Business segment performance

Life and pensions
UK life and pensions is one of the largest pension, long-term savings and investment providers in the UK with £96bn of assets under administration. The UK business offers a broad range of insurance and investment wrappers, with particular strength in the accumulation market. In 2008, further developments were made to the existing Wrap platform and self invested personal pension (SIPP) product range, including increasing on-line functionality for customers. Further developments will continue to be made to the award-winning products and innovative propositions to ensure that they remain relevant to customers’ lives and their changing financial needs.

Savings and mortgages
The savings and mortgages business offers retail savings and mortgage products in the UK, via intermediaries and also direct to customers, all through telephone and internet-based platforms. The focus during 2008 has been on managing liquidity and the size of the mortgage book appropriately in response to ongoing volatile market conditions.

Healthcare
The healthcare business offers a range of private medical insurance (PMI) and other health and well-being solutions to individuals, families, small businesses and companies, and is the fourth largest PMI provider in the UK.

In the year ahead our customers are likely to be affected by tough economic conditions, while financial market volatility will continue to impact transfer values for customers consolidating their existing assets into our individual SIPP and group pension schemes. We expect the UK savings and mortgages market to continue to be impacted by reduced mortgage funding liquidity, and the healthcare market to continue to be impacted by tough economic conditions.

However, our market leading proposition within the group pensions marketplace, and our award-winning individual SIPP, combined with our Wrap platform, will allow us to take advantage when markets and the wider economy recovers. We will continue to focus on writing profitable business across UKFS and provide first class customer service while maximising the opportunities from having a combined operating model. This will allow us to generate profitable returns in the markets in which we operate.

Standard Life Canada demonstrated a continued resilience in the face of challenging market conditions, keeping the emphasis on growth across its range of savings, retirement and insurance products. A commitment to operational and capital efficiency remained a key feature in achieving these results within the context of the distressed capital markets in the second half of 2008. Standard Life Canada currently has £18bn of assets under administration. In 2008, Canada held a series of events to commemorate the 175th anniversary of the business and to further strengthen the brand.

Canada EEV operating profit before tax

EEV operating profit before tax increased by 10% in constant currency to £215m (2007: £178m), with increases in all operating profit elements. Although PVNBP increased, NBC, IRR and payback were adverse compared with 2007 due to lower margin sales required in the current markets and an increase in acquisition costs.

While we expect all our product lines to be impacted by the weakening economy, our numerous product improvements in group savings and retirement and continued strong push into the disability segment in group insurance should provide for a continued positive trend in sales. Retail markets are expected to remain challenging for the foreseeable future.

The operations in Europe consist of Standard Life Ireland and Standard Life Germany which operates in both Germany and Austria. The European businesses offer a range of investment and pension solutions and currently have £7bn of assets under administration. 2008 has been a difficult trading year for new business but back book efficiencies have significantly improved EEV operating profit.

Europe EEV operating profit before tax

Despite challenging market conditions, EEV operating profit before tax increased by 127% in constant currency. Both the payback period and IRR for Europe remained stable at 13 years and 11% respectively.

Market and economic conditions in Europe continue to be challenging and we expect this will put pressure on sales during 2009. Until confidence is restored in investment markets, we expect sales to be low in both Germany and Ireland. Despite this, we believe assets under administration will continue to grow due to strong inflows from our in-force book in Germany.

Standard Life has a growing position in the Asia Pacific life and pensions market with joint venture companies in India and China and a wholly owned subsidiary in Hong Kong all showing good levels of sales growth.

Asia Pacific PVNBP sales

PVNBP sales increased 17² in constant currency to £495m (2007: £266m) due to continued expansion of the distribution network and product development.

We expect that the global economic recession will have an impact on markets in general and hence affect our Asian businesses. As the economies in India and China are still growing and insurance penetration is low, we believe there is still attractive growth potential for us.

The focus at Standard Life Investments is to deliver superior investment performance, supported by an exceptional client experience. Standard Life Investments operates as a global team, with its investment process underpinned by its ‘focus on change’ philosophy which has proved itself to be robust and repeatable in both good and bad market conditions. Over the past 10 years since its inception, Standard Life Investments has delivered a strong track record of profitable organic growth, a trend which continued in 2008 despite the very difficult market conditions.

Earnings before interest and tax

Financial performance was robust, despite the difficult trading conditions. Earnings before interest and tax (EBIT) increased by 9% to £82m (2007: £75m). Costs were tightly managed, enabling investment in key areas of the business to sustain our longer term growth. IFRS normalised underlying profit before tax increased by 12% to £93m (2007: £83m).

We expect 2009 to be challenging for all players in the industry, including Standard Life Investments, but we remain confident in the solid underlying performance of the business.