Half Yearly Report - Part 2 o

RNS Number : 8973W

Standard Life plc

05 August 2009

 



Standard Life plc 

Interim Results 2009

Part 2 of 4

2 Statement of Directors' responsibilities

Statement of Directors' responsibilities

We confirm to the best of our knowledge that: 

• the condensed set of financial statements which has been prepared in accordance with IAS 34 as adopted by the European Union gives a true and fair view of the assets, liabilities, financial position and loss of the company and the undertakings included in the consolidation taken as a whole; and 

• the consolidated income statement, the earnings per share statement, the consolidated statement of comprehensive income and the consolidated balance sheet and associated notes have been prepared on the European Embedded Value basis as set out in Note 3.1; and 

• the business review includes a fair review of the information required by DTR 4.2.7, namely important events that have occurred during the period and their impact on the condensed set of financial statements, as well as a description of the principal risks and uncertainties faced by the company and the undertakings included in the consolidation taken as a whole for the remaining six months of the financial year; and 

• the business review and the notes to the condensed set of financial statements include a fair review of the information required by DTR 4.2.8, namely material related party transactions and any material changes in the related party transactions described in the last annual report. 

By order of the Board 

Gerry Grimstone	David Nish
Chairman	Group Finance Director
5 August 2009	5 August 2009

3 European Embedded Value (EEV)

EEV consolidated income statement     

For the six months ended 30 June 2009     

	Notes	6 months 2009 £m		6 months 2008 £m	Full year 2008 £m
Covered business
UK		178		402	658
Canada		89		79	215
Europe		15		27	68
Asia		(25)		(16)	(35)
HWPF TVOG		89		8	11
Covered business operating profit	3.2(a)	346		500	917
Global investment1 management1	3.6(b)	10		31	48
UK		9		3	5
Group Corporate Centre costs		(25)		(25)	(50)
Other	3.6(c)	8		25	13
Non-covered business operating profit		2		34	16
Operating profit before tax		348		534	933
Non-operating items
Long-term investment return and tax variances		(477)		(516)	(849)
Effect of economic assumption changes		33		40	48
Restructuring2  expenses		(29)		(44)	(72)
Volatility arising on different asset and liability valuation bass		26		28	(109)
Other non-operating items		(6)		(27)	(51)
Consolidation adjustment for different accounting bases 3			61	-	(58)
(Loss)/profit before tax		(44)		15	(158)
Attributed tax		(4)		(8)	24
(Loss)/profit after tax		(48)		7	(134)

1    Global investment management operating profit before tax is stated after excluding profits of £17m (six months ended 30 June 2008: £21m; 12 months ended 31 December 2008: £45m) which have been generated by life and pensions business. 

2   Refer to IFRS financial information Note 4.3 - Administrative expenses. 

     3     This adjustment reflects the removal of accounting differences for the Canadian subordinated liability as explained in Note 3.16 - Methodology. 

EEV earnings per share (EPS) 

For the six months ended 30 June 2009 

	6 months 2009	6 months  2008	Full year 2008
EEV operating profit after tax attributable to equity holders of Standard Life plc (£m) 1	243	377	649
Basic EPS (pence)	11.1	17.3	29.8
Weighted average number of ordinary shares in issue (millions)	2,184	2,175	2,176
Diluted EPS (pence)	11.1	17.3	29.8
Weighted average number of ordinary2 shares on a diluted basis	2,185	2,175	2,180

1    EEV operating profit before tax of £348m (six months ended 30 June 2008: £534m; 12 months ended 31 December 2008: £933m) less attributed tax on operating profit of £105m (six months ended 30 June 2008: £157m; 12 months ended 31 December 2008: £284m). 

2    Includes the full dilutive effect of bonus shares committed to at the time of the demutualisation of The Standard Life Assurance Company (SLAC) and the flotation of Standard Life plc and share awards and share options. 

EEV consolidated statement of comprehensive income 

For the six months ended 30 June 2009     

	Notes	6 months 2009  £m	6 months 2008  £m	Full year 2008  £m
(Loss)/profit after tax		(48)	7	(134)
Fair value gains/(losses) on cash flow hedges1		5	15	(38)
Actuarial (losses)/gains on defined benefit pension schemes1		(80)	(8)	161
Exchange differences on translating foreign operations2		(174)	(11)	323
Aggregate tax effect of items not recognised in income statement1		24	(3)	(42)
Net investment hedge1		15	-	(17)
Other		(14)	(2)	(3)
Other comprehensive (expense)/income for the period		(224)	(9)	384
Total comprehensive (expense)/income for the period attributable to equity holders	3.7	(272)	(2)	250

1    Consistent with the IFRS consolidated statement of comprehensive income for the period ended 30 June 2009. 

      2    Exchange differences primarily relate to Canada: (£104m) and Europe: (£54m). 

EEV consolidated balance sheet     

As at 30 June 2009     

	Notes	30 June 2009  £m	30 June 2008  £m	31 December 2008  £m
Covered business
Free surplus		1,020	907	1,235
Required capital		806	709	844
Net worth		1,826	1,616	2,079
Present value of in-force		3,187	3,490	3,345
Cost of required capital		(324)	(326)	(292)
Total embedded value of covered business	3.2(c)	4,689	4,780	5,132
Non-covered business
Global investment management		156	129	143
UK		314	350	340
Group Corporate Centre		438	762	417
Other		260	20	255
Total net assets of non-covered business	3.6(a)	1,168	1,261	1,155
Consolidation adjustment for different accounting bases2		2	-	(42)
Total Group embedded value	3.7	5,859	6,041	6,245
Equity
Share capital		221	218	218
Share premium reserve		847	792	792
Other reserves		1,501	1,480	1,623
Retained earnings on an IFRS basis		537	766	774
Additional retained earnings on an EEV basis		2,753	2,785	2,838
Total equity1		5,859	6,041	6,245

1    Embedded value equity per share is 265p as at 30 June 2009 compared to 277p as at 30 June 2008 and 286p as at 31 December 2008 based on diluted share totals of 2,212m as at 30 June 2009 and

2,177m as at 30 June 2008 and 2,180m as at 31 December 2008. 

2    This adjustment reflects the removal of accounting differences for the Canadian subordinated liability as explained in Note 3.16 - Methodology. 

Notes to the EEV financial information

3.1 Basis of preparation 

The European Embedded Value (EEV) basis results have been prepared in accordance with the EEV Principles and Guidance issued in May 2004 by the CFO Forum of European Insurance Companies and the Additional Guidance issued in October 2005. EEV reports the value of business in-force based on a set of best estimate assumptions, allowing for the impact of uncertainty inherent in future assumptions, the cost of holding required capital and the value of free surplus. The total profit recognised over the lifetime of a policy is the same as under International Financial Reporting Standards (IFRS), but the timing of recognition of profits is different. 

