

Diluted earnings per share (pence per share)	29.5	12.9

¹ The number of ordinary shares outstanding at 31 December 2011 for diluted earnings per share has been restated following an amendment to the methodology used in the calculation of shares which have a dilutive effect. This restatement has no impact on diluted earnings per share.

The dilutive effect of share awards and options included in the weighted average number of ordinary shares above was 18 million (2011: 13 million).

Earnings per share is also calculated based on operating profit before tax as well as on the profit attributable to equity holders. The Directors believe that earnings per share based on operating profit provides a better indication of the long-term operating business performance of the Group.

(c)(i) Basic alternative earnings per share

	2012	2012	2011	2011
	£m	p per share	£m	p per share
Operating profit before tax	900	38.3	544	23.6
Short-term fluctuations in investment return and economic assumption changes	(29)	(1.2)	(139)	(6.0)
Restructuring and corporate transaction expenses	(109)	(4.6)	(70)	(3.1)
Impairment of intangible assets	-	-	(5)	(0.2)
Other operating profit adjustments	(4)	(0.2)	-	-
Non-operating loss before tax	(142)	(6.0)	(214)	(9.3)
Share of joint ventures' and associates' tax expense	(9)	(0.4)	-	-
Profit attributable to non-controlling interests	29	1.2	48	2.1
Profit before tax	778	33.1	378	16.4

Tax (expense)/credit attributable to:
Operating profit	(124)	(5.3)	(87)	(3.7)
Adjusted items	73	3.1	55	2.4
Profit attributable to non-controlling interests	(29)	(1.2)	(48)	(2.1)
Profit attributable to equity holders of Standard Life plc	698	29.7	298	13.0

(c)(ii) Diluted alternative earnings per share

	2012	2012	2011	2011
	£m	p per share	£m	p per share
Operating profit before tax	900	38.0	544	23.5
Short-term fluctuations in investment return and economic assumption changes	(29)	(1.2)	(139)	(6.0)
Restructuring and corporate transaction expenses	(109)	(4.6)	(70)	(3.1)
Impairment of intangible assets	-	-	(5)	(0.2)
Other operating profit adjustments	(4)	(0.2)	-	-
Non-operating loss before tax	(142)	(6.0)	(214)	(9.3)
Share of joint ventures' and associates' tax expense	(9)	(0.4)	-	-
Profit attributable to non-controlling interests	29	1.2	48	2.1
Profit before tax	778	32.8	378	16.3

Tax (expense)/credit attributable to:
Operating profit	(124)	(5.2)	(87)	(3.7)
Adjusted items	73	3.1	55	2.4
Profit attributable to non-controlling interests	(29)	(1.2)	(48)	(2.1)
Profit attributable to equity holders of Standard Life plc	698	29.5	298	12.9

2.6 Dividends

The Company paid a final dividend of 9.20 pence per share (final 2010: 8.65 pence) totalling £216m in respect of the year ended 31 December 2011 on 31 May 2012 (final 2010: £197m) and an interim dividend of 4.90 pence per share (interim 2011: 4.60 pence) totalling £115m (interim 2011: £106m) in respect of the year ended 31 December 2012 on 14 November 2012.

Subsequent to 31 December 2012, the Directors have proposed a final dividend for the year ended 31 December 2012 of 9.80 pence per ordinary share, £231m in total. In addition, the Directors have proposed a special dividend of 12.80 pence per ordinary share, £302m in total. The dividends will be paid on 21 May 2013 to shareholders on the Company's register as at 5 April 2013, subject to approval at the Annual General Meeting on 14 May 2013. The dividends will be recorded as an appropriation of retained earnings in the financial statements for the year ended 31 December 2013.

Commencing with the final dividend for 2011, the option to receive dividend entitlement under the Scrip scheme was removed and has been replaced with a dividend reinvestment plan. Investors who took part in the Scrip scheme received their dividend entitlement in the form of shares rather than cash and the distribution under the Scrip scheme was recorded as an appropriation of retained earnings. Dividends paid during the year ended 31 December 2011 comprise £162m paid in cash and £141m settled by the issue of shares under the Scrip scheme.

2.7 Short-term fluctuations in investment return and economic assumption changes

The Group focuses on operating profit as a measure of its performance, which incorporates expected returns on investments backing equity holder funds with a consistent allowance for corresponding expected movements in equity holder liabilities. The methodology used in operating profit is outlined below.

Operating profit is calculated based on expected returns on investments backing equity holder funds, with consistent allowance for the corresponding expected movements in equity holder liabilities. Impacts arising from the difference between the expected return and actual return on investments, and the corresponding impact on equity holder liabilities except where they are directly related to a significant management action, are excluded from operating profit and are presented within profit before tax. As a result, the components of IFRS profit attributable to market movements and interest rate changes which give rise to variances between actual and expected investment returns, as well as the impact of changes in economic assumptions on equity holder liabilities, are excluded from operating profit and disclosed separately within the heading of short-term fluctuations in investment return and economic assumption changes.

The expected rates of return for debt securities, equity securities and property are determined separately for each of the Group's operations and are consistent with the expected rates of return as determined under the Group's published European Embedded Value (EEV) methodology. The expected rates of return for equity securities and property, with the exception of the Canadian operations, are determined based on the gilt spot rates of an appropriate duration plus an equity risk premium or property risk premium, respectively. The expected rates of return on equity securities and property for Canadian operations are determined by the Appointed Actuary in Canada.

The principal assumptions, as set at the start of the year, in respect of gross investment returns underlying the calculation of the expected investment return for equity securities and property are as follows:

	2012			2011
	UK	Canada	UK	Canada
	%	%	%	%
Equity securities	4.93	8.60	6.49	8.60
Property	3.93	8.60	5.49	8.60

In respect of debt securities at fair value through profit or loss, the expected rate of return is determined based on the average prospective yields for the debt securities actually held or, in respect of the Canadian operations, is determined by the Appointed Actuary in Canada. For debt securities classified as available-for-sale that support liabilities measured at amortised cost the expected rate of return is the effective interest rate adjusted for an allowance, established at initial recognition, for expected defaults. If debt securities classified as available-for-sale are sold, any gain or loss is amortised within the expected return over the period to the earlier of the maturity date of the sold debt security or the redemption date of the supported liability.

Gains and losses on foreign exchange are deemed to represent short-term fluctuations in investment return and economic assumption changes and thus are excluded from operating profit.

For the year ended 31 December 2012, short-term fluctuations in investment return and economic assumption changes were losses of £29m (2011: £139m). Short-term fluctuations in investment return relate principally to the investment volatility in Canada non-segregated funds and UK annuities, and in respect of the Group's subordinated liabilities and assets backing those liabilities.

