Interim 2013 results - Part 3 MCEV
|
Adjusted Group MCEV by line of business |
|||||
|
At 30 June 2013 |
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|
|
|
|
|
£m |
|
|
|
Notes |
At 30 June 2013 |
At 30 June 2012 |
At 31 December 2012 |
|
|
MCEV of the core covered business (Emerging Markets) |
B3 |
3,245 |
3,345 |
3,316 |
|
|
Adjusted net worth1 |
|
1,868 |
1,905 |
1,838 |
|
|
Value of in-force business |
|
1,377 |
1,440 |
1,478 |
|
|
MCEV of the core covered business (Old Mutual Wealth) |
B3 |
2,599 |
2,544 |
2,444 |
|
|
Adjusted net worth1 |
|
619 |
477 |
466 |
|
|
Value of in-force business |
|
1,980 |
2,067 |
1,978 |
|
|
MCEV of the non-core covered business (Old Mutual Bermuda)2 |
B3 |
713 |
141 |
625 |
|
|
Adjusted net worth |
|
713 |
232 |
680 |
|
|
Value of in-force business |
|
- |
(91) |
(55) |
|
|
|
|
|
|
|
|
|
Adjusted net worth of asset management and other business |
|
1,827 |
1,847 |
1,772 |
|
|
Emerging Markets |
|
456 |
460 |
444 |
|
|
Old Mutual Wealth |
|
218 |
215 |
225 |
|
|
US Asset Management |
|
1,153 |
1,172 |
1,103 |
|
|
|
|
|
|
|
|
|
Value of the banking business |
|
3,054 |
3,517 |
3,574 |
|
|
Nedbank (market value) |
|
2,997 |
3,481 |
3,527 |
|
|
Emerging Markets (adjusted net worth) |
|
57 |
36 |
47 |
|
|
|
|
|
|
|
|
|
Value of the general insurance business |
|
|
|
|
|
|
Property & Casualty (adjusted net worth) |
|
209 |
292 |
261 |
|
|
|
|
|
|
|
|
|
Net other business3 |
|
(152) |
1,059 |
34 |
|
|
Adjustment for present value of Black Economic Empowerment scheme deferred consideration |
|
219 |
273 |
245 |
|
|
Adjustment for value of own shares in ESOP schemes4 |
|
120 |
106 |
126 |
|
|
|
|
|
|
|
|
|
Market value of perpetual preferred securities5 |
|
- |
(481) |
- |
|
|
Market value of perpetual preferred callable securities |
|
(708) |
(637) |
(686) |
|
|
Market value of subordinated debt |
|
(861) |
(1,341) |
(921) |
|
|
Adjusted Group MCEV |
|
10,265 |
10,665 |
10,790 |
|
|
|
|
|
|
|
|
|
Adjusted Group MCEV per share (pence) |
|
209.7 |
218.2 |
220.5 |
|
|
Number of shares in issue at the end of the financial period less treasury shares - millions |
|
4,896 |
4,887 |
4,893 |
|
|
1 Adjusted net worth is after the elimination of inter-company loans. |
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|
2 The valuation basis for Old Mutual Bermuda has been simplified from a full bottom-up MCEV calculation to an adjusted IFRS basis. The revised approach uses the IFRS net asset value calculated in accordance with the primary financial statements, with variable annuity guarantee liabilities restated to reflect a best estimate valuation consistent with MCEV principles. |
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|
3 Includes any other business that is not included within the main lines of business, largely Old Mutual parent company IFRS equity net of Group adjustments, consolidation adjustments in respect of inter-company transactions and debt and Old Mutual Bermuda asset management. Old Mutual Bermuda asset management was liquidated during the current period. |
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|
4 Includes adjustment for value of excess own shares in employee share scheme trusts. |
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|
5 On 24 September 2012, the Group repaid the US$750 million cumulative preference securities at their nominal value. |
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|
Adjusted operating Group MCEV statement of earnings |
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|
For the six months ended 30 June 2013 |
|||||
|
|
|
|
|
£m |
|
|
|
Notes |
Six months ended 30 June 2013 |
Six months ended 30 June 2012 |
Year ended 31 December 2012 |
|
|
Emerging Markets |
|
269 |
279 |
619 |
|
|
Covered business |
B2 |
190 |
198 |
459 |
|
|
Asset management |
|
72 |
75 |
145 |
|
|
Banking |
|
7 |
6 |
15 |
|
|
|
|
|
|
|
|
|
Old Mutual Wealth |
|
55 |
66 |
(19) |
|
|
Covered business |
B2 |
47 |
66 |
(5) |
|
|
Asset management |
|
8 |
- |
(14) |
|
|
|
|
|
|
|
|
|
Nedbank |
|
|
|
|
|
|
Banking |
|
387 |
405 |
825 |
|
|
Property & Casualty |
|
|
|
|
|
|
General insurance |
|
10 |
31 |
37 |
|
|
US Asset Management |
|
|
|
|
|
|
Asset management |
|
54 |
42 |
91 |
|
|
Other operating segments |
|
|
|
|
|
|
Finance costs1 |
|
(52) |
(88) |
(148) |
|
|
Corporate costs2 |
|
(15) |
(18) |
(39) |
|
|
Other net (expenses)/income3 |
|
(2) |
13 |
(14) |
|
|
Adjusted operating Group MCEV earnings before tax from core operations |
|
706 |
730 |
1,352 |
|
|
1 This includes interest payable from Old Mutual plc to non-core operations of £6 million for six months ended 30 June 2013 (June 2012: £13 million; December 2012: £18 million). |
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|
2 Central costs of £6 million are allocated to the covered business and provisioned in the VIF (June 2012: £7 million; December 2012: £14 million). Hence net corporate costs under MCEV of £15 million (June 2012: £18 million; December 2012: £39 million) differ from the IFRS amount of £21 million (June 2012: £25 million; December 2012: £53 million). |
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|
3 Other net expenses exclude capital gains on seed capital in the US asset management business of £2 million (June 2012: £0 million; December 2012: £14 million). |
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Significant corporate activities and the restatement of comparative information
Old Mutual Bermuda valuation basis change
For the current period, the valuation basis for Old Mutual Bermuda has been simplified from a full bottom-up MCEV calculation to an adjusted IFRS basis. The revised approach uses the IFRS net asset value calculated in accordance with the primary financial statements, with variable annuity guarantee liabilities restated to reflect a best estimate valuation consistent with MCEV principles.
The main effect of this change is the removal of items previously included in the value of in-force business, apart from expected variable annuity guarantee losses, which are now included in ANW. Items no longer included in the MCEV calculation as a result of not calculating the value of in-force business include the cost of non-hedgeable risk, future annuity contract fee income, and future expenses.
This simplification is part of the consolidation of reporting processes for Old Mutual Bermuda following a significant run-off of the book (surrenders of variable annuities post five-year top-up points) and management actions taken to de-risk the business. As a result, Old Mutual Bermuda's value-in-force has become less significant to the Group from a valuation and risk perspective. Earnings calculated on the adjusted IFRS basis are similar to bottom-up calculated MCEV earnings.
Comparative information has not been restated to reflect the valuation basis change.
As a result of this change a simplified analysis of earnings approach has been adopted, with economic gains and losses related to variable annuity guarantee reserves recorded in economic variances.
Old Mutual Bermuda capital resources and requirements
In July 2012 it was agreed with the Bermuda Monetary Authority (BMA) that the Old Mutual Bermuda business should hold a capital requirement of $703 million, comparable to those expected to be required under Solvency II as at December 2011, as calculated by the Group's existing internal capital model. In order to address the increased capital requirements, an injection of £352 million into Old Mutual Bermuda was made on 23 July 2012. The capital requirement is held at a fixed amount between statutory filing dates and the July 2012 requirement has therefore been kept constant for June 2013. In July 2013, the BMA formally approved that Old Mutual Bermuda can proceed with the repatriation of £296 million of capital resources through the cancellation of OM Group (UK) Limited loan notes. This has not been reflected in the June 2013 position.
Restatement of comparative information
· IAS 19 (Employee Benefits) and IFRS 10 (Consolidated Financial Statements) restatements
The Group adopted IAS 19 (Employee Benefits) and IFRS 10 (Consolidated Financial Statements) with a date of initial application of 1 January 2013.
The change in accounting policies has been applied retrospectively and as a result, the comparative information for the six months ended 30 June 2012 and the year ended 31 December 2012 have been restated accordingly.