EEV includes the net assets of the businesses that are owned by equity holders of Standard Life plc plus the present value of future profits expected to arise from in-force long-term insurance policies (PVIF) where these future profits are attributable to equity holders under the Scheme of Demutualisation (the Scheme) or from sales of new business since 10 July 2006. 

The opening and closing EEV numbers, and therefore the profit arising in the period, for the covered business are determined on an after tax basis. The tax assumptions are based upon the best estimate of the actual tax expected to arise. Profit before tax is derived by grossing up profit after tax at the long-term rate of corporation tax appropriate to each territory. While for some territories this rate does not equate to the actual effective rate of tax used in the calculation of after tax profits, it provides a consistent grossing up basis upon which to compare results from one year to another and is in line with the Group's expectation of the rate of tax applicable to business sold after demutualisation. 

A detailed description of EEV methodology is provided in Note 3.16. There have been no significant changes to EEV methodology from that adopted in the previous reporting period except as noted below. 

Covered business 

A detailed description of EEV covered business is provided within the EEV methodology in Note 3.16. 

Covered business in the published results for the 12 months to 31 December 2008 was expanded to include all Sigma UKFS mutual funds, previously sold and administered by our global investment management business. 

The inclusion of Sigma UKFS mutual funds business within covered business for the first time is reflected in the EEV results for the 12 months to 31 December 2008 with an opening adjustment of £32m (£32m for covered business and £nil for non-covered business), capturing the PVIF as at 1 January 2008 within covered business and removing any related intangibles, 

e.g. deferred acquisition costs, from the opening net assets of non-covered business. The movement in the EEV of those mutual funds is reflected in the covered business EEV movement with changes in net worth transferred back to non-covered business for inclusion in their closing net asset position. The EEV results for the six months to 30 June 2008 have not been restated. 

Segmentation 

Under the EEV Principles and Guidance we are required to provide business classifications which are consistent with those used for the primary statements. In the IFRS financial statements the Group's reportable segments have been identified in accordance with the way in which the Group is structured and managed, as required under IFRS 8 for the first time. The EEV segmentation has been prepared in a consistent manner, whilst also distinguishing between covered and non-covered business. The Heritage With Profits Fund time value of options and guarantees (HWPF TVOG) is disclosed separately in EEV, as explained in Note 3.2(a). 

Within the IFRS segmental analysis, UK operations comprise primarily life and pensions business, and also the banking and healthcare business. We distinguish between covered and non-covered business within our EEV results. UK and Canada non-covered businesses are analysed separately within Note 3.6. 

The Europe segment within the IFRS financial statements includes the Germany and Ireland life and pensions businesses which are treated as covered business under EEV. The Ireland operations include the offshore bond business, which is sold by Standard Life International Limited (SLIL). Prior to the implementation of IFRS 8 the results for SLIL were included within the UK covered business under EEV. Comparative results for the periods six months to June 2008 and 12 months to December 2008 have been restated for UK and Europe to reflect this change. 

Notes to the EEV financial information continued

3.1 Basis of preparation continued 

Assumptions 

Economic assumptions derived from market data are updated using market observed values at the current reporting period end. In general, other assumptions, including most expense and other non-economic assumptions, are reviewed on an 

annual basis. 

Continuous Improvement Programme (CIP) 

In March 2007 we announced our aim to reduce underlying costs by a further £100m by 2009. This cost efficiency target was achieved one year early. In March 2009 we announced the next phase of efficiency savings with a target of achieving a further £75m of annualised efficiency savings by the end of 2010. In the six months to 30 June 2009 £25m of costs have been incurred in progressing this initiative (six months to 30 June 2008: £19m; 12 months to 31 December 2008: £45m). 

3.2 Segmental analysis - covered business 

(a) Segmental EEV income statement 

This note provides an analysis of EEV covered business as defined by the EEV Methodology within Note 3.16. 

6 months to 30 June 2009	Notes		UK £m	Canada £m	Europe £m	Asia £m	HWPF TVOG £m	Total £m
Contribution from new business	3.3		92	18	4	-	-	114
Contribution from in-force business:
Expected return on existing business		105		67	17	-	-	189
Experience variances	3.4		4	4	(4)	-	89	93
Operating assumption changes	3.5		-	-	-	-	-	-
Development expenses			(10)	(1)	(4)	-	-	(15)
Expected return on free surplus			(13)	1	2	(25)	-	(35)
Operating profit/(loss) before tax			178	89	15	(25)	89	346
Investment return and tax variances		(298)		(53)	(1)	-	(125)	(477)
Effect of economic assumption changes		96		(269)	5	-	201	33
Restructuring expenses			(21)	-	(4)	-	-	(25)
(Loss)/profit before tax			(45)	(233)	15	(25)	165	(123)
Attributed tax			12	63	(5)	-	(46)	24
(Loss)/profit after tax		(33)		(170)	10	(25)	119	(99)

6 months to 30 June 2008	Notes		UK £m	Canada £m	Europe £m	Asia £m	HWPF TVOG £m	Total £m
Contribution from new business	3.3		132	18	7	-	-	157
Contribution from in-force business:
Expected return on existing business			147	55	16	-	-	218
Experience variances	3.4		28	4	(7)	-	(3)	22
Operating assumption changes	3.5		96	-	13	-	11	120
Development expenses			(13)	(1)	(2)	-	-	(16)
Expected return on free surplus			12	3	-	(16)	-	(1)
Operating profit/(loss) before tax			402	79	27	(16)	8	500
Investment return and tax variances			(397)	(1)	(26)	-	(92)	(516)
Effect of economic assumption changes			(58)	22	(6)	-	82	40
Restructuring expenses			(15)	(1)	-	-	-	(16)
Profit/(loss) before tax			(68)	99	(5)	(16)	(2)	8
Attributed tax			19	(28)	1	-	1	(7)
Profit/(loss) after tax			(49)	71	(4)	(16)	(1)	1
							HWPF TVOG £m	Total £m
12 months to 31 December 2008	Notes		UK £m	Canada £m	Europe £m	Asia £m
Contribution from new business		3.3	199	34	31	-	-	264
Contribution from in-force business:
Expected return on existing business			289	109	33	-	-	431
Experience variances	3.4		16	47	1	-	-	64
Operating assumption changes		3.5	151	24	9	-	11	195
Development expenses			(30)	(3)	(9)	-	-	(42)
Expected return on free surplus			33	4	3	(35)	-	5
Operating profit/(loss) before tax			658	215	68	(35)	11	917
Investment return and tax variances			(484)	(173)	(62)	-	(130)	(849)
Effect of economic assumption changes			(69)	236	11	-	(130)	48
Restructuring expenses			(34)	(1)	(3)	-	-	(38)
Profit/(loss) before tax			71	277	14	(35)	(249)	78
Attributed tax			(20)	(75)	(5)	1	70	(29)
Profit/(loss) after tax			51	202	9	(34)	(179)	49

An analysis of profit after tax by territory is provided in Note 3.9. 

