5 - Analysis of movement in life and related businesses embedded value
The following tables provide an analysis of the movement in embedded value for the life and related businesses for the six months to 30 June 2008 and the six months to 30 June 2007. The analysis is shown separately for net worth and the value of in-force covered business, and includes amounts transferred between these categories. The transfer to life and related businesses from other segments consists of service company profits and losses during the reported period that have emerged from the value of in-force. Since the “look through” into service companies includes only future profits and losses, these amounts must be eliminated from the closing embedded value. All figures are shown net of tax.
| 6 months 2008 | ||||
|---|---|---|---|---|
| Net worth £m |
Value of in-force £m |
Total £m |
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|
||||
| Embedded value at the beginning of the period | – Free Surplus |
4,127 | ||
| – Required capital1 | 6,331 | |||
| Total | 10,458 | 9,861 | 20,319 | |
| New business contribution (after the effect of required capital) | (372) | 716 | 344 | |
| Expected return on existing business – return on VIF | – | 498 | 498 | |
| Expected return on existing business – transfer to net worth | 702 | (702) | – | |
| Experience variances and operating assumption changes | 141 | (149) | (8) | |
| Expected return on shareholders’ net worth | 214 | – | 214 | |
| Investment return variances and economic assumption changes | (1,464) | (537) | (2,001) | |
| Life EEV return after tax | (779) | (174) | (953) | |
| Exchange rate movements | 531 | 400 | 931 | |
| Embedded value from business acquired | 175 | 50 | 225 | |
| Net amounts released from life and related businesses | (626) | – | (626) | |
| Transfer from life and related businesses to other segments | (29) | – | (29) | |
| Embedded value at the end of the period | – Free Surplus |
2,979 | ||
| – Required capital1 | 6,751 | |||
| Total | 9,730 | 10,137 | 19,867 | |
The embedded value of business acquired in the six months to 30 June 2008 of £225 million represents the embedded value of UBI Assicurazioni Vita SpA in Italy, Swiss Life Belgium and LIG Life Insurance Co. Ltd, in South Korea.
Required capital has increased in the period by £420 million. The movement comprises an increase of £470 million in relation to new business written, a reduction of £398 million regarding in-force business, a reduction of £145 million due to an increase in implicit items, £153 million additional in-force required capital relating to the acquisitions during the period and a £340 million increase due to foreign exchange rate movements.
| 6 months 2007 | |||||
|---|---|---|---|---|---|
| Net worth £m |
Value of in-force £m |
Total £m |
|||
|
|||||
| Embedded value at the beginning of the period | – Free Surplus |
3,569 | |||
| – Required capital1 | 5,314 | ||||
| Total | 8,883 | 9,215 | 18,098 | ||
| New business contribution (after the effect of required capital) | (318) | 611 | 293 | ||
| Expected return on existing business – return on VIF | – | 425 | 425 | ||
| Expected return on existing business – transfer to net worth | 644 | (644) | – | ||
| Experience variances and operating assumption changes | 325 | (332) | (7) | ||
| Expected return on shareholders’ net worth | 167 | – | 167 | ||
| Investment return variances and economic assumption changes | 602 | (206) | 396 | ||
| Life EEV return after tax | 1,420 | (146) | 1,274 | ||
| Exchange rate movements | (16) | (12) | (28) | ||
| Embedded value from business acquired | 33 | 9 | 42 | ||
| Net amounts released from life and related businesses | (666) | – | (666) | ||
| Transfer from life and related businesses to other segments | (16) | – | (16) | ||
| Embedded value at the end of the period | – Free Surplus |
4,033 | |||
| – Required capital1 | 5,605 | ||||
| Total | 9,638 | 9,066 | 18,704 | ||
