13. Sensitivity analysis
(b) Non-economic assumptions
The tables below show the sensitivity of the embedded value as at
31 December 2007 and the new business contribution before
the effect of required capital for 2007 to the following changes in non-economic assumptions:
- 10% decrease in maintenance expenses (a 10% sensitivity on a base expense assumption of £10pa would represent an expense assumption of £9pa). Where there is a "look through" into service company expenses the fee charged by the service company is unchanged while the underlying expense decreases;
- 10% decrease in lapse rates (a 10% sensitivity on a base assumption of 5% pa would represent a lapse rate of 4.5% pa);
- 5% decrease in both mortality and morbidity rates disclosed separately for life assurance and annuity business.
No future management actions are modelled in reaction to the changing non-economic assumptions. In each sensitivity calculation all other assumptions remain unchanged. No changes to valuation bases have been included.
| Embedded value (net of tax) 31 December 2007 |
As reported in the segmental analysis of life and related businesses embedded value £m |
10% decrease in maintenance expenses £m |
10% decrease in lapse rates £m |
5% decrease in mortality / morbidity rates – life assurance £m |
5% decrease in mortality / morbidity rates – annuity business £m |
|---|---|---|---|---|---|
| United Kingdom | 7,106 | 165 | 95 | 50 | (140) |
| France | 2,660 | 40 | 40 | 25 | (5) |
| Ireland | 999 | 15 | 25 | 5 | (5) |
| Italy | 1,007 | 5 | 5 | - | - |
| Netherlands (including Belgium and Germany) | 4,176 | 95 | 15 | 20 | (55) |
| Poland | 942 | 20 | 45 | 10 | - |
| Spain | 1,048 | 15 | 50 | 15 | (5) |
| Other Europe | 156 | 5 | 5 | - | - |
| Europe | 10,988 | 195 | 185 | 75 | (70) |
| North America | 1,588 | 30 | 10 | 10 | - |
| Asia Pacific | 637 | 10 | 10 | 10 | - |
| Total | 20,319 | 400 | 300 | 145 | (210) |
| New business contribution before required capital (gross of tax) Year to 31 December 2007 |
As reported in the segmental analysis of life and related businesses embedded value £m |
10% decrease in maintenance expenses £m |
10% decrease in lapse rates £m |
5% decrease in mortality / morbidity rates – life assurance £m |
5% decrease in mortality / morbidity rates – annuity business £m |
|---|---|---|---|---|---|
| United Kingdom | 360 | 19 | 23 | 15 | (11) |
| France | 169 | 5 | 8 | 4 | - |
| Ireland | 30 | 2 | 6 | 1 | - |
| Italy | 82 | 2 | 2 | 1 | - |
| Netherlands (including Belgium and Germany) | 93 | 10 | 6 | 3 | (14) |
| Poland | 35 | 2 | 4 | 2 | - |
| Spain | 189 | 5 | 19 | 5 | - |
| Other Europe | - | 1 | 1 | (1) | - |
| Europe | 598 | 27 | 46 | 15 | (14) |
| North America | 154 | 4 | 3 | 3 | - |
| Asia Pacific | 62 | 6 | 5 | 3 | - |
| Total | 1,174 | 56 | 77 | 36 | (25) |
The demographic sensitivities shown above represent a standard change to the assumptions for all products. Different products will be more or less sensitive to the change and impacts may partially offset.