Operating profit before tax for covered business is calculated using the expected long-term investment return. Investment variances, the effect of economic assumption changes and other non-operating items are excluded from the operating profit for the period and are reported as part of the total EEV profit. 

HWPF TVOG represents the time value of financial options and guarantees (TVOG) arising from the Heritage With Profits Fund (HWPF). Although the HWPF includes business written by the UK, Germany and Ireland, the Group manages the risk at an aggregate level. This is consistent with the Group's IFRS financial statements as disclosed in Note 39 Risk management to the Group's Annual Report and Accounts for the year ended 31 December 2008. The results for Canada include the cost of the Canadian TVOG, and the results for Europe include the cost of TVOG arising on business written outside of the HWPF in Germany. 

Notes to the EEV financial information continued

3.2 Segmental analysis - covered business continued 

(a) Segmental EEV income statement continued 

The principal effect of determining the pre-tax results using the long-term rate of tax compared to the actual effective rate is to increase the effect of economic movements by £23m -UK: £22m, Europe: £1m (six months to 30 June 2008: £53m decrease -UK: £52m, Europe: £1m), arising from the impact of investment related changes in the value of the tax effects that have been assumed to arise as a result of funding HWPF transfers out of unallocated surplus. 

The reduction in the expected return on existing business in the UK is primarily due to lower opening PVIF and lower opening risk discount rates. 

The lower expected return on free surplus in the UK reflects lower expected returns on cash assets within free surplus, along with a higher expected increase in the value of subordinated liabilities relative to the expected return on the assets backing subordinated liabilities. The increased loss within Asia reflects the higher IFRS losses resulting from the continued investment in developing this business. 

Losses within investment return and tax variances reflect the impact of investment returns being lower than the long-term assumptions. Within the UK loss of £298m is a £53m loss from the contract between UK life and pensions and Standard Life Investments arising from the restructuring of a sub-fund of Standard Life Investments (Global Liquidity Funds) plc. 

Effect of economic assumption changes include the effect of changes to risk discount rates of (£134m) (six months to 30 June 2008: (£161m); 12 months to 31 December 2008: £277m), which are explained in Note 3.12. The total Canadian loss of £269m includes (£146m) from the change in risk discount rates and (£60m) from the change in subordinated debt liability. The total UK profit of £96m includes £19m from the change in risk discount rates and £63m from improved modelling of our index-linked deferred annuities. 

HWPF TVOG shows separate movements in investment variances and economic assumptions whereas in practice economic assumption changes are highly dependent on the same factors that give rise to investment variances, for example market yields. Therefore, the key consideration is the net effect of the two items rather than the individual items themselves. Further comments on the movement in TVOG are provided in Notes 3.4 and 3.10. --

Restructuring expenses primarily represent the covered business costs associated with the CIP as described in Note 3.1. 

(b) Segmental analysis of movements in EEV 

6 months to 30 June 2009	UK £m	Canada  £m	Europe £m		Asia £m	HWPF TVOG £m		Total £m
Opening EEV	3,129	1,597	506		120	(220)		5,132
Opening adjustments	-	-	-		-	-		-
Opening adjusted EEV	3,129	1,597	506		120	(220)		5,132
(Loss)/profit after tax	(33)	(170)	10		(25)	119		(99)
Internal capital transfers	(130)	(2)	(36)		8	-		(160)
Transfer back of surplus to Standard(10) Life(2)Investments-					-	-		(12)
Transfer back of mutual funds net worth10		(1)	-		-	-		9
Actuarialbenefit pensionlosses schemeson	-	(19)	-		-	-		(19)
Foreign exchange differences	-	(105)	(56)		(14)	-		(175)
Aggregate tax effect of items not recognized in income statement	-	6	-		-	-	6
Other	5	-	2		-	-		7
Closing EEV	2,971	1,304	426		89	(101)		4,689

6 months to 30 June 2008	UK £m	Canada  £m	Europe £m		Asia £m	HWPF TVOG £m	Total £m
Opening EEV	3,574	1,276	349		86	(41)	5,244
Opening adjustments	-	-	-		-	-	-
Opening adjusted EEV	3,574	1,276	349		86	(41)	5,244
Profit/(loss) after tax	(49)	71	(4)		(16)	(1)	1
Internal capital transfers	(464)	(39)	39		17	-	(447)
Transfer back of surplus to Standard Life Investments	(14)	(1)	-		-	-	(15)
Transfer back of mutual funds net worth	7	(1)	-		-	-	6
Actuarial gains on defined benefit pension schemes	-	-	-		-	-	-
Foreign exchange differences	-	(35)	26		-	-	(9)
Aggregate tax effect of items not recognized in income statement	-	-	-		-	-		-
Other	-	-	-		-	-	-
Closing EEV	3,054	1,271	410		87	(42)	4,780
						HWPF TVOG £m	Total £m
12 months to 31 December 2008	UK £m	Canada  £m	Europe £m		Asia £m
Opening EEV	3,574	1,276	349		86	(41)	5,244
Opening adjustments	32	-	-		-	-	32
Opening adjusted EEV	3,606	1,276	349		86	(41)	5,276
Profit/(loss) after tax	51	202	9		(34)	(179)	49
Internal capital transfers	(506)	(40)	49		20	-	(477)
Transfer back of surplus to Standard Life Investments	(28)	(3)	(2)		-	-	(33)
Transfer back of mutual funds net worth	17	(1)	-		-	-	16
Actuarial gains/(losses) on defined benefit pension schemes	-	12		(10)	-	-	2
Foreign exchange differences	-	154	110		36	-	300
Aggregate tax effect of items not recognized in income statement	-	(3)	-		-	-		(3)
Other	(11)	-	1		12	-	2
Closing EEV	3,129	1,597	506		120	(220)	5,132

Internal capital transfers mainly reflect dividend transfers to Standard Life plc. 

Opening adjustments in the UK, for the 12 months to 31 December 2008, reflect the inclusion of Sigma UKFS mutual funds in covered business for the first time. This adjustment is explained in more detail in Note 3.1 - Basis of preparation. The results for the six months to 30 June 2008 have not been restated. 