· US Asset Management seed capital gains
The US asset management seed capital has been consolidated into Old Mutual Bermuda for MCEV reporting purposes following the transfer of ownership in July 2012. Seed capital gains of £2 million (December 2012: £14 million) are recorded in economic variances in MCEV reporting and are therefore excluded from operating MCEV earnings. The December 2012 operating MCEV earnings have been restated to reflect this treatment. This differs from the approach for IFRS reporting where seed capital gains are included in adjusted operating earnings.
|
Adjusted operating Group MCEV earnings per share |
|||||
|
For the six months ended 30 June 2013 |
|||||
|
|
|
|
|
|
|
|
|
|
|
|
|
£m |
|
Six months ended 30 June 2013 |
Notes |
Core continuing operations |
Non-core continuing operations |
Discontinued operations |
Total |
|
Adjusted operating Group MCEV earnings before tax |
|
706 |
1 |
- |
707 |
|
Covered business |
B2 |
237 |
1 |
- |
238 |
|
Other business |
|
469 |
- |
- |
469 |
|
Tax on adjusted operating Group MCEV earnings |
|
(186) |
- |
- |
(186) |
|
Covered business |
B2 |
(56) |
- |
- |
(56) |
|
Other business |
|
(130) |
- |
- |
(130) |
|
|
|
|
|
|
|
|
Adjusted operating Group MCEV earnings after tax |
|
520 |
1 |
- |
521 |
|
Non-controlling interests |
|
|
|
|
|
|
Ordinary shares |
|
(133) |
- |
- |
(133) |
|
Preferred securities |
|
(9) |
- |
- |
(9) |
|
Adjusted operating MCEV earnings after tax attributable to equity holders |
|
378 |
1 |
- |
379 |
|
Adjusted operating Group MCEV earnings per share1 |
|
7.8 |
- |
- |
7.8 |
|
Adjusted weighted average number of shares - millions |
|
|
|
|
4,835 |
|
|
£m |
||||
|
Six months ended 30 June 2012 |
Notes |
Core continuing operations |
Non-core continuing operations |
Discontinued operations |
Total |
|
Adjusted operating Group MCEV earnings before tax |
|
730 |
23 |
28 |
781 |
|
Covered business |
B2 |
264 |
23 |
18 |
305 |
|
Other business |
|
466 |
- |
10 |
476 |
|
Tax on adjusted operating Group MCEV earnings |
|
(197) |
- |
(3) |
(200) |
|
Covered business |
B2 |
(60) |
- |
- |
(60) |
|
Other business |
|
(137) |
- |
(3) |
(140) |
|
|
|
|
|
|
|
|
Adjusted operating Group MCEV earnings after tax |
|
533 |
23 |
25 |
581 |
|
Non-controlling interests |
|
|
|
|
|
|
Ordinary shares |
|
(134) |
- |
- |
(134) |
|
Preferred securities |
|
(30) |
- |
- |
(30) |
|
Adjusted operating MCEV earnings after tax attributable to equity holders |
|
369 |
23 |
25 |
417 |
|
Adjusted operating Group MCEV earnings per share1 |
|
7.1 |
0.4 |
0.5 |
8.0 |
|
Adjusted weighted average number of shares - millions |
|
|
|
|
5,231 |
|
|
£m |
||||
|
Year ended 31 December 2012 |
Notes |
Core continuing operations |
Non-core continuing operations |
Discontinued operations |
Total |
|
Adjusted operating Group MCEV earnings before tax |
|
1,352 |
99 |
28 |
1,479 |
|
Covered business |
B2 |
454 |
99 |
18 |
571 |
|
Other business |
|
898 |
- |
10 |
908 |
|
Tax on adjusted operating Group MCEV earnings |
|
(373) |
- |
(3) |
(376) |
|
Covered business |
B2 |
(118) |
- |
- |
(118) |
|
Other business |
|
(255) |
- |
(3) |
(258) |
|
|
|
|
|
|
|
|
Adjusted operating Group MCEV earnings after tax |
|
979 |
99 |
25 |
1,103 |
|
Non-controlling interests |
|
|
|
|
|
|
Ordinary shares |
|
(277) |
- |
- |
(277) |
|
Preferred securities |
|
(50) |
- |
- |
(50) |
|
Adjusted operating MCEV earnings after tax attributable to equity holders |
|
652 |
99 |
25 |
776 |
|
Adjusted operating Group MCEV earnings per share1 |
|
12.9 |
2.0 |
0.5 |
15.4 |
|
Adjusted weighted average number of shares - millions |
|
|
|
|
5,029 |
|
1 Adjusted operating Group MCEV earnings per share is calculated on the same basis as adjusted operating Group MCEV earnings, but is stated after tax and non-controlling interests. It excludes income attributable to Black Economic Empowerment trusts of listed subsidiaries. The calculation of the adjusted weighted average number of shares includes own shares held in policyholders' funds and Black Economic Empowerment trusts. |
|||||
|
Group market consistent embedded value statement of earnings |
||||
|
For the six months ended 30 June 2013 |
||||
|
|
|
|
|
£m |
|
|
Notes |
Six months ended 30 June 2013 |
Six months ended 30 June 2012 |
Year ended 31 December 2012 |
|
Adjusted operating Group MCEV earnings before tax from core operations |
|
706 |
730 |
1,352 |
|
Adjusted operating Group MCEV earnings before tax from OM Bermuda non-core operations |
|
1 |
23 |
99 |
|
Adjusted operating Group MCEV earnings before tax from continuing operations1 |
|
707 |
753 |
1,451 |
|
Adjusting items from continuing operations |
C2 |
177 |
171 |
492 |
|
Total Group MCEV earnings before tax from continuing operations |
|
884 |
924 |
1,943 |
|
Income tax attributable to shareholders |
|
(203) |
(212) |
(490) |
|
Total Group MCEV earnings after tax from continuing operations |
|
681 |
712 |
1,453 |
|
Total Group MCEV earnings after tax from discontinued operations |
|
(8) |
600 |
600 |
|
Total Group MCEV earnings after tax for the financial period |
|
673 |
1,312 |
2,053 |
|
|
|
|
|
|
|
Total Group MCEV earnings for the financial period attributable to: |
|
|
|
|
|
Equity holders of the parent |
|
541 |
1,159 |
1,747 |
|
Non-controlling interests |
|
|
|
|
|
Ordinary shares |
|
123 |
123 |
256 |
|
Preferred securities |
|
9 |
30 |
50 |
|
Total Group MCEV earnings after tax for the financial period |
|
673 |
1,312 |
2,053 |
|
Basic total Group MCEV earnings per ordinary share (pence) |
|
11.8 |
23.4 |
36.6 |
|
Weighted average number of shares - millions |
|
4,596 |
4,952 |
4,768 |
|
1 For long-term business and general insurance businesses, adjusted operating Group MCEV earnings are based on long-term and short-term investment returns respectively, include investment returns on life fund investments in Group equity and debt instruments, and are stated net of income tax attributable to policyholder returns. For the US asset management business it includes compensation costs in respect of certain long-term incentive schemes defined as non-controlling interests in accordance with IFRS. For all businesses, adjusted operating MCEV earnings exclude goodwill impairment, the impact of acquisition accounting, option revaluations related to long-term incentive schemes, the impact of closure of unclaimed shares trusts, profit/(loss) on acquisition/disposal of subsidiaries, associated undertakings and strategic investments, dividends declared to holders of perpetual preferred callable securities, and fair value (profits)/losses on certain Group debt instruments. |
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|
Reconciliation of movements in Group and Adjusted Group MCEV (after tax) |
|||||||
|
|
|
|
|
|
|
|
£m |
|
|
|
Six months ended 30 June 2013 |
Six months ended 30 June 2012 |
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|
|
Notes |
Covered business MCEV |
Non-covered business IFRS |
Total Group MCEV |
Covered business MCEV |
Non-covered business IFRS |
Total Group MCEV |
|
Opening Group MCEV |
|
6,385 |
2,790 |
9,175 |
7,217 |
2,491 |
9,708 |
|
Adjusted operating MCEV earnings |
B4 |
182 |
197 |
379 |
245 |
172 |
417 |
|
Non-operating MCEV earnings |
|
141 |
21 |
162 |
164 |
578 |
742 |
|
Total Group MCEV earnings |
|
323 |
218 |
541 |
409 |
750 |
1,159 |
|
Other movements in IFRS net equity |
C3 |
(151) |
(476) |
(627) |
(1,596) |
(116) |
(1,712) |
|
Closing Group MCEV |
|
6,557 |
2,532 |
9,089 |
6,030 |
3,125 |
9,155 |
|
Adjustments to bring Group investments to market value |
B1 |
- |
1,176 |
1,176 |
- |
1,510 |
1,510 |
|
Adjusted Group MCEV |
|
6,557 |
3,708 |
10,265 |
6,030 |
4,635 |
10,665 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
£m |
|
|
|
|
|
|
Year ended 31 December 2012 |
|
|
|
||
|
|
Notes |
Covered business MCEV |
Non-covered business IFRS |
Total Group MCEV |
|
|
|
|
Opening Group MCEV |
|
7,217 |
2,491 |
9,708 |
|
|
|
|
Adjusted operating MCEV earnings |
B4 |
453 |
323 |
776 |
|
|
|
|
Non-operating MCEV earnings |
|
473 |
498 |
971 |
|
|
|
|
Total Group MCEV earnings |
|
926 |
821 |
1,747 |
|
|
|
|
Other movements in IFRS net equity |
C3 |
(1,758) |
(522) |
(2,280) |
|
|
|
|
Closing Group MCEV |
|
6,385 |
2,790 |
9,175 |
|
|
|
|
Adjustments to bring Group investments to market value |
B1 |
- |
1,615 |
1,615 |
|
|
|
|
Adjusted Group MCEV |
|
6,385 |
4,405 |
10,790 |
|
|
|
A: MCEV policies
A1: Basis of preparation
The Market Consistent Embedded Value methodology (referred to herein and in the supplementary statements on pages 92 to 116 as MCEV) adopts the Market Consistent Embedded Value Principles (Copyright © Stichting CFO Forum Foundation 2008) issued in June 2008 and updated in October 2009 by the CFO Forum (the Principles) as the basis for the methodology used in preparing the supplementary information.
