Standard Life Going Public Slides

8/11/2019 Standard Life Going Public Slides

1/21

Standard Life Going Public

John Hylands, Standard LifeSteve Sarjant, Watson Wyatt


2/21

Mutuality is your heritage dont throw itaway!

You come first with us so why settle forsecond place?

Our mutuality means the benefits of size,strength, stability and success for YOU!

Standard Life May 2000


3/21

What has changed since 2000?

Impact on capital of stock market performance

Prospect of lower long-term investment returnsDecline in popularity of with profits products


4/21

What has changed since 2000?

Declining with profits sales resulting in businessrisks being borne by smaller group of people

Impact on capital of offering prospect ofbenefits of mutualityNeed for external capital to support anddevelop business


5/21


6/21

Compensation for loss of membershiprights

Fixed allocation 185 shares

Variable allocation reflecting size of with profitsinvestment and period invested


7/21

Policyholder Assets

Shareholder Assets

STANDARD LIFE ASSURANCE COMPANY(SLAC)

SLInvestments

SLHealthcare

SLCanada

ChineseJV

SL Bank

IndianJV

Service Co

Corporate and Fund Structure - Pre demutualisation


8/21

Policyholder Assets

Shareholder Assets

STANDARD LIFEPLC

SLInvestments

SLHealthcare

SL Bank

NPF

SLAL

SLIF

WPF NPF

SLCanada

ChineseJV

Service Co

Irish/German branches

IndianJVSLAC

(Mutual)

Corporate and Fund Structure - Post demutualisation


9/21

Transfer of assets and liabilities toStandard Life Assurance

Majority of existing assets and liabilities in respect of UK, Irishand German linked and non-linked businessIncrements to existing business in the UK, Ireland and Germany

Existing assets and liabilities in respect of small amount ofinsurance business

All new business written in the NPF then reinsured to SLIF

Intellectual property and goodwillSL Bank and SLIF (including reinsurance of longevity risk)

Liabilities in respect of subordinated debt, and matching assets

With ProfitsFund

Shareholder Fund

With ProfitsFund

Non ProfitFund


10/21

Allocation of surplus arising in SLAL

Standard Life Assurance Limited (SLAL)

WPF(100% policyholders other

than Defined Block)

NPF(100% shareholders)

DefinedBlocks

Defined Cashflows(subject to solvency tests)

WPF(100% policyholders other than

Defined Cash Flows)


11/21

Subject to the solvency of the With Profits Fund (WPF), the intendedallocation of the assets in the WPF is as follows:

Realistic Liability

Shareholder assets

Value of In force

Policyholder assets

Estate Realistic Liability

If experience is as per assumptions, then cashflows on the definedblocks of business can be expected to emerge each year andbecome available for transfer to shareholders

Long term cashflows providefirst support for policyholders

Near term cashflows continue toemerge for shareholders

Operation of Capital Support Mechanism


12/21

If experience of the WPF is poor, the realistic liability may increaseand erode the residual estate

Realistic Liability

Realistic liability erodes estate

Shareholder assets

Value of In force

Policyholder assets

Realistic Liability



13/21

If experience of the WPF is poor, the realistic liability may increaseand erode the residual estate

Realistic Liability

VIF provides capital support

Shareholder assets

Value of In force

Policyholder assets

Realistic Liability

If experience deteriorates further, the WPF may have to rely on some of theVIF (via the CSM); it is the future VIF that is restricted first

Near term cashflows can be expected to transfer to shareholders

except in severe circumstances

Near term cashflows continueto emerge for shareholders



14/21

If experience improves, VIF is released back to shareholders andthe estate is re-established

Realistic Liability

Shareholder assets

Value of In force

Policyholder assets

Realistic Liability

VIF is released back toshareholders Estate is re-established

Estate

In the EEV, the burn through cost places a value on the likeli hood of someor all of the VIF being permanently lost to shareholders



15/21

Protections for policyholders

Scheme approved by the Court

Report to the Court by an Independent Expert

Review by FSA and other regulatorsInclusion of Core Principles in the Scheme

Compliance with Core Principles and PPFM to bemonitored by newly established With Profits

Committee


16/21

Core Principles

Investment policy to be determined as if theWPF were a separate mutual companyWith profits payouts to be determined byreference to asset shares as atdemutualisation, but reflecting subsequentperformance of the WPF

A prudent residual estate retained in the WPFwith any excess distributed over time asenhancement to final bonus

Restrictions on new business written in WPF


17/21

Corporate and Fund Structure Summary

Maintains policyholders benefit expectations

Efficient use of capitalmaximises shareholder value

protects policyholders interests

Transfer of most ongoing business risks andrewards to the shareholder environment

Tax efficient structure


18/21

Mortgage Endowment Promise

Issued in 2000

Promised to top up mortgage endowmentpolicies to target values, subject to certainconditions:

The promise is subject to the growth inStandard Lifes capital being enough to allow usto set aside regular provisions to meet anypossible shortfalls.


19/21

Mortgage Endowment Promise

MEP was dependent on future growth in SLACs capitalbut unclear how condition would operate postdemutualisationObligations under MEP revised and clarified

Court sanctioned a change to MEP whereby capitalgrowth condition is replaced by its primary driver investment returnPayments may be increased or decreased dependingon investment returns

Achieves significantly greater certainty in a way that isfair to all policyholders


20/21

Consequences for the business


21/21

Documents

Standard Life Going Public Slides