Notes to the EEV financial information continued 

3.2 Segmental analysis - covered business continued

(c) Segmental analysis of opening and closing EEV

6 months to 30 June 2009	UK £m	Canada £m	Europe £m	Asia £m	HWPF TVOG £m	Total £m
Analysis of EEV
Free surplus	899	154	62	120	-	1,235
PVIF	2,173	939	453	-	(220)	3,345
Required capital	95	737	12	-	-	844
Cost of capital	(38)	(233)	(21)	-	-	(292)
Opening adjusted EEV	3,129	1,597	506	120	(220)	5,132
Analysis of EEV
Free surplus	805	98	28	89	-	1,020
PVIF	2,091	792	405	-	(101)	3,187
Required capital	111	682	13	-	-	806
Cost of capital	(36)	(268)	(20)	-	-	(324)
Closing EEV	2,971	1,304	426	89	(101)	4,689
					HWPF TVOG £m
6 months to 30 June 2008	UK £m	Canada £m	Europe £m	Asia £m		Total £m
Analysis of EEV
Free surplus	966	168	17	86	-	1,237
PVIF	2,579	765	336	-	(41)	3,639
Required capital	63	611	6	-	-	680
Cost of capital	(34)	(268)	(10)	-	-	(312)
Opening adjusted EEV	3,574	1,276	349	86	(41)	5,244
Analysis of EEV
Free surplus	594	183	43	87	-	907
PVIF	2,415	745	372	-	(42)	3,490
Required capital	98	602	9	-	-	709
Cost of capital	(53)	(259)	(14)	-	-	(326)
Closing EEV	3,054	1,271	410	87	(42)	4,780

12 months to 31 December 2008	UK £m	Canada £m	Europe £m	Asia £m	HWPF TVOG £m	Total £m
Analysis of EEV
Free surplus	966	168	17	86	-	1,237
PVIF	2,611	765	336	-	(41)	3,671
Required capital	63	611	6	-	-	680
Cost of capital	(34)	(268)	(10)	-	-	(312)
Opening adjusted EEV	3,606	1,276	349	86	(41)	5,276
Analysis of EEV
Free surplus	899	154	62	120	-	1,235
PVIF	2,173	939	453	-	(220)	3,345
Required capital	95	737	12	-	-	844
Cost of capital	(38)	(233)	(21)	-	-	(292)
Closing EEV	3,129	1,597	506	120	(220)	5,132

3.3 Analysis of new business contribution 

The following table sets out the premium volumes and contribution from new business written by the life and related businesses, consistent with the definition of new business set out in Note 3.16. 

New business contribution (NBC) and the present value of new business premium (PVNBP) margins are shown after the effect 

6 months to 30 June 2009	NBC £m	Single premiums £m	Annualised regular premiums £m	PVNBP £m	PVNBP multiplier1	PVNBP margin2 %
Individual pensions	14	1,637	47	1,819	3.9	0.7
Group pensions	29	404	287	1,527	3.9	1.9
Institutional pensions	7	907	18	944	2.1	0.8
Savings and 3 investments	(4)	577	15	696	7.9	(0.6)
Annuities	46	258	-	258	-	17.8
Protection	-	-	1	2	2.0	16.5
UK	92	3,783	368	5,246	4.0	1.8
Canada	18	537	53	1,352	15.4	1.3
Europe3	4	360	19	557	10.4	0.8
Asia	-	36	52	296	5.0	-
Total covered business	114	4,716	492	7,451	5.6	1.6

1    The PVNBP multiplier is calculated as the total of PVNBP less single premiums divided by annualised regular premiums.

2    PVNBP margins are calculated as the ratio of the value of new business to the present value of new business premiums and are based on the underlying unrounded numbers. 

3    The offshore bonds business, previously included within UK savings and investments, is now included within Europe. Results for the six months to 30 June 2008 and the 12 months to 31 December 2008 have been reclassified to reflect this change. 

Notes to the EEV financial information continued 

3.3 Analysis of new business contribution continued

6 months to 30 June 2008	NBC £m	Single premiums £m	Annualised regular premiums £m	PVNBP £m	PVNBP multiplier1	PVNBP margin2 %
Individual pensions	36	2,227	59	2,509	4.8	1.4
Group pensions	44	665	268	1,803	4.2	2.4
Institutional pensions	10	820	60	964	2.4	1.1
Savings and 3, 4 investments	2	1,357	5	1,389	6.4	0.2
Annuities	40	252	-	252	-	15.9
Protection	-	-	1	4	4.0	6.2
UK	132	5,321	393	6,921	4.1	1.9
Canada	18	738	43	1,201	11.0	1.5
Europe4	7	416	30	689	9.1	1.0
Asia5	-	49	51	240	3.7	-
Total covered business	157	6,524	517	9,051	4.9	1.7
			Annualised regular premiums £m
12 months to 31 December 2008	NBC £m	Single premiums £m		PVNBP6 £m	PVNBP multiplier1	PVNBP margin2 %
Individual pensions	56	3,939	103	4,334	3.8	1.3
Group pensions	55	992	437	2,600	3.7	2.1
Institutional pensions	20	1,667	67	1,826	2.4	1.1
Savings and 3, 4 investments	(7)	1,958	10	2,029	7.1	(0.3)
Annuities	74	471	-	471	-	15.8
Protection	1	-	2	7	3.5	8.2
UK	199	9,027	619	11,267	3.6	1.8
Canada	34	1,154	79	2,240	13.7	1.5
Europe4	31	1,046	67	1,677	9.4	1.9
Asia5	-	90	110	495	3.7	-
Total covered business	264	11,317	875	15,679	5.0	1.7

1    The PVNBP multiplier is calculated as the total of PVNBP less single premiums divided by annualised regular premiums.

  2    PVNBP margins are calculated as the ratio of the value of new business to the present value of new business premiums and are based on the underlying unrounded numbers. 

       3    Single premiums and PVNBP for UK savings and investments have been restated to include Sigma UKFS mutual funds (six months to 30 June 2008: £40m; 12 months to 31 December 2008:

                   £88m). 

 4    The offshore bonds business, previously included within UK savings and investments, is now included within Europe. Results for the six months to 30 June 2008 and the 12 months to 31
          December 2008 have been reclassified to reflect this change. 

      5    Regular premiums in China of £2m for Group protection business have been reclassified to single premiums for the six months to 30 June 2008 (12 months to 31 December 2008: £3m). PVNBP
 
                  includes revisions to opening assumptions in India for the six months to 30 June 2008 (reduction of £53m). 

     6    The PVNBP new business sales are different from those in the full year new business press release issued on 28 January 2009 as they incorporate year end non-economic assumption 
           

                changes. 

3.4 Experience variances 

6 months to 30 June 2009	UK £m	Canada £m	Europe £m	HWPF TVOG £m	Total £m
Lapses	-	-	(8)	-	(8)
Maintenance expenses	(2)	(5)	2	-	(5)
Mortality and morbidity	3	9	1	-	13
Tax	11	2	8	-	21
Other	(8)	(2)	(7)	89	72
Total	4	4	(4)	89	93

Lapse variances in Europe result from a reaction to falling markets and reduced economic activity, and were most pronounced within Germany. 

Mortality variances in Canada arise from a review of the status of the in-force annuity policies. 

Tax variances in the UK reflect favourable experience, whilst the £8m profit in Europe mainly reflects the successful agreement of prior year tax affairs in Ireland. 