The CFO Forum announced changes to the MCEV Principles in October 2009 to reflect inter alia the inclusion of a liquidity premium. These changes affirm that the risk free reference rate to be applied under MCEV should include both the swap yield curve appropriate to the currency of the cash flows and a liquidity premium where appropriate.
The Principles have been materially complied with in the preparation of MCEV information for Emerging Markets and Old Mutual Wealth businesses at 30 June 2013. As a result of the consolidation of reporting processes for Old Mutual Bermuda, MCEV information has been prepared using IFRS results prepared in accordance with the primary financial statements, apart from variable annuity guarantee liabilities, which have been restated to reflect a best estimate valuation consistent with the MCEV Principles. The detailed methodology and assumptions made in presenting this supplementary information are set out in notes A2 and A3.
Throughout the supplementary information the following terminology is used to distinguish between the terms MCEV, Group MCEV and adjusted Group MCEV:
n MCEV is a measure of the consolidated value of shareholders' interests in the covered business and consists of the sum of the shareholders' adjusted net worth in respect of the covered business and the value of the in-force covered business
n Group MCEV is a measure of the consolidated value of shareholders' interests in covered and non-covered business. Non-covered business is valued at the IFRS net asset value detailed in the primary financial statements adjusted to eliminate inter-company loans
n The adjusted Group MCEV, a measure used by management to assess the shareholders' interest in the value of the Group, includes the impact of marking all debt to market value, the market value of the Group's listed banking subsidiary, marking the value of deferred consideration due in respect of Black Economic Empowerment arrangements in South Africa (the BEE schemes) to market, as well as including the market value of excess own shares held in ESOP schemes.
A2: Methodology
(a) Required capital
Required capital is the market value of assets that is attributed to support the covered business, over and above that required to back statutory liabilities for covered business, whose distribution to shareholders is restricted. The following capital measures are considered in determining the required capital held for covered business so that it reflects the level of capital considered by the directors to be appropriate to manage the business:
n Economic capital
n Regulatory capital (i.e. the level of solvency capital which the local regulators require)
n Capital required by rating agencies in order to maintain the desired credit rating; and
n Any other required capital definition to meet internal management objectives.
Economic capital for the covered business is based upon Old Mutual's own internal assessment of risks inherent in the underlying business. It measures capital requirements on a basis consistent with a 99.93% confidence level over a one-year time horizon.
For Emerging Markets and Old Mutual Wealth, capital determined with reference to internal management objectives is the most onerous and is the capital measure used. For Old Mutual Bermuda regulatory required capital is the most onerous capital measure.
The required capital in respect of OMLAC(SA)'s covered business is partially covered by the market value of the Group's investments in banking and general insurance in South Africa. On consolidation these investments are shown separately.
|
The table below shows the level of required capital expressed as a percentage of the minimum local regulatory capital requirements. |
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|
|
|
|
|
|
|
|
|
|
|
£m |
|
|
|
At 30 June 2013 |
At 30 June 2012 |
At 31 December 2012 |
||||||
|
|
Notes |
Required capital (a) |
Regulatory capital (b) |
Ratio (a/b) |
Required capital (a) |
Regulatory capital (b) |
Ratio (a/b) |
Required capital (a) |
Regulatory capital (b) |
Ratio (a/b) |
|
Emerging Markets |
B3 |
1,261 |
869 |
1.5 |
1,371 |
1,019 |
1.3 |
1,312 |
923 |
1.4 |
|
Old Mutual Wealth1 |
B3 |
306 |
221 |
1.4 |
310 |
232 |
1.3 |
294 |
212 |
1.4 |
|
Old Mutual Bermuda2 |
B3 |
463 |
463 |
1.0 |
232 |
136 |
1.7 |
433 |
433 |
1.0 |
|
Total |
|
2,030 |
1,553 |
1.3 |
1,913 |
1,387 |
1.4 |
2,039 |
1,568 |
1.3 |
|
1 Local regulators within many of the Old Mutual Wealth countries allow intangible assets to be included as admissible regulatory capital. In such cases the required capital reported for MCEV is net of these items, although each of the countries continues to be sufficiently capitalised on the local solvency basis. Skandia Leben in Germany is permitted under local regulations to include the unallocated policyholder profit sharing liability as admissible capital. |
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|
2 In July 2012 it was agreed with the Bermuda Monetary Agency (BMA) that the Old Mutual Bermuda business should hold a capital requirement of $703 million, comparable to those expected to be required under Solvency II at 31 December 2011, as calculated by the Group's existing internal capital model. The dollar denominated capital requirement is held at a fixed amount between statutory filing dates and the July 2012 requirement has therefore been kept constant for June 2013. Foreign exchange fluctuations are reflected in the amounts above. |
||||||||||
(b) Cost of residual non-hedgeable risks
The cost of residual non-hedgeable risks (CNHR) is calculated using a cost of capital approach, i.e. it is determined as the present value of capital charges for all future non-hedgeable risk capital requirements until the liabilities have run off. The capital charge in each year is the product of the projected expected non-hedgeable risk capital held after allowance for some diversification benefits and the cost of capital charge. The cost of capital charge therefore represents the return above the risk free reference rates that the market is deemed to demand for providing this capital.
The residual non-hedgeable risk capital measure is determined using an internal capital model based on appropriate shock scenarios consistent with a 99.5% confidence level over a one-year time horizon, using the same approach when calculating economic capital at a 99.93% confidence level. The internal capital model makes allowance for certain management actions, such as reductions in bonus rates, where deemed appropriate. The residual non-hedgeable risk capital makes an allowance for non-linearities between financial and non-hedgeable risks.
The following allowance is made for diversification benefits in determining the residual non-hedgeable risk capital at a business unit level:
n Diversification benefits within the non-hedgeable risks of the covered business are allowed for
n No allowance is made for diversification benefits between hedgeable and non-hedgeable risks of the covered business
n No allowance is made for diversification benefits between covered and non-covered business
A cost of capital charge of 2.0% has been applied to residual symmetric and asymmetric non-hedgeable capital at a business unit level over the life of the contracts. This rate is derived by considering a market based view of required return on equity for the covered business, and then deducting risk-free investment returns, frictional costs and an allowance for franchise value. This translates into an equivalent cost of capital rate of approximately 2.4% being applied to the Group diversified capital required in respect of such non-hedgeable risks.
(c) Taxation
In valuing shareholders' cash flows, allowance is made in the cash flow projections for taxes in the relevant jurisdiction affecting the covered business. Tax assumptions are based on best estimate assumptions, applying current local corporate tax legislation and practice together with known future changes and taking credit for any deferred tax assets.
