Components of life EEV return
The life EEV return comprises the following components:
- new business contribution written during the period including value added between the point of sale and end of the period;
- the profit from existing business equal to:
– the expected return on the value of the in-force covered business at the beginning of the period,
– experience variances caused by the differences between the actual experience during the period and expected experience based on the operating assumptions used to calculate the start of year value,
– the impact of changes in operating assumptions including risk margins; - the expected investment return on the shareholders' net worth, based upon assumptions applying at the start of the year;
- investment return variances caused by differences between the actual return in the period and the expected return based on economic assumptions used to calculate the start of year value; and
- the impact of changes in economic assumptions in the period.
The life EEV operating return comprises the first three of these components and is calculated using economic assumptions as at the start of the year and operating (demographic, expenses and tax) assumptions as at the end of the period.
| Life EEV return | 6 months 2005 £m |
Restated* 6 months 2004 £m |
Full year 2004 £m |
|---|---|---|---|
| New business contribution (after the effect of required capital) | 286 | 251 | 516 |
| Profit from existing business | |||
| – expected return | 434 | 417 | 819 |
| – experience variances | (31) | (20) | (15) |
| – operating assumption changes | 7 | - | (7) |
| Expected return on shareholders' net worth | 161 | 151 | 298 |
| Life EEV operating return before tax | 857 | 799 | 1,611 |
| Investment return variances | 719 | (202) | 501 |
| Effect of economic assumption changes | (531) | 56 | (318) |
| Life EEV return before tax | 1,045 | 653 | 1,794 |
| Tax on operating profit | (266) | (244) | (490) |
| Tax (charge)/credit on other ordinary activities | (65) | 36 | (58) |
| Life EEV return after tax | 714 | 445 | 1,246 |
| * Restated for the effect of implementing European Embedded Value principles. | |||
There were no separate development costs reported in these periods.
