Standard Life 2006 Quarter 4 New Business Announcement Conference Call - Final.

Original Source: FD (FAIR DISCLOSURE) WIRE

OPERATOR: Good morning, ladies and gentlemen, and welcome to the Standard Life Q4 New Business Announcement conference call. At this time, all participants' lines will be in a listen-only mode until we will conduct a question and answer session, and full instruction will be provided at that time. [OPERATOR INSTRUCTIONS]. Chairing today's call are Mr. David Nish, Group Finance Director, Mr. Trevor Matthews, Chief Executive of Standard Life Assurance Limited, Mr. Keith Skeoch, Chief Executive of Standard Life Investments. I would now like to hand over to your chairs. Please begin your meeting

DAVID NISH, GROUP FD, STANDARD LIFE PLC: Good morning everyone. This is David Nish speaking, and welcome to this morning's conference call to discuss our new business results for the year just ended, 2006. As the operator explained, I'm joined this morning by both Trevor, the Chief Executive of Standard Life Assurance Limited, and Keith representing as Chief Executive of Standard Life Investments.

I hope you've had time to read through the announcement this morning. But if you'll allow me, I will run through the highlights before then passing over to take questions and answers.

On a PVBNP basis, we have seen worldwide insurance sales increase by over 47% this year to [pounds sterling]14.3b. Meanwhile in U.K. Life and Pensions Sales these have increased by 69% to [pounds sterling]11.4b. In APE terms, there's a 39% increase in worldwide insurance sales to over [pounds sterling]1.7b, and a 54% increase in U.K. Life and Pensions sales to just over [pounds sterling]1.4b. The difference between these two measures obviously highlights the trend over the last year to more single premium business.

Standard Life Investments, total funds under management increased by 11% to just over [pounds sterling]132b at the end of 2006. Of this total, nearly [pounds sterling]39b represented third party fundsm which are some 32% higher. We've seen strong growth in our U.K. Life and Pensions business, driven by sales of SIPP, group pensions and investment bonds. And this has been complemented by a terrific performance, both in terms of investment returns and sales from Standard Life Investments.

In the U.K. we've had a number of successful product lines. Starting with SIPP, we have made the most of our early mover advantage, in a market which is reflected in our sales figures discussed today. APE sales of this product increased to [pounds sterling]395m, an increase of over 150%. This has led to SIPP assets under management increasing to [pounds sterling]4.3b, an increase of some [pounds sterling]3b on the 2005 levels.

We believe that SIPP is a cornerstone of our U.K. L&P operations. And to be comprehensive and transparent as possible when reporting this line of business, we have for the first time been able to include a figure for non-insured SIPP sales. And these accounted for [pounds sterling]129m of total APE.

Group Pensions remains the largest contributor to APE sales and increased 8% over the year to [pounds sterling]437m APE. Due to a greater level of increments from existing schemes, and the successful launch of our group flexible retirement plan and group SIPP. The introduction of SIPP and closure of executive pension and individual buy-out Plans to new business following A-Day, have contributed to a decline of some 7% to [pounds sterling]126m of APE.

We have decided not to follow some of our competitors who've increased commission in this line of business, and prefer to focus on SIPP where we can achieve greater margins

Investment bonds also continue to perform well, with a 66% increase to [pounds sterling]185m in APE. This increase in sales has been driven by strong investment returns on top of buoyant markets, and additional external fund links that we provided to our customers during this year. We were certainly helped by external factors such as A-Day in 2006. However, I am convinced that we were only able to capitalize on this thanks to both our excellent products and customer service.

We recognize that A-Day has had an impact on sales and lapse levels in 2006, and that the new business numbers are only showing one side of this impact. We have therefore included in this release a table detailing the net funds flow for the U.K. Life and Pensions products, which have remained strongly positive throughout the year.

There still remains uncertainty around long-term market and customer behavior. Lapses continue at levels in excess of long-term assumptions for both life with profit and pensions. We continue to monitor the current level of lapses carefully, and are reviewing our long-term assumptions in line with normal practice at this time of year. We will update you on this with our preliminary results on March 22.

