Interim results - 6 months ended 30 June 2007
EEV Basis
3. New business contribution
The table below sets out the premium volumes, the contribution from and the resulting margin achieved on new business written by the life and related businesses.
The contribution generated by new business written during the period is the present value of the projected stream of after tax distributable profit from that business. New business contribution before tax is calculated by grossing up the contribution after tax at the full corporation tax rate for UK business and at appropriate rates of tax for other countries. New business contribution has been calculated using the same economic assumptions as those used to determine the embedded value as at the start of the year and operating assumptions used to determine the embedded value as at the end of the year, and is rolled forward to the end of the financial period. New business contribution is shown before and after the effect of required capital, calculated on the same basis as for in-force covered business.
New business sales are expressed on two bases: annual premium equivalent (APE) and the present value of new business premiums (PVNBP). The PVNBP calculation is equal to total single premium sales received in the year plus the discounted value of regular premiums expected to be received over the term of the new contracts, and is expressed at the point of sale. The premium volumes and projection assumptions used to calculate the present value of regular premiums for each product are the same as those used to calculate new business contribution, so the components of the new business margin are on a consistent basis.
(a) Geographical analysis of new business
| Annual premium equivalent | Present value of new business premiums | |||
|---|---|---|---|---|
| 6 months 2007 £m | 6 months 2006 £m | 6 months 2007 £m | 6 months 2006 £m | |
| Life and pensions | ||||
| United Kingdom | 757 | 746 | 5,820 | 5,816 |
| France | 205 | 219 | 1,832 | 2,028 |
| Ireland | 131 | 80 | 889 | 558 |
| Italy | 218 | 176 | 1,818 | 1,583 |
| Netherlands (including Belgium and Germany) | 133 | 135 | 1,146 | 1,170 |
| Poland | 49 | 36 | 379 | 264 |
| Spain | 139 | 112 | 1,114 | 916 |
| Other Europe | 36 | 26 | 175 | 126 |
| Europe | 911 | 784 | 7,353 | 6,645 |
| North America | 183 | 31 | 1,716 | 289 |
| Asia | 66 | 43 | 414 | 252 |
| Australia | 44 | 44 | 240 | 145 |
| Asia Pacific | 110 | 70 | 654 | 397 |
| Total life and pensions | 1,961 | 1,631 | 15,543 | 13,147 |
| Investment sales | 410 | 266 | 3,751 | 2,484 |
| Total long-term savings (including share of associates and joint ventures)2 | 2,371 | 1,897 | 19,294 | 15,631 |
| New business contribution | New business margin1 | |||
|---|---|---|---|---|
| 6 months 2007 £m | 6 months 2006 £m | 6 months 2007 £m | 6 months 2006 £m | |
| Life and pensions | ||||
| United Kingdom | 178 | 167 | 3.1% | 2.9% |
| France | 80 | 87 | 4.4% | 4.3% |
| Ireland | 14 | 11 | 1.6% | 2.0% |
| Italy | 49 | 38 | 2.7% | 2.4% |
| Netherlands (including Belgium and Germany) | 37 | 34 | 3.2% | 2.9% |
| Poland | 17 | 14 | 4.5% | 5.3% |
| Spain | 88 | 88 | 7.9% | 9.6% |
| Other Europe | (2) | (4) | (1.1)% | (3.2)% |
| Europe | 283 | 268 | 3.8% | 4.0% |
| North America | 57 | 5 | 3.3% | 1.7% |
| Asia | 20 | 12 | 4.8% | 4.8% |
| Australia | 12 | 7 | 5.0% | 4.8% |
| Asia Pacific | 32 | 19 | 4.9% | 4.8% |
| Total life and pensions | 550 | 459 | 3.5% | 3.5% |
| New business contribution | New business margin1 | |||
|---|---|---|---|---|
| 6 months 2007 £m | 6 months 2006 £m | 6 months 2007 £m | 6 months 2006 £m | |
| Life and pensions | ||||
| United Kingdom | 143 | 135 | 2.5% | 2.3% |
| France | 54 | 64 | 2.9% | 3.2% |
| Ireland | 12 | 8 | 1.3% | 1.4% |
| Italy | 37 | 26 | 2.0% | 1.6% |
| Netherlands (including Belgium and Germany) | 24 | 17 | 2.1% | 1.5% |
| Poland | 15 | 12 | 4.0% | 4.5% |
| Spain | 79 | 80 | 7.1% | 8.7% |
| Other Europe | (3) | (5) | (1.7)% | (4.0)% |
| Europe | 218 | 202 | 3.0% | 3.0% |
| North America | 35 | 2 | 2.0% | 0.7% |
| Asia | 16 | 10 | 3.9% | 4.0% |
| Australia | 7 | 3 | 2.9% | 2.1% |
| Asia Pacific | 23 | 13 | 3.5% | 3.3% |
| Total life and pensions | 419 | 352 | 2.7% | 2.7% |
- New business margin represents the ratio of new business contribution to PVNBP, expressed as a percentage.
