Half Yearly Report - Part 4 of 5

RNS Number : 0656M

Standard Life plc

10 August 2011

Standard Life plc

Half Year Results 2011

Part 4 of 5

EEV consolidated income statement

For the six months ended 30 June 2011

		6 months 2011	6 months 2010	Full year 2010
	Notes	£m	£m	£m
Covered business
UK		229	208	436
Canada		113	123	250
International		35	48	93
HWPF TVOG		(11)	(3)	(8)
Covered business operating profit	4.2(a)	366	376	771

Global investment management¹	4.6(b)	27	21	33
UK		4	(15)	28
Group corporate centre costs		(25)	(30)	(54)
Other	4.6(c)	4	12	9
Non-covered business operating profit/(loss)		10	(12)	16
Operating profit before tax from continuing operations		376	364	787

Non-operating items
Long-term investment return and tax variances		(11)	314	578
Effect of economic assumption changes		108	(197)	(209)
Restructuring and corporate transaction expenses²		(23)	(17)	(71)
Impairment of intangible assets		(7)	-	-
Impairment of investments in associates		-	-	(1)
Other non-operating items		(4)	(1)	-
Consolidation adjustment for different accounting bases³		(8)	29	51
Non-operating profit before tax from continuing operations		55	128	348
Profit before tax from continuing operations		431	492	1,135
Tax attributable to:
Operating profit		(96)	(112)	(249)
Non-operating items		(14)	(37)	(90)
Profit after tax from continuing operations		321	343	796
(Loss)/profit after tax from discontinued operations⁴		-	(17)	20
Total profit after tax		321	326	816

¹ Global investment management EEV non-covered operating profit of £27m (six months ended 30 June 2010: £21m; 12 months ended 31 December 2010: £33m) represents IFRS operating profit of £67m (six months ended 30 June 2010: £49m; 12 months ended 31 December 2010: £103m) after excluding profits of £40m (six months ended 30 June 2010: £28m; 12 months ended 31 December 2010: £70m) which have been generated by life and pensions covered business. Global investment management EEV operating profit therefore represents EEV third party non-covered operating profit. Refer to Note 4.6(b) - Global investment management EEV operating profit before tax and Note 4.17 - EEV methodology.

² Refer to IFRS financial information Note 3.3 - Administrative expenses.

³ This adjustment reflects the removal of accounting differences for the Canada subordinated liability as explained in Note 4.17 - EEV methodology.

⁴ The Group's healthcare business, Standard Life Healthcare Limited, was sold on 31 July 2010 and was classified as a discontinued operation for the six months ended 30 June 2010 and 12 months ended 31 December 2010. Refer to Note 4.1 - Basis of preparation.

EEV earnings per share (EPS)

For the six months ended 30 June 2011

	6 months 2011	6 months 2010	Full year 2010
EEV operating profit after tax from continuing operations (£m)¹	280	252	538

Basic EPS (pence) from continuing operations	12.3	11.3	24.0
Weighted average number of ordinary shares in issue (millions)	2,279	2,230	2,242

Diluted EPS (pence) from continuing operations	12.3	11.3	23.9
Weighted average number of ordinary shares on a diluted basis (millions)	2,282	2,235	2,248

¹EEV operating profit before tax from continuing operations of £376m (six months ended 30 June 2010: £364m; 12 months ended 31 December 2010: £787m) less attributed tax on operating profit from continuing operations of £96m (six months ended 30 June 2010: £112m; 12 months ended 31 December 2010: £249m).

EEV consolidated statement of comprehensive income

For the six months ended 30 June 2011

		6 months 2011	6 months 2010	Full year 2010
	Notes	£m	£m	£m
Profit after tax		321	326	816
Less: (Loss)/profit after tax from discontinued operations		-	(17)	20
Profit from continuing operations		321	343	796
Fair value losses on cash flow hedges¹		-	-	(2)
Actuarial (losses)/gains on defined benefit pension schemes¹		(66)	122	184
Exchange differences on translating foreign operations²		26	97	152
Net investment hedge¹		(6)	(16)	(39)
Aggregate tax effect of items recognised in comprehensive income		20	(40)	(59)
Other		1	5	9
Other comprehensive (expense)/income for the period		(25)	168	245
Total comprehensive income for the period attributable to equity holders from continuing operations		296	511	1,041

(Loss)/profit after tax from discontinued operations		-	(17)	20
Other comprehensive income from discontinued operations		-	24	24
Total comprehensive income for the period attributable to equity holders from discontinued operations		-	7	44
Total comprehensive income for the period attributable to equity holders	4.7	296	518	1,085

¹Consistent with the IFRS consolidated statement of comprehensive income.

² Exchange differences primarily relate to International £17m.

EEV consolidated statement of financial position

As at 30 June 2011

		30 June 2011	30 June 2010	31 December 2010
	Notes	£m	£m	£m
Covered business
Free surplus		965	1,226	1,202
Required capital		1,151	1,012	1,031
Net worth		2,116	2,238	2,233

Present value of in-force		4,462	3,871	4,277
Cost of required capital		(492)	(435)	(439)
Total embedded value of covered business	4.2(c)	6,086	5,674	6,071

Non-covered business
Global investment management		268	214	256
UK		324	172	271
Group corporate centre		575	376	457
Other		226	229	221
Discontinued operations		-	105	-
Total net assets of non-covered business	4.6(a)	1,393	1,096	1,205

Consolidation adjustment for different accounting bases¹		39	29	45

Total Group embedded value	4.7	7,518	6,799	7,321

Equity
Share capital		233	226	228
Shares held by trusts		(16)	(18)	(21)
Share premium reserve		1,063	932	976
Retained earnings on an IFRS basis		1,051	807	1,094
Other reserves		1,636	1,695	1,626
Additional retained earnings on an EEV basis		3,551	3,157	3,418
Total equity		7,518	6,799	7,321

¹This adjustment reflects the removal of accounting differences for the Canada subordinated liability as explained in Note 4.17 - EEV methodology.

EEV per share

As at 30 June 2011

	30 June 2011	30 June 2010	31 December 2010
Total Group embedded value (£m)	7,518	6,799	7,321

EEV per share (pence)	324	302	322
Diluted closing number of ordinary shares in issue (millions)	2,319	2,253	2,275

Notes to the EEV financial information

4.1 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 4.17. There have been no significant changes to EEV methodology from that adopted in the previous reporting period, except as noted below.

The half year EEV supplementary financial statements have been reviewed but not audited. The EEV supplementary financial statements for the year ended 31 December 2010 were approved on 10 March 2011. The report of the auditors on that financial information was unqualified.

Covered business

A detailed description of EEV covered business is provided in Note 4.17 - EEV methodology.

With effect from January 2011 Canadian insurers have adopted IFRS as their basis for reporting, replacing the previous Canadian GAAP (CGAAP) basis. The impact of the change has been to reduce the Canada EEV by £24m. The comparative results for the six months to 30 June 2010 and the 12 months to 31 December 2010 have not been restated. The sensitivities for Canada have been reviewed to determine the impact of the adoption of IFRS for local reporting. For the impact on the EEV sensitivities as published in the Group's Annual Report and Accounts 2010 refer to Note 4.16 - Sensitivity analysis - economic and non-economic assumptions.

Elsewhere within the Group, the regulatory basis for setting actuarial reserves and required capital has been calculated assuming the continuation of current regimes. Therefore, no allowance has been made for the change in reserving or required capital bases anticipated under Solvency 2.

The Hong Kong EEV results for 30 June 2010 and 31 December 2010 are calculated on a 'risk neutral' approach, whereby projected investment returns and discount rates are based on risk free rates. For the results for 30 June 2011, Hong Kong is for the first time using a similar approach to that used in the rest of the Group's wholly owned businesses. This involves projecting investment returns on real world assumptions and setting a risk discount rate that removes the market risk above the risk free rate. Principal economic assumptions for investment returns and risk discount rates are provided in Note 4.13 - Principal economic assumptions - deterministic calculations - covered business. Due to the calibration methodology for setting the risk discount rate, there is no material impact on the results produced on the previous 'risk neutral' approach. Therefore the comparative results for 30 June 2010 and 31 December 2010 have not been restated. The India and China JV businesses are still calculated on a 'risk neutral' approach.

Non-covered business

On 11 January 2011, the Group purchased the entire issued and to be issued share capital of Focus Solutions Group plc (Focus). See IFRS financial information Note 3.15 - Business combinations. For the purposes of the Group EEV Focus will be treated as non-covered business.

Segmentation

Within the IFRS segmental analysis, UK operations primarily comprise life and pensions, UK non-covered mutual funds business and the non-covered UK pension scheme. The Group's healthcare business, Standard Life Healthcare Limited, was sold on 31 July 2010 and has therefore been classified as a discontinued operation for the six months ended 30 June 2010 and the 12 months ended 31 December 2010. Following the acquisition of Focus on 11 January 2011, UK non-covered business for the results for the six months to 30 June 2011 include Focus for the first time. UK non-covered business is shown within Note 4.6 - Non-covered business.

The EEV consolidated income statement presents EEV operating profit for continuing operations only and therefore excludes the results for the discontinued operations.

4.1 Basis of preparation continued

Impact of UK budget changes announced on 23 March 2011

The Finance Act 2011, which was substantively enacted on 5 July 2011, reduced the corporation tax rate from 28% to 26% from 1 April 2011, and to 25% from 1 April 2012. The reduction to 25% has been included within our best estimate assumptions for UK corporation tax as at 30 June 2011.

The March 2011 budget statement announced the Government's intention to make further 1% reductions in UK corporation tax in 2013 and 2014. However, these reductions are subject to legislation in future years and have not been included within the best estimate assumptions as at 30 June 2011.

4.2 Segmental analysis - covered business

(a) Segmental EEV income statement

This Note provides an analysis of EEV covered business as defined in Note 4.17 - EEV methodology.

