B6 Analysis of life and pension earnings
B6 – Analysis of life and pension earnings
The following table provides an analysis of the movement in embedded value for covered business. The analysis is shown separately for free surplus, required capital and the value of in-force covered business, and includes amounts transferred between these categories. All figures are shown net of tax and minority interests.
| 2009 | Free surplus £m |
Required capital1 £m |
VIF £m |
Total MCEV £m |
|---|---|---|---|---|
| Opening MCEV | 1,348 | 8,148 | 4,716 | 14,212 |
| New business value | (1,571) | 983 | 963 | 375 |
| Expected existing business contribution (reference rate) | — | — | 381 | 381 |
| Expected existing business contribution (in excess of reference rate) | — | — | 952 | 952 |
| Transfers from VIF and required capital to the free surplus | 1,869 | (738) | (1,131) | — |
| Experience variances | (198) | 135 | (38) | (101) |
| Assumption changes | 48 | 6 | 19 | 73 |
| Expected return on shareholders’ net worth | 164 | 182 | — | 346 |
| Other operating variance | 10 | (141) | 283 | 152 |
| Operating MCEV earnings | 322 | 427 | 1,429 | 2,178 |
| Economic variances | 1,317 | (324) | (42) | 951 |
| Other non-operating variances | (238) | 909 | (407) | 264 |
| Total MCEV earnings/(loss) | 1,401 | 1,012 | 980 | 3,393 |
| Capital and dividend flows2 | (250) | — | — | (250) |
| Foreign exchange variance | 6 | (556) | (193) | (743) |
| Acquired/divested business | (301) | (1,058) | (252) | (1,611) |
| Closing MCEV | 2,204 | 7,546 | 5,251 | 15,001 |
1. Required capital is shown net of implicit items permitted by local regulators to cover minimum solvency margins.
2. Included within capital and dividend flows is the transfer to Life and related businesses from other segments consisting 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.
We have reported other non operating variances of £264 million for 2009 (2008: loss £232 million). This represents the impact on the Life MCEV of the reattribution of the inherited estate in the UK and the adverse impact of legislation changes relating to the capping of management changes on pension funds in Poland. In 2008 the impact related to the settlement agreed by Delta Lloyd for its unit-linked policyholders, following an industry-wide challenge on the level of fees. Acquired/divested businesses consist of the disposed of our Australian Life and Pensions business and the IPO of Delta Lloyd in 2009.
| Restated 2008 |
Free surplus £m |
Required capital1 £m |
VIF £m |
Total MCEV £m |
|---|---|---|---|---|
| Opening MCEV | 3,204 | 6,240 | 8,945 | 18,389 |
| New business value | (1,867) | 1,109 | 1,174 | 416 |
| Expected existing business contribution (reference rate) | — | — | 654 | 654 |
| Expected existing business contribution (in excess of reference rate) | — | — | 291 | 291 |
| Transfers from VIF and required capital to the free surplus | 1,926 | (637) | (1,289) | — |
| Experience variances | 154 | 3 | (284) | (127) |
| Assumption changes | 563 | (114) | (584) | (135) |
| Expected return on shareholders’ net worth | 270 | 182 | — | 452 |
| Other operating variance | 44 | (29) | 194 | 209 |
| Operating MCEV earnings | 1,090 | 514 | 156 | 1,760 |
| Economic variances | (3,140) | (433) | (4,873) | (8,446) |
| Other non-operating variances | (104) | 19 | (147) | (232) |
| Total MCEV earnings/(loss) | (2,154) | 100 | (4,864) | (6,918) |
| Capital and dividend flows2 | (63) | — | — | (63) |
| Foreign exchange variance | 459 | 1,597 | 661 | 2,717 |
| Acquired/divested business | (98) | 211 | (26) | 87 |
| Closing MCEV | 1,348 | 8,148 | 4,716 | 14,212 |
1. Required capital is shown net of implicit items permitted by local regulators to cover minimum solvency margins.
2. Included within capital and dividend flows is the transfer to Life and related businesses from other segments consisting 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.
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