The value of deferred tax assets is partly recognised in the MCEV. Typically those tax assets are expected to be utilised in future by being offset against expected tax liabilities that are generated on expected profits emerging from in-force business. MCEV may therefore understate the true economic value of such deferred tax assets because it does not allow for future new business sales which could affect the utilisation of such assets.
South Africa
In October 2012, tax relief in respect of sales, administration and indirect expenses attributable to taxable income in the individual and company policyholder funds was announced (effective from 1 January 2013).
This has not been included in the June 2013 assumptions.
United Kingdom
The Emergency Budget that was held in June 2010 set in motion a series of reductions to the UK's mainstream corporation tax rate. The impact of the corporation tax rate reducing from 23% down to 21%, applicable from April 2014, is included in the June 2013 results. The impact of the further announced reduction to 20%, applicable from April 2015, is expected to be £4 million.
(d) Value of debt
Senior and subordinated debt securities are marked to market value (for IFRS reporting, debt is valued at either book value or fair value).
The IFRS value of total debt is £1,520 million (June 2012: £2,408 million; December 2012: £1,570 million) and MCEV value is £1,569 million (June 2012: £2,459 million; December 2012: £1,607 million). $750 million perpetual preferred securities were repaid in 2012.
Where either the principal or the coupon of the debt security has been swapped into an alternate currency, the mark to market value of these derivative instruments of £56 million (June 2012: £79 million; December 2012: £96 million) has not been included in the value of debt; however, it is included in the Net other business value of £(152) million (June 2012: £1,059 million; December 2012: £34 million) (Adjusted Group MCEV by line of business). Further information relating to the debt securities can be found in Note E2 in the Notes to the Consolidated Financial Statements.
A3: Assumptions
Non-economic assumptions
The appropriate non-economic projection assumptions for future experience (e.g. mortality, persistency and expenses) are determined using best estimate assumptions of each component of future cash flows, are specific to the entity concerned and have regard to past, current and expected future experience where sufficient evidence exists (e.g. longevity improvements and AIDS-related claims) as derived from both entity-specific and industry data where deemed appropriate. Material assumptions are actively reviewed by means of detailed experience investigations and updated, as deemed appropriate, at least annually.
These assumptions are based on the covered business being part of a going concern, although favourable changes in maintenance expenses such as productivity improvements are generally not included beyond what has been achieved by the end of the reporting period, apart from certain development expenses (described below). Expense assumptions for run-off businesses consider cost reductions in future in line with management actions that would be taken as in-force volumes decrease.
The management expenses attributable to life assurance business have been analysed between expenses relating to the acquisition of new business, maintenance of in-force business (including investment management expenses) and development projects.
n All expected maintenance expense overruns affecting the covered business are allowed for in the calculations
n The MCEV makes provision for future development costs and one-off expenses relating to covered business that are known with sufficient certainty, based on three year business plans. The provision is reduced to the extent that projects have associated benefits that are directly quantifiable and are considered to emerge within a reasonable timeframe (e.g. over the business plan period)
n Unallocated Group holding company expenses have been included to the extent that they are allocated to the covered business. The table below shows the future expenses attributable to the long-term business. The allocation of these expenses is based on the proportion that the management expenses incurred by the covered businesses bears to the total management expenses incurred by the Group
In line with legislation in Germany, a specified proportion of miscellaneous profits is shared with policyholders. The revenue on in-force business can be reduced by various expense items incurred in any year. As such, in the 30 June 2012 VIF calculation, Skandia Leben (Germany) made allowance for the acquisition expenses in relation to the new business written over the next three years when setting the best estimate assumptions for the profit to be shared with policyholders in future years. As the business has been placed in run-off during 2012, acquisition expenses have not been incorporated into profit sharing assumptions as at 31 December 2012 and 30 June 2013.
|
Proportion of Group holding company expenses attributable to long-term business |
% |
|||
|
|
|
At 30 June 2013 |
At 30 June 2012 |
At 31 December 2012 |
|
Emerging Markets |
|
17 |
18 |
18 |
|
Old Mutual Wealth |
|
8 |
9 |
9 |
|
Old Mutual Bermuda1 |
|
n/a |
n/a |
n/a |
|
Total |
|
25 |
27 |
27 |
|
|
|
|
|
|
|
1 Based on materiality, no Group holding expenses are allocated to Old Mutual Bermuda. Holding company expenses are not valued according to the adjusted IFRS earnings approach at June 2013. |
||||
Economic assumptions
(a) Risk free reference rates and inflation
The risk free reference rates, reinvestment rates and discount rates are determined with reference to the swap yield curve appropriate to the currency of the cash flows. For Europe the swap yield curve is obtained from Bloomberg. For Old Mutual Bermuda the swap yield curve is sourced from a third party market consistent asset model that is used to generate the economic scenarios that are required to value the time value of financial options and guarantees. For Emerging Markets the swap yield curve is sourced internally (using market data provided by the Bond Exchange of South Africa) and is checked for reasonability relative to the Bloomberg swap yield curve.
At 30 June 2013, no adjustments are made to swap yields to allow for liquidity premiums or credit risk premiums, apart from a liquidity premium adjustment to OMLAC(SA)'s Immediate Annuity business and Fixed Bond business. A liquidity premium adjustment is applied to OMLAC(SA)'s Fixed Bond business as OMLAC(SA) holds a portfolio of non-government bonds which have a market yield in excess of the risk free rate and the duration of the asset portfolio and the liability duration are a good match (meaning the asset portfolio is held to maturity). Cash flows on this product are also predictable and the company has adequate liquidity to withstand a substantial increase in lapses at all durations without having to sell bonds which further strengthens the case for applying a liquidity premium.
It is the directors' view that a proportion of non-government bond spreads at 30 June 2013 is attributable to a liquidity premium rather than only to credit and default allowances and that returns in excess of swap rates can be achieved, rather than entire spreads being lost to worsening default experience. For OMLAC(SA)'s Immediate Annuity business the currency, credit quality and duration of the actual bond portfolios were considered and adjusted risk free reference rates were derived at 30 June 2013 by adding 50bps of liquidity premium for this business (June 2012: 50bps; December 2012: 50bps) to the swap rates used for setting investment return and discounting assumptions. For OMLAC(SA)'s Fixed Bond products 45bps of liquidity premium was added to the swap rates (June 2012: 55bps; December 2012: 45bps). These adjustments reflect the liquidity premium component in non-government bond spreads over swap rates that is expected to be earned on the portfolios. In deriving the liquidity premia at 30 June 2013, we compared the yields of similar durations on South African government bonds and bonds issues by state-owned enterprises.
The risk free reference spot yields (excluding any applicable liquidity adjustments) at various terms for each of the significant regions are provided in the table below. The risk free reference spot yield curve has been derived from mid swap rates at the reporting date.
Expense inflation rates have been derived by comparing real rates of return against nominal risk free rates for each territory, with adjustments for higher business unit specific inflation where applicable.
|
Risk free reference spot yields (excluding any applicable liquidity adjustments) |
|
|
|
||
|
|
|
|
|
|
% |
|
|
|
GBP |
EUR |
USD |
ZAR |
|
At 30 June 2013 |
|
|
|
|
|
|
1 year |
|
0.7 |
0.4 |
0.4 |
5.7 |
|
5 years |
|
1.6 |
1.2 |
1.6 |
7.5 |
|
10 years |
|
2.6 |
2.1 |
2.8 |
8.5 |
|
20 years |
|
3.4 |
2.6 |
3.6 |
9.0 |
|
|
|
|
|
|
|
|
At 30 June 2012 |
|
|
|
|
|
|
1 year |
|
1.0 |
0.9 |
0.5 |
5.5 |
|
5 years |
|
1.4 |
1.3 |
1.0 |
6.5 |
|
10 years |
|
2.2 |
2.0 |
1.8 |
7.6 |
|
20 years |
|
3.0 |
2.4 |
2.5 |
7.8 |
|
|
|
|
|
|
|
|
At 31 December 2012 |
|
|
|
|
|
|
1 year |
|
0.7 |
0.3 |
0.3 |
5.1 |
|
5 years |
|
1.0 |
0.8 |
0.9 |
6.0 |
|
10 years |
|
1.9 |
1.6 |
1.9 |
7.1 |
|
20 years |
|
2.9 |
2.2 |
2.8 |
7.5 |
(b) Volatilities and correlations
Where cash flows contain financial options and guarantees that do not move linearly with market movements, asset cash flows are projected and all cash flows are discounted using risk-neutral stochastic models. These models project the assets and liabilities using a distribution of asset returns where all asset types, on average, earn the same risk free reference rates.