		UK	Canada	International	HWPF TVOG	Total
6 months to 30 June 2011	Notes	£m	£m	£m	£m	£m
Contribution from new business	4.3	113	30	23	-	166
Contribution from in-force business:
Expected return on existing business		122	74	27	-	223
Experience variances	4.4	18	9	(3)	(11)	13
Operating assumption changes	4.5	-	-	(3)	-	(3)
Development expenses		(16)	(6)	(10)	-	(32)
Expected return on free surplus		(8)	6	1	-	(1)
Operating profit/(loss) before tax		229	113	35	(11)	366

Investment return and tax variances		(133)	122	(5)	5	(11)
Effect of economic assumption changes		43	36	(8)	37	108
Restructuring costs		(15)	(1)	(1)	-	(17)
Profit before tax		124	270	21	31	446

Attributed tax		(31)	(70)	(4)	(8)	(113)

Profit after tax		93	200	17	23	333

		UK	Canada	International	HWPF TVOG	Total
6 months to 30 June 2010	Notes	£m	£m	£m	£m	£m
Contribution from new business	4.3	103	31	27	-	161
Contribution from in-force business:
Expected return on existing business		121	73	22	-	216
Experience variances	4.4	17	15	5	(3)	34
Operating assumption changes	4.5	-	-	1	-	1
Development expenses		(18)	(4)	(10)	-	(32)
Expected return on free surplus		(15)	8	3	-	(4)
Operating profit/(loss) before tax		208	123	48	(3)	376

Investment return and tax variances		258	8	3	45	314
Effect of economic assumption changes		(101)	(32)	12	(76)	(197)
Restructuring costs		(8)	-	(4)	-	(12)
Profit/(loss) before tax		357	99	59	(34)	481

Attributed tax		(101)	(26)	(13)	10	(130)

Profit/(loss) after tax		256	73	46	(24)	351

		UK	Canada	International	HWPF TVOG	Total
12 months to 31 December 2010	Notes	£m	£m	£m	£m	£m
Contribution from new business	4.3	173	68	67	-	308
Contribution from in-force business:
Expected return on existing business		237	142	43	-	422
Experience variances	4.4	32	16	(13)	(8)	27
Operating assumption changes	4.5	44	18	19	-	81
Development expenses		(30)	(10)	(27)	-	(67)
Expected return on free surplus		(20)	16	4	-	-
Operating profit/(loss) before tax		436	250	93	(8)	771

Investment return and tax variances		463	40	22	53	578
Effect of economic assumption changes		(77)	(83)	10	(59)	(209)
Restructuring costs		(39)	(1)	(5)	-	(45)
Profit/(loss) before tax		783	206	120	(14)	1,095

Attributed tax		(212)	(53)	(27)	4	(288)

Profit/(loss) after tax		571	153	93	(10)	807

An analysis of profit after tax by territory is provided in Note 4.9 - Analysis of covered business EEV PVIF and net worth movements (net of tax).

Operating profit before tax for covered business is calculated using the expected long-term investment return which is based on opening economic assumptions. Investment variances, the effect of economic assumption changes and other non-operating items are excluded from operating profit for the period and are reported as part of 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 42 - Risk management to the Group's Annual Report and Accounts 2010. The results for Canada and International include the cost of the Canada and Asia TVOG and the cost of TVOG arising on business written outside of the HWPF in Germany.

Development costs of £16m in the UK mainly relate to the investment in corporate and retail propositions and brand development. The £10m of development costs in International include £3m that reflect the costs of developing the India and China JV businesses to build future growth, and £7m in the wholly owned businesses.

The negative £8m expected return on free surplus in the UK reflects the relatively low expected returns currently available on cash assets within free surplus, along with a higher expected increase in the value of subordinated debt liabilities relative to the expected return on the assets backing subordinated debt liabilities. The improvement over the £15m loss reported for the six months to 30 June 2010 mainly reflects the impact of a change in investment strategy in the assets that are backing the subordinated debt liabilities.

Investment return and tax variances in the UK produced a loss of £133m. Lower investment returns experienced in 2011 than had been anticipated reduced the UK PVIF by £41m. In addition, there was a loss of £67m, in excess of the expected returns that are included in the expected return on free surplus, arising from differences in movements of subordinated debt liabilities and the assets that are backing the subordinated debt. Canada investment return and tax variances generated a profit of £122m which is after a pre-tax loss of £32m (£24m post tax) from the impact of adopting IFRS accounting. Refer to Note 4.1 - Basis of preparation. The positive variances in Canada primarily reflect the benefits of strong investment returns, particularly within real estate.

Effect of economic assumption changes was an overall profit of £108m. Increased risk discount rates led to a loss of £30m, which is explained in Note 4.13 - Principal economic assumptions - deterministic calculations - covered business. Changes to the long-term corporation tax rates in the UK and Germany, along with the impact of the temporary levy on pension business in Ireland, resulted in an overall profit of £78m. Refer to Note 4.1 - Basis of preparation. HWPF TVOG generated a profit of £37m largely due to an increase in Euro bond yields.

Restructuring expenses primarily represent the covered business costs associated with the Group's transformation and Solvency 2 programmes as described in the IFRS financial information Note 3.3 - Administrative expenses.

4.2 Segmental analysis - covered business continued

(b) Segmental analysis of movements in EEV

	UK	Canada	International	HWPF TVOG	Total
6 months to 30 June 2011	£m	£m	£m	£m	£m
Opening EEV	3,657	1,758	732	(76)	6,071

Profit after tax	93	200	17	23	333
Internal capital transfers	(352)	-	25	-	(327)
Transfer back of surplus to Standard Life Investments	(25)	(2)	(2)	-	(29)
Transfer back of mutual funds net worth	18	(2)	-	-	16
Actuarial losses on defined benefit pension schemes	-	(8)	-	-	(8)
Foreign exchange differences	-	10	17	-	27
Aggregate tax effect of items not recognised in income statement	-	2	-	-	2
Other	-	1	-	-	1
Closing EEV	3,391	1,959	789	(53)	6,086

	UK	Canada	International	HWPF TVOG	Total
6 months to 30 June 2010	£m	£m	£m	£m	£m
Opening EEV	3,120	1,553	658	(66)	5,265

Profit/(loss) after tax	256	73	46	(24)	351
Internal capital transfers	(2)	-	4	-	2
Transfer back of surplus to Standard Life Investments	(17)	(1)	(2)	-	(20)
Transfer back of mutual funds net worth	14	(2)	-	-	12
Actuarial losses on defined benefit pension schemes	-	(24)	-	-	(24)
Foreign exchange differences	-	101	(19)	-	82
Aggregate tax effect of items not recognised in income statement	-	6	-	-	6
Closing EEV	3,371	1,706	687	(90)	5,674

	UK	Canada	International	HWPF TVOG	Total
12 months to 31 December 2010	£m	£m	£m	£m	£m
Opening EEV	3,120	1,553	658	(66)	5,265

Profit/(loss) after tax	571	153	93	(10)	807
Internal capital transfers	(15)	(65)	(3)	-	(83)
Transfer back of surplus to Standard Life Investments	(47)	(3)	(2)	-	(52)
Transfer back of mutual funds net worth	28	(4)	-	-	24
Actuarial losses on defined benefit pension schemes	-	(20)	(9)	-	(29)
Foreign exchange differences	-	139	(5)	-	134
Aggregate tax effect of items not recognised in income statement	-	5	-	-	5
Closing EEV	3,657	1,758	732	(76)	6,071

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

	UK	Canada	International	HWPF TVOG	Total
6 months to 30 June 2011	£m	£m	£m	£m	£m
Analysis of EEV
Free surplus	930	226	46	-	1,202
PVIF	2,637	1,061	655	(76)	4,277
Required capital	159	813	59	-	1,031
Cost of capital	(69)	(342)	(28)	-	(439)
Opening adjusted EEV	3,657	1,758	732	(76)	6,071

Analysis of EEV
Free surplus	594	299	72	-	965
PVIF	2,703	1,127	685	(53)	4,462
Required capital	167	919	65	-	1,151
Cost of capital	(73)	(386)	(33)	-	(492)
Closing EEV	3,391	1,959	789	(53)	6,086

	UK	Canada	International	HWPF TVOG	Total
6 months to 30 June 2010	£m	£m	£m	£m	£m
Analysis of EEV
Free surplus	673	161	91	-	925
PVIF	2,359	937	545	(66)	3,775
Required capital	139	770	47	-	956
Cost of capital	(51)	(315)	(25)	-	(391)
Opening adjusted EEV	3,120	1,553	658	(66)	5,265

Analysis of EEV
Free surplus	944	199	83	-	1,226
PVIF	2,359	1,025	577	(90)	3,871
Required capital	134	825	53	-	1,012
Cost of capital	(66)	(343)	(26)	-	(435)
Closing EEV	3,371	1,706	687	(90)	5,674

	UK	Canada	International	HWPF TVOG	Total
12 months to 31 December 2010	£m	£m	£m	£m	£m
Analysis of EEV
Free surplus	673	136	91	-	900
PVIF	2,359	962	545	(66)	3,800
Required capital	139	770	47	-	956
Cost of capital	(51)	(315)	(25)	-	(391)
Opening adjusted EEV	3,120	1,553	658	(66)	5,265

Analysis of EEV
Free surplus	930	226	46	-	1,202
PVIF	2,637	1,061	655	(76)	4,277
Required capital	159	813	59	-	1,031
Cost of capital	(69)	(342)	(28)	-	(439)
Closing EEV	3,657	1,758	732	(76)	6,071

4.2 Segmental analysis - covered business continued

The adjustment to opening EEV net worth and PVIF represents a change to the presentation of certain Canada GAAP guarantee reserves. Prior to the results for the 12 months to 31 December 2010, these reserves were replaced with a time value of options and guarantees (TVOG) within the Group's EEV results. In order to better align the Group's EEV net worth movement and the Group's primary measure of performance, IFRS operating profit, these reserves are now included within the EEV net worth with an offset in the PVIF. This change does not affect the TVOG. Total EEV operating profit for the 12 months to 31 December 2010 is also unaffected by this adjustment.

4.3 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 4.17 - EEV methodology.

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

	Fee (F) - Spread/risk (S/R)	NBC	Single premiums	Annualised regular premiums	PVNBP	PVNBP multiplier¹	PVNBP margin²
6 months to 30 June 2011	Fee (F) - Spread/risk (S/R)	£m	£m	£m	£m	PVNBP multiplier¹	%
Individual pensions	F	13	2,045	56	2,237	3.4	0.6
Savings and investments	F	8	1,144	15	1,257	7.5	0.6
Annuities	S/R	27	147	-	147	-	18.7
Protection	S/R	-	-	-	1	-	3.0
Retail		48	3,336	71	3,642	4.3	1.3
Corporate pensions	F	40	1,226	389	2,830	4.1	1.4
Institutional pensions	F	25	1,673	1	1,674	1.0	1.5
Corporate		65	2,899	390	4,504	4.1	1.4
UK		113	6,235	461	8,146	4.1	1.4
Fee	F	18	638	20	892	12.7	2.0
Spread/risk	S/R	12	149	34	687	15.8	1.7
Canada		30	787	54	1,579	14.7	1.9
Wholly owned	F	20	847	42	1,175	7.8	1.7
Joint ventures		3	49	50	261	4.2	1.1
International		23	896	92	1,436	5.9	1.6
Total covered business		166	7,918	607	11,161	5.3	1.5

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 new business contribution to the present value of new business premiums and are based on the underlying unrounded numbers.

