Life EEV operating return before tax
Segmental analysis of the components of life EEV operating return
6 months ended 30 June 2005 £m
| UK | France | Ireland | Italy | Nether- lands | Poland | Spain | Other Europe | Inter- national | Total | |
|---|---|---|---|---|---|---|---|---|---|---|
| New business contribution (after the effect of required capital) | 105 | 48 | 8 | 20 | 18 | 5 | 70 | 2 | 10 | 286 |
| Profit from existing business | ||||||||||
| - expected return | 203 | 61 | 16 | 16 | 64 | 23 | 23 | 12 | 16 | 434 |
| - experience variances: | ||||||||||
| Maintenance expenses | (1) | 1 | – | (1) | (6) | 3 | (2) | – | (2) | (8) |
| Exceptional expenses1 | (80) | 1 | (2) | – | (6) | – | (1) | – | – | (88) |
| Mortality/Morbidity2 | 41 | 11 | 3 | – | 8 | 7 | (1) | – | 3 | 72 |
| Lapses3 | (5) | (2) | (6) | (3) | (6) | – | (3) | (3) | (1) | (29) |
| Other4 | 15 | 7 | (2) | 1 | (3) | 2 | 1 | – | 1 | 22 |
| (30) | 18 | (7) | (3) | (13) | 12 | (6) | (3) | 1 | (31) | |
| - operating assumption changes: | ||||||||||
| Maintenance expenses | – | – | – | – | – | – | – | – | – | – |
| Exceptional expenses | – | – | – | – | – | – | – | – | – | – |
| Mortality/Morbidity | – | – | – | – | – | – | – | – | – | – |
| Lapses | – | – | – | – | – | – | – | – | – | – |
| Other5 | – | – | – | – | 6 | – | – | 1 | – | 7 |
| – | – | – | – | 6 | – | – | 1 | – | 7 | |
| Expected return on shareholders’ net worth | 49 | 31 | 5 | 14 | 40 | 6 | 5 | 2 | 9 | 161 |
| Life EEV operating return before tax | 327 | 158 | 22 | 47 | 115 | 46 | 92 | 14 | 36 | 857 |
- Exceptional expenses in the UK reflect £30 million relating to the ongoing transformation of the Life business and £50 million of other exceptional project costs associated with regulatory change.
- Mortality experience continues to be better than assumed across most of our businesses, and particularly for protection and annuity business in the UK and AFER in France.
- Lapse experience in the UK has been worse than assumed and mainly relates to with-profit bonds. In Ireland, the adverse persistency has mainly arisen on unit-linked pensions business. In the Netherlands the adverse persistency has mainly arisen on group business.
- In the UK, other experience profits primarily relates to better than assumed default experience on corporate bonds and commercial mortgages.
- In the Netherlands, other operating assumption changes mainly relates to the reduction of the guaranteed investment return on certain products in Belgium.
Segmental analysis of the components of life EEV operating return
6 months ended 30 June 2004 £m
| UK | France | Ireland | Italy | Nether- lands | Poland | Spain | Other Europe | Inter- national | Total | |
|---|---|---|---|---|---|---|---|---|---|---|
| New business contribution (after the effect of required capital) | 106 | 27 | 11 | 14 | 25 | 4 | 55 | (2) | 11 | 251 |
| Profit from existing business | ||||||||||
| - expected return | 200 | 53 | 14 | 15 | 71 | 21 | 21 | 10 | 12 | 417 |
| - experience variances: | ||||||||||
| Maintenance expenses | (1) | (1) | 1 | – | (2) | 2 | 1 | (2) | – | (2) |
| Exceptional expenses1 | (32) | (1) | – | – | (10) | – | – | (1) | (10) | (54) |
| Mortality/Morbidity2 | 17 | 7 | 1 | – | 3 | 3 | 1 | – | 1 | 33 |
| Lapses3 | (14) | 2 | (8) | – | – | – | (1) | (1) | 2 | (20) |
| Other4 | 11 | (5) | – | 1 | 8 | 1 | – | 7 | – | 23 |
| (19) | 2 | (6) | 1 | (1) | 6 | 1 | 3 | (7) | (20) | |
| - operating assumption changes: | ||||||||||
| Maintenance expenses | – | – | – | – | – | – | – | – | 1 | 1 |
| Exceptional expenses | – | – | – | – | – | – | – | – | – | – |
| Mortality/Morbidity | – | – | – | – | – | – | – | – | – | – |
| Lapses5 | – | – | (9) | – | – | – | – | – | – | (9) |
| Other | 7 | (1) | (1) | – | 3 | – | – | – | – | 8 |
| 7 | (1) | (10) | – | 3 | – | – | – | 1 | – | |
| Expected return on shareholders’ net worth | 51 | 31 | 7 | 6 | 34 | 4 | 4 | 3 | 11 | 151 |
| Life EEV operating return before tax | 345 | 112 | 16 | 36 | 132 | 35 | 81 | 14 | 28 | 799 |
- Exceptional expenses reflect project spend, including costs associated with the pace of regulatory change in the UK.