Apart from the risk free reference yields specified above, other key economic assumptions for the calibration of economic scenarios include the implied volatilities for each asset class and correlations of investment returns between different asset classes. For Old Mutual Bermuda, implied volatilities and correlations are determined for each global equity and bond index modelled.
The volatility assumptions for the calibration of economic scenarios that are used in the stochastic models are, where possible, based on those implied from appropriate derivative prices (such as equity options or swaptions in respect of guarantees that are dependent on changes in equity markets and interest rates respectively) as observed on the valuation date. However, historic implied and historic observed volatilities of the underlying instruments and expert opinion are considered where there are concerns over the depth or liquidity of the market. Where strict adherence to the above is not possible, for example where markets only exist at short durations such as the swaption market in South Africa, interpolation or extrapolation techniques, and where appropriate, historical data are used to derive volatility assumptions for the full term structure of the liabilities. Correlation assumptions between asset classes that are used in stochastic models are based on an assessment of historic relationships. Where historic data is used in setting volatility or correlation assumptions, a suitable time period is considered for analysing historic data including consideration of the appropriateness of historical data where economic conditions were materially different to current conditions.
(c) Exchange rates
All MCEV figures are calculated in local currency and translated to GBP using the appropriate exchange rates as detailed in Note A1 of the Consolidated Financial Statements.
(d) Expected asset returns in excess of the risk free reference rates
The expected asset returns in excess of the risk free reference rates have no bearing on the calculated MCEV other than the calculation of the expected existing business contribution in the analysis of MCEV earnings. Real-world economic assumptions are determined with reference to one-year forward risk free reference rates applicable to the currency of the liabilities at the start of the reporting period. All other economic assumptions, for example future bonus rates, are set at levels consistent with the real-world investment return assumptions.
Equity and property risk premiums incorporate both historical relationships and the directors' view of future projected returns in each region over the analysis period. Pre-tax real-world economic assumptions are determined as follows:
n The equity risk premium is 3.7% for Africa and 3% for Europe
n The cash return equals the one year risk free reference rate for all regions
n The property risk premium is 1.5% in Africa and 2% in Europe
n Returns on corporate bonds reference actual yields from assets held
n No risk premium is assumed for Old Mutual Bermuda's Variable Annuity policyholder asset portfolios.
According to the simplified analysis of earnings approach, earnings for the Old Mutual Bermuda business no longer reflect an expected return component.
|
B: Segment information |
|
|
|
|
|
B1: Components of Group MCEV and Adjusted Group MCEV |
|
|
|
|
|
|
|
|
|
£m |
|
|
Notes |
At 30 June 2013 |
At 30 June 2012 |
At 31 December 2012 |
|
Adjusted net worth attributable to ordinary equity holders of the parent |
|
5,732 |
5,739 |
5,774 |
|
Equity |
|
7,729 |
7,947 |
7,816 |
|
Adjustment to IFRS net asset value |
C4 |
(1,315) |
(1,520) |
(1,360) |
|
Adjustment to remove perpetual preferred callable securities |
|
(682) |
(688) |
(682) |
|
Value of in-force business |
B3 |
3,357 |
3,416 |
3,401 |
|
Present value of future profits |
|
3,842 |
4,042 |
3,946 |
|
Additional time value of financial options and guarantees |
|
(13) |
(100) |
(53) |
|
Frictional costs |
|
(223) |
(245) |
(221) |
|
Cost of residual non-hedgeable risks |
|
(249) |
(281) |
(271) |
|
|
|
|
|
|
|
Group MCEV |
|
9,089 |
9,155 |
9,175 |
|
Adjustments to bring Group investments to market value |
|
|
|
|
|
Adjustment to bring listed subsidiary (Nedbank) to market value |
|
886 |
1,182 |
1,281 |
|
Adjustment for value of own shares in ESOP schemes1 |
|
120 |
106 |
126 |
|
Adjustment for present value of Black Economic Empowerment scheme deferred consideration |
|
219 |
273 |
245 |
|
Adjustment to bring external debt to market value |
|
(49) |
(51) |
(37) |
|
Adjusted Group MCEV |
|
10,265 |
10,665 |
10,790 |
|
|
|
|
|
|
|
Group MCEV value per share (pence) |
|
185.6 |
187.3 |
187.5 |
|
Adjusted Group MCEV per share (pence) |
|
209.7 |
218.2 |
220.5 |
|
Number of shares in issue at the end of the financial period less treasury shares - millions |
|
4,896 |
4,887 |
4,893 |
|
|
|
|
|
|
|
Return on Group MCEV (ROEV) per annum from core operations |
|
8.4% |
8.0% |
6.7% |
|
Return on Group MCEV (ROEV) per annum from continuing non-core operations |
|
0.0% |
0.5% |
1.0% |
|
Return on Group MCEV (ROEV) per annum from discontinued operations |
|
0.0% |
0.5% |
0.3% |
|
Return on Group MCEV (ROEV2) per annum |
|
8.4% |
9.0% |
8.0% |
|
1 Includes adjustment for value of excess own shares in employee share scheme trusts. The movement in value between 31 December 2012 and 30 June 2013 is the net effect of the increase in the Old Mutual plc share price, the reduction in excess own shares following employee share grants during the period and the reduction in overall shares held due to exercises of rights to take delivery of, or net settle, share grants during the financial period. |
||||
|
2 The ROEV is calculated as the adjusted operating Group MCEV earnings after tax and non-controlling interests of £379 million (June 2012: £417 million, December 2012: £776 million) divided by the opening Group MCEV. |
||||
|
B: Segment information continued |
|
|
|
|
|
|
|
B2: Adjusted operating MCEV earnings for the covered business |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
£m |
|||||
|
Six months ended 30 June 2013 |
Total covered business |
Core covered business |
Emerging Markets |
Old Mutual Wealth |
Non-core covered business |
Discontinued covered business |
|
Adjusted operating Group MCEV earnings before tax |
238 |
237 |
190 |
47 |
1 |
- |
|
Tax on adjusted operating Group MCEV earnings |
(56) |
(56) |
(49) |
(7) |
- |
- |
|
Adjusted operating Group MCEV earnings after tax |
182 |
181 |
141 |
40 |
1 |
- |
|
|
|
|
|
|
|
|
|
|
£m |
|||||
|
Six months ended 30 June 2012 |
Total covered business |
Core covered business |
Emerging Markets |
Old Mutual Wealth |
Non-core covered business |
Discontinued covered business |
|
Adjusted operating Group MCEV earnings before tax |
305 |
264 |
198 |
66 |
23 |
18 |
|
Tax on adjusted operating Group MCEV earnings |
(60) |
(60) |
(54) |
(6) |
- |
- |
|
Adjusted operating Group MCEV earnings after tax |
245 |
204 |
144 |
60 |
23 |
18 |
|
|
|
|
|
|
|
|
|
|
£m |
|||||
|
Year ended 31 December 2012 |
Total covered business |
Core covered business |
Emerging Markets |
Old Mutual Wealth |
Non-core covered business |
Discontinued covered business |
|
Adjusted operating Group MCEV earnings before tax |
571 |
454 |
459 |
(5) |
99 |
18 |