	Fee (F) -Spread/risk (S/R)	NBC	Single premiums	Annualised regular premiums	PVNBP	PVNBP multiplier¹	PVNBP margin²
6 months to 30 June 2010	Fee (F) -Spread/risk (S/R)	£m	£m	£m	£m	PVNBP multiplier¹	%
Individual pensions³	F	14	2,006	52	2,173	3.2	0.7
Savings and investments	F	4	845	15	954	7.3	0.4
Annuities	S/R	36	209	-	209	-	17.1
Protection	S/R	-	-	-	1	-	6.0
Retail		54	3,060	67	3,337	4.1	1.6
Corporate pensions³	F	24	609	295	1,751	3.9	1.4
Institutional pensions	F	25	1,835	3	1,842	2.3	1.4
Corporate		49	2,444	298	3,593	3.9	1.4
UK		103	5,504	365	6,930	3.9	1.5
Fee	F	22	649	39	1,089	11.3	2.0
Spread/risk	S/R	9	99	27	492	14.6	1.8
Canada		31	748	66	1,581	12.6	2.0
Wholly owned	F	13	547	33	832	8.6	1.6
Joint ventures		14	38	62	288	4.0	5.0
International		27	585	95	1,120	5.6	2.5
Total covered business		161	6,837	526	9,631	5.3	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 new business contribution to the present value of new business premiums and are based on the underlying unrounded numbers.

³ Individual pensions include Retail Trustee Investment Plan. This was previously included in corporate pensions. The 2010 impact on PVNBP is £15m.

	Fee (F) -Spread/risk (S/R)	NBC	Single premiums	Annualised regular premiums	PVNBP	PVNBP multiplier¹	PVNBP margin²
12 months to 31 December 2010	Fee (F) -Spread/risk (S/R)	£m	£m	£m	£m	PVNBP multiplier¹	%
Individual pensions³	F	19	3,539	92	3,858	3.5	0.5
Savings and investments	F	7	1,827	23	1,997	7.4	0.4
Annuities	S/R	56	341	-	341	-	16.5
Protection	S/R	-	-	1	1	1.0	(12.9)
Retail		82	5,707	116	6,197	4.2	1.3
Corporate pensions³	F	45	1,225	508	3,287	4.1	1.4
Institutional pensions	F	46	3,472	-	3,472	-	1.3
Corporate		91	4,697	508	6,759	4.1	1.3
UK		173	10,404	624	12,956	4.1	1.3
Fee	F	47	1,216	68	2,048	12.2	2.3
Spread/risk	S/R	21	239	52	1,000	14.6	2.1
Canada		68	1,455	120	3,048	13.3	2.2
Wholly owned	F	44	1,313	77	1,929	8.0	2.3
Joint ventures		23	74	119	550	4.0	4.3
International		67	1,387	196	2,479	5.6	2.7
Total covered business		308	13,246	940	18,483	5.6	1.7

¹The 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 new business contribution to the present value of new business premiums and are based on the underlying unrounded numbers.

³ Individual pensions include Retail Trustee Investment Plan. This was previously included in corporate pensions. The 2010 impact on PVNBP is £25m.

4.4 Experience variances

	UK	Canada	International	HWPF TVOG	Total
6 months to 30 June 2011	£m	£m	£m	£m	£m
Lapses	(14)	-	1	-	(13)
Maintenance expenses	(8)	(4)	2	-	(10)
Mortality and morbidity	5	-	-	-	5
Tax	(14)	15	-	-	1
Other	49	(2)	(6)	(11)	30
Total	18	9	(3)	(11)	13

The lapse experience loss of £14m in the UK includes a £6m negative variance from transfers within our UK pensions business and a £3m loss on institutional pensions mainly arising from the loss of one large scheme.

Tax variances in the UK mainly reflect the impact of losses that cannot obtain tax relief from current year profits. Tax variances in Canada include the benefit of lower effective tax rates in 2011.

Other UK variances of £49m include a £50m profit from the impact of a management action to reduce current and future investment expenses. The £11m loss in the HWPF TVOG mainly reflects the impact of a management decision to increase equity exposure.

For the six months to 30 June 2010, other UK variances of £34m include the impact of reserve releases and other modelling changes, as well as the benefit of increased average management fees and experience profits on the vesting of deferred annuities.

For the 12 months to 31 December 2010, other UK variances of £43m include a £28m gain from the impact of investment strategy changes in the assets backing annuity business; a £17m loss from an agreement to fund future recharges to non-covered businesses; various modelling improvements which generated a profit of £31m; with £1m of other profits mainly arising from the impact of reserve changes and other reconciliations and management actions.

	UK	Canada	International	HWPF TVOG	Total
6 months to 30 June 2010	£m	£m	£m	£m	£m
Lapses	(9)	-	3	-	(6)
Maintenance expenses	(3)	(2)	1	-	(4)
Mortality and morbidity	2	11	2	-	15
Tax	(7)	2	(1)	-	(6)
Other	34	4	-	(3)	35
Total	17	15	5	(3)	34

	UK	Canada	International	HWPF TVOG	Total
12 months to 31 December 2010	£m	£m	£m	£m	£m
Lapses	(3)	-	(2)	-	(5)
Maintenance expenses	(4)	5	1	-	2
Mortality and morbidity	4	17	-	-	21
Tax	(8)	9	(1)	-	-
Other	43	(15)	(11)	(8)	9
Total	32	16	(13)	(8)	27

4.5 Operating assumption changes

	UK	Canada	International	HWPF TVOG	Total
6 months to 30 June 2011	£m	£m	£m	£m	£m
Lapses	-	-	(5)	-	(5)
Maintenance expenses	-	-	-	-	-
Mortality and morbidity	-	-	-	-	-
Tax	-	-	-	-	-
Other	-	-	2	-	2
Total	-	-	(3)	-	(3)

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. The main exception is India where the joint venture reviews assumptions as part of its 31 March year end. These assumption changes are reflected in the Group's EEV results at 30 June 2011.

For the 12 months to 31 December 2010, expense assumption gains in the UK and in Europe reflect changes in the expense allocation for investment related expenses. The UK figure also includes an allowance for the expected benefits on maintenance costs arising from the headcount reductions announced during 2010, but only to the extent that these arrangements had been finalised by 31 December 2010. Canada expense assumption profits of £68m mainly arise from improved expenses for group savings and retirement products, reflecting the significant growth in the business volumes during 2010. The other assumption changes in Canada include a £37m loss from a reduction in expected fee income in our group savings and retirement products.

	UK	Canada	International	HWPF TVOG	Total
6 months to 30 June 2010	£m	£m	£m	£m	£m
Lapses	-	-	-	-	-
Maintenance expenses	-	-	1	-	1
Mortality and morbidity	-	-	-	-	-
Tax	-	-	-	-	-
Other	-	-	-	-	-
Total	-	-	1	-	1

	UK	Canada	International	HWPF TVOG	Total
12 months to 31 December 2010	£m	£m	£m	£m	£m
Lapses	13	-	(7)	-	6
Maintenance expenses	48	68	14	-	130
Mortality and morbidity	(19)	(12)	2	-	(29)
Tax	(1)	-	-	-	(1)
Other	3	(38)	10	-	(25)
Total	44	18	19	-	81

4.6 Non-covered business

Non-covered business EEV operating profit is represented by IFRS operating 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. Refer to Note 4.17 - EEV methodology.

UK non-covered primarily comprises UK non-covered mutual funds business and the non-covered UK pension scheme. The Group's healthcare business, Standard Life Healthcare Limited, was sold on 31 July 2010 and has therefore been classified as a discontinued operation for the six months ended 30 June 2010 and the 12 months ended 31 December 2010. The Group's banking business, Standard Life Bank plc, was sold on 1 January 2010.

(a) Segmental analysis - non-covered business

	Global investment management	UK	Discontinued operations	Other including group corporate centre	Total non-covered business
6 months to 30 June 2011	£m	£m	£m	£m	£m
Opening EEV net assets	256	271	-	678	1,205

(Loss)/profit after tax	22	(1)	-	(27)	(6)
Transfer back of net worth from covered business	29	(18)	-	2	13
Foreign exchange differences	(1)	-	-	-	(1)
Internal capital transfers	(38)	112	-	253	327
Distributions to equity holders	-	-	-	(197)	(197)
Other	-	(40)	-	92	52
Closing EEV net assets	268	324	-	801	1,393

The transfer back of net worth from covered business represents the transfer of profits and losses in relation to the Group's investment management business, the UK mutual funds business (within UK non-covered, Standard Life Savings Limited) and the Canada mutual funds business (within other non-covered), necessary to reconcile the opening and closing EEV net assets. For further detail refer to Note 4.17 - EEV methodology under consolidation adjustments.

4.6 Non-covered business continued

(a) Segmental analysis - non-covered business continued

Standard Life plc operates a Scrip dividend scheme. 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 2011, dividends paid comprise £92m (six months ended 30 June 2010: £46m; 12 months ended 31 December 2010: £92m) settled by the issue of shares under the Scrip scheme, and £105m paid in cash (six months ended 30 June 2010: £134m; 12 months ended 31 December 2010: £186m).

The other movement in the UK EEV net assets relates to the change in the UK non-covered pension scheme surplus of (£58m) (six months ended 30 June 2010: £146m; 12 months ended 31 December 2010: £214m) and the associated deferred tax liability of £18m (six months ended 30 June 2010: £46m; 12 months ended 31 December 2010: £65m).

Other movements in other including group corporate centre relate to the £92m issue of share capital other than in cash in relation to the Scrip dividend paid by Standard Life plc.

	Global investment management	UK	Discontinued operations	Other including group corporate centre	Total non-covered business
6 months to 30 June 2010	£m	£m	£m	£m	£m
Opening EEV net assets	195	(19)	343	644	1,163
Opening adjustments	-	34	-	(34)	-
Opening adjusted EEV net assets	195	15	343	610	1,163

(Loss)/profit after tax	14	(25)	(17)	(19)	(47)
Transfer back of net worth from covered business	20	(14)	-	2	8
Foreign exchange differences	3	-	-	12	15
Internal capital transfers	(18)	96	(245)	165	(2)
Distributions to equity holders	-	-	-	(180)	(180)
Other	-	100	24	15	139
Closing EEV net assets	214	172	105	605	1,096

	Global investment management	UK	Discontinued operations	Other including group corporate centre	Total non-covered business
12 months to 31 December 2010	£m	£m	£m	£m	£m
Opening EEV net assets	195	(19)	343	644	1,163
Opening adjustments	-	34	-	(34)	-
Opening adjusted EEV net assets	195	15	343	610	1,163

(Loss)/profit after tax	26	(9)	20	(66)	(29)
Transfer back of net worth from covered business	52	(28)	-	4	28
Foreign exchange differences	2	-	-	16	18
Internal capital transfers	(18)	144	(387)	344	83
Distributions to equity holders	-	-	-	(278)	(278)
Other	(1)	149	24	48	220
Closing EEV net assets	256	271	-	678	1,205

The opening adjustment of £34m represents the reclassification of other non-covered to UK non-covered business during the period.

(b) Global investment management EEV operating profit before tax

Global investment management non-covered business profits are included in EEV on a look through basis. This means that the profits from global investment management which are generated from life and pensions business are allocated to covered business. Therefore, the difference between EEV (third party) non-covered business operating profit before tax of £27m (six months ended 30 June 2010: £21m; 12 months ended 31 December 2010: £33m) and IFRS operating profit for the global investment management business of £67m (six months ended 30 June 2010: £49m; 12 months ended 31 December 2010: £103m) is the profit allocated to covered business.

