Analysis of movement in life and related businesses embedded value
The following tables provide an analysis of the movement in embedded value for the life and related businesses for the six months to 30 June 2005 and for the six months to 30 June 2004. The analysis is shown separately for net worth and the value of in-force covered business, and includes amounts transferred between these categories. The transfer from life and related businesses to other segments consists of service company profits and losses during the reported period that have emerged from the value of in-force. Since the “look through” into service companies includes only future profits and losses, these amounts must be eliminated from the closing embedded value.
All figures are shown net of tax.
| 6 months 2005 | |||||
|---|---|---|---|---|---|
| Net worth £m |
Value of in-force £m |
Total £m |
|||
| Embedded value at the beginning of the period | – Free surplus | 1,894 | |||
| – Required capital1 | 4,362 | ||||
| Total | 6,256 | 6,758 | 13,014 | ||
| New business contribution (after the effect of required capital) | (210) | 405 | 195 | ||
| Expected return on existing business – return on VIF | - | 303 | 303 | ||
| Expected return on existing business – transfer to net worth | 455 | (455) | - | ||
| Experience variances and operating assumption changes | 81 | (98) | (17) | ||
| Expected return on shareholders’ net worth | 110 | - | 110 | ||
| Investment return variances and economic assumption changes | 288 | (165) | 123 | ||
| Life EEV return after tax | 724 | (10) | 714 | ||
| Exchange rate movements | (165) | (129) | (294) | ||
| Amounts injected into life and related businesses | 192 | - | 192 | ||
| Amounts released from life and related businesses | (647) | - | (647) | ||
| Transfer from life and related businesses to other segments | 10 | - | 10 | ||
| Embedded value at the end of the period | – Free surplus | 2,122 | |||
| – Required capital1 | 4,248 | ||||
| Total | 6,370 | 6,619 | 12,989 | ||
| 1 Required capital is shown net of implicit items permitted by local regulators to cover minimum solvency margins. | |||||
Required capital has reduced in the period by £114 million. The movement comprises an increase of £265 million in relation to new business written, a reduction of £267 million in relation to in-force business and a reduction of £112 million in relation to movements in foreign exchange rates. The reduction in the in-force required capital includes a release of £245 million arising from the restructure of the UK non-profit funds.
| 6 months 2004 | |||||
|---|---|---|---|---|---|
| Net worth £m |
Value of in-force £m |
Total £m |
|||
| Embedded value at the beginning of the period | – Free surplus | 1,721 | |||
| – Required capital1 | 4,114 | ||||
| Total | 5,835 | 5,916 | 11,751 | ||
| New business contribution (after the effect of required capital) | (280) | 454 | 174 | ||
| Expected return on existing business – return on VIF | - | 294 | 294 | ||
| Expected return on existing business – transfer to net worth | 341 | (341) | - | ||
| Experience variances and operating assumption changes | 47 | (64) | (17) | ||
| Expected return on shareholders’ net worth | 105 | - | 105 | ||
| Investment return variances and economic assumption changes | (9) | (102) | (111) | ||
| Life EEV return after tax | 204 | 241 | 445 | ||
| Exchange rate movements | (256) | (63) | (319) | ||
| Amounts injected into life and related businesses | 39 | - | 39 | ||
| Amounts released from life and related businesses | (458) | - | (458) | ||
| Transfer from life and related businesses to other segments | 15 | - | 15 | ||
| Embedded value at the end of the period | – Free surplus | 1,399 | |||
| – Required capital1 | 3,980 | ||||
| Total | 5,379 | 6,094 | 11,473 | ||
| 1 Required capital is shown net of implicit items permitted by local regulators to cover minimum solvency margins. | |||||
