Preliminary results year ended 31 December 2008
05 March 2009
11. Non-long-term business economic volatility
| Non-long-term business | ||
|---|---|---|
| 2008 £m |
2007 £m |
|
| Net investment income | 522 | 1,115 |
| Internal charges included under other headings | (73) | 18 |
| 449 | 1,133 | |
| Analysed between: | ||
| Longer term investment return, reported within operating profit | 1,268 | 1,317 |
| Short-term fluctuations in investment return, reported outside operating profit | (819) | (184) |
| 449 | 1,133 | |
Actual income and longer-term investment return both contain the amortisation of the discount/premium arising on the acquisition of fixed income securities.
The longer-term investment return is calculated separately for each principal non long-term business unit. In respect of equities and properties, the return is calculated by multiplying the opening market value of the investments, adjusted for sales and purchases during the year, by the longer-term rate of investment return. The longer-term rate of investment return is determined using consistent assumptions between operations, having regard to local economic and market forecasts of investment return. The allocated longer-term return for other investments is the actual income receivable for the period.
The Group has calculated the longer-term investment return for its general insurance and health business using the same start of year economic assumptions for equities and properties as those used for MCEV reporting.
The total assets supporting the general insurance and health business, which contribute towards the longer-term return are:
| 2008 £m |
2007 £m |
|
|---|---|---|
| Debt securities | 11,275 | 10,757 |
| Equity securities | 993 | 1,195 |
| Properties | 278 | 360 |
| Cash and cash equivalents | 3,407 | 3,178 |
| Other | 3,623 | 2,801 |
| Total | 19,576 | 18,291 |
The principal assumptions underlying the calculation of the longer-term investment return are:
| Longer-term rates of return Equities |
Longer-term rates of return Property |
|||
|---|---|---|---|---|
| 2008 % |
2007 % |
2008 % |
2007 % |
|
| United Kingdom | 9.2% | 7.6% | 7.7% | 6.6% |
| France | 8.3% | 7.0% | 6.8% | 6.0% |
| Ireland | 8.3% | 7.0% | 6.8% | 6.0% |
| Netherlands | 8.3% | 7.0% | 6.8% | 6.0% |
| Canada | 7.7% | 7.1% | 6.2% | 6.1% |
For other operations, the longer-term return mainly reflects the interest income earned in the Netherlands bank and retail mortgage divisions.