	6 months 2011	6 months 2010	Full year 2010
	£m	£m	£m
Global investment management EEV (third party) non-covered business operating profit before tax	27	21	33
Third party related covered business operating profit before tax	18	13	33
Total third party business operating profit before tax	45	34	66

Other covered business operating profit before tax	22	15	37
Global investment management IFRS operating profit before tax	67	49	103

Total global investment management operating profit allocated to covered business of £40m (six months ended 30 June 2010: £28m; 12 months ended 31 December 2010: £70m) consists of third party related covered business operating profit of £18m (six months ended 30 June 2010: £13m; 12 months ended 31 December 2010: £33m) and other covered business operating profit of £22m (six months ended 30 June 2010: £15m; 12 months ended 31 December 2010: £37m).

Third party related covered business operating profits relate to products actively marketed and sold to third parties through global investment management distribution channels. If these profits are added to the global investment management EEV (third party) non-covered business operating profits of £27m (six months ended 30 June 2010: £21m; 12 months ended 31 December 2010: £33m), there are £45m (six months ended 30 June 2010: £34m; 12 months ended 31 December 2010: £66m) of total third party related profits for global investment management.

Changes in the cost allocation methodology relating to inputs to the EEV profit calculation were introduced during 2010 together with other minor changes. The half year 2010 equivalent impact of these changes is an increase of £5m in other covered business operating profit before tax and a similar reduction in global investment EEV (third party) non-covered business operating profit before tax. On this basis the year on year growth in total third party business operating profit before tax is 55%.

	6 months 2011	6 months 2010	Full year 2010
	£m	£m	£m
Canada non-life subsidiaries	-	-	1
Mutual funds transferred to covered business	(2)	(3)	(3)
Canada non-life subsidiaries excluding transfers to covered business	(2)	(3)	(2)

Standard Life plc income	1	3	3
Other	5	12	8
Other non-covered business EEV operating profit before tax	4	12	9

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

Included within other are the head office costs relating to the International businesses. These costs are included within the International segment of the IFRS financial statements.

4.7 EEV reconciliation of movements in consolidated statement of financial position

	6 months 2011	6 months 2010	Full year 2010
	£m	£m	£m
Opening EEV	7,321	6,435	6,435

Total comprehensive income for the period attributable to equity holders	296	518	1,085
Distributions to equity holders	(197)	(180)	(278)
Issue of share capital other than in cash	92	46	92
Shares acquired by employee trusts	(4)	(32)	(35)
Shares distributed by employee trusts	(1)	-	-
Shares gifted to charity	-	4	4
Reserves credit for employee share-based payment schemes	11	8	18
Closing EEV	7,518	6,799	7,321

4.8 Reconciliation of EEV net assets to IFRS net assets

	30 June 2011	30 June 2010	31 December 2010
	£m	£m	£m
Net assets on an EEV basis	7,518	6,799	7,321
Present value of in-force life and pensions business net of cost of capital	(3,970)	(3,436)	(3,838)
EEV net worth	3,548	3,363	3,483

Adjustment of long-term debt to market value	(17)	(158)	(40)
Canada marked to market	(21)	(84)	(46)
Deferred acquisition costs net of deferred income reserve	342	363	378
Deferred tax differences	89	125	98
Adjustment for share of joint ventures	33	36	35
Consolidation adjustment for different accounting bases¹	(39)	(29)	(45)
Other	32	26	40
Net assets attributable to equity holders on an IFRS basis	3,967	3,642	3,903

¹ This adjustment reflects the removal of accounting differences for the Canada subordinated liability as explained in Note 4.17 - EEV methodology.

Reconciling items are shown net of tax where appropriate.

The movement in Canada marked to market adjustments reflects the impact of the adoption of IFRS reporting on EEV net worth for the Canada business. This change has not had a significant impact on the total Canada EEV results (net worth and present value of in-force life and pensions business net of cost of capital). Refer to Note 4.1 - Basis of preparation.

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

(a) Total

	Free surplus	Required capital	Net worth	PVIF net of cost of capital	Total
6 months to 30 June 2011	£m	£m	£m	£m	£m
Opening EEV	1,202	1,031	2,233	3,838	6,071

Contribution from new business	(149)	30	(119)	244	125
Contribution from in-force business:
Expected return on existing business	(1)	19	18	148	166
Expected return transfer to net worth	341	(43)	298	(297)	1
Experience variances	28	(13)	15	(5)	10
Operating assumption changes	-	-	-	(3)	(3)
Development expenses	(24)	-	(24)	-	(24)
Operating profit/(loss) after tax	195	(7)	188	87	275
Investment return and tax variances	(83)	112	29	(39)	(10)
Effect of economic assumption changes	6	9	15	67	82
Restructuring expenses	(14)	-	(14)	-	(14)
Profit after tax	104	114	218	115	333
Internal capital transfers	(327)	-	(327)	-	(327)
Transfer back of surplus to Standard Life Investments	(29)	-	(29)	-	(29)
Transfer back of mutual funds net worth	16	-	16	-	16
Actuarial losses on defined benefit pension schemes	(8)	-	(8)	-	(8)
Foreign exchange differences	4	6	10	17	27
Aggregate tax effect of items not recognised in income statement	2	-	2	-	2
Other	1	-	1	-	1
Closing EEV	965	1,151	2,116	3,970	6,086

	Free Surplus	Required capital	Net worth	PVIF net of cost of capital	Total
6 months to 30 June 2010	£m	£m	£m	£m	£m
Opening EEV	925	956	1,881	3,384	5,265

Contribution from new business	(132)	23	(109)	231	122
Contribution from in-force business:
Expected return on existing business	(1)	17	16	140	156
Expected return transfer to net worth	317	(30)	287	(287)	-
Experience variances	25	(19)	6	18	24
Operating assumption changes	-	-	-	1	1
Development expenses	(24)	-	(24)	-	(24)
Expected return on free surplus	(3)	-	(3)	-	(3)
Operating profit/(loss) after tax	182	(9)	173	103	276
Investment return and tax variances	239	9	248	(21)	227
Effect of economic assumption changes	(96)	6	(90)	(53)	(143)
Restructuring expenses	(9)	-	(9)	-	(9)
Profit after tax	316	6	322	29	351
Internal capital transfers	2	-	2	-	2
Transfer back of surplus to Standard Life Investments	(20)	-	(20)	-	(20)
Transfer back of mutual funds net worth	12	-	12	-	12
Actuarial losses on defined benefit pension schemes	(24)	-	(24)	-	(24)
Foreign exchange differences	9	50	59	23	82
Aggregate tax effect of items not recognised in income statement	6	-	6	-	6
Closing EEV	1,226	1,012	2,238	3,436	5,674

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

(b) UK and HWPF TVOG

	Free surplus	Required capital	Net worth	PVIF net of cost of capital	Total
6 months to 30 June 2011	£m	£m	£m	£m	£m
Opening EEV	930	159	1,089	2,492	3,581

Contribution from new business	(71)	9	(62)	147	85
Contribution from in-force business:
Expected return on existing business	(1)	3	2	90	92
Expected return transfer to net worth	194	(2)	192	(192)	-
Experience variances	8	(1)	7	(2)	5
Development expenses	(12)	-	(12)	-	(12)
Expected return on free surplus	(6)	-	(6)	-	(6)
Operating profit after tax	112	9	121	43	164
Investment return and tax variances	(59)	(2)	(61)	(35)	(96)
Effect of economic assumption changes	(18)	1	(17)	77	60
Restructuring expenses	(12)	-	(12)	-	(12)
Profit after tax	23	8	31	85	116
Internal capital transfers	(352)	-	(352)	-	(352)
Transfer back of surplus to Standard Life Investments	(25)	-	(25)	-	(25)
Transfer back of mutual funds net worth	18	-	18	-	18
Closing EEV	594	167	761	2,577	3,338

	Free surplus	Required capital	Net worth	PVIF net of cost of capital	Total
6 months to 30 June 2010	£m	£m	£m	£m	£m
Opening EEV	673	139	812	2,242	3,054

Contribution from new business	(67)	10	(57)	131	74
Contribution from in-force business:
Expected return on existing business	(1)	2	1	85	86
Expected return transfer to net worth	189	(1)	188	(188)	-
Experience variances	24	(19)	5	5	10
Development expenses	(13)	-	(13)	-	(13)
Expected return on free surplus	(11)	-	(11)	-	(11)
Operating profit/(loss) after tax	121	(8)	113	33	146
Investment return and tax variances	246	(2)	244	(25)	219
Effect of economic assumption changes	(85)	5	(80)	(47)	(127)
Restructuring expenses	(6)	-	(6)	-	(6)
Profit/(loss) after tax	276	(5)	271	(39)	232
Internal capital transfers	(2)	-	(2)	-	(2)
Transfer back of surplus to Standard Life Investments	(17)	-	(17)	-	(17)
Transfer back of mutual funds net worth	14	-	14	-	14
Closing EEV	944	134	1,078	2,203	3,281

	Free surplus	Required capital	Net worth	PVIF net of cost of capital	Total
6 months to 30 June 2011	£m	£m	£m	£m	£m
Opening EEV	226	813	1,039	719	1,758

Contribution from new business	(20)	17	(3)	25	22
Contribution from in-force business:
Expected return on existing business	-	16	16	39	55
Expected return transfer to net worth	84	(43)	41	(41)	-
Experience variances	17	(11)	6	-	6
Development expenses	(5)	-	(5)	-	(5)
Expected return on free surplus	5	-	5	-	5
Operating profit/(loss) after tax	81	(21)	60	23	83
Investment return and tax variances	(25)	114	89	1	90
Effect of economic assumption changes	25	8	33	(5)	28
Restructuring expenses	(1)	-	(1)	-	(1)
Profit after tax	80	101	181	19	200
Transfer back of surplus to Standard Life Investments	(2)	-	(2)	-	(2)
Transfer back of mutual funds net worth	(2)	-	(2)	-	(2)
Actuarial losses on defined benefit pension schemes	(8)	-	(8)	-	(8)
Foreign exchange differences	2	5	7	3	10
Aggregate tax effect of items not recognised in income statement	2	-	2	-	2
Other	1	-	1	-	1
Closing EEV	299	919	1,218	741	1,959

	Free surplus	Required capital	Net worth	PVIF net of cost of capital	Total
6 months to 30 June 2010	£m	£m	£m	£m	£m
Opening EEV	161	770	931	622	1,553

