Fitch Ratings-London-12 January 2012: Fitch Ratings has affirmed Standard Life Assurance Limited's (SLAL) Insurer Financial Strength (IFS) rating at 'A' and Long-term Issuer Default Rating (IDR) at 'A-'. Fitch has also affirmed Standard Life plc's (Standard Life) Long-term IDR at 'BBB+'. Standard Life is the top holding company for the Standard Life group. In addition, the agency has affirmed Standard Life's subordinated debt at 'BBB'. The Outlooks on the Long-term IDRs and IFS rating are Stable.

The rating affirmations reflect Standard Life's strong and resilient capitalisation. Standard Life's 'capital-lite' product mix with low levels of investment guarantees reduce its sensitivity to financial market volatility compared to other UK life insurers. Standard Life is one of the leading players in the UK life and pensions market, a position achieved through continued success in the self-invested personal pensions (SIPP) markets.

SLAL's earnings power is dependent on the value of its assets under management (AUM), leaving Standard Life exposed to falls in financial markets and increases in policyholder surrender rates. Managing its cost base and retaining customers is crucial to Standard Life's profitability. However despite adverse market conditions, Standard Life has managed to maintain strong net inflows over the past year.

The main driver of Standard Life's ratings is its ability to maintain its position and profitability in its key UK pensions market in the face of increasing SIPP competition and the introduction of the Retail Distribution Review (RDR). Crucial to this will be the successful growth and development of Standard Life's Wrap platform.

The key rating triggers that could result in an upgrade include greater product diversification beyond the UK pensions market or enhanced profitability within it, as indicated by operating return on assets or improved profit margins.

The key rating triggers that could result in a downgrade include a failure to maintain its position and profitability within the UK pensions market. A leading indicator of this would be a failure to increase the number of independent financial advisors (IFAs) using the Wrap platform or the value of AUM that are managed via the Wrap platform.

Under the RDR, due to take effect by the start of 2013, IFAs will no longer receive sales-based commissions from insurers. Instead, they will charge fees directly to their customers. Fitch believes the RDR will lead to a shift of some customers away from IFAs, the main sales channel for Standard Life and many other UK insurers. For more details on the RDR, see Fitch's report "UK Life - Retail Distribution Review", available at www.fitchratings.com.