2.8 Issued share capital and shares held by trusts

(a) Issued share capital

The movement in the issued ordinary share capital of the Company during the year was:

	2012	2012	2011	2011
	Number	£m	Number	£m
At 1 January	2,353,665,822	235	2,283,019,841	228
Shares issued in lieu of cash dividends	-	-	70,138,459	7
Shares issued in respect of share incentive plans	445,155	-	507,364	-
Shares issued in respect of share options	3,867,675	1	158	-
At 31 December	2,357,978,652	236	2,353,665,822	235

As discussed in Note 2.6 - Dividends, no shares have been issued in respect of dividends during 2012 since the Scrip dividend scheme has been removed. In 2011, 70,138,459 shares were issued under the scheme.

The Group operates share incentive plans, allowing employees the opportunity to buy shares from their salary each month. The maximum purchase that an employee can make in any one year is £1,500. The Group offers to match the first £25 of shares bought each month. During the year ended 31 December 2012, the Company allotted 445,155 (2011: 507,364) ordinary shares to Group employees under the share incentive plans.

The Group also operates a Long-Term Incentive Plan (LTIP) for executives and senior management and a Sharesave (Save-as-you-earn) scheme for all eligible employees. During the year ended 31 December 2012, 3,832,753 (2011: nil) and 34,922 (2011: 158) ordinary shares were issued in relation to the LTIP and Sharesave schemes respectively.

(b) Shares held by trusts

The Employee Share Trust (EST) purchases and holds shares in the Company for delivery to employees under various employee share schemes. Shares purchased by the EST are presented as a deduction from equity in the IFRS consolidated statement of financial position. Share-based liabilities to employees may also be settled by the issue of new shares.

Shares held by trusts also include shares held by the Unclaimed Asset Trust (UAT). The shares held by the UAT are those not yet claimed by the eligible members of The Standard Life Assurance Company (SLAC) following its demutualisation on 10 July 2006.

Any corresponding obligation to deliver a fixed number of the Company's equity instruments to employees, or eligible members of SLAC, is offset within the shares held by trusts reserve.

The number of shares held by trusts at 31 December 2012, which were not offset by a corresponding obligation to deliver a fixed number of equity instruments, was 2,527,223 (2011: 10,879,286).

2.9 Insurance contracts, investment contracts and reinsurance contracts

	2012	2011
	£m	£m
Non-participating insurance contract liabilities	29,050	25,051
Non-participating investment contract liabilities	84,201	77,507
Non-participating contract liabilities	113,251	102,558

Participating insurance contract liabilities	15,919	16,509
Participating investment contract liabilities	14,993	15,319
Unallocated divisible surplus	706	725
Participating contract liabilities	31,618	32,553

2.9 Insurance contracts, investment contracts and reinsurance contracts continued

The movement in insurance contract liabilities, participating investment contract liabilities and reinsurance contracts during the year was as follows:

	Participating insurance contract liabilities	Non-participating insurance contract liabilities	Participating investment contract liabilities	Total insurance and participating contracts	Reinsurance contracts	Net
2012	£m	£m	£m	£m	£m	£m
At 1 January	16,509	25,051	15,319	56,879	(6,573)	50,306
Expected change	(1,331)	(762)	(897)	(2,990)	310	(2,680)
Methodology/modelling changes	(18)	(165)	64	(119)	110	(9)
Effect of changes in:
Economic assumptions	(49)	1,075	(105)	921	(451)	470
Non-economic assumptions	(7)	(100)	(38)	(145)	73	(72)
Effect of:
Economic experience	928	548	644	2,120	(1)	2,119
Non-economic experience	56	(662)	(46)	(652)	3	(649)
New business	26	2,102	76	2,204	-	2,204
Total change in contract liabilities	(395)	2,036	(302)	1,339	44	1,383
Contract reclassification	-	2,182	-	2,182	-	2,182
Foreign exchange adjustment	(195)	(219)	(24)	(438)	(2)	(440)
At 31 December	15,919	29,050	14,993	59,962	(6,531)	53,431
Reinsurance assets					(6,912)
Reinsurance liabilities					381
					(6,531)

Due to a change in the benefits available under certain contracts, £2,182m of non-participating investment contracts have been reclassified as non-participating insurance contracts during the year ended 31 December 2012. Refer to Note 2.3 - Administrative expenses. As the majority of the liability in respect of these contracts relates to the unit fund, the expected change for these contracts has been set to nil, with the full investment growth of £172m shown in economic experience and the value of claims included in non-economic experience.

Due to changes in economic and non-economic factors, certain assumptions used in estimating insurance and investment contract liabilities have been revised. Therefore, the change in liabilities reflects actual performance over the year, changes in assumptions and, to a limited extent, improvements in modelling techniques.

Non-economic assumptions decrease of £72m (net of reinsurance) includes a decrease of £45m (net of reinsurance) in respect of participating business, which is primarily in respect of the best estimate non-economic assumptions used in calculating the value of future transfers to equity holders in respect of participating business in the HWPF.

Economic assumptions reflect changes in fixed income yields, leading to lower valuation rates on non-participating business, and other market movements.

The movement in insurance contract liabilities, participating investment contract liabilities and reinsurance contracts during 2011 was as follows:

	Participating insurance contract liabilities	Non-participating insurance contract liabilities	Participating investment contract liabilities	Total insurance and participating contracts	Reinsurance contracts	Net
2011	£m	£m	£m	£m	£m	£m
At 1 January	17,357	23,564	15,329	56,250	(6,962)	49,288
Expected change	(1,014)	(523)	(658)	(2,195)	301	(1,894)
Methodology/modelling changes	(11)	(7)	14	(4)	-	(4)
Effect of changes in:
Economic assumptions	(37)	1,309	176	1,448	(292)	1,156
Non-economic assumptions	4	(245)	15	(226)	385	159
Effect of:
Economic experience	325	595	438	1,358	(23)	1,335
Non-economic experience	38	(507)	(51)	(520)	18	(502)
New business	30	1,013	76	1,119	(6)	1,113
Total change in contract liabilities	(665)	1,635	10	980	383	1,363
Foreign exchange adjustment	(183)	(148)	(20)	(351)	6	(345)
At 31 December	16,509	25,051	15,319	56,879	(6,573)	50,306
Reinsurance assets					(6,818)
Reinsurance liabilities					245
					(6,573)

The change in non-participating investment contract liabilities was as follows:

	2012	2011
	£m	£m
At 1 January	77,507	75,600
Contributions	11,027	11,904
Initial charges and reduced allocations	(6)	(7)
Account balances paid on surrender and other terminations in the year	(9,062)	(8,525)
Investment return credited and related benefits	7,718	(757)
Foreign exchange adjustment	(406)	(308)
Contract reclassification	(2,182)	-
Recurring management charges	(395)	(400)
At 31 December	84,201	77,507

The movement in the unallocated divisible surplus (UDS) was as follows:

	2012	2011
	£m	£m
At 1 January	725	788
Change in UDS recognised in the income statement	(39)	(87)
Change in UDS not recognised in the income statement	(11)	(11)
Foreign exchange adjustment	31	35
At 31 December	706	725

2.10 Defined benefit and defined contribution plans

(a) Analysis of amounts recognised in the IFRS consolidated income statement

The amounts recognised in the summary consolidated income statement for defined contribution and defined benefit schemes are as follows:

	2012	2011
	£m	£m
Current service cost	(64)	(60)
Interest cost on benefit obligation	(106)	(107)
Expected return on plan assets	150	136
Past service cost	(1)	64
(Charge)/credit recognised in the IFRS consolidated income statement	(21)	33

Included in past service costs in 2011 was £64m resulting from a change in the basis of future pension discretionary increases in the UK staff pension scheme.

