Preliminary results year ended 31 December 2008
05 March 2009
M20 – Implied discount rates (IDR)
In the valuation of a block of business, the implied discount rate is the rate of discount such that a traditional embedded value for the business equates to the MCEV.
The cashflows projected are the expected future cashflows including expected investment cashflows from equities, bonds and properties earning a risk premium in excess of risk free, statutory reserves and required capital. The risk premiums used are consistent with those used in the expected existing business contribution within operating earnings. As the risk premiums are positive, a discount rate higher than risk-free is required to give a value equal to the market consistent embedded value.
Average derived risk discount rates are shown below for the embedded value.
| Total in-force business | ||
|---|---|---|
| 2008 % |
2007 % |
|
| United Kingdom | 7.9% | 8.4% |
| France | 6.4% | 6.8% |
| Ireland | 4.7% | 6.2% |
| Italy | 5.9% | 6.5% |
| Netherlands (including Belgium and Germany)1 | n/a | 9.0% |
| Poland | 6.0% | 7.2% |
| Spain | 9.7% | 6.5% |
| Other Europe | 9.8% | 11.3% |
| Europe1 | n/a | 7.5% |
| North America1 | n/a | 14.3% |
| Asia | 7.2% | 9.5% |
| Australia | 7.8% | 9.1% |
| Asia Pacific | 7.5% | 9.4% |
| Total | n/a | 8.0% |
- Where the value of in-force business is negative, an IDR cannot be calculated, consequently an average total IDR is not meaningful