Contribution from new business	(10)	9	(1)	24	23
Contribution from in-force business:
Expected return on existing business	-	15	15	39	54
Expected return transfer to net worth	71	(30)	41	(41)	-
Experience variances	6	-	6	5	11
Development expenses	(3)	-	(3)	-	(3)
Expected return on free surplus	6	-	6	-	6
Operating profit/(loss) after tax	70	(6)	64	27	91
Investment return and tax variances	(9)	11	2	4	6
Effect of economic assumption changes	(12)	1	(11)	(13)	(24)
Profit after tax	49	6	55	18	73
Transfer back of surplus to Standard Life Investments	(1)	-	(1)	-	(1)
Transfer back of mutual funds net worth	(2)	-	(2)	-	(2)
Actuarial losses on defined benefit pension schemes	(24)	-	(24)	-	(24)
Foreign exchange differences	10	49	59	42	101
Aggregate tax effect of items not recognised in income statement	6	-	6	-	6
Closing EEV	199	825	1,024	682	1,706

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

(d) International

	Free surplus	Required capital	Net worth	PVIF net of cost of capital	Total
6 months to 30 June 2011	£m	£m	£m	£m	£m
Opening EEV	46	59	105	627	732

Contribution from new business	(58)	4	(54)	72	18
Contribution from in-force business:
Expected return on existing business	-	-	-	19	19
Expected return transfer to net worth	63	2	65	(64)	1
Experience variances	3	(1)	2	(3)	(1)
Operating assumption changes	-	-	-	(3)	(3)
Development expenses	(7)	-	(7)	-	(7)
Expected return on free surplus	1	-	1	-	1
Operating profit after tax	2	5	7	21	28
Investment return and tax variances	1	-	1	(5)	(4)
Effect of economic assumption changes	(1)	-	(1)	(5)	(6)
Restructuring expenses	(1)	-	(1)	-	(1)
Profit after tax	1	5	6	11	17
Internal capital transfers	25	-	25	-	25
Transfer back of surplus to Standard Life Investments	(2)	-	(2)	-	(2)
Foreign exchange differences	2	1	3	14	17
Closing EEV	72	65	137	652	789

	Free surplus	Required capital	Net worth	PVIF net of cost of capital	Total
6 months to 30 June 2010	£m	£m	£m	£m	£m
Opening EEV	91	47	138	520	658

Contribution from new business	(55)	4	(51)	76	25
Contribution from in-force business:
Expected return on existing business	-	-	-	16	16
Expected return transfer to net worth	57	1	58	(58)	-
Experience variances	(5)	-	(5)	8	3
Operating assumption changes	-	-	-	1	1
Development expenses	(8)	-	(8)	-	(8)
Expected return on free surplus	2	-	2	-	2
Operating profit/(loss) after tax	(9)	5	(4)	43	39
Investment return and tax variances	2	-	2	-	2
Effect of economic assumption changes	1	-	1	7	8
Restructuring expenses	(3)	-	(3)	-	(3)
Profit/(loss) after tax	(9)	5	(4)	50	46
Internal capital transfers	4	-	4	-	4
Transfer back of surplus to Standard Life Investments	(2)	-	(2)	-	(2)
Foreign exchange differences	(1)	1	-	(19)	(19)
Closing EEV	83	53	136	551	687

4.10 Time value of options and guarantees (TVOG)

	30 June 2011	30 June 2010	31 December 2010
	£m	£m	£m
UK and Europe HWPF	(53)	(90)	(76)
Canada	(21)	(31)	(26)
International	(16)	(17)	(17)
Total	(90)	(138)	(119)

The UK and Europe HWPF TVOG reflects the value of shareholder exposure to the policyholder guarantees within the HWPF. The value of this exposure has reduced by £23m during 2011. A £31m post-tax gain from the impact of favourable economic variances and assumption changes, particularly from an increase in Euro bond yields, offset an £8m operating post-tax loss which primarily arose from a management decision to increase equity exposure.

4.11 Market value of subordinated liabilities within covered business

	30 June 2011	30 June 2010	31 December 2010
	£m	£m	£m
UK	(1,797)	(1,513)	(1,682)
Canada	(297)	(281)	(302)
Total	(2,094)	(1,794)	(1,984)

Subordinated liabilities within EEV covered business are based on the market value of the debt. The free surplus shown in Note 4.2(c) - Segmental analysis - covered business - Segmental analysis of opening and closing EEV is net of these liabilities.

The increase in the UK subordinated debt liability reflects reduced market yields during 2011. The impact of the movements in subordinated liabilities is reflected in non-operating profit in UK and Canada as shown in Note 4.2(a) - Segmental analysis - covered business - Segmental EEV income statement. For Canada, however, this has been offset by the Group EEV consolidation adjustment in respect of the Canada subordinated liability, as shown in the EEV consolidated income statement.

4.12 PVIF monetisation profile

The following tables show the PVIF emergence on a discounted and undiscounted basis along with a reconciliation to the total closing PVIF as disclosed in Note 4.2(c) - Segmental analysis - covered business - Segmental analysis of opening and closing EEV, and the PVIF net of cost of capital impact from new business as disclosed in Note 4.9 - Analysis of covered business EEV PVIF and net worth movements (net of tax).

(a) PVIF emergence

In-force business
	PVIF	Cash emerging during years (£m)
At 30 June 2011	£m	1-5	6-10	11-15	16-20	20+
UK	4,717	1,575	1,137	753	522	730
Canada	3,375	487	443	418	380	1,647
International	1,143	419	282	167	119	156
Total undiscounted	9,235	2,481	1,862	1,338	1,021	2,533
Total discounted	4,552	2,127	1,144	595	330	356

New business
	PVIF	Cash emerging during years (£m)
At 30 June 2011	£m	1-5	6-10	11-15	16-20	20+
UK	275	72	68	49	37	49
Canada	77	7	15	11	9	35
International	120	47	29	14	11	19
Total undiscounted	472	126	112	74	57	103
Total discounted	256	109	71	36	20	20

4.12 PVIF monetisation profile continued

(b) Reconciliation to closing PVIF

In-force business	Reconciliation of discounted PVIF
	PVIF	TVOG	Total
At 30 June 2011	£m	£m	£m
UK and HWPF TVOG	2,703	(53)	2,650
Canada	1,148	(21)	1,127
International	701	(16)	685
Total	4,552	(90)	4,462

See also Note 4.2(c) - Segmental analysis - covered business - Segmental analysis of opening and closing EEV.

New business	Reconciliation of discounted PVIF
	PVIF	Cost of capital	TVOG	Total
At 30 June 2011	£m	£m	£m	£m
UK	151	(4)	-	147
Canada	29	(4)	-	25
International	76	(2)	(2)	72
Total	256	(10)	(2)	244

See also Note 4.9 - Analysis of covered business EEV PVIF and net worth movements (net of tax).

As outlined in Note 4.1 - Basis of preparation, the Group's EEV results do not include any allowance for changes to the reserving or required capital bases anticipated under future reporting or regulatory regimes. The PVIF monetisation profile therefore excludes changes anticipated under Solvency 2.

4.13 Principal economic assumptions - deterministic calculations - covered business

(a) Gross investment returns and expense inflation

	UK	Canada	Europe	Hong Kong
At 30 June 2011	%	%	%	%
Gross investment returns
Risk free	3.45	3.30	3.02	1.52⁴
Corporate bonds	4.12¹	²	n/a	2.64⁴
Equities	6.45	8.60	6.02	4.52⁴
Property	5.45	8.60	5.02	n/a

Other
Expense inflation:	4.09	³		2.50⁴
Germany			2.43
Ireland			3.15

¹ Excludes corporate bond returns on annuities. For annuities in UK equity holder funds, the overall investment return, after allowing for assumed defaults, is 4.93% for annuities that are level or subject to fixed escalations and 3.99% for annuities where escalations are linked to a price index.

² 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.

³ 0.645% in 2011. The rate in subsequent years is based on a moving 30-year bond yield less a 3% deduction.

⁴For Hong Kong, the following 31 December 2010 assumptions were used within the 30 June 2011 EEV Income Statement: risk free rate 2.10%, corporate bond return 3.22%, equity return 5.10%, expense inflation 2.50%.

	UK	Canada	Europe	Hong Kong
At 30 June 2010	%	%	%	%
Gross investment returns
Risk free	3.38	3.33	2.58	⁴
Corporate bonds	3.95¹	²	n/a	⁴
Equities	6.38	8.60	5.58	⁴
Property	5.38	8.60	4.58	⁴

Other
Expense inflation:	3.70	³		⁴
Germany			2.10
Ireland			2.82

¹ Excludes corporate bond returns on annuities. For annuities in UK equity holder funds, the overall investment return, after allowing for assumed defaults, is 4.92% for annuities that are level or subject to fixed escalations and 3.38% for annuities where escalations are linked to a price index.

²Current 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.

³0.809% in 2010. The rate in subsequent years is based on a moving 30-year bond yield less a variable deduction.

⁴ The Hong Kong EEV results for 30 June 2010 and 31 December 2010 are calculated on a risk neutral approach, whereby projected investment returns and discount rates are based on risk free rates. Refer to Note 4.13 - Principal economic assumptions - deterministic calculations - covered business - (d) International - Asia for more detail.

	UK	Canada	Europe	Hong Kong
At 31 December 2010	%	%	%	%
Gross investment returns
Risk free	3.49	3.29	2.96	⁴
Corporate bonds	4.08¹	²	n/a	⁴
Equities	6.49	8.60	5.96	⁴
Property	5.49	8.60	4.96	⁴

Other
Expense inflation:	3.95	³		⁴
Germany			2.29
Ireland			3.01

¹ Excludes corporate bond returns on annuities. For annuities in UK equity holder funds, the overall investment return, after allowing for assumed defaults, is 4.91% for annuities that are level or subject to fixed escalations and 4.02% for annuities where escalations are linked to a price index.

²Current 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.

³0.691% in 2011. The rate in subsequent years is based on a moving 30-year bond yield less a 3% deduction.

(b) Risk discount rates - in-force business

	UK HWPF	UK equity holder owned funds	Canada	Europe HWPF	Europe equity holder owned funds	Hong Kong
At 30 June 2011	%	%	%	%	%	%
Risk margin - in-force business
Risk margin before cost of capital adjustment:
Market risk	1.80	1.70	2.80	1.80	1.70	1.40²
Non-market risk	1.80	1.60	2.80	1.80	1.60	1.50²
Total	3.60	3.30	5.60	3.60	3.30	2.90²
Cost of capital adjustment	-	(0.40)	(2.10)	-	(0.40)	-
Risk margin after cost of capital adjustment	3.60	2.90	3.50	3.60	2.90	2.90²

Risk discount rates - in-force business
Risk free	3.45	3.45	3.30	3.02	3.02	1.52²
Risk margin	3.60	2.90	3.50	3.60	2.90	2.90²
Risk discount rate¹	7.05	6.35	6.80	6.62	5.92	4.42²

¹ Using the value of in-force business as weights, the average risk discount rates for UK and Europe were 6.75% and 6.26% respectively. The weighted average for Europe includes an allowance for Standard Life International Limited (SLIL) which uses the same risk discount rate assumptions as UK business.

² For Hong Kong, the following 31 December 2010 assumptions were used within the 30 June 2011 EEV Income Statement: market risk margin 1.40%, non-market risk margin 1.50%, risk free rate 2.10%, total risk margin 2.90%, risk discount rate 5.00%.

