Interim results for 6 months ended 30 June 2006

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Segmental analysis of the components of life EEV operating return

6 months ended 30 June 2006 £m

  UK France Ireland Italy Netherlands Poland Spain Other Europe Rest of the World Total
New business contribution (after the effect of required capital) 135 64 8 26 17 12 80 (5) 15 352
                     
Profit from existing business                    
- expected return 236 69 19 14 84 26 27 6 22 503
- experience variances:                    
Maintenance expenses1 (1) 4 - (1) (12) 4 (1) - - (7)
Exceptional expenses2 (75) - (1) - (6) - - (1) - (83)
Mortality/Morbidity3 20 14 (2) - 20 8 - 2 6 68
Lapses4 (35) 5 (5) (2) 4 6 - (3) - (30)
Other5 24 6 (1) 2 9 5 - (2) - 43
  (67) 29 (9) (1) 15 23 (1) (4) 6 (9)
- operating assumption changes:                    
Maintenance expenses6 - - (10) - - - - - - (10)
Exceptional expenses - - - - - - - - - -
Mortality/Morbidity - - - - - - - - - -
Lapses7 - - (7) - - - - - - (7)
Other8 - - - - 20 - - - - 20
  - - (17) - 20 - - - - 3
                     
Expected return on shareholders' net worth 46 34 7 14 49 5 6 - 11 172
                     
Life EEV operating return before tax 350 196 8 53 185 66 112 (3) 54 1,021
  1. Maintenance expenses in the Netherlands reflect the impact of expense overruns in Belgium.
  2. Exceptional expenses in the UK reflect £18 million relating to the ongoing transformation of the life business and £57 million of other exceptional and project costs associated with strategic initiatives, regulatory change and developments designed to increase future new business volumes such as those relating to pensions simplification.
  3. Mortality experience continues to be better than the assumptions set across many of our businesses, notably for term and protection business in the UK and AFER in France. In addition there is a one-off reserve release associated with the review of a large group pension scheme in the Netherlands.
  4. Lapse experience in the UK has been worse than assumed and primarily relates to bonds and pensions.
  5. In the UK, other experience profits include better than assumed default experience on corporate bonds and commercial mortgages.
  6. Maintenance expenses in Ireland relate to a change in assumptions regarding the future attribution of investment income and expenses between policyholders and shareholders.
  7. In Ireland, the lapse assumption change relates to the Celebration Bond and life linked bonds.
  8. In the Netherlands, the assumption changes relate to reduced asset management fees and a change in the asset mix in Belgium.

Segmental analysis of the components of life EEV operating return

6 months ended 30 June 2005 £m

  UK France Ireland Italy Netherlands Poland Spain Other Europe Rest of the World Total
New business contribution (after the effect of required capital) 106 48 8 20 18 6 70 - 10 286
                     
Profit from existing business                    
- expected return 206 61 16 16 72 24 23 - 16 434
- experience variances:                    
Maintenance expenses (1) 1 - (1) (6) 3 (2) - (2) (8)
Exceptional expenses1 (81) 1 (2) - (6) - (1) 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
  (31) 18 (7) (3) (13) 12 (6) (2) 1 (31)
- operating assumption changes:                    
Maintenance expenses - - - - - - - - - -
Exceptional expenses - - - - - - - - - -
Mortality/Morbidity - - - - - - - - - -
Lapses - - - - - - - - - -
Other5 - - - - 7 - - - - 7
  - - - - 7 - - - - 7
                     
Expected return on shareholders' net worth 49 31 5 14 41 6 5 1 9 161
                     
Life EEV operating return before tax 330 158 22 47 125 48 92 (1) 36 857

Germany has been reclassified from Other Europe to the Netherlands, Lithuania has been reclassified from Other Europe to Poland and Norwich Union’s Dublin-based offshore life and savings business has been reclassified from Other Europe to the United Kingdom.

  1. Exceptional expenses in the UK reflect £30 million relating to the ongoing transformation of the Life business and £51 million of other exceptional project costs associated with regulatory change.
  2. 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.
  3. 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.
  4. In the UK, other experience profits primarily relate to better than assumed default experience on corporate bonds and commercial mortgages.
  5. In the Netherlands, other operating assumption changes mainly relate to the reduction of the guaranteed investment return on certain products in Belgium.

Segmental analysis of the components of life EEV operating return

Year ended 31 December 2005 £m

  UK France Ireland Italy Netherlands Poland Spain Other Europe Rest of the World Total
New business contribution (after the effect of required capital) 217 91 13 36 58 14 155 (4) 32 612
                     
Profit from existing business                    
- expected return 425 122 29 30 148 50 48 10 33 895
- experience variances:                    
Maintenance expenses 12 3 (2) (2) 3 5 (2) 1 (4) 14
Exceptional expenses1 (151) - (5) - (12) - (2) - - (170)
Mortality/Morbidity2 86 29 (1) 2 16 16 5 - 5 158
Lapses3 (78) (4) (9) (4) 2 5 1 (5) 9 (83)
Other4 36 4 (4) 4 (7) 10 2 (2) (1) 42
  (95) 32 (21) - 2 36 4 (6) 9 (39)
- operating assumption changes:                    
Maintenance expenses (20) - 1 (3) 25 3 1 (6) (9) (8)
Exceptional expenses (4) (3) - - (2) - - 1 - (8)
Mortality/Morbidity5 19 1 (4) 4 (25) 8 - 1 5 9
Lapses6 (130) - (8) - (10) - (2) (2) 4 (148)
Other7 79 16 - - 67 11 (2) (1) 2 172
  (56) 14 (11) 1 55 22 (3) (7) 2 17
                     
Expected return on shareholders' net worth 98 62 10 29 86 10 10 1 23 329
                     
Life EEV operating return before tax 589 321 20 96 349 132 214 (6) 99 1,814

Germany has been reclassified from Other Europe to the Netherlands, Lithuania has been reclassified from Other Europe to Poland and Norwich Union’s Dublin-based offshore life and savings business has been reclassified from Other Europe to the United Kingdom.

  1. Exceptional expenses in the UK reflect £47 million relating to ongoing transformation of the life business and £104 million of other exceptional and project costs associated with regulatory change and strategic initiatives.
  2. Mortality experience continues to be better than assumed across most of our businesses, and particularly for protection business in the UK, AFER and unit-linked business in France and group business in the Netherlands.
  3. Lapse experience in the UK has been worse than assumed and mainly relates to bonds and pension business. In Ireland, the adverse persistency has mainly arisen on unit-linked pensions business.
  4. In the UK, other experience profits includes better than assumed default experience on corporate bonds and commercial mortgages.
  5. Mortality assumptions have been revised in the Netherlands following the publication of new annuitant mortality tables used for group business.
  6. In the UK, the adverse lapse assumption change reflects a more prudent allowance for future persistency experience in the UK following recent experience. In Ireland, the lapse assumption change mainly relates to unit-linked pension business. Lapse assumption changes in the Netherlands largely relate to group business in the intermediary division.
  7. Other operating assumption changes in the UK primarily relate to the change in annuitant required capital to 150% of required minimum margins which results in a £110 million one-off benefit. In France, other operating assumptions represent an allowance for further tax benefits arising from dividends from subsidiaries. In the Netherlands, they reflect a variety of changes including increased annual management fees on unit-linked contracts, favourable change in asset mix, and the reduction of future guaranteed returns on group pensions business in Belgium. In Poland, it was previously assumed that the introduction of new individual pension products would lead to significant conversion of existing policies. The prudent allowance made for this is no longer required.

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