Proforma reconciliation of group operating profit to profit after tax – IFRS
8. Non-long-term business economic volatility
| Non-long-term business | |||
|---|---|---|---|
| 6 months 2009 £m |
6 months 2008 £m |
Full year 2008 £m |
|
| Net investment income | 497 | 239 | 522 |
| Internal charges included under other headings | (116) | 31 | (73) |
| 381 | 270 | 449 | |
| Analysed between: | |||
| Longer term investment return, reported within operating profit | 506 | 584 | 1,268 |
| Short-term fluctuations in investment return, reported outside operating profit | (125) | (314) | (819) |
| 381 | 270 | 449 |
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. Actual income and longer-term investment return both contain the amortisation of the discount/premium arising on the acquisition of fixed income securities.
For the general insurance, health and other businesses, we have calculated the longer-term investment return using the revised economic assumptions for equities and properties as noted above. The change in the underlying reference rate results in a £9 million increase to operating profit. There is no impact on IFRS profit before tax.
For other operations, the longer-term investment return mainly reflects net interest income earned in the Netherlands bank and retail mortgage divisions.
The total assets supporting the general insurance and health business, which contribute towards the longer-term return are:
| 30 June 2009 |
30 June 2008 |
31 December 2008 | |
|---|---|---|---|
| Debt securities | 9,975 | 10,578 | 11,275 |
| Equity securities | 1,104 | 1,130 | 993 |
| Properties | 234 | 294 | 278 |
| Cash and cash equivalents | 2,393 | 3,354 | 3,407 |
| Other | 3,864 | 3,023 | 3,623 |
| Total | 17,570 | 18,379 | 19,576 |
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 | ||||||
|---|---|---|---|---|---|---|---|
| 6 months 2009 % |
6 months 2008 % |
Full year 2008 % |
6 months 2009 % |
6 months 2008 % |
Full year 2008 % |
||
| United Kingdom | 7.0% | 7.6% | 9.2% | 5.5% | 6.6% | 7.7% | |
| France | 7.3% | 7.4% | 8.3% | 5.8% | 6.4% | 6.8% | |
| Ireland | 7.3% | 7.4% | 8.3% | 5.8% | 6.4% | 6.8% | |
| Netherlands | 7.3% | 7.4% | 8.3% | 5.8% | 6.4% | 6.8% | |
| Canada | 6.1% | 7.6% | 7.7% | 4.6% | 6.6% | 6.2% | |
The underlying reference rates are at B12 within the MCEV financial supplement.