4.13 Principal economic assumptions - deterministic calculations - covered business continued

(b) Risk discount rates - in-force business continued

	UK HWPF	UK equity holder owned funds	Canada	Europe HWPF	Europe equity holder owned funds	Hong Kong
At 30 June 2010	%	%	%	%	%	%
Risk margin - in-force business
Risk margin before cost of capital adjustment:
Market risk	1.80	1.50	2.60	1.80	1.50	²
Non-market risk	1.70	1.80	2.80	1.70	1.80	²
Total	3.50	3.30	5.40	3.50	3.30	²
Cost of capital adjustment	-	(0.50)	(1.90)	-	(0.50)	²
Risk margin after cost of capital adjustment	3.50	2.80	3.50	3.50	2.80	²

Risk discount rates - in-force business
Risk free	3.38	3.38	3.33	2.58	2.58	²
Risk margin	3.50	2.80	3.50	3.50	2.80	²
Risk discount rate¹	6.88	6.18	6.83	6.08	5.38	²

¹ Using the value of in-force business as weights, the average risk discount rates for UK and Europe were 6.62% and 5.77% respectively. The weighted average for Europe includes an allowance for SLIL which uses the same risk discount rate assumptions as UK business.

² The Hong Kong EEV results for 30 June 2010 and 31 December 2010 are calculated on a risk neutral approach, whereby projected investment returns and discount rates are based on risk free rates. Refer to Note 4.13 - Principal economic assumptions - deterministic calculations - covered business - (d) International - Asia for more detail.

	UK HWPF	UK equity holder owned funds	Canada	Europe HWPF	Europe equity holder owned funds	Hong Kong
At 31 December 2010	%	%	%	%	%	%
Risk margin - in-force business
Risk margin before cost of capital adjustment:
Market risk	1.80	1.60	2.60	1.80	1.60	²
Non-market risk	1.80	1.60	2.80	1.80	1.60	²
Total	3.60	3.20	5.40	3.60	3.20	²
Cost of capital adjustment	-	(0.50)	(1.80)	-	(0.50)	²
Risk margin after cost of capital adjustment	3.60	2.70	3.60	3.60	2.70	²

Risk discount rates - in-force business
Risk free	3.49	3.49	3.29	2.96	2.96	²
Risk margin	3.60	2.70	3.60	3.60	2.70	²
Risk discount rate¹	7.09	6.19	6.89	6.56	5.66	²

¹ Using the value of in-force business as weights, the average risk discount rates for UK and Europe were 6.73% and 6.10% respectively. The weighted average for Europe includes an allowance for SLIL which uses the same risk discount rate assumptions as UK business.

At 30 June 2011, market risk margins and cost of capital adjustments have been updated to reflect changes in the mix of business and asset allocation. Non-market risk margins are updated once a year, and any changes will be reflected in the full year results.

As part of the adoption of IFRS in Canada from 2011, the opening risk discount rate was changed from 6.89% to 6.79%. The effect of this change is included within the overall impact of the adoption of IFRS in Canada. Refer to Note 4.1 - Basis of preparation.

The impact of the other changes in risk discount rates has been included in the effect of economic assumption changes shown in Note 4.2(a) - Segmental analysis - covered business - Segmental EEV income statement. The amounts within these totals that relate to the changes in risk discount rate are for UK: loss £15m; for Canada: loss £7m; and for International: loss £8m. These losses reflect the impact of higher risk discount rates which are driven by increased risk margins and risk free rates.

	UK HWPF	UK equity holder owned funds	Canada	Europe HWPF	Europe equity holder owned funds	Hong Kong
6 months to 30 June 2011	%	%	%	%	%	%
Risk margin - new business
Risk margin before cost of capital adjustment:
Market risk	1.80	1.80	1.50	1.80	1.80	1.40
Non-market risk	0.50	1.60	1.90	0.50	1.60	1.50
Total	2.30	3.40	3.40	2.30	3.40	2.90
Cost of capital adjustment	-	(0.50)	(0.70)	-	(0.50)	-
Risk margin after cost of capital adjustment	2.30	2.90	2.70	2.30	2.90	2.90

Risk discount rates - new business
Risk free¹	3.49	3.49	3.29	2.96	2.96	2.10
Risk margin	2.30	2.90	2.70	2.30	2.90	2.90
Risk discount rate²	5.79	6.39	5.99	5.26	5.86	5.00

¹ As the new business contribution is calculated using start of period economic assumptions, the risk free rates shown here represent market yields at 31 December 2010.

² Using the value of in-force for new business as weights, the average risk discount rates for UK and Europe were 6.31% and 6.00% respectively. The weighted average for Europe includes an allowance for SLIL which uses the same risk discount rate assumptions as UK business.

	UK HWPF	UK equity holder owned funds	Canada	Europe HWPF	Europe equity holder owned funds	Hong Kong
6 months to 30 June 2010	%	%	%	%	%	%
Risk margin - new business
Risk margin before cost of capital adjustment:
Market risk	1.70	1.40	1.10	1.70	1.40	³
Non-market risk	0.50	1.80	1.90	0.50	1.80	³
Total	2.20	3.20	3.00	2.20	3.20	³
Cost of capital adjustment	-	(0.40)	(0.40)	-	(0.40)	³
Risk margin after cost of capital adjustment	2.20	2.80	2.60	2.20	2.80	³

Risk discount rates - new business
Risk free¹	4.11	4.11	3.85	3.39	3.39	³
Risk margin	2.20	2.80	2.60	2.20	2.80	³
Risk discount rate²	6.31	6.91	6.45	5.59	6.19	³

¹ As the new business contribution is calculated using start of period economic assumptions, the risk free rates shown here represent market yields at 31 December 2009.

²Using the value of in-force for new business as weights, the average risk discount rates for UK and Europe were 6.82% and 6.46% respectively. The weighted average for Europe includes an allowance for SLIL which uses the same risk discount rate assumptions as UK business.

³ The Hong Kong EEV results for 30 June 2010 and 31 December 2010 are calculated on a risk neutral approach, whereby projected investment returns and discount rates are based on risk free rates. Refer to Note 4.13 - Principal economic assumptions - deterministic calculations - covered business - (d) International - Asia for more detail.

4.13 Principal economic assumptions - deterministic calculations - covered business continued

	UK HWPF	UK equity holder owned funds	Canada	Europe HWPF	Europe equity holder owned funds	Hong Kong
12 months to 31 December 2010	%	%	%	%	%	%
Risk margin - new business
Risk margin before cost of capital adjustment:
Market risk	1.80	1.50	1.40	1.80	1.50	³
Non-market risk	0.50	1.60	1.90	0.50	1.60	³
Total	2.30	3.10	3.30	2.30	3.10	³
Cost of capital adjustment	-	(0.40)	(0.70)	-	(0.40)	³
Risk margin after cost of capital adjustment	2.30	2.70	2.60	2.30	2.70	³

Risk discount rates - new business
Risk free¹	4.11	4.11	3.85	3.39	3.39	³
Risk margin	2.30	2.70	2.60	2.30	2.70	³
Risk discount rate²	6.41	6.81	6.45	5.69	6.09	³

¹ As the new business contribution is calculated using start of period economic assumptions, the risk free rates shown here represent market yields at 31 December 2009.

²Using the value of in-force for new business as weights, the average risk discount rates for UK and Europe were 6.77% and 6.31% respectively. The weighted average for Europe includes an allowance for SLIL which uses the same risk discount rate assumptions as UK business.

(d) International - Asia

The PVIF and cost of required capital of the India and China JV businesses are calculated using a 'risk neutral' approach whereby projected investment returns and discount rates are based on risk free rates. This was also the approach adopted for Hong Kong until 2011. Refer to Note 4.1 - Basis of preparation. The risk free rates used were:

	30 June 2011	30 June 2010	31 December 2010
	%	%	%
India	8.38	7.50	6.81
China	3.88	3.38	3.92
Hong Kong	n/a	2.45	1.55

As a result of this 'risk neutral' approach there is no requirement to hold a market risk margin within the risk discount rate.

Non-market risk has been allowed for via a specific deduction to the PVIF, based on a non-market risk 'cost of capital' approach. This has reduced the PVIF of the India and China JV businesses at 30 June 2011 by £26m (30 June 2010: £16m; 31 December 2010: £22m). Similarly, the 2011 pre-tax NBC for the six months to 30 June 2011 has been reduced by £4m (six months to 30 June 2010: £3m; 12 months to 31 December 2010: £8m) as an allowance for non-market risk.

4.14 Principal economic assumptions - stochastic calculations

The level of the TVOG is generally calculated using a stochastic projection. This requires an economic scenario generator (ESG) which projects the relevant fund under a large number of different future economic scenarios. A detailed description of the methodology applied in the relevant funds is provided in Note 4.17 - EEV methodology.

Characteristics of ESG used for HWPF TVOG calculations - UK and Europe

The ESG simulates future economic environments in a market consistent manner. The outputs of the ESG include:

· Cash account index

· Gross redemption yield term structure

· Equity total return index

· Property total return index

· Gilt total return index

· Corporate bond total return index

· Equity dividend yields

· Property rental yields

· Price inflation

· Earnings inflation

The ESG allows option-pricing techniques to be used to value the TVOG.

Parameters used in ESG

Cash and bond returns

These variables are calibrated using the repo rates and government strips.

Inflation

This variable is calibrated based on the relationship between the real and nominal yield curves.

Equity returns

The volatility of equity returns is calibrated to the market prices of a range of FTSE 100 and Dow Jones Euro Stoxx options.

Property returns

As there is no liquid property option market, a best estimate of property return volatility is used. The property volatility is estimated from adjusted Investment Property Databank UK data.

Dividend and rental yields

Dividend yields are derived from current market observable yields (FTSE All Stocks for UK and Euro Stoxx 50 for Europe).

Rental yields are derived from rental income on our actual portfolio of property (with three month lag).

Swaption-implied volatilities

The implied volatility is that required in order that the price of the option calculated via the Black-Scholes Formula equals the market price of that option.

The model swaption-implied volatilities are set out in the following tables:

	30 June 2011		30 June 2010		31 December 2010
UK Sterling	Swap term (years)		Swap term (years)		Swap term (years)
Option term (years)	10	15	10	15	10	15
10	14.4%	13.9%	12.2%	12.0%	14.4%	14.2%
15	14.1%	13.6%	12.1%	12.0%	14.5%	14.3%
20	13.3%	12.8%	12.0%	12.8%	14.2%	13.9%
25	12.5%	12.0%	13.2%	15.3%	13.6%	13.3%

	30 June 2011		30 June 2010		31 December 2010
Euro	Swap term (years)		Swap term (years)		Swap term (years)
Option term (years)	15	20	15	20	15	20
10	14.8%	14.4%	12.5%	12.3%	15.5%	15.1%
15	14.5%	13.9%	12.4%	12.9%	15.0%	14.4%
20	13.2%	12.6%	12.8%	14.4%	13.5%	12.8%
25	12.3%	n/a	15.5%	n/a	12.6%	n/a

4.14 Principal economic assumptions - stochastic calculations continued

Equity-implied volatilities

The implied volatility is that required in order that the price of the option calculated via the Black-Scholes Formula equals the market price of that option.