(b) Analysis of amounts recognised in the IFRS consolidated statement of financial position

The present value of the defined benefit obligation less the fair value of gross scheme assets is as follows:

		2012				2011
	UK	Canada	Ireland	Total	UK	Canada	Ireland	Total
	£m	£m	£m	£m	£m	£m	£m	£m
Present value of funded obligation	(2,121)	(233)	(69)	(2,423)	(1,972)	(215)	(54)	(2,241)
Present value of unfunded obligation	-	(70)	-	(70)	-	(68)	-	(68)
Fair value of plan assets	2,642	188	61	2,891	2,519	179	58	2,756
Adjustment for unrecognised past service costs	-	(5)	-	(5)	-	(5)	-	(5)
Effect of limit on plan surpluses	(182)	-	-	(182)	(209)	-	-	(209)
Net asset/(liability) in the IFRS consolidated statement of financial position	339	(120)	(8)	211	338	(109)	4	233

The Group also recognises a net liability of £7m (2011: £6m) arising from a scheme with a total defined benefit obligation of £7m (2011: £6m) administered for the benefit of employees in Germany, resulting in a net asset, presented in the IFRS consolidated statement of financial position, of £204m (2011: £227m).

Under the guidance contained in IFRIC 14 IAS 19 - The Limit on a Defined Benefit Asset, Minimum Funding Requirements and their Interaction, the UK scheme surplus is considered to be recoverable as a right to a refund exists. In measuring the economic benefit available as a refund at 31 December 2012, the surplus has been reduced by £182m to reflect the authorised surplus payments charge of 35% that would arise on a refund. When measuring the defined benefit asset at 31 December 2011, a component of the surplus amounting to £209m was not considered recoverable and therefore was not recognised.

The principal economic assumptions used in determining the year end pension benefit obligation for the Group's plans are as follows:

		2012			2011
	UK	Canada	Ireland	UK	Canada	Ireland
	%	%	%	%	%	%
Rate of increase in salaries	5.30	3.50	3.50	4.45-5.45	3.50	3.50
Rate of increase in pensions	2.70	1.33	1.00	2.85	1.33	1.00
Discount rate	4.50	4.00	3.90	4.60	4.50	5.10
Inflation assumption	2.70-3.30	2.00	2.00	2.85-3.45	2.00	2.00
Expected return on plan assets	5.40	5.75	3.90	5.45	5.75	4.00

2.11 Investment property and financial assets

The values of the Group's holdings of investment properties and financial assets are impacted by the Group's exposure to market and credit risk.

The Group's appetite for risk, the sources of these risks and specific actions taken to manage these risks are set out in Section 1.5 - Risk management of the Business review. In recent years, the focus of the Group's risk management activities has evolved. The information presented in this Note, including the 2011 comparative information, has been updated to reflect the current focus of activities.

The assets on the Group's statement of financial position can be split into four categories (risk segments) which give the shareholder different exposures to the risks outlined in the Business review.

These categories are:

Shareholder business

Shareholder business refers to the assets to which the shareholder is directly exposed. For the purposes of this information the shareholder refers to the equity holders of SL plc.

Participating business

Participating business refers to the assets of the participating funds of the life operations of the Group.

Unit linked and segregated funds

Unit linked and segregated funds refer to the assets of the UK and Europe unit linked funds, Canada segregated funds and, in respect of Asia and Emerging Markets, the linked business of Standard Life International Limited and Standard Life Asia Limited unit linked funds.

Third party interest in consolidated funds and non-controlling interests (TPICF and NCI)

Third party interest in consolidated funds and non-controlling interests refers to the assets recorded on the Group consolidated statement of financial position which belong to third parties. The Group controls the entities that own the assets but the Group does not own 100% of the equity or units of the relevant entities.

The total Group holding in investment property and financial assets has been presented below based on the risk segment.

	Shareholder business	Participating business	Unit linked and segregated funds	TPICF and NCI¹	Total
31 December 2012	£m	£m	£m	£m	£m
Loans to associates and joint ventures	16	-	7	3	26
Investment property	521	2,048	4,701	1,295	8,565
Equity securities and interests in pooled investment funds	197	9,079	53,019	3,517	65,812
Debt securities	12,423	30,005	24,823	6,050	73,301
Loans	2,855	226	218	-	3,299
Derivative financial assets	63	1,106	681	300	2,150
Receivables and other financial assets	515	496	550	156	1,717
Cash and cash equivalents	1,537	1,494	5,461	1,450	9,942
Total	18,127	44,454	89,460	12,771	164,812

¹Third party interest in consolidated funds and non-controlling interests.

	Shareholder business	Participating business	Unit linked and segregated funds	TPICF and NCI¹	Total
31 December 2011	£m	£m	£m	£m	£m
Loans to associates and joint ventures	16	-	27	13	56
Investment property	741	2,271	4,418	1,313	8,743
Equity securities and interests in pooled investment funds	200	9,334	46,539	2,458	58,531
Debt securities	11,054	30,485	21,879	3,758	67,176
Loans	2,832	250	137	-	3,219
Derivative financial assets	250	1,016	723	223	2,212
Receivables and other financial assets	283	779	636	153	1,851
Cash and cash equivalents	1,077	1,665	5,122	1,323	9,187
Total	16,453	45,800	79,481	9,241	150,975

¹ Third party interest in consolidated funds and non-controlling interests.

The shareholder is exposed to the impact of market movements in property prices, interest rates and foreign exchange rates and the impact of movements in credit ratings on the value of assets held by the shareholder business. The shareholder is also exposed to the market and credit risk that the assets of the participating funds of the life operations of the Group are not sufficient to meet their obligations. In this situation, the shareholder would be exposed to the full shortfall in the funds.

No further analysis is provided on the assets of the remaining risk segments unit linked and segregated funds and TPICF and NCI. Assets of the unit linked and segregated funds are managed in accordance with the mandates of the particular funds and the financial risks of the assets are expected to be borne by the policyholder. The shareholder is not exposed to market and credit risk from assets in respect of TPICF and NCI since the financial risks of the assets are borne by third parties.

