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4. Geographical analysis of the components of Life EEV operating return

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2007 £m
	UK	France	Ireland	Italy	Nether-lands	Poland	Spain
New business contribution (after the effect of required capital)	305	117	25	61	53	32	173
Profit from existing business
– expected return	538	163	45	37	192	62	65
– experience variances:
Maintenance expense	10	4	(4)	(2)	(3)	3	(1)
Project and other related expenses1	(90)	9	(3)	-	(19)	-	(2)
Mortality/Morbidity2	14	27	(1)	1	7	14	(4)
Lapses3	(5)	10	3	(6)	(9)	23	(9)
Other4	26	3	(5)	7	(3)	9	10
	(45)	53	(10)	-	(27)	49	(6)
– operating assumption changes:
Maintenance expenses5	7	2	(1)	(2)	-	5	-
Project and other related expenses	(2)	(1)	-	-	(7)	-	-
Mortality/Morbidity6	(133)	(2)	-	3	(31)	14	(8)
Lapses7	(6)	-	-	(2)	2	35	(16)
Other8	108	122	-	7	12	-	16
	(26)	121	(1)	6	(24)	54	(8)
Expected return on shareholders’ net worth	92	83	18	33	158	9	15
Life EEV operating return before tax	864	537	77	137	352	206	239

2007 £m
	Other Europe	Europe	North America	Asia	Australia	Asia Pacific	Total
New business contribution (after the effect of required capital)	(5)	456	108	27	16	43	912
Profit from existing business
– expected return	16	580	114	13	21	34	1,266
– experience variances:
Maintenance expense	(5)	(8)	(2)	(1)	-	(1)	(1)
Project and other related expenses1	(8)	(23)	(17)	(2)	(3)	(5)	(135)
Mortality/Morbidity2	3	47	(3)	8	3	11	69
Lapses3	3	15	-	(4)	(1)	(5)	5
Other4	(3)	18	(1)	-	3	3	46
	(10)	49	(23)	1	2	3	(16)
– operating assumption changes:
Maintenance expenses5	(8)	(4)	(30)	1	-	1	(26)
Project and other related expenses	(9)	(17)	-	-	-	-	(19)
Mortality/Morbidity6	(1)	(25)	-	(1)	4	3	(155)
Lapses7	4	23	(8)	(4)	(2)	(6)	3
Other8	5	162	42	-	(1)	(1)	311
	(9)	139	4	(4)	1	(3)	114
Expected return on shareholders’ net worth	92	319	52	6	8	14	477
Life EEV operating return before tax	(5)	1,543	255	43	48	91	2,753

1. Project and other related expenses in the UK reflect project costs associated with strategic initiatives, including developments designed to offer simpler products to customers, and the simplification of systems and processes. In the Netherlands, project costs mainly represent one-off restructuring costs in the Dutch businesses. In the USA, expenses reflect a number of one-off expenses including management incentive rewards, brand awareness and investment in strategic systems.
2. Mortality experience continues to be better than the assumptions set across a number of our businesses.
3. Lapse experience in Poland continues to be better than the long-term assumptions set for both Life and Pension products.
4. In the UK, other experience profits include better than assumed default experience on corporate bonds and commercial mortgages.
5. In the USA, expense assumptions have been strengthened following investment to support the growth in the business.
6. In the UK, the allowance for annuitant mortality improvement has been strengthened, by increasing the minimum rates of improvement.
7. In Poland lapse assumptions have been changed following continued favourable experience. In Spain, lapse assumptions have been strengthened mainly on risk products.
8. In the UK, other operating assumption changes include the reduction in the level of required capital assumed on the company's annuity portfolio. In France, other operating assumption changes reflect increased profitability driven by product development and the increased proportion of unit-linked assets within managed funds. In the USA, other assumption changes relate to the implementation of the AXXX securitisation, an efficient financing solution to free up capital previously held to support excessive regulatory reserves.