The model equity-implied volatilities are set out in the following tables:

UK equities
Term (years)	30 June 2011	30 June 2010	31 December 2010
10	23.2%	27.5%	25.4%
15	25.0%	29.4%	26.7%
20	26.2%	30.4%	27.4%
25	27.4%	31.7%	28.4%

European equities
Term (years)	30 June 2011	30 June 2010	31 December 2010
10	24.2%	29.1%	25.8%
15	25.5%	31.4%	27.9%
20	26.2%	32.4%	29.0%
25	26.8%	33.2%	29.6%

Property-implied volatilities

Property-implied volatilities have been set as best estimate levels of volatility based on historic data.

For the UK and Europe, the model is calibrated to property-implied volatility of 15% at each of 30 June 2011, 31 December 2010 and 30 June 2010.

Note 4.10 - Time value of options and guarantees (TVOG) also shows the value of TVOG in Canada and International, which are in addition to the HWPF TVOG. Where material, these values are also calculated using ESG similar to that used for the HWPF TVOG calculation.

4.15 Foreign exchange

A description of the approach to the currency translation for foreign entities is provided in Note 4.17 - EEV methodology.

The principal exchange rates applied are:

Local currency: £	Closing 30 June 2011	Average to 30 June 2011	Closing 30 June 2010	Average to 30 June 2010	Closing 31 December 2010	Average to 31 December 2010
Canada	1.549	1.576	1.590	1.602	1.556	1.605
Europe	1.107	1.146	1.221	1.153	1.167	1.165
India	71.768	72.615	69.486	70.310	70.007	70.803
China	10.378	10.564	10.146	10.460	10.317	10.477
Hong Kong	12.492	12.578	11.650	11.916	12.171	12.032

4.16 Sensitivity analysis - economic and non-economic assumptions

The sensitivities specified by the EEV Principles and Guidance are reported in the year end results. These are not updated for half year reporting.

However, sensitivities for Canada have been reviewed to determine the impact of the adoption of IFRS for local reporting. The only EEV sensitivities that changed materially from those reported in the Group's Annual Report and Accounts 2010 were the interest rate sensitivities.

A 1% increase in interest rates would have increased the 31 December 2010 Canada EEV by £61m, compared to an increase of £13m as originally published.

A 1% decrease in interest rates would have decreased the 31 December 2010 Canada EEV by £113m, compared to a decrease of £76m as originally published.

This additional sensitivity to interest rate movements mainly relates to contracts which have reserves that are now valued on an amortised cost basis. These amortised cost reserves are insensitive to interest rate changes, but as a consequence there are larger changes in the associated PVIF.

The impact on the other Canada sensitivities due to the adoption of IFRS are less than £20m.

4.17 EEV methodology

Covered business

For the purposes of EEV reporting, a distinction is drawn between covered business to which EEV methodology is applied and non-covered business where results and balances are based on those determined under IFRS and included in the IFRS financial statements, unless otherwise stated.

The Group's covered business is its life assurance and pensions businesses in the UK, Canada and International (Germany including Austria, Ireland, Hong Kong and the India and China JV businesses), as well as the current and future profits and losses from Standard Life Investments arising on its management of funds relating to the life and pensions businesses.

UK covered business also includes:

· Non-insured self invested personal pension (SIPP) business

· Those elements of Wrap business that are contained within a long-term product wrapper i.e. bonds, SIPPs and mutual funds

· Mutual funds sold by the UK business

Canada covered business also includes mutual funds.

International covered business consists of:

· The Group's Germany branch of Standard Life Assurance Limited (SLAL)

· The Group's Ireland branch of SLAL

· The Group's offshore bond business, which is sold by SLIL

· The Group's business in Hong Kong (Standard Life Asia Limited)

· The Group's share of results in the joint venture in India, HDFC Standard Life Insurance Company Limited, at 26% for the six months to 30 June 2011 (during the 12 months to 31 December 2010: 26%)

· The Group's share of results in the joint venture in China, Heng An Standard Life Insurance Company Limited, at 50% for the six months to 30 June 2011 (during the 12 months to 31 December 2010: 50%)

Non-covered business

The Group's non-covered business predominantly consists of the third party global investment management business of Standard Life Investments, Standard Life plc, the non-covered business of Standard Life Savings Limited, other non-life and pensions entities and the Group's UK pension scheme. The Group's healthcare business, Standard Life Healthcare Limited, was sold on 31 July 2010.

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. 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 4.2(a) - Segmental analysis - covered business - Segmental EEV income statement.

Consolidation adjustments

Covered business includes the profits and losses arising from non-covered businesses providing investment management and other services to the Group's life and pensions businesses. As a result, the profits and losses on an IFRS basis have been removed from the relevant non-covered segments (investment management, UK non-covered and other non-covered) and are instead included within the EEV results of the covered businesses.

The capitalised value of the future profits and losses from such service companies are included in the opening and closing embedded value for the relevant business, but the net assets remain within the relevant non-covered businesses. A transfer of profits from the covered business to the non-covered business is deemed to occur in order to reconcile the profits and losses arising in the financial period within each segment with the opening and closing EEV net assets.

The consolidation adjustment to remove the impact of the accounting differences for the Canada subordinated liability is explained in more detail under subordinated liabilities within the EEV methodology.

Value of in-force covered business

The value of future equity holders' cash flows is calculated for each material business unit on an after-tax basis, projected using best estimate future assumptions as described in the EEV methodology.

Allowance is made for external reinsurance and reinsurance within the Group. The cash flows include the profits and losses arising in Group companies providing global investment management and other services where these relate to covered business. This is referred to as the 'look through' into service company expenses.

4.17 EEV methodology continued

The projected cash flows are discounted to the valuation date using a risk discount rate which is intended to make sufficient allowance for the risks associated with the emergence of these cash flows, other than those risks allowed for elsewhere in the EEV calculations. In particular, a deduction is made from the present value of the best estimate cash flows to reflect the risks associated with the existence of financial options and guarantees, this deduction being assessed using stochastic techniques as described in the EEV methodology.

Free surplus

The free surplus is the market value of any assets allocated to, but not required to support, the in-force covered business at the valuation date. In the UK, this comprises the market value of the assets in the equity holders' fund, plus the value of the equity holders' interests in the surplus of the long-term fund, after appropriate allowance for tax, less the required capital supporting the covered business.

For some assets and liabilities where market value is not the normal basis for accounting, the free surplus is restated to market value, adjusted as required to allow for the present value of any tax which would become payable if the assets were realised.

Allowance for risk

Under the EEV Principles and Guidance, risks within the covered business are allowed for in the following ways:

· Application of risk discount rates to projected cash flows, which are derived by adding a risk margin to a risk free rate

· Holding of required capital for the covered business, determined by reference to both regulatory requirements and internal economic capital assessments

· Allowing for TVOG

Risk discount rates

Under the EEV methodology, a risk discount rate is required to calculate the present value of expected future distributable profits as a single value at a particular date. The risk discount rate comprises a risk free rate which reflects the time value of money and a risk margin allowing for the risk that experience in future years may differ from that assumed. In particular, a risk margin is added to allow for the risk that expected additional returns on certain asset classes are not achieved.

Risk discount rates have been determined as the risk free government bond yield plus a risk margin. The risk margins have been determined for market risk and non-market risk separately. For market risk, we have opted for an approach whereby the risk margin is determined such that the PVIF (excluding the allowance for the TVOG) calculated using expected 'real world' asset returns equates with the PVIF calculated using 'risk neutral' investment returns and discount rates. In this way, the benefits of assuming higher than risk free returns on future cash flows are offset by using a higher discount rate. However, when returns above the risk free rate arise from the additional returns available from investing in illiquid assets, namely corporate bonds and mortgages, where they are matched to appropriate liabilities, these are not offset in determining the discount rate. Allowance has then been made for non-market risk by applying stress tests to the PVIF using our internal capital model, and quantifying an additional risk margin based on the results of the stress tests.

The main elements of non-market risk which are stress tested are lapse, mortality, expense and credit risk assumptions. Benefits of diversification between risk types are allowed for in deriving the risk margins in line with our internal capital model.

Separate risk discount rates have been calculated for in-force and new business and for the principal geographic segments (UK, Europe, Canada and Hong Kong). Within the UK and Europe, separate risk margins are calculated for profits emerging on policies inside the HWPF (regardless of whether these profits emerge directly from the HWPF or by reassurance into other Group entities) and on policies that are in equity holder owned funds. For HWPF policies, there is a significant inter-Group reassurance agreement in respect of mortality surpluses on annuities, which are reassured out of the HWPF. The HWPF risk margin anticipatesdiversification benefits including the annuity mortality risk, since the overall capital structure also benefits from this diversification.

The risk margins are also reduced to allow for any cost of required capital (excluding double taxation cost) which is already reflected within the EEV.

Market risk margins are reviewed at each valuation date, allowing for changes in risk profile arising from movements in asset mix. Non-market risk margins are reviewed in detail once a year.

The values of the risk discount rates used for this reporting period are provided in Note 4.13 - Principal economic assumptions - deterministic calculations - covered business.

Within the EEV results for the India and China JV businesses, the PVIF and cost of required capital is calculated using a 'risk neutral' approach whereby projected investment returns and discount rates are based on risk free rates. As a result, there is no need for an additional market risk margin in the discount rate. Non-market risk is deducted directly from the PVIF using a 'cost of capital' approach on the risk capital arising from the key sources of non-market risk. For the India and China JV businesses, this methodology would give a similar result to the methodology used in the UK, Europe, Canada and Hong Kong since the calibration of a risk discount rate would have allowed for the market and non-market risks.

Required capital

Required capital represents the amount of assets over and above those required to back the liabilities in respect of the covered businesses whose distribution to equity holders is restricted. As a minimum, this will represent the capital requirement of the local regulator.

The levels of required capital are reviewed in detail at least once a year.

We have set required capital to be the higher of regulatory capital and our own internally assessed risk-based capital requirement. In determining the required capital for the purposes of assessing EEV, the Group excludes any capital which is provided by the existing surplus in the HWPF, as this capital is provided by policyholders. Any required capital in excess of that provided by the existing surplus in the HWPF would need to be provided by assets in the equity holders' funds. As part of the annual assessment, projections of the expected surplus in the HWPF, on best estimate assumptions, are carried out to assess whether this is sufficient to cover the level of required capital in respect of the HWPF. Required capital used in the EEV is also net of any capital that is assumed to be available from subordinated debt liabilities.