- Total long-term savings includes investment sales. Investment sales are calculated as new single premiums plus annualised value of new regular premiums.
(b) Analysis of new business by distribution channel
(i) Before the effect of required capital, tax and minority interest
| Annual premium equivalent | Present value of new business premiums | New business contribution | New business margin | |||||
|---|---|---|---|---|---|---|---|---|
| 6 months 2007 £m | 6 months 2006 £m | 6 months 2007 £m | 6 months 2006 £m | 6 months 2007 £m | 6 months 2006 £m | 6 months 2007 £m | 6 months 2006 £m | |
| Analysed between: | ||||||||
| - Bancassurance channels | 557 | 472 | 4,541 | 3,958 | 205 | 187 | 4.5% | 4.7% |
| - Other distribution channels | 1,404 | 1,159 | 11,002 | 9,189 | 345 | 272 | 3.1% | 3.0% |
| Total | 1,961 | 1,631 | 15,543 | 13,147 | 550 | 459 | 3.5% | 3.5% |
(ii) After the effect of required capital, tax and minority interest
| Annual premium equivalent | Present value of new business premiums | New business contribution | New business margin | |||||
|---|---|---|---|---|---|---|---|---|
| 6 months 2007 £m | 6 months 2006 £m | 6 months 2007 £m | 6 months 2006 £m | 6 months 2007 £m | 6 months 2006 £m | 6 months 2007 £m | 6 months 2006 £m | |
| Analysed between: | ||||||||
| - Bancassurance channels | 320 | 267 | 2,586 | 2,218 | 71 | 59 | 2.7% | 2.7% |
| - Other distribution channels | 1,367 | 1,133 | 10,716 | 8,932 | 169 | 135 | 1.6% | 1.5% |
| Total | 1,687 | 1,400 | 13,302 | 11,150 | 240 | 194 | 1.8% | 1.7% |
(c) Post-tax internal rate of return on life and pensions new business
The internal rate of return (IRR) on life and pensions new business for the Group was 12.9% for the six months to 30 June 2007 (full year to 31 December 2006: 12.6%).
The internal rate of return is equivalent to the discount rate at which the present value of the post-tax cash flows expected to be earned over the life time of the business written, including allowance for the time value of options and guarantees, is equal to the total invested capital to support the writing of the business. The capital included in the calculation of the IRR is the initial capital required to pay acquisition costs and set up statutory reserves in excess of premiums received (“initial capital”), plus required capital at the same level as for the calculation of new business contribution post cost of capital.
| 6 months 2007 | ||||
|---|---|---|---|---|
| Internal rate of return % | Initial capital £m | Required capital £m | Total invested capital £m | |
| United Kingdom | 12% | 155 | 79 | 234 |
| France | 13% | 15 | 52 | 67 |
| Ireland | 10% | 33 | 14 | 47 |
| Italy | 19% | 1 | 25 | 26 |
| Netherlands (including Belgium and Germany) | 8% | 21 | 49 | 70 |
| Poland | 23% | 10 | 4 | 14 |
| Spain | 29% | 11 | 38 | 49 |
| Other Europe | 4% | 22 | 2 | 24 |
| Europe | 14% | 113 | 184 | 297 |
| North America | 11% | 51 | 102 | 153 |
| Asia Pacific | 20% | 19 | 19 | 38 |
| Total | 13% | 338 | 384 | 722 |
The total initial capital for life and pensions new business for the six months to 30 June 2007 of £338 million (six months to 30 June 2006: £357 million) shown above is expressed at the point of sale. Hence it is higher than the impact of writing that new business on net worth of £318 million (six months to 30 June 2006: £344 million), because the latter amount includes expected profits from the point of sale to the end of the reporting period, partly offset by the expected return on the initial capital.