|
Tax on adjusted operating Group MCEV earnings |
(118) |
(118) |
(131) |
13 |
- |
- |
|
Adjusted operating Group MCEV earnings after tax |
453 |
336 |
328 |
8 |
99 |
18 |
|
B3: Components of MCEV of the covered business |
|
|
|
|
|
|
|
£m |
||||
|
At 30 June 2013 |
Total covered business |
Core covered business |
Emerging Markets1 |
Old Mutual Wealth |
Non-core covered business2 |
|
Adjusted net worth |
3,200 |
2,487 |
1,868 |
619 |
713 |
|
Free surplus |
1,170 |
920 |
607 |
313 |
250 |
|
Required capital |
2,030 |
1,567 |
1,261 |
306 |
463 |
|
Value of in-force |
3,357 |
3,357 |
1,377 |
1,980 |
- |
|
Present value of future profits |
3,843 |
3,843 |
1,712 |
2,131 |
- |
|
Additional time value of financial options and guarantees |
(13) |
(13) |
- |
(13) |
- |
|
Frictional costs |
(223) |
(223) |
(207) |
(16) |
- |
|
Cost of residual non-hedgeable risks |
(250) |
(250) |
(128) |
(122) |
- |
|
|
|
|
|
|
|
|
MCEV |
6,557 |
5,844 |
3,245 |
2,599 |
713 |
|
|
|
|
|
|
|
|
|
£m |
||||
|
At 30 June 2012 |
Total covered business |
Core covered business |
Emerging Markets1 |
Old Mutual Wealth |
Non-core covered business |
|
Adjusted net worth |
2,614 |
2,382 |
1,905 |
477 |
232 |
|
Free surplus |
701 |
701 |
534 |
167 |
- |
|
Required capital |
1,913 |
1,681 |
1,371 |
310 |
232 |
|
Value of in-force |
3,416 |
3,507 |
1,440 |
2,067 |
(91) |
|
Present value of future profits |
4,042 |
4,020 |
1,799 |
2,221 |
22 |
|
Additional time value of financial options and guarantees |
(100) |
(15) |
- |
(15) |
(85) |
|
Frictional costs |
(245) |
(243) |
(227) |
(16) |
(2) |
|
Cost of residual non-hedgeable risks |
(281) |
(255) |
(132) |
(123) |
(26) |
|
|
|
|
|
|
|
|
MCEV |
6,030 |
5,889 |
3,345 |
2,544 |
141 |
|
|
|
|
|
|
|
|
|
£m |
||||
|
At 31 December 2012 |
Total covered business |
Core covered business |
Emerging Markets1 |
Old Mutual Wealth |
Non-core covered business |
|
Adjusted net worth |
2,984 |
2,304 |
1,838 |
466 |
680 |
|
Free surplus |
945 |
698 |
526 |
172 |
247 |
|
Required capital |
2,039 |
1,606 |
1,312 |
294 |
433 |
|
Value of in-force |
3,401 |
3,456 |
1,478 |
1,978 |
(55) |
|
Present value of future profits |
3,946 |
3,950 |
1,828 |
2,122 |
(4) |
|
Additional time value of financial options and guarantees |
(53) |
(14) |
- |
(14) |
(39) |
|
Frictional costs |
(221) |
(220) |
(207) |
(13) |
(1) |
|
Cost of residual non-hedgeable risks |
(271) |
(260) |
(143) |
(117) |
(11) |
|
|
|
|
|
|
|
|
MCEV |
6,385 |
5,760 |
3,316 |
2,444 |
625 |
|
1 The required capital in respect of Emerging Markets is partially covered by the market value of the Group's investments in banking and general insurance in South Africa. On consolidation these investments are shown separately. |
|||||
|
2 For the current period, the valuation basis for Old Mutual Bermuda has been simplified from a full bottom-up MCEV calculation to an adjusted IFRS basis and the valuation therefore does not include a value of in-force component. |
|||||
|
B4: Analysis of covered business MCEV earnings (after tax) |
|||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total covered business |
Six months ended 30 June 2013 |
||||
|
|
Free surplus |
Required capital |
Adjusted net worth |
Value of in-force |
MCEV |
|
Opening MCEV |
945 |
2,039 |
2,984 |
3,401 |
6,385 |
|
New business value |
(132) |
84 |
(48) |
156 |
108 |
|
Expected existing business contribution (reference rate) |
15 |
27 |
42 |
64 |
106 |
|
Expected existing business contribution (in excess of reference rate) |
3 |
5 |
8 |
19 |
27 |
|
Transfers from VIF and required capital to free surplus |
360 |
(97) |
263 |
(263) |
- |
|
Experience variances |
(54) |
20 |
(34) |
(12) |
(46) |
|
Assumption changes |
4 |
- |
4 |
(4) |
- |
|
Other operating variance |
(19) |
7 |
(12) |
(1) |
(13) |
|
Operating MCEV earnings |
177 |
46 |
223 |
(41) |
182 |
|
Economic variances |
87 |
11 |
98 |
40 |
138 |
|
Other non-operating variance |
(4) |
- |
(4) |
7 |
3 |
|
Total MCEV earnings |
260 |
57 |
317 |
6 |
323 |
|
Closing adjustments |
(35) |
(66) |
(101) |
(50) |
(151) |
|
Capital and dividend flows |
(11) |
7 |
(4) |
- |
(4) |
|
Foreign exchange variance |
(16) |
(73) |
(89) |
(108) |
(197) |
|
MCEV of sold business |
15 |
- |
15 |
- |
15 |
|
Old Mutual Bermuda change in valuation basis |
(23) |
- |
(23) |
58 |
35 |
|
|
|
|
|
|
|
|
Closing MCEV |
1,170 |
2,030 |
3,200 |
3,357 |
6,557 |
|
Return on MCEV (RoEV)% per annum |
|
|
5.9% |
||
|
|
|
|
|
|
|
|
Return on MCEV for total covered business is calculated as the annualised operating MCEV earnings after tax divided by opening MCEV in sterling. The operating assumption changes and other operating variances are not annualised. |
|||||
|
Total covered business |
Six months ended 30 June 2012 |
Year ended 31 December 2012 |
||||||||
|
|
Free surplus |
Required capital |
Adjusted net worth |
Value of in-force |
MCEV |
Free surplus |
Required capital |
Adjusted net worth |
Value of in-force |
MCEV |
|
Opening MCEV |
685 |
1,996 |
2,681 |
4,536 |
7,217 |
685 |
1,996 |
2,681 |
4,536 |
7,217 |
|
New business value |
(154) |
74 |
(80) |
154 |
74 |
(293) |
163 |
(130) |
327 |
197 |
|
Expected existing business contribution (reference rate) |
11 |
36 |
47 |
79 |
126 |
20 |
71 |
91 |
156 |
247 |
|
Expected existing business contribution (in excess of reference rate) |
2 |
18 |
20 |
24 |
44 |
3 |
29 |
32 |
49 |
81 |
|
Transfers from VIF and required capital to free surplus |
379 |
(113) |
266 |
(266) |
- |
695 |
(216) |
479 |
(479) |
- |
|
Experience variances |
8 |
17 |
25 |
13 |
38 |
(14) |
17 |
3 |
6 |
9 |
|
Assumption changes |
(5) |
- |
(5) |
- |
(5) |
34 |
(7) |
27 |
7 |
34 |
|
Other operating variance |
(44) |
48 |
4 |
(36) |
(32) |
(26) |
18 |
(8) |
(107) |
(115) |
|
Operating MCEV earnings |
197 |
80 |
277 |
(32) |
245 |
419 |
75 |
494 |
(41) |
453 |
|
Economic variances |
86 |
5 |
91 |
108 |
199 |
258 |
3 |
261 |
259 |
520 |
|
Other non-operating variance |
(32) |
- |
(32) |
(3) |
(35) |
(284) |
240 |
(44) |
(3) |
(47) |
|
Total MCEV earnings |
251 |
85 |
336 |
73 |
409 |
393 |
318 |
711 |
215 |
926 |
|
Closing adjustments |
(235) |
(168) |
(403) |
(1,193) |
(1,596) |
(133) |
(275) |
(408) |
(1,350) |
(1,758) |
|
Capital and dividend flows |
(61) |
(1) |
(62) |
- |
(62) |
41 |
(3) |
38 |
1 |
39 |
|
Foreign exchange variance |
(15) |
(40) |
(55) |
(45) |
(100) |
(54) |
(145) |
(199) |
(139) |
(338) |
|
MCEV of acquired/sold business |
(159) |
(127) |
(286) |
(1,148) |
(1,434) |
(120) |
(127) |
(247) |
(1,212) |
(1,459) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Closing MCEV |
701 |
1,913 |
2,614 |
3,416 |
6,030 |
945 |
2,039 |
2,984 |
3,401 |
6,385 |
|
Return on MCEV (RoEV)% per annum |
|
|
|
|
7.3% |
|
|
|
|
6.3% |
|
|
|
|
|
|
|
|
|
|
|
|
|
B5: Analysis per business unit |
|
|||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
£m |
|
|
Six months ended 30 June 2013 |
|||||
|
|
Total covered business |
Core covered business |
Emerging Markets |
Old Mutual Wealth |
Non-core covered business1 |
Discontinued covered business |
|
Opening MCEV |
6,385 |
5,760 |
3,316 |
2,444 |
625 |
- |
|
New business value |
108 |
108 |
69 |
39 |
- |
- |
|
Expected existing business contribution (reference rate) |
106 |
106 |
91 |
15 |
- |
- |
|
Expected existing business contribution (in excess of reference rate) |
27 |
27 |
15 |