The levels of required capital in the current EEV calculations are therefore as follows:

· UK and Europe (business in HWPF) - no capital requirement in excess of statutory reserves or asset shares is valued in the EEV

· UK and Europe (business in equity holder owned funds) - 100% of EU minimum regulatory capital, which is higher in aggregate than Standard Life's internal risk-based capital requirement

· Canada - the level of required capital is taken as 155% of minimum continuing capital and surplus requirements (MCCSR)

· Asia - required capital is based on the local statutory capital requirements

The cost of required capital has been calculated using assumptions consistent with those used in the value of in-force (VIF) calculations.

Time value of financial options and guarantees (TVOG)

The TVOG represents the potential additional cost to equity holders where a financial option exists which affects policyholder benefits and is exercisable at the option of the policyholder.

UK and Europe - HWPF

The main source of TVOG in the Group EEV arises from the HWPF. Under the terms of the Scheme, equity holder cash flows from the HWPF are held back if required to cover HWPF liabilities on the Financial Services Authority realistic or regulatory basis. This option for the UK, Germany and Ireland results in the loss of cash flows when the HWPF has insufficient assets to pay guaranteed policy benefits. The main options and guarantees within the HWPF in respect of UK and Europe business relate to with profits business and include minimum guaranteed rates of return.

The value of the TVOG arising from the HWPF at any point in time will be sensitive to:

· The level of the residual estate (working capital in the HWPF)

· Investment conditions in terms of bond yields, equity and property values, and implied market volatility

· The investment profile of the assets backing the applicable policies, the residual estate and non profit business in the fund at the time the TVOG is calculated

The level of the TVOG has been calculated by a model which projects the HWPF under a large number of different future economic scenarios. Particular features of this calculation are:

· The projected economic scenarios and the methodology used to discount equity holder cash flows are based on market consistent assumptions

· The total cost includes an allowance for non-market risk

· Changes in policyholder behaviour are allowed for according to the particular economic scenario

· Changes in management actions, including the dynamic guarantee deductions, are allowed for according to the particular economic scenario, such actions being expected to be consistent with the way that the HWPF will be managed in future as described in the Scheme and in the Principles and Practices of Financial Management (PPFM)

· Each projection allows for the gradual release of the residual estate over time to policyholders where there are sufficient funds to do so

UK and Europe

Most with profits business written post demutualisation is managed in a number of new with-profits funds. For the present reporting period, the only significant volumes of this type of new business have arisen in Germany. These policies have guarantees relating to benefits available on the policy maturity date. These guarantees increase each year with the addition of bonuses.

Equity holder assets are at risk if the resources of these with-profits funds are insufficient to pay the guaranteed benefits. The level of the TVOG has been calculated using stochastic techniques. The TVOG has reduced both the NBC as well as the closing PVIF for Germany.

An adjustment is made to allow for TVOG arising on a selection of guaranteed annuity benefits on unit linked and smoothed-managed businesses within Germany.

4.17 EEV methodology continued

Canada

The main options and guarantees within the Canada business are in respect of minimum investment returns, guaranteed maturity and death benefits, and vested bonuses, which apply to certain investment and insurance contracts.

Asia

The TVOG in the Asia businesses within International arises from guarantees and options given to with profits business written in India and China.

Other economic assumptions

The assumed investment returns reflect our estimates of expected returns on principal asset classes, and are, in general, based on market conditions at the date of calculation of the EEV.

The inflation rates assumed are, in general, based on the market implied long-term price inflation plus a margin to allow for salary inflation.

The Group's offshore business, which is sold by SLIL, is included within International results but has the same economic assumptions as UK covered business.

Details of the assumptions used for this reporting period are provided in Note 4.13 - Principal economic assumptions - deterministic calculations - covered business.

Non-economic assumption changes

Non-economic assumptions for the main classes of business, including most expense assumptions, are reviewed on an annual basis.

Expense assumptions

Expense assumptions on a per policy basis have been derived based on an analysis of management expenses performed by each business, and are split between acquisition and maintenance assumptions.

In determining future expenses in relation to covered business, no allowance has been made in the EEV or the NBC for any allocation of group corporate centre costs.

Development expenses represent specific expenses incurred which are considered temporary in nature and are not expected to occur again.

Costs related to restructuring have been excluded from the EEV results where it has been agreed that these costs are to be met by the HWPF and therefore would not form part of the surplus cash flows.

Global investment management expenses are also allowed for, and the assumptions for these reflect the actual investment expenses of Standard Life Investments in providing global investment management services to the life and pensions business rather than the investment fees actually charged.

Restructuring and corporate transaction expenses for covered and non-covered business are consistent with those identified in the IFRS operating profit adjustments and primarily represent costs in relation to the Group's Transformation and Solvency 2 Programmes, and transaction costs in relation to the sale of Standard Life Healthcare Limited. Refer to the IFRS financial information Note 3.3 - Administrative expenses for further detail.

Acquisition costs used within the calculation of the NBC reflect the full acquisition expenses incurred in writing new business in the period.

Expenses - pension scheme deficits

Pension scheme deficits have been included in accordance with International Accounting Standard (IAS) 19 Employee Benefits. IFRIC 14 IAS 19 - The Limit on a Defined Benefit Asset, Minimum Funding Requirements and their Interaction was adopted by the Group from 1 January 2008. The interpretation provides guidance on assessing the limit in IAS 19 Employee Benefits on the amount of any surplus that can be recognised as an asset and explains how the pension asset or liability may be affected by a statutory or contractual minimum funding requirement.

Other non-economic experience assumptions

Assumptions are made in respect of future levels of mortality, morbidity, premium terminations, option take-up, surrenders and withdrawals. The assumptions reflect our best estimates of the likely future experience, and are based on recent experience and relevant industry data, where available.

Annuitant mortality assumptions use a combination of base mortality rates, which are generally set by reference to recent experience, and expected future changes in mortality. The latter uses data provided by the Continuous Mortality Investigation Bureau in the UK and the Canadian Institute of Actuaries in Canada along with other company specific considerations.

Assumptions regarding option take-up, surrenders and withdrawals are assumed to vary, where appropriate, according to the investment scenario under consideration when deriving the TVOG, to reflect our best estimate of how policyholder behaviour may vary in such circumstances.

New business

Definition of new business

New business includes new policies written during the period and some increments to existing policies.

For the UK, classification as new or existing business is determined as follows (using the approach used for the published new business figures):

· New recurrent single premium business is classified as new regular premium business to the extent that it is deemed likely to renew

· Department of Work and Pensions (DWP) rebates are deemed to be new single premiums

· Pensions vesting into annuity contracts under existing group defined benefits contracts are not included as new business

· Pensions vesting under other group contracts and individual pensions are included as new business

· Products substituted due to the exercise of standard contract terms are not deemed to be new business

· All increments and indexations to existing policies, including new members, and increments and indexations paid by existing members of group schemes, are deemed to be new business

For Germany, new business comprises new contracts written into the equity holder owned funds during the period. The new business contribution for Germany is calculated assuming a specific level of future premium indexation. Similarly, it is assumed that premiums on 'low start' policies increase at the end of the low start period.

For Ireland, new business is determined as follows:

· New contracts written during the period are included as new business

· New premiums on recurrent single premium contracts are included as new business

· Pensions vesting into annuity contracts under existing group defined benefits contracts are not included as new business

· Pensions vesting under other group contracts and individual pensions are included as new business

· All increments and indexations to existing policies, including new members, and increments and indexations paid by existing members of group schemes, are deemed to be new business

For Canada, new business is deemed to exist if a contract has been issued during the reporting period. The new business contribution also includes the value of renewal premiums for a new contract, where the renewal premiums are (i) contractual, (ii) non-contractual but reasonably predictable, or (iii) recurrent single premiums that are pre-defined and reasonably predictable.

The present value of future net income attributable to renewal premiums on existing group pension and savings contracts, including those from new members, is not included as new business. Since all deposits (new and renewal) in individual segregated funds business attract a new business/first year commission, this business is treated as new business for EEV purposes.

For the Asia businesses, new business is defined as that arising from the sale of new contracts during the reporting period. The value of new business includes the value of expected renewals on those new contracts.

New business contribution (NBC)

The contribution generated by new business written during the period is the present value of the projected stream of after-tax distributable profit from that business. NBC before tax is calculated by grossing up the contribution after tax at the full corporation tax rate for UK business and at other equivalent rates of tax for other countries. NBC is calculated as at the end of the reporting period.

The economic assumptions used are those at the start of the reporting period, and the non-economic assumptions are those at the end of the reporting period. An exception to this policy is annuity business in the UK and Ireland where, to ensure consistency between the economic assumptions used in the NBC and those used in pricing the business and in the calculation of mathematical reserves, the economic assumptions used are the average rates for each quarter during the reporting period, and the asset allocations are those used in the pricing basis.

Present value of new business premiums (PVNBP)

New business sales are expressed as the PVNBP. The PVNBP calculation is equal to total single premium sales received in the period plus the discounted value of regular premiums expected to be received over the term of the new contracts, and is expressed at the point of sale. The premium volumes and projection assumptions used to calculate the present value of regular premiums for each product are the same as those used to calculate NBC, except that the PVNBP is discounted using the relevant opening risk free rate rather than the risk discount rate.

4.17 EEV methodology continued

Tax

The opening and closing EEV numbers for the covered business are determined on an after-tax basis. The tax assumptions used are based upon the best estimate of the actual tax expected to arise. Attributable tax and profit before tax are 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 new business.

During 2009, a loan was made to the HWPF by Standard Life plc, repayment of which is contingent on the emergence of recourse cash flows and surplus in the HWPF (contingent loan agreement). A transfer to equity holders was then made to transfer the remaining unallocated surplus to equity holders without equity holder tax arising. As a result of this the market risk associated with unallocated surplus was reduced. Future transfers to equity holders from the HWPF will, in the first instance, take the form of repayments under the contingent loan agreement. Such transfers can be made without equity holder tax arising for a number of years. Over time the actual effective tax rate on these transfers to equity holders will move toward the standard rate of corporation tax.

For non-covered business, attributed tax is consistent with the IFRS financial statements, unless otherwise stated.

Subordinated liabilities

The liabilities in respect of the UK subordinated guaranteed bonds and Mutual Assurance Capital Securities plus the subordinated debt issued by Canada form part of covered business and have been deducted at market value within the EEV. The Canada subordinated liability is owned by a non-covered subsidiary of the Group, where the asset is valued on an amortised cost basis. Total Group EEV has been adjusted to exclude the difference between the market value and the amortised cost value of the Canada subordinated liability.

For non-covered business, no adjustment is made to the IFRS valuation of debt.

Foreign exchange

Embedded value and other items within the statement of financial position denominated in foreign currencies have been translated to Sterling using the appropriate closing exchange rates. NBC and other items within the income statement have been translated using the appropriate average exchange rates. Gains and losses arising from foreign exchange differences on consolidation are presented separately within the EEV consolidated statement of comprehensive income. Details of the exchange rates applied are provided in Note 4.15 - Foreign exchange.

This information is provided by RNS

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