A11 Effect of changes in assumptions and estimates during the year

A11 – Effect of changes in assumptions and estimates during the year

Certain estimates and assumptions used in determining our liabilities for insurance and investment contract business were changed from 2008 to 2009, affecting the profit recognised for the year with an equivalent effect on liabilities. This note analyses the effect of the changes. This disclosure only allows for the impact on liabilities and related assets, such as reinsurance, deferred acquisition costs and AVIF, and does not allow for offsetting movements in the value of backing financial assets.

	Effect on profit 2009 £m	Effect on profit 2008 £m
Assumptions
Long-term insurance business
Interest rates	(363)	(521)
Expenses	69	24
Persistency rates	—	2
Mortality for assurance contracts	11	44
Mortality for annuity contracts	6	26
Tax and other assumptions	(49)	93
Investment contracts
Interest rates	20	(75)
Expenses	40	(27)
Persistency rates	—	2
Tax and other assumptions	(89)	36
General insurance and health business
Change in loss ratio assumptions	(2)	(1)
Change in discount rate assumptions	57	(94)
Change in expense ratio and other assumptions	(21)	—
Total	(321)	(491)

The impact of interest rates for long-term business relates primarily to the US, driven by the reduction in credit spreads on corporate bondsthis had the effect of increasing liabilities for indexed business and hence a negative impact on profit. The overall impact on profit also depends on movements in the value of assets backing the liabilities, which is not included in this disclosure.

Other assumption changes include the effect of business migration and expense inflation adjustments in the UK, and reserve releases in Asia.