'Other' HWPF TVOG variances largely reflect improvements in modelling and the impact of changes in asset allocations and hedging arrangements. 

6 months to 30 June 2008	UK £m	Canada £m	Europe £m	HWPF TVOG £m	Total £m
Lapses	-	-	2	-	2
Maintenance expenses	-	(3)	-	-	(3)
Mortality and morbidity	-	-	(1)	-	(1)
Tax	18	9	(3)	-	24
Other	10	(2)	(5)	(3)	-
Total	28	4	(7)	(3)	22

12 months to 31 December 2008	UK £m	Canada £m	Europe £m	HWPF TVOG £m	Total £m
Lapses	18	-	4	-	22
Maintenance expenses	(8)	3	(2)	-	(7)
Mortality and morbidity	2	-	-	-	2
Tax	40	38	(4)	-	74
Other	(36)	6	3	-	(27)
Total	16	47	1	-	64

Notes to the EEV financial information continued

3.5 Operating assumption changes

6 months to 30 June 2009	UK £m	Canada £m	Europe £m	HWPF TVOG £m	Total £m
Lapses	-	-	-	-	-
Maintenance expenses	-	-	-	-	-
Mortality and morbidity	-	-	-	-	-
Tax	-	-	-	-	-
Other	-	-	-	-	-
Total	-	-	-	-	-

In general, operating assumptions for the main classes of business, including most expense and other non-economic assumptions, are reviewed on an annual basis. The impact of this review will be reflected in the full year results. 

For the six months to 30 June 2008 and 12 months to 31 December 2008, £119m of the 'Other' operating assumption changes arose from the impact of the UK annuity reassurance transaction. 

6 months to 30 June 2008	UK £m	Canada £m	Europe £m	HWPF TVOG £m	Total £m
Lapses	-	-	-	-	-
Maintenance expenses	-	-	-	-	-
Mortality and morbidity	-	-	-	-	-
Tax	-	-	-	-	-
Other	96	-	13	11	120
Total	96	-	13	11	120
				HWPF TVOG £m
12 months to 31 December 2008	UK £m	Canada £m	Europe £m		Total £m
Lapses	(35)	(25)	(1)	-	(61)
Maintenance expenses	45	28	(2)	-	71
Mortality and morbidity	46	4	3	-	53
Tax	2	-	-	-	2
Other	93	17	9	11	130
Total	151	24	9	11	195

3.6 Non-covered business 

Non-covered business EEV operating profit is represented by IFRS normalised underlying profit* as adjusted for Standard Life Investments (global investment management) look through profits and the return on mutual funds which are recognised in covered business. 

UK operations comprise primarily life and pensions business, and also the banking and healthcare business. UK non-covered business is shown within this note and includes banking, healthcare and UK mutual fund businesses, and also the non-covered UK pension scheme. 

6 months to 30 June 2009	Global investment management £m	UK £m	Other including Group Corporate Centre £m	Total non- covered business £m
Opening EEV net assets	143	340	672	1,155
Profit/(loss) after tax	2	19	(14)	7
Transfer back of net worth from covered business	12	(10)	1	3
Foreign exchange differences	(1)	-	2	1
Internal capital transfers	-	2	158	160
Distributions to equity holders	-	-	(168)	(168)
Other	-	(37)	47	10
Closing EEV net assets	156	314	698	1,168

On 15 May 2009, the Group's equity holders approved the introduction of the Scrip dividend scheme, effective for the final 2008 dividend payment onwards. Investors taking part in the Scrip scheme receive their dividend entitlement in the form of new shares issued in lieu of cash dividends. For the six months ended 30 June 2009 dividends paid under the Scrip scheme were £58m (six months to 30 June 2008 and 12 months to 31 December 2008: £nil), in addition to £110m paid in cash (six months to 30 June 2008: £168m and 12 months to 31 December 2008: £257m). 

'Other' movements in the UK EEV net assets predominantly relate to the actuarial loss of £60m and aggregate tax effect of positive £19m relating to the UK non-covered pension scheme. 

'Other' movements in Other including Group corporate centre predominantly relate to the £58m issue of share capital other than in cash in relation to the Scrip dividend paid by Standard Life plc. 

6 months to 30 June 2008	Global investment management £m	UK £m	Other including Group Corporate Centre £m	Total non- covered business £m
Opening EEV net assets	142	295	530	967
	(27)	34	(1)	6
Transfer back of net worth from covered business	15	(7)	1	9
Foreign exchange differences	-	-	(2)	(2)
Internal capital transfers	-	24	423	447
Distributions to equity holders	-	-	(168)	(168)
Other	(1)	4	(1)	2
Closing EEV net assets	129	350	782	1,261

*    The only difference between IFRS normalised underlying profit and IFRS underlying profit arises within global investment management, as described in Note 3.6(b). 

Notes to the EEV financial information continued

3.6 Non-covered business continued 

(a) Segmental analysis - non-covered business continued 

12 months to 31 December 2008	Global investment management £m	UK £m	Other including Group Corporate Centre £m	Total non- covered business £m
Opening EEV net assets	142	295	530	967
Loss after tax	(35)	(75)	(31)	(141)
Transfer back of net worth from covered business	33	(17)	1	17
Foreign exchange differences	2	-	21	23
Internal capital transfers	-	54	423	477
Distributions to equity holders	-	-	(257)	(257)
Other	1	83	(15)	69
Closing EEV net assets	143	340	672	1,155

 (b) Global investment management EEV profits before tax 

Global investment management profits are included in EEV on a look through basis. This means that the profits from global investment management generated from the life and pensions business are allocated to covered business. However, the excluded life and pension profits include £6m (six months to 30 June 2008: £9m; 12 months to 31 December 2008: £20m) of profits relating to products which are actively marketed and sold to third parties through global investment management distribution channels. If these profits are added to the third party profits disclosed for non-covered business there are £16m (six months to 30 June 2008: £40m; 12 months to 31 December 2008: £68m) of third party related profits for global 

	6 months 2009 £m	6 months 2008 £m	Full year 2008 £m
Life and pensions look1 through profits before tax	17	21	45
Third party related life and pensions losses before tax	(6)	(9)	(20)
Life and pensions look through profits before tax excluding third party profits	11	12	25
Third party related life and pensions profits before tax	6	9	20
Third party related profits before tax	10	31	48
Total third party related profits before tax	16	40	68
Total EEV operating profit before tax	27	52	93
Non-operating2 items	(8)	(67)	(93)
Total EEV profit/(loss) before tax	19	(15)	-

1    Included within life and pensions look through profits before tax is £7m of profits (12 months to 31 December 2008: £14m) in relation to some Sigma UKFS mutual funds business, which is sold and administered through our UKFS Standard Life Savings business and was included for the first time as covered business within the full year 2008 UK life and pensions EEV. Previously, this Sigma UKFS mutual funds business was non-covered business and was sold and administered through our global investment management business. The results for the six months to 30 June 2008 have not been restated and the profits relating to this Sigma mutual funds business was included within global investment management third party related profits for that period. 