- Mortality experience has typically been better than anticipated in many of the group businesses in particular in the UK on annuity and PHI contracts.
- Lapse experience has been adverse in a number of businesses including on savings businesses in the UK, and on some classes of business in Ireland.
- In the UK, other experience profits include exceptional profits arising from better than assumed default experience on corporate bonds and commercial mortgages.
- In Ireland, lapse assumption changes have been made on unit linked pension business following recent experience.
Segmental analysis of the components of life EEV operating return
Full year 2004 £m
| UK | France | Ireland | Italy | Nether- lands | Poland | Spain | Other Europe | Inter- national | Total | |
|---|---|---|---|---|---|---|---|---|---|---|
| New business contribution (after the effect of required capital) | 215 | 54 | 16 | 34 | 43 | 9 | 121 | - | 24 | 516 |
| Profit from existing business | ||||||||||
| - expected return | 367 | 112 | 30 | 29 | 141 | 45 | 40 | 24 | 31 | 819 |
| - experience variances: | ||||||||||
| Maintenance expenses1 | 31 | (2) | (1) | 2 | (9) | 5 | - | 1 | 1 | 28 |
| Exceptional expenses2 | (153) | - | - | - | (12) | - | (1) | (3) | (1) | (170) |
| Mortality/Morbidity3 | 49 | 21 | 7 | - | 17 | 8 | 1 | 2 | 5 | 110 |
| Lapses4 | (50) | 5 | (1) | (5) | (2) | 5 | 2 | (4) | 6 | (44) |
| Other5 | 42 | (2) | - | 3 | 18 | - | 2 | - | (2) | 61 |
| (81) | 22 | 5 | - | 12 | 18 | 4 | (4) | 9 | (15) | |
| - operating assumption changes: | ||||||||||
| Maintenance expenses6 | 77 | - | (6) | (3) | - | 14 | 3 | 1 | 4 | 90 |
| Exceptional expenses7 | (34) | (2) | - | - | (72) | - | - | - | - | (108) |
| Mortality/Morbidity | 2 | - | (2) | 7 | 5 | (2) | - | 1 | (1) | 10 |
| Lapses8 | (110) | - | (16) | (3) | 9 | - | 1 | 1 | (1) | (119) |
| Other9 | 7 | 37 | - | 1 | 79 | 2 | 3 | (6) | (3) | 120 |
| (58) | 35 | (24) | 2 | 21 | 14 | 7 | (3) | (1) | (7) | |
| Expected return on shareholders’ net worth | 108 | 63 | 13 | 14 | 60 | 7 | 8 | 5 | 20 | 298 |
| Life EEV operating return before tax | 551 | 286 | 40 | 79 | 277 | 93 | 180 | 22 | 83 | 1,611 |
- Maintenance expenses in the UK reflect the benefit of cost saving initiatives undertaken.
- Exceptional expenses in the UK reflect costs of £65 million for the restructuring of the business services division and one-off project costs of £88 million associated with the pace of regulatory change.
- Mortality experience across our major businesses continues to be better than our assumptions for protection and annuity business in the UK and protection business in Continental Europe.
- Lapse experience in the UK has been adverse and mainly relates to bonds, protection schemes and pension products.
- In the UK, other experience profits include £29 million of profits arising from better than assumed default experience on corporate bonds and commercial mortgages.
- Maintenance expense assumption changes in the UK reflect the benefit of cost saving initiatives coming through.
- The UK and the Netherlands include capitalised additional future project expenses.
- Adverse lapse assumption changes in the UK relates to unitised with-profit bonds and unit-linked bonds. In Ireland, lapse assumption changes have been made on unit-linked pensions business following recent experience.
- Other operating assumptions in the Netherlands relates to positive
changes in asset mix and tax reflecting, in part, the fact that
the embedded value
of Delta Lloyd was previously assessed using a blended
average tax rate of 25%, which is below the local corporation
tax rate. The calculation has been refined to tax all future
profits
at the full
corporation tax rate at
the beginning of the year of 34.5% and to allow
explicitly for the tax benefit arising from investing in the “5% holdings” (investments
in Dutch companies where at least 5% of the share capital is owned), on which
all investment income is tax free. This
change results in a £53 million one-off benefit. France includes the benefit of tax assumption changes. France has historically recorded favourable tax operating experience as a result of better than assumed tax on dividend income. Previously the tax assumptions had been set at full corporation tax for all future profits, whereas in fact dividend income from subsidiaries is tax exempt. In 2004, the calculation has been refined such that the future tax benefit arising from dividend from subsidiaries has now been recognised. This change results in a £39 million benefit.