The tables which follow give further analysis of the assets of the shareholder and participating businesses, with further explanation of the market and credit risks that the shareholder is directly exposed to as a result of holding these assets, at the reporting date.

2.11 Investment property and financial assets continued

Investment properties

The Group is subject to property price risk due to changes in the value and return on holdings in investment properties. This risk arises from various direct and indirect holdings which are controlled through the use of portfolio limits.

The tables below analyse investment property held by the shareholder and participating businesses by country and sector.

Shareholder business

	Office		Industrial		Retail		Other		Total
	2012	2011	2012	2011	2012	2011	2012	2011	2012	2011
	£m	£m	£m	£m	£m	£m	£m	£m	£m	£m
Canada	392	612	57	57	-	-	72	72	521	741
Total	392	612	57	57	-	-	72	72	521	741

Participating business

	Office		Industrial		Retail		Other		Total
	2012	2011	2012	2011	2012	2011	2012	2011	2012	2011
	£m	£m	£m	£m	£m	£m	£m	£m	£m	£m
UK	560	644	264	317	962	1,013	-	-	1,786	1,974
Canada	50	54	20	19	5	5	13	12	88	90
Belgium	14	32	-	-	-	-	-	-	14	32
France	2	2	27	30	-	-	2	-	31	32
Spain	129	143	-	-	-	-	-	-	129	143
Total	755	875	311	366	967	1,018	15	12	2,048	2,271

There is no exposure to residential property in the shareholder and participating businesses.

Equity securities

The Group is subject to equity price risk due to daily changes in the market value and returns in the holdings in its equity security portfolio. Exposure to equity securities are primarily managed through the use of investment mandates including constraints based on appropriate equity indices.

The following table analyses equity securities held by shareholder and participating businesses by country.

	Shareholder business		Participating business		Total
	2012	2011	2012	2011	2012	2011
	£m	£m	£m	£m	£m	£m
UK	19	15	4,553	4,582	4,572	4,597
Canada	105	122	204	206	309	328
Australia	1	2	32	32	33	34
Austria	-	-	11	7	11	7
Belgium	-	-	96	77	96	77
Denmark	1	-	102	56	103	56
Finland	-	-	30	1	30	1
France	2	1	500	368	502	369
Germany	1	1	395	476	396	477
Greece	-	-	1	1	1	1
Ireland	1	-	102	123	103	123
Italy	-	-	104	94	104	94
Japan	3	2	77	81	80	83
Mexico	-	-	5	2	5	2
Netherlands	1	1	336	503	337	504
Norway	-	-	53	102	53	102
Portugal	-	-	30	40	30	40
Spain	-	-	89	166	89	166
Sweden	1	-	221	177	222	177
Switzerland	1	1	391	455	392	456
US	30	22	1,525	1,570	1,555	1,592
Other	25	24	217	209	242	233
Total	191	191	9,074	9,328	9,265	9,519

In addition to the equity securities analysed above, the shareholder business has interests in pooled investment funds of £6m (2011: £9m) and the participating business has interests in pooled investment funds of £5m (2011: £6m).

Debt securities

The Group is exposed to interest rate risk and credit risk through its holdings in debt securities. The Group manages its exposure to debt securities by setting exposure limits by name of issuer, sector and credit rating.

At 31 December 2012, the total holding of debt securities was £73,301m (31 December 2011: £67,176m). At 31 December 2012, the total shareholder business holding of debt securities was £12,423m (31 December 2011: £11,054m), of which 96% (31 December 2011: 96%) was rated as investment grade. The total participating business holding of debt securities at 31 December 2012 was £30,005m (31 December 2011: £30,485m), of which 96% (31 December 2011: 96%) was rated as investment grade. This shows the high quality of the debt securities held.

The following tables show the shareholder and participating businesses' exposure to credit risk from debt securities analysed by credit rating and country.

Shareholder business

	Government, Provincial and Municipal¹		Banks		Other financial institutions		Other corporate		Other		Total
	2012	2011	2012	2011	2012	2011	2012	2011	2012	2011	2012	2011
	£m	£m	£m	£m	£m	£m	£m	£m	£m	£m	£m	£m
AAA	1,281	1,083	144	147	126	143	155	307	161	166	1,867	1,846
AA	1,471	1,172	524	723	233	374	399	352	-	-	2,627	2,621
A	1,319	1,383	1,238	893	885	746	2,876	2,191	-	-	6,318	5,213
BBB	2	-	87	70	56	75	910	704	-	-	1,055	849
Below BBB or not rated	9	5	49	41	334	308	88	97	76	74	556	525
Total	4,082	3,643	2,042	1,874	1,634	1,646	4,428	3,651	237	240	12,423	11,054

¹Government, Provincial and Municipal includes debt securities which are issued by or explicitly guaranteed by the national government. For Canada, this includes debt securities which are issued by or explicitly guaranteed by the Crown Corporations of the Government of Canada.

	Government, Provincial and Municipal¹		Banks		Other financial institutions		Other corporate		Other²		Total
	2012	2011	2012	2011	2012	2011	2012	2011	2012	2011	2012	2011
	£m	£m	£m	£m	£m	£m	£m	£m	£m	£m	£m	£m
UK	302	384	607	514	844	824	743	512	74	74	2,570	2,308
Canada	3,441	3,225	179	240	290	288	2,211	2,124	-	-	6,121	5,877
Australia	-	-	85	12	6	5	9	1	-	-	100	18
Austria	-	-	-	-	-	-	-	-	-	-	-	-
Belgium	-	-	53	1	-	-	1	1	-	-	54	2
Denmark	-	-	5	66	-	-	6	17	-	-	11	83
Finland	-	-	-	50	-	-	1	-	-	-	1	50
France	-	-	228	103	4	2	402	315	-	-	634	420
Germany	315	24	114	104	22	3	208	250	-	-	659	381
Greece	-	-	-	-	-	-	-	-	-	-	-	-
Ireland	-	-	-	2	10	3	2	2	-	-	12	7
Italy	-	-	33	24	2	-	52	67	-	-	87	91
Japan	2	-	70	50	18	27	21	5	-	-	111	82
Mexico	1	-	-	-	-	-	77	43	-	-	78	43
Netherlands	-	-	286	182	1	1	154	15	-	-	441	198
Norway	1	-	21	52	-	-	39	31	-	-	61	83
Portugal	-	-	-	-	-	-	-	1	-	-	-	1
Spain	-	-	9	17	-	-	39	39	-	-	48	56
Sweden	1	-	58	97	-	-	60	28	-	-	119	125
Switzerland	-	-	78	129	11	11	13	12	-	-	102	152
US	12	7	173	228	424	482	364	182	-	-	973	899
Other	7	3	43	3	2	-	26	6	163	166	241	178
Total	4,082	3,643	2,042	1,874	1,634	1,646	4,428	3,651	237	240	12,423	11,054

² This balance primarily consists of securities held in supranationals.

2.11 Investment property and financial assets continued

Participating business

	Government, Provincial and Municipal¹		Banks		Other financial institutions		Other corporate		Other		Total
	2012	2011	2012	2011	2012	2011	2012	2011	2012	2011	2012	2011
	£m	£m	£m	£m	£m	£m	£m	£m	£m	£m	£m	£m
AAA	16,452	19,616	760	548	990	1,074	155	55	244	425	18,601	21,718
AA	2,070	344	494	679	1,084	826	297	262	-	-	3,945	2,111
A	131	120	1,643	1,607	1,732	1,261	1,195	1,210	-	-	4,701	4,198
BBB	4	-	313	351	448	362	763	597	-	-	1,528	1,310
Below BBB or not rated	4	-	223	263	586	506	417	379	-	-	1,230	1,148
Total	18,661	20,080	3,433	3,448	4,840	4,029	2,827	2,503	244	425	30,005	30,485

	Government, Provincial and Municipal¹		Banks		Other financial institutions		Other corporate		Other²		Total
	2012	2011	2012	2011	2012	2011	2012	2011	2012	2011	2012	2011
	£m	£m	£m	£m	£m	£m	£m	£m	£m	£m	£m	£m
UK	13,401	16,326	1,167	1,121	3,149	2,751	1,082	1,079	-	-	18,799	21,277
Canada	396	401	23	-	49	44	59	53	-	-	527	498
Australia	1	65	180	187	95	62	21	23	-	-	297	337
Austria	364	225	27	-	-	66	3	1	-	-	394	292
Belgium	286	1	24	9	68	-	21	11	-	-	399	21
Denmark	6	6	33	48	-	1	58	37	-	-	97	92
Finland	203	218	45	133	25	-	13	2	-	-	286	353
France	1,287	876	324	210	257	92	435	394	-	-	2,303	1,572
Germany	1,988	1,338	356	512	126	161	221	178	-	-	2,691	2,189
Greece	-	-	-	-	-	-	4	2	-	-	4	2
Ireland	-	-	5	12	56	37	13	11	-	-	74	60
Italy	2	1	74	71	42	64	89	108	-	-	207	244
Japan	33	16	32	66	1	29	-	-	-	-	66	111
Mexico	-	1	-	-	-	-	61	34	-	-	61	35
Netherlands	474	374	398	303	223	137	42	107	-	-	1,137	921
Norway	142	82	133	64	14	54	63	20	-	-	352	220
Portugal	-	-	-	-	-	-	1	3	-	-	1	3
Spain	5	9	24	73	6	4	82	64	-	-	117	150
Sweden	68	71	189	108	11	10	31	13	-	-	299	202
Switzerland	-	-	19	170	29	64	12	12	-	-	60	246
US	5	69	318	336	437	312	310	206	-	-	1,070	923
Other	-	1	62	25	252	141	206	145	244	425	764	737
Total	18,661	20,080	3,433	3,448	4,840	4,029	2,827	2,503	244	425	30,005	30,485

² This balance primarily consists of securities held in supranationals.

Loans

The Group is exposed to interest rate risk and credit risk from loans issued. The Group manages its exposure by setting portfolio limits by individual business unit. These limits specify the proportion of the value of total portfolio of mortgage loans and mortgage bonds that are represented by a single, or group of related counterparties, geographic area, employment status, or economic sector, risk rating and loan to value percentages.

The shareholder business holding of loans of £2,855m (2011: £2,832m) primarily comprises the Canadian non-segregated funds commercial mortgage book. This mortgage book is deemed to be of very high quality. The Canada mortgage book has an average loan to value of 39% (2011: 44%).

The participating business holding of loans of £226m (31 December 2011: £250m) primarily comprises of UK mortgages. These mortgage books are deemed to be of very high quality.

2.12 Fair value hierarchy of financial instruments

To provide further information on the approach used to determine the fair value of certain financial assets and derivative financial liabilities measured as at fair value on the Group's IFRS statement of financial position, the fair value of these financial instruments has been categorised below to reflect the following fair value hierarchy:

Level 1: Fair values measured using quoted prices (unadjusted) in active markets for identical assets or liabilities

Level 2: Fair values measured using inputs other than quoted prices included within level 1 that are observable for the asset or liability, either directly (i.e. as prices) or indirectly (i.e. derived from prices)

Level 3: Fair values measured using inputs that are not based on observable market data (unobservable inputs)

The table below presents the Group's financial assets measured at fair value by level of the fair value hierarchy.

	Shareholder business		Participating business		Unit linked and segregated funds		TPICF and NCI¹		Total
	2012	2011	2012	2011	2012	2011	2012	2011	2012	2011
	£m	£m	£m	£m	£m	£m	£m	£m	£m	£m
Level 1	1,016	744	26,496	28,810	59,139	53,426	3,892	2,582	90,543	85,562
Level 2	10,672	9,759	12,776	10,994	19,113	15,528	5,600	3,449	48,161	39,730
Level 3	995	1,001	918	1,031	271	187	375	408	2,559	2,627
Total financial assets at fair value	12,683	11,504	40,190	40,835	78,523	69,141	9,867	6,439	141,263	127,919

¹ Third party interest in consolidated funds and non-controlling interests.

The table below presents the Group's financial liabilities measured at fair value by level of the fair value hierarchy.

	Shareholder business		Participating business		Unit linked and segregated funds		TPICF and NCI¹		Total
	2012	2011	2012	2011	2012	2011	2012	2011	2012	2011
	£m	£m	£m	£m	£m	£m	£m	£m	£m	£m
Level 1	2	2	7	86	82	257	36	89	127	434
Level 2	21	14	41	40	82,067	75,140	12,232	8,568	94,361	83,762
Level 3	-	-	-	-	-	-	3	7	3	7
Total financial liabilities at fair value	23	16	48	126	82,149	75,397	12,271	8,664	94,491	84,203

¹ Third party interest in consolidated funds and non-controlling interests.

Level 1 financial instruments principally include equity securities listed on a recognised exchange, certain government and supranational institution bonds and exchange traded futures and options.

Level 2 financial instruments principally include certain government bonds, listed or publicly quoted corporate bonds, commercial paper, certificates of deposit and derivative instruments which are not exchange traded. Corporate bonds have generally been classified as level 2 as the composite price provided by external pricing providers may include, as an input, quotes provided by some banks that are not based on actual transaction prices.

Level 3 financial instruments principally include unlisted equity securities, being predominantly interests in private equity funds, listed or publicly quoted corporate bonds for which prices are not available from external pricing providers or where such prices are considered to be stale (including some asset backed securities) or are based on single broker indicative quotes and unquoted bonds where credit spreads, being a significant input to the valuation technique, are obtained from a broker or estimated internally.