2    The non-operating loss items for the six months to 30 June 2009 include £6m net negative fair value movement in respect of the liability remaining following the restructuring of a sub-fund of the Standard Life Investments (Global Liquidity Funds) plc and the 'Contract for Differences' written in September 2008 which limited this liability for Standard Life Investments. The non-operating items for the six months to 30 June 2008 include total losses of £66m (12 months to 31 December 2008: £90m) from the restructuring of the Global Liquidity Funds. Of these total restructuring losses, £27m for the six months to 30 June 2008 (12 months to 31 December 2008: £51m), relate to losses arising from the fair value movements of assets brought directly on to the balance sheet. The losses for all periods relating to the non-life net negative fair value movement and the fair value movement of assets brought directly to the balance sheet are included within IFRS underlying profit but excluded from IFRS normalised underlying profit. Also included within non-operating items for the six months to 30 June 2009 are £2m of costs relating to the CIP programme and other restructuring costs (six months to 30 June 2008: £1m; 12 months to 31 December 2008: £3m). 

(c) Other EEV operating profits before tax     

		6 months 2009 £m		6 months 2008 £m	Full year 2008 £m
Canada non-life subsidiaries		(2)		2	2
Mutual funds transferred to covered business		(2)		(1)	(2)
Canada non-life subsidiaries excluding transfers to covered business	(4)		1		-
Standard Life plc income		1		21	8
Other		11		3	5
Other non-covered business EEV operating profit before tax		8		25	13

Canada non-life subsidiaries are included within the Canada segment of the IFRS financial statements. 

3.7 EEV - reconciliation of movements in consolidated balance sheet 

	6 months 2009 £m	6 months 2008 £m	Full year 2008 £m
Opening EEV	6,245	6,211	6,211
Opening adjustments	-	-	32
Opening adjusted EEV	6,245	6,211	6,243
Total comprehensive (expense)/income for the period	(272)	(2)	250
Distributions to equity holders	(168)	(168)	(257)
Issue of share capital other than in cash	58	1	1
Reserves credit for employee share-based payment schemes	(4)	4	10
Vested employee share-based payment schemes	-	(5)	(2)
Closing EEV	5,859	6,041	6,245

Opening adjustments in the full year 2008 relate to the transfer of Sigma UKFS mutual funds from non-covered to covered business. These adjustments impacted the opening PVIF in covered business by £32m and the opening net assets in non-covered business by £nil. The EEV results for the six months to 30 June 2008 have not been restated. 

3.8 Reconciliation of EEV net assets to IFRS net assets 

	30 June 2009 £m			30 June31 2008 £m	2008 £m
Net assets on an EEV basis	5,859			6,041	6,245
Present value of in-force life and pensions business net of cost of capital	(2,863)			(3,164)	(3,053)
EEV net worth	2,996			2,877	3,192
Adjustment of long-term debt to market value	(403)			(137)	(434)
Canadian marked-to-market	20			100	58
Deferred acquisition costs net of deferred income reserve		331		281	354
Deferred tax differences	150			148	180
Other	14			(13)	15
Consolidation adjustment for1 different accounting bases1		(2)	-		42
Net assets attributable to equity holders on an IFRS basis	3,106			3,256	3,407

1  This adjustment reflects the removal of accounting differences for the Canadian subordinated liability as explained in Note 3.16 - Methodology. 

Reconciling items are shown net of tax where appropriate. 

Notes to the EEV financial information continued

3.9 Analysis of covered business EEV PVIF and net worth movements (net of tax) 

(a) Total
PVIF net
Free			Required				of cost of
surplus			capital	Net worth			capital		Total
6 months to 30 June 2009	£m		£m	£m			£m		£m
Opening EEV		1,235	844		2,079	3,053		5,132
Contribution from new business		(96)	24		(72)	155		83
Contribution from in-force business:
Expected return on existing business		(1)	19		18	118		136
Expected return transfer to net worth		290	(30)		260	(261)		(1)
Experience variances		20	3		23	43		66
Operating assumption changes		-	-		-	-		-
Development expenses		(11)	-		(11)	-		(11)
Expected return on free surplus		(32)	-		(32)	-		(32)
Operating profit after tax		170	16		186	55		241
Investment return and tax variances		(217)	29		(188)	(155)		(343)
Effect of economic assumption changes		47	(28)		19	3		22
Restructuring expenses		(19)	-		(19)	-		(19)
(Loss)/profit after tax		(19)	17		(2)	(97)		(99)
Internal capital transfers		(160)	-		(160)	-		(160)
Transfer back of surplus to Standard Life Investments		(12)	-		(12)	-		(12)
Transfer back of mutual funds net worth		9	-		9	-		9
Actuarial losses on defined benefit pension schemes		(19)	-		(19)	-		(19)
Foreign exchange differences		(27)	(55)		(82)	(93)		(175)
Aggregate tax effect of items not recognised in income statement		6	-		6	-		6
Other		7	-		7	-		7
Closing EEV		1,020	806		1,826	2,863		4,689

Asia is included within covered business on an IFRS basis, with the IFRS opening and closing net assets for this business included within the opening and closing EEV free surplus, and the IFRS underlying loss after tax included within Expected return on free surplus. 

					PVIF net
					of cost
		Free surplus	Required capital	Net worth	of capital		Total
6 months to 30 June 2008		£m	£m	£m		£m	£m
Opening EEV		1,237	680	1,917	3,327		5,244
Contribution from new business		(152)	21	(131)		244	113
Contribution from in-force business:
Expected return on existing business		-	17	17		140	157
Expected return transfer to net worth		268	(17)	251		(251)	-
Experience variances		13	5	18		(2)	16
Operating assumption changes		74	16	90		(4)	86
Development expenses		(12)	-	(12)		-	(12)
Expected return on free surplus		(5)	-	(5)		-	(5)
Operating profit after tax		186	42	228		127	355
Investment return and tax variances		(101)	5	(96)		(276)	(372)
Effect of economic assumption changes		56	(2)	54		(25)	29
Restructuring expenses		(11)	-	(11)		-	(11)
Profit/(loss) after tax		130	45	175		(174)	1
Internal capital transfers		(447)	-	(447)		-	(477)
Transfer back of surplus to Standard Life Investments		(15)	-	(15)		-	(15)
Transfer back of mutual funds net worth		6	-	6		-	6
Actuarial gains on defined benefit pension schemes		-	-	-		-	-
Foreign exchange differences		(4)	(16)	(20)		11	(9)
Aggregate tax effect of items not recognised in income statement		-	-	-		-	-
Other		-	-	-		-	-
Closing EEV		907	709	1,616	3,164		4,780

