For more information please refer to Section 1.9 - Basis of preparation and Section 3 - IFRS pro forma reconciliation of Group underlying profit to IFRS profit for the year of the Preliminary Results 2009.
Positive net flows of £4.5bn (2008: £2.7bn) across the Group included life and pensions net inflows of £2.7bn (2008: £2.7bn)1 and third party investment management net inflows of £5.7bn (2008: £3.4bn). Consolidation adjustments6 reduced net flows by £1.9bn (2008: £1.8bn). Prior to the sale of our banking operations to Barclays Bank PLC on 1 January 2010 we continued to manage our mortgage exposure in light of the difficult credit market conditions. This has been reflected in a net outflow of £2.0bn (2008: £1.6bn). Excluding the outflows in respect of these discontinued operations, consolidated net inflows across the Group amounted to £6.5bn (2008: £4.3bn), equating to 4% (2008: 3%) of opening assets under administration.
Core capital and cash generation after tax was 16% higher at £350m (2008: £303m)4, driven by reduced new business strain following our decision to pay only customer funded commission on UK onshore bonds. Capital and cash generated from existing business of £546m (2008: £546m)4 comfortably covered new business strain of £188m (2008: £224m)4 by 2.9 times (2008: 2.4 times).
Efficiency items reduced capital and cash by £7m (2008: increase £7m)4. Capital and cash generated from back book management amounted to £71m (2008: £113m)4 largely arising from a release of reserves in respect of deferred annuities. The 2008 comparative reflected the reinsurance of UK immediate annuity liabilities and an earlier UK deferred annuity reserve release.
date the Group capital surplus will be calculated in accordance with the Insurance Groups Directive (IGD). The Group’s capital surplus on an IGD basis is not expected to be materially different from the surplus on an FGD basis.
IFRS profit for the year was £180m (2008: £17m). This comprises profit after tax attributable to equity holders of £213m (2008: £100m) and losses attributable to non-controlling interests of £33m (2008: loss £83m). The IFRS result included an 89% increase in underlying profit before tax from £154m to £291m as well as the impact of volatility excluded from the underlying profit. The increase in underlying profit before tax was primarily due to the reduced impact of market movements in Canada.
Global investment management Despite the adverse effect of lower average asset values on revenue and profitability, IFRS underlying profit before tax in our global investment management business increased by 57% to £66m (2008: £42m). This was primarily due to the restructuring of a sub-fund of Standard Life Investments (Global Liquidity Funds) plc in 2008.
The life and pensions business is one of the largest pensions, long-term savings and investments providers in the UK with £106bn of assets under administration. The business offers a broad range of insurance and investment wrappers, with particular strength in the accumulation market. The focus is on building this strength, drawing on customer insight to develop and invest in propositions that will secure profitable growth opportunities.
2 Includes Heritage With Profits Fund time value of options and guarantees (HWPF TVOG). 3 Includes UK defined benefit pension scheme charge and non-covered Wrap platform result.
Cost income ratio1 32% 58% 26% points 1 Cost income ratio is calculated as total operating expenses (excluding impairment charges) divided by total underlying income.
Net flows have decreased by 4% in constant currency to £361m (2008: £340m), primarily due to the inclusion of a large single premium of £297m in 2008. However, in 2009 net flows benefited from improving trends in the retail market.
IFRS profit before tax £64m - 1 Third party gross inflows for 2008 have been restated to the same basis as 2009 with UK Money Market outflows reported within gross inflows, leading to a reduction in 2008 third party gross inflows of £1,346m.
Strong inflows across our UK and international markets, and the recovery in market levels during the second half of 2009, drove a 25% increase in third party AUM to a record level of £56.9bn (31 December 2008: £45.5bn, 30 June 2009: £47.3bn). Third party AUM now represents 41% of total AUM compared with 37% at 31 December 2008. In-house AUM increased to £81.8bn (31 December 2008: £78.3bn, 30 June 2009: £74.3bn) with favourable market movements partly offset by outflows from the with profits business. As a result, total assets managed by Standard Life Investments stood at £138.7bn (31 December 2008: £123.8bn, 30 June 2009: £121.6bn).
• Capital arising from the subordinated debt issued by the Group of £2.1bn at 31 December 2009, which is used to provide capital support to SLAL and Standard Life Bank
All of this will be delivered to customers via a multi-channel approach. In an increasingly complex world, customers require different ways of interacting with us and our business partners.
The presentation of the 2008 comparatives reflects the reclassification of Standard Life Bank as a discontinued operation.
Development costs of £18m in the UK mainly relate to product development on the group pension proposition, and implementing legislative changes. The £14m of development costs in Asia reflect the costs of developing the business to build future growth and are in addition to the full allowance for acquisition costs that are included within the new business contribution (NBC).
Restructuring expenses primarily represent the covered business costs associated with the CIP as described in Note 2.1 – Basis of preparation.
Total comprehensive income for the period attributable to equity holders 291 250
Aggregate tax effect of items not recognised in income statement - - - - www. standardlife.com 63
Contribution from in-force business: Expected return on existing business - 1 1 28 29
Risk margin before cost of capital adjustment: Risk margin after cost of capital adjustment 2.50 2.90 2.90 2.50 2.90
Asia covered business consists of: • The Group’s share of results in the joint venture in India, HDFC Standard Life Insurance Company Limited, at 26% for the 12 months to 31 December 2009 (during the 12 months to 31 December 2008: 26%)
Other comprehensive income for the year - - 110 163 273 - 273
Reserves credit for employee share-based payment schemes - - - 10 10 - 10
Other This reportable segment primarily includes the Group corporate centre and the shared service centre.
Share of (losses)/profits from associates and joint ventures 7 (29) - (27) 19 1 - (29)
Loss attributable to non-controlling interests from continuing operations 83 - - - - - - 83
Other comprehensive income/(expense) for the year from discontinued operations 8 (27)
3.6 Volatility arising on different asset and liability valuation bases Group underlying profit has been adjusted in respect of volatility that arises from different IFRS measurement bases for liabilities and backing assets. The adjustment is analysed as follows: 2009 2008 £m £m
Basic earnings per share from continuing operations (pence per share) 7.8 6.9
Basic earnings per share (pence per share) 9.7 4.6 www.standardlife.com 97
3.10 Insurance contract liabilities, non-participating investment contract liabilities, participating investment contract liabilities and reinsurance assets £m £m
Expected return on plan assets 6.30 7.00 5.93 6.20 7.00 5.90 3.13 Contingencies (a) Legal proceedings and regulations
The following indicates the contractual amounts of the Group’s unrecognised financial instruments that commit it to customers and third parties, as at 31 December: £m £m
SLAL has issued subordinated loans to the Company, which SLAL treats as capital for regulatory purposes. The Standard Life Assurance Company of Canada and Standard Life Investments Limited have issued subordinated debt of £236m (2008: £225m) and £12m (2008: £45m) respectively, to the Company. These amounts of subordinated debt are included within the capital resources of those businesses, but at Group level only subordinated debt issued to external parties is included in the Group’s capital resources.
Assets of discontinued banking operations classified as held for sale 9,347
Individual insurance, savings and retirement 5.9 0.7 (0.7) - 0.8 6.7
Investments in associates and joint ventures 210 1,569 994 68 2,841 * Third party interest in consolidated funds and non-controlling interests.