12 |
- |
- |
|
Experience variances |
(46) |
(47) |
(25) |
(22) |
1 |
- |
|
Assumption changes |
- |
- |
- |
- |
- |
- |
|
Other operating variance |
(13) |
(13) |
(9) |
(4) |
- |
- |
|
Operating MCEV earnings |
182 |
181 |
141 |
40 |
1 |
- |
|
Economic variances |
138 |
130 |
78 |
52 |
8 |
- |
|
Other non-operating variance |
3 |
3 |
(1) |
4 |
- |
- |
|
Total MCEV earnings |
323 |
314 |
218 |
96 |
9 |
- |
|
Closing adjustments |
(151) |
(230) |
(289) |
59 |
79 |
- |
|
Capital and dividend flows |
(4) |
(4) |
(18) |
14 |
- |
- |
|
Foreign exchange variance |
(197) |
(241) |
(271) |
30 |
44 |
- |
|
MCEV of acquired/sold business |
15 |
15 |
- |
15 |
- |
- |
|
Bermuda change in valuation basis |
35 |
- |
- |
- |
35 |
- |
|
|
|
|
|
|
|
|
|
Closing MCEV |
6,557 |
5,844 |
3,245 |
2,599 |
713 |
- |
|
Return on MCEV (RoEV)% per annum |
5.9% |
6.5% |
9.1% |
3.4% |
0.4% |
- |
|
Return on MCEV is calculated as the annualised operating MCEV earnings after tax divided by opening MCEV. The operating assumption changes and other operating variances are not annualised. This is calculated in local currency, apart from total covered and core covered business, which are calculated in sterling. |
||||||
|
|
|
|
|
|
|
|
|
Transfers from VIF and required capital to free surplus |
£m |
|||||
|
Six months ended 30 June 2013 |
Total covered business |
Core covered business |
Emerging Markets |
Old Mutual Wealth |
Non-core covered business1 |
Discontinued covered business |
|
Transfer from value of in-force |
(263) |
(263) |
(108) |
(155) |
- |
- |
|
Transfer from required capital |
(97) |
(97) |
(74) |
(23) |
- |
- |
|
Transfer to free surplus |
360 |
360 |
182 |
178 |
- |
- |
|
1 A simplified analysis of earnings approach has been adopted for Old Mutual Bermuda according to the new adjusted IFRS valuation approach. |
||||||
|
|
|
|
|
|
|
|
|
B5: Analysis per business unit |
|
|||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
£m |
|
|
Six months ended 30 June 2012 |
|||||
|
|
Total covered business |
Core covered business |
Emerging Markets |
Old Mutual Wealth |
Non-core covered business |
Discontinued covered business |
|
Opening MCEV |
7,217 |
5,718 |
3,172 |
2,546 |
66 |
1,433 |
|
New business value |
74 |
74 |
52 |
22 |
- |
- |
|
Expected existing business contribution (reference rate) |
126 |
122 |
99 |
23 |
4 |
- |
|
Expected existing business contribution (in excess of reference rate) |
44 |
27 |
15 |
12 |
17 |
- |
|
Experience variances |
38 |
13 |
13 |
- |
7 |
18 |
|
Assumption changes |
(5) |
- |
- |
- |
(5) |
- |
|
Other operating variance |
(32) |
(32) |
(35) |
3 |
- |
- |
|
Operating MCEV earnings |
245 |
204 |
144 |
60 |
23 |
18 |
|
Economic variances |
199 |
146 |
121 |
25 |
53 |
- |
|
Other non-operating variance |
(35) |
(17) |
(21) |
4 |
- |
(18) |
|
Total MCEV earnings |
409 |
333 |
244 |
89 |
76 |
- |
|
Closing adjustments |
(1,596) |
(162) |
(71) |
(91) |
(1) |
(1,433) |
|
Capital and dividend flows |
(62) |
(62) |
8 |
(70) |
- |
- |
|
Foreign exchange variance |
(100) |
(100) |
(79) |
(21) |
(1) |
1 |
|
MCEV of acquired/sold business |
(1,434) |
- |
- |
- |
- |
(1,434) |
|
|
|
|
|
|
|
|
|
Closing MCEV |
6,030 |
5,889 |
3,345 |
2,544 |
141 |
- |
|
Return on MCEV (RoEV)% per annum |
7.3% |
7.7% |
10.1% |
4.6% |
76.5% |
2.6% |
|
|
|
|
|
|
|
|
|
Return on MCEV is calculated as the annualised operating MCEV earnings after tax divided by opening MCEV. The operating assumption changes and other operating variances are not annualised. This is calculated in local currency, apart from total covered and core covered business, which are calculated in sterling. Discontinued covered business relates to Nordic. |
||||||
|
|
|
|
|
|
|
|
|
Transfers from VIF and required capital to free surplus |
£m |
|||||
|
Six months ended 30 June 2012 |
Total covered business |
Core covered business |
Emerging Markets |
Old Mutual Wealth |
Non-core covered business |
Discontinued covered business |
|
Transfer from value of in-force |
(266) |
(289) |
(120) |
(169) |
23 |
- |
|
Transfer from required capital |
(113) |
(97) |
(76) |
(21) |
(16) |
- |
|
Transfer to free surplus |
379 |
386 |
196 |
190 |
(7) |
- |
|
|
|
|
|
|
|
|
|
B5: Analysis per business unit |
|
|||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
£m |
|
|
Year ended 31 December 2012 |
|||||
|
|
Total covered business |
Core covered business |
Emerging Markets |
Old Mutual Wealth |
Non-core covered business |
Discontinued covered business |
|
Opening MCEV |
7,217 |
5,718 |
3,172 |
2,546 |
66 |
1,433 |
|
New business value |
197 |
197 |
135 |
62 |
- |
- |
|
Expected existing business contribution (reference rate) |
247 |
239 |
193 |
46 |
8 |
- |
|
Expected existing business contribution (in excess of reference rate) |
81 |
55 |
32 |
23 |
26 |
- |
|
Experience variances |
9 |
(48) |
(29) |
(19) |
39 |
18 |
|
Assumption changes |
34 |
5 |
34 |
(29) |
29 |
- |
|
Other operating variance |
(115) |
(112) |
(37) |
(75) |
(3) |
|
|
Operating MCEV earnings |
453 |
336 |
328 |
8 |
99 |
18 |
|
Economic variances |
520 |
403 |
281 |
122 |
117 |
- |
|
Other non-operating variance |
(47) |
(29) |
(26) |
(3) |
- |
(18) |
|
Total MCEV earnings |
926 |
710 |
583 |
127 |
216 |
- |
|
Closing adjustments |
(1,758) |
(668) |
(439) |
(229) |
343 |
(1,433) |
|
Capital and dividend flows |
39 |
(321) |
(132) |
(189) |
360 |
- |
|
Foreign exchange variance |
(338) |
(322) |
(307) |
(15) |
(17) |
1 |
|
MCEV of acquired/sold business |
(1,459) |
(25) |
- |
(25) |
- |
(1,434) |
|
|
|
|
|
|
|
|
|
Closing MCEV |
6,385 |
5,760 |
3,316 |
2,444 |
625 |
- |
|
Return on MCEV (RoEV)% per annum |
6.3% |
5.9% |
10.7% |
0.3% |
154.0% |
1.3% |
|
|
|
|
|
|
|
|
|
Return on MCEV is calculated as the annualised operating MCEV earnings after tax divided by opening MCEV. The operating assumption changes and other operating variances are not annualised. This is calculated in local currency, apart from total covered and core covered business, which are calculated in sterling. Discontinued covered business relates to Nordic. |
||||||
|
|
|
|
|
|
|
|
|
Transfers from VIF and required capital to free surplus |
£m |
|||||
|
Year ended 31 December 2012 |
Total covered business |
Core covered business |
Emerging Markets |
Old Mutual Wealth |
Non-core covered business |
Discontinued covered business |
|
Transfer from value of in-force |
(479) |
(540) |
(220) |
(320) |
61 |
- |
|
Transfer from required capital |
(216) |
(190) |
(153) |
(37) |
(26) |
- |
|
Transfer to free surplus |
695 |
730 |
373 |
357 |
(35) |
- |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Results highlights
Core covered business
n Strong value of new business growth in both Old Mutual Wealth and Emerging Markets businesses due to higher aggregate sales volumes and higher margins.
n Experience variances include adverse variances of £29 million due to development spend and one-off costs. Experience variances improve to £(18) million if these costs are excluded.
n Favourable market performance led to positive economic variances, partially offset by the effect of higher yields on the value of in-force business.
n The 10% depreciation of the rand against sterling over H1 2013 has led to reduced earnings from Emerging Markets in sterling and foreign exchange translation losses in MCEV closing adjustments.