Notes to the EEV financial information continued

3.9 Analysis of covered business EEV PVIF and net worth movements 
  (net of tax) continued 

(b) UK and HWPF TVOG 

																	PVIF net
													Free Required				of cost of
													surplus	capital		Net worth	capital	Total
6 months to 30 June 2009													£m	£m		£m	£m	£m
Opening EEV													899	95		994	1,915	2,909
Contribution from new business													(54)	11		(43)	109	66
Contribution from in-force business:
Expected return on existing business													(1)	2		1	74	75
Expected return transfer to net worth													188	(2)		186	(186)	-
Experience variances													18	8		26	40	66
Operating assumption changes													-	-		-	-	-
Development expenses													(7)	-		(7)	-	(7)
Expected return on free surplus													(9)	-		(9)	-	(9)
Operating profit after tax													135	19		154	37	191
Investment return and tax variances													(175)	-		(175)	(130)	(305)
Effect of economic assumption changes													86	(3)		83	132	215
Restructuring expenses													(15)	-		(15)	-	(15)
Profit after tax													31	16		47	39	86
Internal capital transfers													(130)	-		(130)	-	(130)
Transfer back of surplus to Standard(10)Life Investments-																(10)	-	(10)
Transfer back of mutual funds net worth													10	-		10	-	10
Actuarial gains on defined benefit pension schemes													-	-		-	-	-
Foreign exchange differences													-	-		-	-	-
Aggregate tax effect of items not recognized in income statement													-	-		-	-	-
Other													5	-		5	-	5
Closing EEV													805	111		916	1,954	2,870

																		PVIF net
														Free Required				of cost of
														surplus	capital		Net worth	capital	Total
6 months to 30 June 2008														£m	£m		£m	£m	£m
Opening EEV														966	63		1,029	2,504	3,533
Contribution from new business														(107)	13		(94)	189	95
Contribution from in-force business:
Expected return on existing business														-	2		2	103	105
Expected return transfer to net worth														183	(1)		182	(182)	-
Experience variances														20	3		23	(5)	18
Operating assumption changes														73	16		89	(12)	77
Development expenses														(8)	-		(8)	-	(8)
Expected return on free surplus														9	-		9	-	9
Operating profit after tax														170	33		203	93	296
Investment return and tax variances														(89)	5		(84)	(269)	(353)
Effect of economic assumption changes														28	(3)		25	(7)	18
Restructuring expenses														(11)	-		(11)	-	(11)
(Loss)/profit after tax														98	35		133	(183)	(50)
Internal capital transfers														(464)	-		(464)	-	(464)
Transfer back of surplus to Standard Life Investments														(14)	-		(14)	-	(14)
Transfer back of mutual funds net worth														7	-		7	-	7
Actuarial gains on defined benefit pension schemes														-	-		-	-	-
Foreign exchange differences														-	-		-	-	-
Aggregate tax effect of items not recognized in income statement														-	-		-	-	-
Other														1	-		1	(1)	-
Closing EEV														594	98		692	2,320	3,012

Notes to the EEV financial information continued

3.9 Analysis of covered business EEV PVIF and net worth movements 
  (net of tax) continued 

(c) Canada 

																PVIF net
													Free	Required		of cost of
													surplus	capital	Net worth	capital	Total
6 months to 30 June 2009													£m	£m	£m	£m	£m
Opening EEV													154	737	891	706	1,597
Contribution from new business													(13)	12	(1)	14	13
Contribution from in-force business:
Expected return on existing business													-	17	17	32	49
Expected return transfer to net worth													64	(29)	35	(35)	-
Experience variances													7	(5)	2	1	3
Operating assumption changes													-	-	-	-	-
Development expenses													(1)	-	(1)	-	(1)
Expected return on free surplus													1	-	1	-	1
Operating profit/(loss) after tax													58	(5)	53	12	65
Investment return and tax variances													(47)	29	(18)	(20)	(38)
Effect of economic assumption changes													(42)	(25)	(67)	(130)	(197)
Restructuring expenses													-	-	-	-	-
Loss after tax													(31)	(1)	(32)	(138)	(170)
Internal capital transfers													(2)	-	(2)	-	(2)
Transfer back of surplus to Standard Life Investments													(2)	-	(2)	-	(2)
Transfer back of mutual funds net worth													(1)	-	(1)	-	(1)
Actuarial losses on defined benefit pension schemes													(19)	-	(19)	-	(19)
Foreign exchange differences													(7)	(54)	(61)	(44)	(105)
Aggregate tax effect of items not recognised in income statement													6	-	6	-	6
Other													-	-	-	-	-
Closing EEV													98	682	780	524	1,304

																Free	Required			PVIDF net of cost of
surplus																		Capital Net worth		capital		Total
6 months to 30 June 2008																£m		£m	£m	£m		£m
Opening EEV																168		611	779	497		1,276
Contribution from new business																(6)		6	-	13		13
Contribution from in-force business:
Expected return on existing business																(1)		15	14	26		40
Expected return transfer to net worth																48		(16)	32	(32)		-
Experience variances																1		2	3	-		3
Operating assumption changes																-		-	-	-		-
Development expenses																(1)		-	(1)	-		(1)
Expected return on free surplus																2		-	2	-		2
Operating profit after tax																43		7	50	7		57
Investment return and tax variances																(9)		-	(9)	7		(2)
Effect of economic assumption changes																27		1	28	(12)		16
Restructuring expenses																-		-	-	-		-
Profit after tax																61		8	69	2		71
Internal capital transfers																(39)		-	(39)	-		(39)
Transfer back of surplus to Standard Life																(1)		-	(1)	-		(1)
Transfer back of mutual funds net worth Investments																(1)		-	(1)	-		(1)
Actuarial gains on defined benefit pension schemes																-		-	-	-		-
Foreign exchange differences																(5)		(17)	(22)	(13)		(35)
Aggregate tax effect of items not recognized in income statement																-		-	-	-		-
Other																-		-	-	-	-
Closing EEV																183		602	785	486	1,271

