4 - Geographical analysis of the components of life EEV operating return


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  6 months 2008
£m
  UK France Ireland Italy Nether-
lands		 Poland Spain Other
Europe		 Europe North
America		 Asia Australia Asia
Pacific		 Total
  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
  2. Mortality experience continues to be better than the assumptions set across a number of our businesses.
  3. Lapse experience has been volatile, in part reflecting wider economic volatility. In the UK, lapse experience for non-profit pension and bond products was worse than expected. In Poland, lapse experience continued to be better than the long-term assumptions for both Life and Pension products. In Spain, the adverse lapse experience was observed on both protection and saving products. In the Netherlands, the positive lapse variance mainly reflects better than expected persistency in the group pension business. In the USA, the surrender experience reflects a temporary increase in partial withdrawals on annuities.
  4. In the UK, other experience profits include better than assumed default experience on corporate bonds and mortgages. In the Netherlands, this mainly reflects improved profitability of group pension business, principally driven by higher than expected salary increases.
  5. The mortality assumption change in the Netherlands reflects the impact of using the new industry mortality basis.
  6. In the UK, other operating assumptions reflect the distribution of a special bonus to with-profit policyholders. In France, the impact reflects the reduction in the cost of required capital arising from the recognition of an increased value of an implicit item. In the Netherlands, the impact reflects a provision for restricting charges on existing unit-linked contracts in line with the Ombudsman recommendation.
New business contribution (after the effect of required capital) 154 52 2 29 15 18 124 5 245 68 15 6 21 488
Profit from existing business  
– expected return 243 108 28 21 104 46 43 8 358 70 10 13 23 694
– experience variances:  
Maintenance expenses 6 – (1) (1) (4) 3 (2) (3) (8) – – – – (2)
Project and other related expenses1 (30) – (5) – (2) – (1) (3) (11) (1) (1) (1) (2) (44)
Mortality/Morbidity2 11 14 2 1 (7) 10 (2) 1 19 1 – 1 1 32
Lapses3 (10) – (1) – 18 20 (12) (3) 22 (18) (3) – (3) (9)
Other4 18 10 (5) 12 33 (2) 2 (1) 49 1 (3) 1 (2) 66
  (5) 24 (10) 12 38 31 (15) (9) 71 (17) (7) 1 (6) 43
– operating assumption changes:  
Maintenance expenses – – (1) – 1 – – 1 1 (7) (1) – (1) (7)
Project and other related expenses (7) – – – – – – – – – – – – (7)
Mortality/ Morbidity5 (11) – – – (37) – (6) 1 (42) – – – – (53)
Lapses – – – – – – – – – – (1) – (1) (1)
Other6 30 61 – – (74) – – (1) (14) 4 2 – 2 22
  12 61 (1) – (110) – (6) 1 (55) (3) – – – (46)
Expected return on shareholders’ net worth 67 52 11 27 92 8 11 3 204 21 5 4 9 301
Life EEV operating return before tax 471 297 30 89 139 103 157 8 823 139 23 24 47 1,480
  6 months 2007
£m
  UK France Ireland Italy Nether-
lands		 Poland Spain Other
Europe		 Europe North
America		 Asia Australia Asia
Pacific		 Total
  1. Maintenance expenses in Delta Lloyd reflect the impact of expense overruns in Belgium and ABN AMRO.
  2. 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, these expenses reflect higher project costs compared to allowances.
  3. Mortality experience continues to be better than the assumptions set across a number of our businesses.
  4. Lapse experience in Poland continues to be better than the assumptions set for both Life and Pension products. This has been offset by small negative experience variances across a number of our other businesses.
  5. In the UK, other experience profits include better than assumed default experience on corporate bonds and commercial mortgages. In France, positive experience includes the benefit of higher than assumed tax-free dividend income.
  6. In France, the maintenance expenses assumption change relates to lower “look through” expenses in the holding company.
New business contribution (after the effect of required capital) 143 54 12 37 24 15 79 (3) 218 35 16 7 23 419
Profit from existing business  
– expected return 261 81 21 18 85 29 33 5 272 50 7 10 17 600
– experience variances:  
Maintenance expenses1 4 2 1 (1) (10) 1 (1) (2) (10) 2 – (1) (1) (5)
Project and other related expenses2 (56) (1) (1) – (6) – – (3) (11) – – – – (67)
Mortality/Morbidity3 3 11 – – 2 6 (2) 2 19 (2) 2 2 4 24
Lapses4 (6) 5 (2) (2) (5) 11 (7) (2) (2) – (4) 2 (2) (10)
Other5 18 19 (2) 4 (3) 4 (2) 3 23 (3) – 1 1 39
  (37) 36 (4) 1 (22) 22 (12) (2) 19 (3) (2) 4 2 (19)
– operating assumption changes:  
Maintenance expenses6 – 13 – – – – – – 13 – – (2) (2) 11
Project and other related expenses2 – – – – – – – – – – – – – –
Mortality/Morbidity – – – – – – – – – – – – – –
Lapses – – – – – – – – – – – – – –
Other – – – – – – – – – – – – – –
  – 13 – – – – – – 13 – – (2) (2) 11
Expected return on shareholders’ net worth 46 41 8 16 79 5 7 1 157 30 3 4 7 240
Life EEV operating return before tax 413 225 37 72 166 71 107 1 679 112 24 23 47 1,251
  Year ended 31 December 2007
£m
  UK France Ireland Italy Nether-
lands		 Poland Spain Other
Europe		 Europe North
America		 Asia Australia Asia
Pacific		 Total
  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.
New business contribution (after the effect of required capital) 305 117 25 61 53 32 173 (5) 456 108 27 16 43 912
Profit from existing business  
– expected return 538 163 45 37 192 62 65 16 580 114 13 21 34 1,266
– experience variances:  
Maintenance expenses 10 4 (4) (2) (3) 3 (1) (5) (8) (2) (1) – (1) (1)
Project and other related expenses1 (90) 9 (3) – (19) – (2) (8) (23) (17) (2) (3) (5) (135)
Mortality/Morbidity2 14 27 (1) 1 7 14 (4) 3 47 (3) 8 3 11 69
Lapses3 (5) 10 3 (6) (9) 23 (9) 3 15 – (4) (1) (5) 5
Other4 26 3 (5) 7 (3) 9 10 (3) 18 (1) – 3 3 46
  (45) 53 (10) – (27) 49 (6) (10) 49 (23) 1 2 3 (16)
– operating assumption changes:  
Maintenance expenses5 7 2 (1) (2) – 5 – (8) (4) (30) 1 – 1 (26)
Project and other related expenses (2) (1) – – (7) – – (9) (17) – – – – (19)
Mortality/Morbidity6 (133) (2) – 3 (31) 14 (8) (1) (25) – (1) 4 3 (155)
Lapses7 (6) – – (2) 2 35 (16) 4 23 (8) (4) (2) (6) 3
Other8 108 122 – 7 12 – 16 5 162 42 – (1) (1) 311
  (26) 121 (1) 6 (24) 54 (8) (9) 139 4 (4) 1 (3) 114
Expected return on shareholders’ net worth 92 83 18 33 158 9 15 3 319 52 6 8 14 477
Life EEV operating return before tax 864 537 77 137 352 206 239 (5) 1,543 255 43 48 91 2,753

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