Shareholder business

The tables that follow present an analysis of the financial assets and financial liabilities held by the shareholder business measured at fair value, by level of the fair value hierarchy for each category.

	Fair value hierarchy
	Level 1		Level 2		Level 3		Total
	2012	2011	2012	2011	2012	2011	2012	2011
	£m	£m	£m	£m	£m	£m	£m	£m
Financial assets
Equity securities and interests in pooled investment funds	182	189	3	-	12	11	197	200
Debt securities	834	555	10,606	9,509	983	990	12,423	11,054
Derivative financial assets	-	-	63	250	-	-	63	250
Total	1,016	744	10,672	9,759	995	1,001	12,683	11,504

2.12 Fair value hierarchy of financial instruments continued

	Fair value hierarchy
	Level 1		Level 2		Level 3		Total
	2012	2011	2012	2011	2012	2011	2012	2011
	£m	£m	£m	£m	£m	£m	£m	£m
Financial Liabilities
Derivative financial liabilities	2	2	21	14	-	-	23	16
Total	2	2	21	14	-	-	23	16

The tables that follow present an analysis of the financial assets and financial liabilities held by the participating business measured at fair value, by level of the fair value hierarchy for each category.

Participating business

	Fair value hierarchy
	Level 1		Level 2		Level 3		Total
	2012	2011	2012	2011	2012	2011	2012	2011
	£m	£m	£m	£m	£m	£m	£m	£m
Financial Assets
Equity securities and interests in pooled investment funds	8,380	8,582	-	-	699	752	9,079	9,334
Debt securities	17,701	19,861	12,085	10,345	219	279	30,005	30,485
Derivative financial assets	415	367	691	649	-	-	1,106	1,016
Total	26,496	28,810	12,776	10,994	918	1,031	40,190	40,835

	Fair value hierarchy
	Level 1		Level 2		Level 3		Total
	2012	2011	2012	2011	2012	2011	2012	2011
	£m	£m	£m	£m	£m	£m	£m	£m
Financial Liabilities
Derivative financial liabilities	7	86	41	41	-	-	48	127
Total	7	86	41	41	-	-	48	127

2.13 Provisions and contingent liabilities

(a) Legal proceedings and regulations

A judgment handed down on 1 February 2012 in the Commercial Court in London found in favour of Standard Life Assurance Limited (SLAL) in its claim against the insurers of its 2008/2009 professional indemnity policy in relation to the Standard Life Pension Sterling Fund. SLAL received a cash receipt of £98m including interest and reimbursement of legal fees.

An appeal was subsequently made by the insurers. Given that the judgment was under appeal, a risk existed that SLAL would be required to return the cash received or a portion of the cash received to the insurers and therefore, a provision was recognised by the Group in respect of the cash received.

On 18 December 2012, the Court of Appeal handed down a judgment upholding the decision of the Commercial Court, dismissing the insurers' appeal and finding in favour of SLAL. In addition, SLAL was awarded its costs in the appeal. In January 2013 SLAL received notification from the lawyers acting for the insurers that they would not seek leave to appeal to the Supreme Court.

The Group has released the provision in the consolidated financial statements for the year ended 31 December 2012.

Additionally, the Group, like other financial organisations, is subject to legal proceedings and complaints in the normal course of its business. While it is not practicable to forecast or determine the final results of all pending or threatened legal proceedings, the Directors do not believe that such proceedings (including litigation) will have a material effect on the results and financial position of the Group.

The Group is subject to insurance solvency regulations in all the territories in which it issues insurance and investment contracts, and it has complied in material respects with local solvency and other regulations. Therefore, there are no contingencies in respect of these regulations.

(b) Issued share capital

The Scheme of Demutualisation sets a 10-year time limit, ending in 2016, for those eligible members of The Standard Life Assurance Company who were not allocated shares at the date of demutualisation to claim their entitlements. As future issues of these shares are dependent upon the actions of eligible members, it is not practical to estimate the financial effect of this potential obligation.

In the ordinary course of business, Standard Life Trust Company (SLTC) enters into agreements which contain guarantee provisions for clearing system arrangements related to investment activities. Under such arrangements, the company, together with other participants in the clearing systems, may be required to guarantee certain obligations of a defaulting member. The guarantee provisions and amounts vary based upon the agreement. The company cannot estimate the amount, if any, that may be payable upon default. To facilitate its participation in the clearing system, SLTC has provided as security a bank credit facility up to a maximum of CA$84m.

2.14 Commitments

(a) Capital commitments

As at 31 December 2012 capital expenditure that was authorised and contracted for, but not provided and incurred, was £215m (2011: £275m) in respect of investment properties. Of this amount, £185m (2011: £248m) and £30m (2011: £27m) relates to the contractual obligations to purchase, construct or develop investment property and repair, maintain or enhance investment property respectively.

(b) Unrecognised financial instruments

The Group has committed the following unrecognised financial instruments to customers and third parties:

	2012	2011
	£m	£m
Commitments to extend credit:
Original term to maturity of one year or less	42	109
Original term to maturity of more than one year	-	3
Other commitments	289	273

Included in other commitments is £258m (2011: £257m) committed by certain subsidiaries which are not fully owned by the Group. These commitments are funded through contractually agreed additional investments in the subsidiary by the Group and the non-controlling interests. The levels of funding are not necessarily in line with the relevant percentage holdings.

The Group has entered into commercial non-cancellable leases on certain property, plant and equipment where it is not in the best interest of the Group to purchase these assets. Such leases have varying terms, escalation clauses and renewal rights.

The future aggregate minimum lease payments under non-cancellable operating leases are as follows:

	2012	2011
	£m	£m
Not later than one year	32	29
Later than one year and no later than five years	83	93
Later than five years	117	120
Total operating lease commitments	232	242

2.15 Related party transactions

(a) Transactions with/from related parties

Transactions with related parties carried out by the Group during the year were as follows:

	2012	2011
	£m	£m
Sale to:
Associates	13	8,397
Joint ventures	77	51
Other related parties	56	57
	146	8,505
Purchase from:
Associates	-	8,993
Joint ventures	21	24
	21	9,017

Sales to other related parties include management fees received from non-consolidated UK mutual funds managed by Standard Life Investments. Transactions with associates presented for the 12 months to 31 December 2011 relate primarily to purchases and sales of holdings in two sub-funds of the Standard Life (Global Liquidity Funds) plc (GLF). During the year ended 31 December 2011, these funds were restructured with the majority of the external holding in these funds transferred to a third party.

2.15 Related party transactions continued

(a) Transactions with/from related parties continued

The remaining assets were transferred to two new GLF sub-funds, which are subsidiaries of the Group. As a result of the restructure, the GLF sub-funds are no longer associates of the Group.

