Appendix A - Group Capital Structure

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A3 – Sensitivity analysis

The sensitivity of the Group’s shareholders’ funds on an EEV basis at 30 June 2008 to a 10% fall in global equity markets or a rise of 1% in global interest rates is as follows:

These sensitivities assume a full tax charge/credit on market value assumptions.

1. Assumes EEV assumptions adjusted to reflect revised bond yields.
2. Comprising internal, external and subordinated debt, net of corporate tangible net assets.

The table above incorporates the effect on the value of the pension scheme assets of a 10% decrease in equity and a 1% increase in fixed income bond yields. The latter sensitivity also assumes an equivalent movement in both inflation and discount rate (i.e. no change to real interest rates) and, therefore, incorporates the offsetting effects of these items on the pension scheme liabilities. A 1% increase in the real interest rate only has the effect of reducing the pension scheme liability by £1.5 billion thereby enhancing shareholders’ funds by £1.2 billion (after deducting tax).

Group IGD

The sensitivity of the group’s IGD surplus reflects the impact of the hedges we have put in place as part of our long-term strategy to protect the group from extreme market movements. At 30 June 2008 the sensitivity to a 10% fall in global equity markets or a rise of 1% in global interest rates is as follows:

Since the period end we have put in place further protection. The sensitivity of the group’s IGD surplus to further falls in the global equity markets is as follows:

Risk management – Equity hedges

Our risk management processes ensure close and on-going monitoring of all our capital measures. The following table shows the material equity derivatives within the Group’s shareholder funds at 30 June 2008 that are used as part of a long-term strategy to manage equity risk. It excludes derivatives used for portfolio management purposes: