Interim results - 6 months ended 30 June 2007
EEV Basis
5. 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 to 30 June 2007 and the six months to 30 June 2006. 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 2007 | ||||
|---|---|---|---|---|
| Net worth £m | Value of in-force £m | Total £m | ||
| Embedded value at the beginning of the period | - Free surplus | 3,569 | ||
| - Required capital1 | 5,314 | |||
| Total | 8,883 | 9,215 | 18,098 | |
| New business contribution (after the effect of required capital) | (318) | 611 | 293 | |
| Expected return on existing business - return on VIF | - | 425 | 425 | |
| Expected return on existing business - transfer to net worth | 644 | (644) | - | |
| Experience variances and operating assumption changes | 325 | (332) | (7) | |
| Expected return on shareholders' net worth | 167 | - | 167 | |
| Investment return variances and economic assumption changes | 602 | (206) | 396 | |
| Life EEV return after tax | 1,420 | (146) | 1,274 | |
| Exchange rate movements | (16) | (12) | (28) | |
| Embedded value from business acquired | 33 | 9 | 42 | |
| Net amounts released from life and related businesses | (666) | - | (666) | |
| Transfer from life and related businesses to other segments | (16) | - | (16) | |
| Embedded value at the end of the period | - Free surplus | 4,033 | ||
| - Required capital1 | 5,605 | |||
| Total | 9,638 | 9,066 | 18,704 | |
- 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 2007 of £42 million represents the embedded value of Erasmus Groep BV.
Required capital has increased in the period by £291 million. The movement comprises an increase of £384 million in relation to new business written, a reduction of £114 million regarding in-force business, £30 million additional in-force required capital relating to the acquisition 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 a maturing portfolio of business, an increase in long-term interest rates which has decreased statutory reserves and hence capital requirements and the impact of the higher solvency margin required for certain unit linked business, following clarification by the French regulator.
| 6 months 2007 | ||||
|---|---|---|---|---|
| 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 | |
| Net amounts released from life and related businesses | (451) | - | (451) | |
| 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.
