Interim results for 6 months ended 30 June 2006
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 ended 30 June 2006 and 2005. 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 to life and related businesses from 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 2006 | |||
|---|---|---|---|
| Net worth £m |
Value of in-force £m |
Total £m |
|
| Embedded value at the beginning of the period | |||
| – Free surplus | 2,772 | ||
| – Required capital1 | 4,448 | ||
| Total | 7,220 | 7,893 | 15,113 |
| New business contribution (after the effect of required capital) | (344) | 586 | 242 |
| Expected return on existing business – return on VIF | - | 353 | 353 |
| Expected return on existing business – transfer to net worth | 488 | (488) | - |
| Experience variances and operating assumption changes | 179 | (188) | (9) |
| Expected return on shareholders' net worth | 119 | - | 119 |
| Investment return variances and economic assumption changes | (114) | (78) | (192) |
| Life EEV return after tax | 328 | 185 | 513 |
| Exchange rate movements | (9) | (20) | (29) |
| Embedded value from business acquired | 170 | 176 | 346 |
| Amounts injected into life and related businesses | 100 | - | 100 |
| Amounts released from life and related businesses | (551) | - | (551) |
| Transfer to life and related businesses from other segments | 40 | - | 40 |
| Embedded value at the end of the period | |||
| – Free surplus | 2,682 | ||
| – Required capital1 | 4,616 | ||
| Total | 7,298 | 8,234 | 15,532 |
1 Required capital is shown net of implicit items permitted by local regulators to cover minimum solvency margins.
The embedded value of business acquired in the six months to 30 June 2006 of £346 million represents the embedded value of Ark Life Assurance Company Limited and Eagle Insurance Company Limited.
Required capital has increased in the period by £168 million. The movement comprises an increase of £275 million in relation to new business written, a reduction of £216 million in relation to in-force business, £118 million additional in-force required capital relating to acquisitions during the period and a £9 million decrease due to foreign exchange rate movements. The decrease in the in-force required capital includes the effect of the increase in long-term interest rates, which has decreased statutory reserves and, therefore, capital requirements.
| 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 to life and related businesses from 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.