In addition to the amounts shown above, the Group's defined benefit pension schemes have assets of £845m (2011: £739m) invested in investment vehicles managed by the Group.

(b) Transactions with key management personnel and their close family members

All transactions between the key management personnel and their close family members and the Group during the year are on commercial terms which are equivalent to those available to all employees of the Group.

During the year to 31 December 2012, the key management personnel and their close family members contributed £1.2m (2011: £4.2m) to products sold by the Group.

2.16 Capital statement

The Group's capital position is analysed between UK regulated life business, overseas life operations and other activities. The UK regulated life business is analysed by the nature of the underlying funds and includes German and Irish business written by branches of UK regulated companies. Other activities comprise investment management and group corporate centre. The Group's capital position, based on draft regulatory returns, is set out below:

	UK regulated life business
	Heritage With Profits Fund¹	Proprietary business funds	Life business equity holders' funds	Total UK regulated life business	Overseas life operations	Total life business	Other activities	Group total
2012	£m	£m	£m	£m	£m	£m	£m	£m
Available capital resources

Equity holders' funds
Held outside life assurance funds	-	-	794	794	1,675	2,469	783	3,252
Held within life assurance funds	-	1,103	-	1,103	-	1,103	-	1,103

Equity attributable to ordinary equity holders of Standard Life plc	-	1,103	794	1,897	1,675	3,572	783	4,355

Unallocated divisible surplus	706	-	-	706	-	706	-	706

Other sources of capital
Subordinated liabilities	-	-	-	-	246	246	1,622	1,868
Internal subordinated liabilities	-	-	1,124	1,124	-	1,124	(1,124)	-
	-	-	1,124	1,124	246	1,370	498	1,868

Adjustments onto regulatory basis
Changes to the valuation of contract liabilities	3,288	(11)	-	3,277	-	3,277	-	3,277
Exclusion of deferred acquisition costs and other inadmissible assets	(71)	(666)	(59)	(796)	(173)	(969)	(132)	(1,101)
Exclusion of deferred income	84	255	-	339	(1)	338	-	338
Changes to the valuation of other assets and liabilities	-	(553)	(38)	(591)	85	(506)	259	(247)
	3,301	(975)	(97)	2,229	(89)	2,140	127	2,267

Total available capital resources to meet regulatory requirement	4,007	128	1,821	5,956	1,832	7,788	1,408	9,196

Analysed as follows:
Capital not subject to constraints	-	-	1,785	1,785	859	2,644	1,320	3,964
Capital subject to constraints	4,007	128	36	4,171	973	5,144	88	5,232

Total available capital resources	4,007	128	1,821	5,956	1,832	7,788	1,408	9,196
Restricted assets within the long-term business fund								(1,210)
Regulatory capital resources								7,986
Regulatory capital resources requirement				3,092	786	3,878	41	3,919
Regulatory capital surplus								4,067

¹ Capital resources amounting to £39m in respect of other with profits funds are disclosed within the Heritage With Profits Fund column. Participating contract liabilities amounting to £872m relating to the new with profits funds created at demutualisation are disclosed within the Heritage With Profits Fund column.

	UK regulated life business
	Heritage With Profits Fund¹	Proprietary business funds	Life business equity holders' funds	Total UK regulated life business	Overseas life operations	Total life business	Other activities	Group total
2011	£m	£m	£m	£m	£m	£m	£m	£m
Available capital resources

Equity holders' funds
Held outside life assurance funds	-	-	849	849	1,176	2,025	1,029	3,054
Held within life assurance funds	-	907	-	907	-	907	-	907

Equity attributable to ordinary equity holders of Standard Life plc	-	907	849	1,756	1,176	2,932	1,029	3,961

Unallocated divisible surplus	725	-	-	725	-	725	-	725

Other sources of capital
Subordinated liabilities	-	-	-	-	-	-	1,186	1,186
Internal subordinated liabilities	-	-	1,186	1,186	253	1,439	(1,439)	-
	-	-	1,186	1,186	253	1,439	(253)	1,186

Adjustments onto regulatory basis
Changes to the valuation of contract liabilities	3,409	2	-	3,411	-	3,411	-	3,411
Exclusion of deferred acquisition costs and other inadmissible assets	(89)	(657)	(62)	(808)	(92)	(900)	(96)	(996)
Exclusion of deferred income	98	248	-	346	(1)	345	-	345
Exclusion of non-qualifying subordinated liabilities	-	-	(54)	(54)	-	(54)	-	(54)
Changes to the valuation of other assets and liabilities	(22)	(311)	(232)	(565)	58	(507)	253	(254)
	3,396	(718)	(348)	2,330	(35)	2,295	157	2,452

Total available capital resources to meet regulatory requirement	4,121	189	1,687	5,997	1,394	7,391	933	8,324

Analysed as follows:
Capital not subject to constraints	-	-	1,637	1,637	375	2,012	850	2,862
Capital subject to constraints	4,121	189	50	4,360	1,019	5,379	83	5,462

Total available capital resources	4,121	189	1,687	5,997	1,394	7,391	933	8,324
Restricted assets within the long-term business fund								(999)
Regulatory capital resources								7,325
Regulatory capital resources requirement				3,426	776	4,202	37	4,239
Regulatory capital surplus								3,086

¹Capital resources amounting to £39m in respect of other with profits funds are disclosed within the Heritage With Profits Fund column. Participating contract liabilities amounting to £872m relating to the new with profits funds created at demutualisation are disclosed within the Heritage With Profits Fund column.

2.16 Capital statement continued

Movements in capital

The movements in the total capital resources shown in the capital statement are set out below.

	UK regulated life business
	Heritage With Profits Fund	Proprietary business funds	Life business equity holders funds	Total UK regulated life business	Overseas life operations	Total life business	Other activities	Group total
2012	£m	£m	£m	£m	£m	£m	£m	£m
At 1 January	4,121	189	1,687	5,997	1,394	7,391	933	8,324
Methodology/modelling changes	520	12	-	532	8	540	-	540
Change in assumptions used to measure life assurance contract liabilities and experience differences	(24)	2	-	(22)	7	(15)	-	(15)
New business	(13)	(95)	-	(108)	(23)	(131)	-	(131)
Investment surplus	37	16	47	100	192	292	-	292
Equity holder/inter-fund transfers	(55)	(153)	208	-	147	147	(147)	-
Dividend transfers	-	-	(249)	(249)	(143)	(392)	61	(331)
Issue of external subordinated liabilities	-	-	-	-	246	246	498	744
Other factors	(579)	157	128	(294)	4	(290)	63	(227)
At 31 December	4,007	128	1,821	5,956	1,832	7,788	1,408	9,196

The increase to capital resources from methodology/modelling changes is primarily due to a change in the hypothecation of assets across contract liabilities within HWPF.