2006 £m
	UK	France	Ireland	Italy	Nether-lands	Poland	Spain
New business contribution (after the effect of required capital)	263	110	9	50	25	25	168
Profit from existing business
– expected return	474	142	41	26	158	52	53
– experience variances:
Maintenance expenses	13	9	4	(1)	(11)	5	(2)
Project and other related expenses1	(149)	1	(4)	-	(23)	-	(1)
Mortality/ Morbidity2	(13)	33	(2)	4	3	16	1
Lapses3	(66)	8	(9)	(8)	2	21	(1)
Other4	75	20	(9)	6	20	3	11
	(140)	71	(20)	1	(9)	45	8
– operating assumption changes:
Maintenance expenses5	58	-	(3)	-	60	(3)	-
Project and other related expenses6	(46)	(2)	(22)	-	(9)	-	-
Mortality/ Morbidity7	57	45	(13)	-	-	17	-
Lapses8	(224)	(41)	(47)	-	(14)	17	(21)
Other9	215	9	-	2	19	1	2
	60	11	(85)	2	56	32	(19)
Expected return on shareholders’ net worth	87	68	15	31	99	8	11
Life EEV operating return before tax	744	402	(40)	110	329	162	221

2006 £m
	Other Europe	Europe	North America	Asia	Australia	Asia Pacific	Total
New business contribution (after the effect of required capital)	(6)	381	8	22	9	31	683
Profit from existing business
– expected return	9	481	29	10	17	27	1,011
– experience variances:
Maintenance expenses	(2)	2	-	-	(2)	(2)	13
Project and other related expenses1	(2)	(29)	-	-	-	-	(178)
Mortality/ Morbidity2	2	57	-	8	7	15	59
Lapses3	(2)	11	(9)	(6)	3	(3)	(67)
Other4	(1)	50	(2)	(2)	2	-	123
	(5)	91	(11)	-	10	10	(50)
– operating assumption changes:
Maintenance expenses5	(11)	43	(12)	(1)	(5)	(6)	83
Project and other related expenses6	(3)	(36)	-	-	-	-	(82)
Mortality/ Morbidity7	(1)	48	3	4	7	11	119
Lapses8	(1)	(107)	-	-	2	2	(329)
Other9	3	36	-	(1)	3	2	253
	(13)	(16)	(9)	2	7	9	44
Expected return on shareholders’ net worth	2	234	15	3	6	9	345
Life EEV operating return before tax	(13)	1,171	32	37	49	86	2,033

1. Project and other related expenses in the UK reflect £32 million relating to the ongoing transformation of the life business and £117 million of other exceptional and project costs associated with strategic initiatives, including developments designed to improve the future new business volumes, and regulatory changes. In the Netherlands, these expenses reflect higher project costs compared to allowances as well as the payment to ABN AMRO in respect of the joint venture operations.
2. Mortality experience continues to be better than the assumptions set across many of our businesses.
3. Lapse experience in the UK has been worse than assumed and primarily relates to bonds and pensions. In Poland, lapses for both life and pension products have been lower than assumed resulting in the favourable experience variance.
4. In the UK, other experience profits include better than assumed default experience on corporate bonds and mortgages, and the benefit of higher than expected performance fees in Morley.
5. Maintenance expenses in the UK relate to Morley's change in profit margin. The change in Delta Lloyd is also driven by improved asset management profitability. The adverse movement in North America is due to a reassessment of expenses in our Boston-based operations.
6. In the UK, exceptional expenses relate to short-term project costs and capitalisation of reorganisation costs. Ireland reflects changes in expense assumptions regarding the future attribution of investment income and expenses between policyholders and shareholders.
7. The change in mortality assumptions in the UK includes an alignment in the basis for internal business. Mortality assumptions in France were changed following improvements in mortality experience over the last few years.
8. In the UK, the lapse assumption change relates to bonds and pension business while the change in Ireland relates to the Celebration Bond and unit-linked bonds. In France, lapse assumptions have been changed for non-AFER business in Aviva Vie. In Spain, lapse assumptions have been changed for risk business and some savings products.
9. In the UK, the assumption changes reflect the beneficial impact of the with-profit funds sharing the pension scheme deficit funding (£126 million) and the impact of PS06/14, primarily in reducing the non-profit reserves (£50 million). In Delta Lloyd the impact is due to changes to management fee rebates.

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