12. Long-term business MCEV operating earnings

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12 – Long-term business MCEV operating earnings

						2009							Restated 2008
		Europe							Europe
	United Kingdom £m	Aviva Europe £m	Delta Lloyd £m	North America £m	Asia Pacific £m	Total £m		United Kingdom £m	Aviva Europe £m	Delta Lloyd £m	North America £m	Asia Pacific £m	Total £m
Value of new business	247	521	(103)	16	29	710		204	517	(47)	55	43	772
Earnings from existing business:
– expected returns at the reference rate	113	326	43	55	26	563		338	427	107	86	34	992
– expected returns in excess of the reference rate	402	428	270	249	16	1,365		210	82	78	53	6	429
– expected returns	515	754	313	304	42	1,928		548	509	185	139	40	1,421
– experience variances	(29)	43	(3)	(87)	(23)	(99)		(40)	(107)	(19)	(50)	(8)	(224)
– operating assumption changes	(67)	(8)	171	(38)	(14)	44		(5)	127	(265)	(4)	(18)	(165)
Expected return on shareholders’ net worth	138	180	88	89	17	512		166	248	204	61	22	701
Other operating variances	(17)	214	65	(18)	50	294		10	157	138	—	—	305
Operating earnings before tax	787	1,704	531	266	101	3,389		883	1,451	196	201	79	2,810

United Kingdom

MCEV operating earnings are 11% lower at £787 million (2008: £883 million).

Value of new business is £247 million (2008: £204 million), an increase of 21%, reflecting actions taken to increase profitability including disciplined cost control, and only writing business at acceptable levels of return, together with a beneficial business mix.

Total expected return of £653 million (2008: £714 million) is slightly lower, reflecting lower opening assets offset by movements in real world rates of returns compared to 2008.

Experience variances and assumption changes on existing business were £96 million unfavourable (2008: £45 million unfavourable). The 2009 result reflects an additional provision in anticipation of continued short-term recession related activity on pension business and adverse persistency variances including the loss of a single corporate contract. We have delivered on our commitment of a zero existing business cost over run in 2009.

The reattribution of the inherited estate on the 1 October 2009 resulted in an operating profit of £23 million (being the net impact of the value of the estate, less project costs, tax and the 'Policyholder Incentive Payment'). In addition to this, investment earnings on reattributed assets and the surplus generated from the 'New With-Profits Sub-Fund' during the period 1 October to 31 December 2009 generated operating profits of £93 million. We would not expect ongoing profits to continue at this level. On an ongoing basis, profits will arise from earnings on the re-attributed estate (estimated at £30 million per year on an MCEV basis), the financial unwind of guarantee costs, the movement in value in any un-hedged assets backing the guarantees, and any demographic profits / losses (e.g. lapses) resulting from policyholder action.

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