Preliminary results - 12 months ended 31 December 2006 01 March 2007
Geographical analysis of life EEV operating return
The following tables provide an analysis of the movement in embedded value for the life and related businesses for 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.
| 2006 | ||||||
|---|---|---|---|---|---|---|
| Net worth £m | Value of in-force £m | Total £m | ||||
| Embedded value at the beginning of the year | – Free surplus | 2,772 | ||||
| – Required capital1 | 4,448 | |||||
| Total | 7,220 | 7,893 | 15,113 | |||
| New business contribution (after the effect of required capital) | (602) | 1,071 | 469 | |||
| Expected return on existing business – return on VIF | - | 710 | 710 | |||
| Expected return on existing business – transfer to net worth | 1,023 | (1,023) | - | |||
| Experience variances and operating assumption changes | 400 | (415) | (15) | |||
| Expected return on shareholders' net worth | 239 | - | 239 | |||
| Investment return variances and economic assumption changes | 355 | 340 | 695 | |||
| Life EEV return after tax | 1,415 | 683 | 2,098 | |||
| Exchange rate movements | (189) | (120) | (309) | |||
| Embedded value from business acquired | 675 | 759 | 1,434 | |||
| Amounts injected into life and related businesses | 393 | - | 393 | |||
| Amounts released from life and related businesses | (646) | - | (646) | |||
| Transfer to life and related businesses from other segments | 113 | - | 113 | |||
| UK pension fund deficit borne by UK with-profit funds transferred to analysis of net assets on an EEV basis2 | (98) | - | (98) | |||
| Embedded value at the end of the year | – Free surplus | 3,569 | ||||
| – Required capital1 | 5,314 | |||||
| Total | 8,883 | 9,215 | 18,098 | |||
- Required capital is shown net of implicit items permitted by local regulators to cover minimum solvency margins.
- The impact of the operating assumption change reflecting the UK with-profits funds contribution to the UK pension scheme deficit funding has been removed from the Life EEV analysis as the pension fund deficit notionally allocated to long-term business net assets on an EEV basis is net of the proportion of funding borne by the UK with-profits funds.
The embedded value of business acquired in 2006 of £1,434 million represents the embedded value of Ark Life Assurance Company Limited, Eagle Insurance Company Limited and AmerUs Group Co.
Required capital has increased in the year by £866 million. The movement comprises an increase of £553 million in relation to new business written, a reduction of £188 million in relation to in-force business, £607 million additional in-force required capital relating to acquisitions during the year and a reduction of £106 million in relation to movements in foreign exchange rates. The decrease in the in-force required capital includes the impact of PS06/14 on the amount of shareholder capital required to support the business and the effect of the increase in long-term interest rates which has decreased statutory reserves and, therefore, capital requirements.
| 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 to life and related businesses from 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 | ||
- Required capital is shown net of implicit items permitted by local regulators to cover minimum solvency margins.
- Reflecting CFO Forum guidance the pension scheme deficit is now being accounted for on an IAS 19 basis. Consequently, the element that had previously been included in the Life EEV analysis, being the present value of agreed deficit funding payments, has been removed from the Life EEV analysis.
