Preliminary results - 12 months ended 31 December 2005
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 2005 and 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.
| 2005 | ||||
|---|---|---|---|---|
| Net worth £m |
Value of in-force £m |
Total £m |
||
| ||||
| Embedded value at the beginning of the year |
– Free surplus | 1,894 | ||
| – Required capital1 | 4,362 | |||
| Total | 6,256 | 6,758 | 13,014 | |
| New business contribution (after the effect of required capital) | (536) | 955 | 419 | |
| Expected return on existing business – return on VIF | - | 624 | 624 | |
| Expected return on existing business – transfer to net worth | 929 | (929) | - | |
| Experience variances and operating assumption changes | 96 | (115) | (19) | |
| Expected return on shareholders’ net worth | 225 | - | 225 | |
| Investment return variances and economic assumption changes | 785 | 517 | 1,302 | |
| Life EEV return after tax | 1,499 | 1,052 | 2,551 | |
| Exchange rate movements | (54) | (45) | (99) | |
| Embedded value from business disposed of | (19) | (19) | (38) | |
| Amounts injected into life and related businesses | 266 | - | 266 | |
| Amounts released from life and related businesses | (751) | - | (751) | |
| Transfer from life and related businesses to other segments | 23 | - | 23 | |
| UK Life pension fund deficit transferred to analysis of net assets on an EEV basis2 | - | 147 | 147 | |
| Embedded value at the end of the year |
– Free surplus | 2,772 | ||
| – Required capital1 | 4,448 | |||
| Total | 7,220 | 7,893 | 15,113 | |
The embedded value of business disposed of in 2005 of £38 million represents the embedded value of the business in Portugal and Delta Lloyd’s stake in ENNIA Caribe, a Dutch Antilles and Aruba based insurer.
Required capital has increased in the year by £86 million. The movement comprises an increase of £557 million in relation to new business written, a reduction of £415 million in relation to in-force business and a reduction of £56 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 and a release of £295 million arising from the reduction in the level of required capital for UK annuities. The underlying increase in the in-force required capital of £125 million reflects the effect of the reduction in long-term interest rates, which has increased statutory reserves and, therefore, capital requirements and which has more than offset the reduction in capital in respect of business run-off.
| 2004 | ||||
|---|---|---|---|---|
| Net worth £m |
Value of in-force £m |
Total £m |
||
| ||||
| Embedded value at the beginning of the year | – Free surplus | 1,721 | ||
| – Required capital1 | 4,114 | |||
| Total | 5,835 | 5,916 | 11,751 | |
| New business contribution (after the effect of required capital) | (520) | 875 | 355 | |
| Expected return on existing business – return on VIF | - | 576 | 576 | |
| Expected return on existing business – transfer to net worth | 738 | (738) | - | |
| Experience variances and operating assumption changes | (98) | 79 | (19) | |
| Expected return on shareholders’ net worth | 208 | - | 208 | |
| Investment return variances and economic assumption changes | 167 | (41) | 126 | |
| Life EEV return after tax | 495 | 751 | 1,246 | |
| Exchange rate movements | 51 | 68 | 119 | |
| Embedded value of businesses acquired | 79 | 23 | 102 | |
| Amounts injected into life and related businesses | 324 | - | 324 | |
| Amounts released from life and related businesses | (576) | - | (576) | |
| Transfer from life and related businesses to other segments | 48 | - | 48 | |
| Embedded value at the end of the year | – Free surplus | 1,894 | ||
| – Required capital1 | 4,362 | |||
| Total | 6,256 | 6,758 | 13,014 | |
The embedded value of business acquired in 2004 of £102 million represents the total embedded value of Antarius, the bancassurance joint venture with Crédit du Nord in France.