As outlined in Note 2.17 - Subordinated liabilities, Standard Life plc issued £500m fixed rate subordinated notes on 4 December 2012. The subordinated notes are unguaranteed and have a legal final maturity in December 2042 with the first call date on 4 December 2022. Standard Life Assurance Company of Canada (SLCC), a wholly owned subsidiary of the Company, issued CA$400m subordinated debenture notes on 21 September 2012 with a redemption date of 21 September 2022.

	UK regulated life business
	Heritage With Profits Fund	Proprietary business funds	Life business equity holders funds	Total UK regulated life business	Overseas life operations	Total life business	Other activities	Group total
2011	£m	£m	£m	£m	£m	£m	£m	£m
At 1 January	4,031	321	2,361	6,713	1,413	8,126	704	8,830
Methodology/modelling changes	(79)	(1)	-	(80)	-	(80)	-	(80)
Change in assumptions used to measure life assurance contract liabilities and experience differences	(24)	3	-	(21)	(218)	(239)	-	(239)
New business	(11)	(121)	-	(132)	(20)	(152)	-	(152)
Investment surplus	913	(87)	71	897	162	1,059	-	1,059
Equity holder/inter-fund transfers	(68)	68	9	9	29	38	(38)	-
Dividend transfers	-	-	(300)	(300)	(110)	(410)	248	(162)
Redemption of subordinated liabilities	-	-	(604)	(604)	-	(604)	-	(604)
Other factors	(641)	6	150	(485)	138	(347)	19	(328)
At 31 December	4,121	189	1,687	5,997	1,394	7,391	933	8,324

UK regulated life business

Standard Life Assurance Limited's (SLAL) regulatory solvency position is determined using the FSA's 'twin peaks' approach, which requires liabilities to be valued on both a realistic and a regulatory basis. The realistic basis removes some of the margins for prudence included in calculations under the regulatory basis. However, it requires discretionary benefits that are not considered under the regulatory basis, such as final bonuses, to be valued. The extent to which the realistic peak is more onerous than the regulatory peak increases the amount of the Capital Resources Requirements (CRR).

Based on draft regulatory returns at 31 December 2012, SLAL had available capital resources of £6.0bn (2011: £6.0bn) and a CRR of £3.1bn (2011: £3.4bn). The capital resources shown in the capital statement are based on the value of assets and liabilities valued on a regulatory basis. However, the CRR reflects the higher value required as a result of the application of the realistic peak.

Capital subject to constraints for the UK regulated life business of £4.2bn at 31 December 2012 (2011: £4.4bn) represents capital resources held within long-term business funds, or in relation to other regulated entities, the amount of the CRR.

Overseas life operations

Capital resources of £1,832m (2011: £1,394m), which relate mainly to operations in Canada, also include operations in Asia. The Canadian regulator sets the minimum required capital for the Canadian regulated entities. It also requires certain assets to be held in trust to increase policyholder protection (vested assets). As a result of the combination of the capital requirement and vested assets, the overseas life capital subject to constraints amounted to £973m at 31 December 2012 (2011: £1,019m).

Other activities

At 31 December 2012, capital resources of £1,408m (2011: £933m) and capital subject to constraints of £88m (2011: £83m) relate to the Group's investment management businesses and group corporate centre activities.

Intra-group transactions

The Group, through subsidiaries and joint ventures, provides insurance and other financial services in the UK, Canada, Hong Kong, India and China. Through branches, the Group also provides such services in Ireland, Germany and Singapore. With the exception of the requirements of the Scheme, the intra-group subordinated debt referred to below and the capital support mechanisms, there are no formal arrangements to provide capital to particular funds or business units. Any allocations of capital would need to be approved on a case-by-case basis by the Board.

SLAL has issued subordinated loans to the Company, which SLAL treats as capital for regulatory purposes. SLCC had previously issued subordinated liabilities of £253m to the Company. These were repaid in full during 2012. At Group level only subordinated liabilities issued to external parties are included in the Group's capital resources.

In preparation for the implementation of Solvency 2, the business of Standard Life Investment Funds Limited was transferred to SLAL on 31 December 2011. The prior year Group capital position was not significantly impacted.

Group capital requirement

The Group must also calculate a group regulatory capital position under the Insurance Groups Directive (IGD). The IGD calculation is a prudent aggregate value for the Group's capital resources. The capital held within the long-term business funds of approximately £4.1bn (2011: £4.3bn) is restricted to the level of the CRR of those funds of approximately £3.1bn (2011: £3.4bn). Therefore, the Group recognises no net surplus in respect of capital within the long-term business funds.

On an IGD basis, the estimated regulatory capital position at 31 December 2012 is a surplus of £4.1bn (2011: £3.1bn). The increase in the estimated regulatory capital surplus is predominately due to the issue of £500m lower tier 2 subordinated debt by the Company and CA$400m of lower tier 2 subordinated debenture notes by Canada.

In respect of the Group's IGD regulatory reporting there were no breaches of regulatory capital requirements at any time during the year.

2.17 Subordinated liabilities

£500m subordinated notes were issued by the Company on 4 December 2012 pursuant to its EUR3,000,000,000 Euro Medium Term Note Programme dated 10 May 2012. The maturity date of the notes is 4 December 2042. Interest is payable each six months in arrears. The Company has the option to redeem the notes at par on 4 December 2022 and on every interest payment date thereafter until maturity. If the notes are not redeemed the interest rate payable will be reset on 4 December 2022 and on each fifth anniversary thereafter to 4.85% over the five year gilt rate. The notes are direct, unsecured obligations of the Company that rank subordinate to all senior creditors of the Company.

CA$400m subordinated debenture notes were issued by The Standard Life Assurance Company of Canada (SLCC) on 21 September 2012. The maturity date of the notes is 21 September 2022. SLCC has the option to redeem the notes at par on or after 21 September 2017. If the notes are not redeemed the interest rate payable will be reset each quarter to 2.1% over the three month CDOR rate payable quarterly in arrears. Interest is payable each six months in arrears up to 21 September 2017. The notes are direct, unsecured obligations of SLCC that rank subordinate to all policyholder liabilities and senior creditors of SLCC.

On 12 July 2012, the Company redeemed in full the outstanding principal of €62,780,000 Euro denominated 6.375% fixed/floating rate subordinated guarantee bonds due 2022.

2.18 Events after the reporting period

On 27 February 2013, the Group announced that it had entered into an agreement with Newton Management Limited to acquire its private client division with assets under management of £3.6bn. The consideration of up to £83.5m will be ultimately contingent on the value of assets under management transferred to, and retained by, the Group. The transaction is expected to complete within seven months subject to completion conditions being satisfied.

This information is provided by RNS

The company news service from the London Stock Exchange

END

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