Turning now to Standard Life Investments, which has had yet another sparkling year. The consistency of investment performance, outperformance, is resulting in bigger mandate wins in the institutional market, and more retail sales than ever before. Gross flows rose to some [pounds sterling]9b in 2006, with net inflows of [pounds sterling]6.4b which includes record levels of U.K. institutional business of [pounds sterling]3.3b. SLI also experienced its strongest ever year for U.K. mutual funds since launch, with gross inflows of [pounds sterling]1.7b, up from just over [pounds sterling]600m in 2005, with net inflows of [pounds sterling]1.3b from mutual funds.

In Canada sales have declined 15% in 2006 to [pounds sterling]166m. This is very much in line with our expectations following the repricing of our Universal Life product. Sales levels did improve from the third quarter 2006 from some [pounds sterling]22m to [pounds sterling]45m as indicated in our conference call in November. Sales levels in Canada are, and will remain to be, lumpy in nature due to a large number of group savings and retirement contracts. And we see this quarter's sales levels as being more indicative of the underlying run rate.

In all the Canadian markets we have focused on margin rather than volume, and expect that this will be reflected in the profitability of that business.

Now moving on to our European businesses. In Germany we are finally breaking through the other side of the tough Q1 2005 comparator we had as a result of the tax changes in that market in that market. Our sales are down 22% to [pounds sterling]51m over the year but the second, third and fourth quarter have all seen sales building, culminating in a 30% increase in Q4. The launch of a new unit-linked product in October has been well received by that market.

Sales in Ireland have increased 35% to [pounds sterling]46m, following the successful introduction of new products in both 2005 and 2006. And in Asia we were very pleased with the progress we have made in India and China in 2006, and in January this year relaunched our Hong Kong business. Standard Life Bank and Standard Life Healthcare have both recorded flat sales in challenging markets in 2006, as they both focused on improving underlying profitability.

I will leave the analysis of the results there but I would like to state that it's a superb achievement to deliver these results in a year where the Group executed both the demutualization and then the IPO of the Group. We have great confidence that we can capitalize in the attractive market and product opportunities now open to us. And that we have the brand, products and service to succeed, and I fully expect us to do so.

So with that I would like to hand back to the operator who will coordinate the question session. Thank you.

OPERATOR: [OPERATOR INSTRUCTIONS]. And the first question today is from the line of Greig Patterson. Please announce your company name.

GREIG PATERSON, ANALYST, KBW: It's Greig Paterson, KBW, good morning.

TREVOR MATTHEWS, CEO, STANDARD LIFE ASSURANCE LIMITED, STANDARD LIFE PLC: Morning Greig.

GREIG PATERSON: Just three questions. One is, I was looking at your funds under management progression from the end of the third quarter to the fourth quarter. I was looking in insurance and third party insurance funds together. There's been a flat period., with no growth basically. You went from 107.0 to 107.3, and during the period equity markets I think were up 6% and bonds down a little. So there's obviously been a net outflow there.

Now given that you've given a positive net flow for the year, I was wondering if you could enlighten us on the progression of net Life and Pension flows from the first to the second, to the third to the fourth quarter. That's question one. Question two is around internal vestings. You gave an internal vesting percentage for the full year. I was interested to see what the fourth quarter percentage would be.

And then finally SIPP margins, could you just confirm that for your SIPP margins you are using unit cost assumptions that are not in line with your actual assumptions? And also if you could give us a feel for the percentage of persistency that you are assuming in your SIPP assumptions? Am I correct in having the impression that it's a very, very low surrender rate assumed there. So, yes, it's SIPP margins.

So first it's net flows in the fourth quarter, internal vestings in the fourth quarter, and then just SIPPs margins actual versus expected assumptions.

TREVOR MATTHEWS: Yes, thanks Greig. It's Trevor Matthews here. Yes, good question. The net flows, as you have worked out, as you can see from the numbers. The net flows, we had the increase in outflows in the third quarter after the demutualization and as we went into -- you saw the consolidation happening with pensions. And our outflows peaked in October, I think October was the month in which they peaked and have come down. So we haven't revealed, we're not going to reveal the figures quarter-by-quarter. But that's basically the position. You can work it out from the numbers that you've seen.

In terms of the fourth quarter vestings, you're talking there about annuities, vesting of annuities are you?

GREIG PATERSON: Yes. Because I think you had 95. I was just wondering if that percentage had held …