Sensitivity analysis - non-economic assumptions
Sensitivity analysis – non-economic assumptions
The tables below show the sensitivity of the embedded value as at 31 December 2004 and the new business contribution before the effect of required capital for the full year 2004 to the following changes in non-economic assumptions:
- 10% decrease in maintenance expenses (a 10% sensitivity on a base expense assumption of £10 p.a. would represent an expense assumption of £9 p.a.). Where there is a “look through” into service company expenses, the fee charged by the service company is unchanged while the underlying expense decreases;
- 10% decrease in lapse rates (a 10% sensitivity on a base assumption of 5% p.a. would represent a lapse rate of 4.5% p.a.);
- 10% decrease in both mortality and morbidity rates.
In each sensitivity calculation, all other assumptions remain unchanged.
| Embedded value (net of tax) 31 December 2004 |
As reported on Segmental analysis of life and related businesses embedded value £m |
10% decrease in
maintenance
expenses £m |
10% decrease
in lapse rates £m |
10% decrease in
mortality /
morbidity rates £m |
|---|---|---|---|---|
| United Kingdom | 5,614 | 140 | 40 | (100) |
| Europe (excluding UK) | ||||
| France | 1,819 | 30 | 25 | 30 |
| Ireland | 615 | 15 | 5 | 5 |
| Italy | 538 | 5 | 5 | - |
| Netherlands (including Belgium and Luxembourg) | 2,477 | 70 | 10 | (30) |
| Poland | 557 | 15 | 25 | 15 |
| Spain | 584 | 10 | 20 | 10 |
| Other | 213 | - | - | - |
| International | 597 | 10 | 10 | 10 |
| 13,014 | 295 | 140 | (60) |
| New business contribution (gross of tax) Full year 2004 |
As reported on New business contribution £m |
10% decrease in
maintenance
expenses £m |
10% decrease in
lapse rates £m |
10% decrease in
mortality /
morbidity rates £m |
|---|---|---|---|---|
| United Kingdom | 269 | 13 | 15 | 15 |
| Europe (excluding UK) | ||||
| France | 95 | 4 | 4 | 4 |
| Ireland | 19 | 2 | 1 | 1 |
| Italy | 48 | 1 | 1 | - |
| Netherlands (including Belgium and Luxembourg) | 80 | 10 | 5 | 3 |
| Poland | 11 | 1 | 2 | 2 |
| Spain | 143 | 4 | 14 | 8 |
| Other | 5 | 1 | 3 | 2 |
| International | 36 | 2 | 2 | 3 |
| 706 | 38 | 47 | 38 |
The demographic sensitivities shown above represent a standard change to the assumptions for all products. Different products will be more or less sensitive to the change, and impacts may partially offset.