Notes to the EEV financial information continued

3.9 Analysis of covered business EEV PVIF and net worth movements 
  (net of tax) continued 

(d) Europe and Asia 

												PVIF net
							Free	Required				of cost of
surplus								capital Net worth				capital		Total
6 months to 30 June 2009							£m		£m		£m		£m	£m
Opening EEV							182		12		194		432	626
Contribution from new business							(29)		1		(28)		32	4
Contribution from in-force business:
Expected return on existing business                                                                               -									-		-		12	12
Expected return transfer to net worth                                                                        38									1		39		(40)	(1)
Experience variances							(5)		-		(5)		2	(3)
Operating assumption changes							-		-		-		-	-
Development expenses							(3)		-		(3)		-	(3)
Expected return on free surplus							(24)		-		(24)		-	(24)
Operating (loss)/profit after tax							(23)		2		(21)		6	(15)
Investment return and tax variances							5		-		5		(5)	-
Effect of economic assumption changes                                                                               3									-		3		1	4
Restructuring expenses							(4)		-		(4)		-	(4)
(Loss)/profit after tax							(19)		2		(17)		2	(15)
Internal capital transfers							(28)		-		(28)		-	(28)
Transfer back of surplus to Standard Life Investments                                                          -									-                                  -				-	-
Transfer back of mutual funds net worth                                                                              -									-	-			-	-
Actuarial gains on defined benefit pension schemes                                                             -									-	-			-	-
Foreign exchange differences							(20)		(1)	(21)			(49)	(70)
Aggregate tax effect of items not recognized in income statement							-		-		-		-                   -
Other							2		-		2		-		2
Closing EEV							117		13		130		385		515

Asia is included within covered business on an IFRS basis, with the IFRS opening and closing net assets for this business included within the opening and closing

EEV free surplus, and the IFRS underlying loss after tax included within Expected return on free surplus.

																									PVIF net
																		Free	Required						of cost of
surplus																			capital					Net worth	capital			Total
6 months to 30 June 2008																		£m		£m				£m		£m		£m
Opening EEV																		103		6				109		326		435
Contribution from new business																		(39)		2				(37)		42		5
Contribution from in-force business:
Expected return on existing business																		1		-				1		11		12
Expected return transfer to net worth																		37		-				37		(37)		-
Experience variances																		(8)		-				(8)		3		(5)
Operating assumption changes																		1		-				1		8		9
Development expenses																		(3)		-				(3)		-		(3)
Expected return on free surplus																		(16)		-				(16)		-		(16)
Operating profit/(loss) after tax																		(27)		2				(25)		27		2
Investment return and tax variances																		(3)		-				(3)		(14)		(17)
Effect of economic assumption changes																		1		-				1		(6)		(5)
Restructuring expenses																		-		-				-		-		-
(Loss)/profit after tax																		(29)		2				(27)		7		(20)
Internal capital transfers																		56		-				56		-		56
Transfer back of surplus to Standard Life Investments																		-		-				-		-		-
Transfer back of mutual funds net worth																		-		-				-		-		-
Actuarial gains on defined benefit pension schemes																		-		-				-		-		-
Foreign exchange differences																		1		1				2		24		26
Aggregate tax effect of items not recognised in income statement                                        -																							-	-		-		-
Other																		(1)		-				(1)		1		-
Closing EEV																		130		9				139		358		497

Notes to the EEV financial information continued

3.10 Time value of options and guarantees (TVOG) 

30 June		30 June	31 December
2009		2008		2008
£m		£m		£m
UK and Europe HWPF	(101)	(42)		(220)
Canada	(31)	(19)		(30)
Europe - other	-	(1)		(7)
Total	(132)	(62)		(257)

The UK and Europe HWPF TVOG reflects the value of shareholder exposure to the policyholder guarantees within the HWPF. This has reduced significantly during 2009 due to the impact of improvements in modelling and changes in asset allocations, as described in Note 3.4, and the overall favourable non-operating profit of £76m as shown in Note 3.2(a), where the impact of adverse investment returns was offset by the benefits from higher risk free yields and lower implied volatilities. Similar improvements resulted in a decrease in the TVOG in Europe.

3.11 Market value of subordinated liabilities within covered business     

	30 June	30 June 31December
	2009	2008	2008
	£m	£m	£m
UK	(1,245)	(1,546)	(1,375)
Canada	(211)	(198)	(183)
Total	(1,456)	(1,744)	(1,558)

Subordinated liabilities within EEV covered business are based on the market value of the debt. The free surplus shown in Note 3.2(c) is net of these liabilities. 

The market value of the subordinated liabilities in Canada has increased over 2009 as a result of reductions in credit spreads, offset in part from foreign exchange movements. This has produced a pre-tax loss of £60m within the 2009 effect of economic assumption changes for Canada shown in Note 3.2(a). This has been offset by the Group EEV consolidation adjustment in respect of Canadian subordinated liability, as shown in the EEV consolidated income statement. 

3.12 Principal economic assumptions - deterministic calculations - covered business 

(a) Gross investment returns and expense inflation 

UK		Canada	Europe
At 30 June 2009	%	%	%
Gross investment returns
Risk free	3.72	3.63	3.39
Corporate bonds	4.90 ***	*	n/a
Equities	6.72	8.60	6.39
Property	5.72	8.60	5.39
Other
Expense inflation:	3.33	**
Germany			1.89
Ireland			2.80

*    Current holdings are assumed to yield in future years the earned rate for the year preceding the valuation. Future reinvestments are assumed to be in 
government bonds.

**  1.71% in 2009. The rate in subsequent years is based on a moving 30 year bond yield less a variable deduction.

*** Excludes corporate bond returns on annuities. For annuities in UK equity holder funds, the overall investment return, after allowing for assumed defaults, is 6.78% for    annuities that are level or subject to fixed escalations and 3.72% for annuities where escalations are linked to a price index. 

	UK	Canada	Europe
At 30 June 2008	%	%	%
Gross investment returns
Risk free	5.28	3.92	4.62
Corporate bonds	6.47 ***	*	n/a
Equities	8.28	8.60	7.62
Property	7.28	8.60	6.62
Other
Expense inflation:	4.80	**
Germany			2.96
Ireland			4.07

* Current holdings are assumed to yield in future years the earned rate for the year preceding the valuation. Future reinvestments are assumed to be in

  government bonds.

** 1.61% in 2008. The rate in subsequent years is based on a moving 30 year bond yield less a variable deduction.

*** Excludes corporate bond returns on annuities. For annuities in UK equity holder funds, the overall investment return, after allowing for assumed defaults, is

  6.44% for annuities that are level or subject to fixed escalations and 5.28% for annuities where escalations are linked to a price index.

	UK	Canada	Europe
At 31 December 2008	%	%	%
Gross investment returns
Risk free	3.42	3.07	2.95
Corporate bonds	5.09 ***	*	n/a
Equities	6.42	8.60	5.95
Property	5.42	8.60	4.95
Other
Expense inflation:	2.57	**
Germany			1.27
Ireland			2.18

* Current holdings are assumed to yield in future years the earned rate for the year preceding the valuation. Future reinvestments are assumed to be in

  government bonds.

** 0.94% in 2008. The rate in subsequent years is based on a moving 30 year bond yield less a variable deduction.

*** Excludes corporate bond returns on annuities. For annuities in UK equity holder funds, the overall investment return, after allowing for assumed defaults, is

  6.44% for annuities that are level or subject to fixed escalations and 3.42% for annuities where escalations are linked to a price index.

 

END

 

 

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