New business
Emerging Markets: VNB increased by 49% compared to H1 2012 (in rand) mainly due to higher sales volumes in Mass Foundation Cluster and Corporate Segment, and higher margins as a result of favourable assumption changes implemented at the end of 2012.
Old Mutual Wealth: VNB increased by 77% compared to H1 2012, with the improvement in new business margins mainly due to less development expenses allocated to new business in H1 2013 compared to H1 2012 (circa £9 million) and general expense savings resulting from the cost reduction initiatives at the end of 2012. Old Mutual Wealth also experienced higher sales in H1 2013, with improved sales in the International business across all regions apart from the UK. Sales on the Platform are slightly lower following the impact of uncertainty around new regulations on distribution in the UK, although sales increased favourably in Q2 2013.
Expected existing business contribution
The reduction in the expected existing business contribution for core covered business is a result of lower anticipated investment returns based on lower opening yields at the start of 2013 compared to the start of 2012.
Experience variances
Emerging Markets: Positive risk experience on protection business is offset by the negative impact of one-off transfers out of Corporate Segment customised annuity business of £(8) million and worsening persistency experience in Mass Foundation Cluster. Experience losses include development expenditure of £7 million incurred across the Emerging Markets operations.
Old Mutual Wealth: Experience variances were broadly neutral after allowing for development expenditure of £16 million and one-off costs of £6 million.
Other operating variances
Variances include the impact of increased capital requirements on the cost of non-hedgeable risk, as well as the impact of discretionary cover increases on Mass Foundation cluster products.
Economic variances
Emerging Markets: Favourable economic variances are mainly due to favourable investment performance on policyholder funds and on shareholder funds in Zimbabwe, partially offset by the adverse impact of higher yields on the value of in-force business.
Old Mutual Wealth: Favourable economic variances were mainly due to investment gains on policyholder funds, partially offset by the adverse impact of higher yields on the value of in-force business.
Non-core covered (Old Mutual Bermuda): Favourable economic variances are mainly due to positive variable annuity guarantee performance (net of experience on hedge portfolio) and current year unrealised gains associated with capital seed investments.
Closing adjustments
Emerging Markets: The negative foreign exchange variance reflects the 10% depreciation of the rand over the period (ZAR/GBP exchange rate increased from 13.77 at 31 December 2012 to 15.08 at 30 June 2013).
Old Mutual Wealth: Closing adjustments include the impact of the release of a tax provision related to the sale of the Finnish business as well as a positive foreign exchange variance from the appreciation of the euro against sterling.
Non-core covered (Old Mutual Bermuda): Closing adjustments include the valuation basis restatement from a bottom-up MCEV calculation basis to an adjusted IFRS basis and a positive foreign exchange variance from the appreciation of the US dollar against sterling.
C: Other key performance information
C1: Value of new business (after tax)
The tables below set out the regional analysis of the value of new business (VNB) after tax. New business profitability is measured by both the ratio of the VNB to the present value of new business premiums (PVNBP) as well as to the annual premium equivalent (APE), and shown under PVNBP margin and APE margin below. APE is calculated as recurring premiums plus 10% of single premiums. Old Mutual Bermuda is excluded from the tables below as it is closed to new business.
|
|
|
|
|
|
|
|
|
|
|
Six months ended 30 June 2013 |
£m |
|||||||
|
|
Annualised recurring premiums |
Single premiums |
PVNBP |
PVNBP capitalisation factors1 |
APE |
VNB |
PVNBP margin |
APE margin |
|
Core covered business |
229 |
3,400 |
4,647 |
5.4 |
569 |
108 |
2.3% |
19% |
|
Emerging Markets |
171 |
798 |
1,755 |
5.6 |
251 |
69 |
3.9% |
28% |
|
Old Mutual Wealth |
58 |
2,602 |
2,892 |
5.0 |
318 |
39 |
1.4% |
12% |
|
|
|
|
|
|
|
|
|
|
|
Total covered business |
229 |
3,400 |
4,647 |
5.4 |
569 |
108 |
2.3% |
19% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six months ended 30 June 2012 |
£m |
|||||||
|
|
Annualised recurring premiums |
Single premiums |
PVNBP |
PVNBP capitalisation factors1 |
APE |
VNB |
PVNBP margin |
APE margin |
|
Core covered business |
259 |
2,836 |
4,122 |
5.0 |
542 |
74 |
1.8% |
14% |
|
Emerging Markets |
177 |
593 |
1,498 |
5.1 |
235 |
52 |
3.5% |
22% |
|
Old Mutual Wealth |
82 |
2,243 |
2,624 |
4.6 |
307 |
22 |
0.8% |
7% |
|
|
|
|
|
|
|
|
|
|
|
Total covered business |
259 |
2,836 |
4,122 |
5.0 |
542 |
74 |
1.8% |
14% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended 31 December 2012 |
£m |
|||||||
|
|
Annualised recurring premiums |
Single premiums |
PVNBP |
PVNBP capitalisation factors1 |
APE |
VNB |
PVNBP margin |
APE margin |
|
Core covered business |
517 |
5,953 |
8,665 |
5.2 |
1,112 |
197 |
2.3% |
18% |
|
Emerging Markets |
370 |
1,321 |
3,331 |
5.4 |
502 |
135 |
4.1% |
27% |
|
Old Mutual Wealth |
147 |
4,632 |
5,334 |
4.8 |
610 |
62 |
1.2% |
10% |
|
|
|
|
|
|
|
|
|
|
|
Total covered business |
517 |
5,953 |
8,665 |
5.2 |
1,112 |
197 |
2.3% |
18% |
|
|
|
|
|
|
|
|
|
|
|
1 The PVNBP capitalisation factors are calculated as follows: (PVNBP - single premiums)/annualised recurring premiums. |
||||||||
The VNB for Old Mutual Wealth in June 2013 has been calculated after the reallocation of certain development costs from acquisition expenses to expense variances. The June 2012 VNB number has not been restated to reflect this treatment.
Additional new business written in the Group:
The value of new individual unit trust linked retirement annuities and pension fund asset management business written by the Emerging Markets long-term business of £523 million (June 2012: £518 million; December 2012: £1,093 million) is excluded from VNB above as the profits in this business arise in the asset management business. The value of new business also excludes premium increases arising from indexation arrangements in respect of existing business, as these are already included in the value of in-force business.
The value of new institutional investment platform pensions business written in Old Mutual Wealth of £315 million (June 2012: £322 million; December 2012: £736 million) is excluded as this is more appropriately classified as unit trust business.
New business single premiums of £25 million (June 2012: £16 million; December 2012: £37 million), annualised recurring premiums of £10 million (June 2012: £9 million; December 2012: £17 million), and APE of £12 million ( June 2012: £11 million; December 2012: £21 million), in respect of the life business in Kenya, Malawi, Nigeria, Swaziland, and Zimbabwe have been excluded from the above tables, as no value of new business and PVNBP calculations have been performed for these businesses.
At 30 June 2012, new business recurring premiums of £8 million in relation to credit life sales in Emerging Markets were excluded in APE figures and annualised recurring premium. These have been included in June 2013 and December 2012 along with the VNB and PVNBP.
Additionally, new business single premiums of £127 million, annualised recurring premiums of £12 million, and APE of £25 million, in respect of the life business in India and China have been excluded from the above tables, as no value of new business and PVNBP calculations have been performed for these businesses at June 2013.
|
C2: Adjustments applied in determining total Group MCEV earnings before tax |
|
|||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
£m |
|
|
Six months ended 30 June 2013 |
Six months ended 30 June 2012 |
||||
|
|
Covered business MCEV |
Non-covered business IFRS |
Total Group MCEV |
Covered business MCEV |
Non-covered business IFRS |
Total Group MCEV |
|
Income/(expense) |
|
|
|
|
|
|
|
Goodwill impairment and amortisation of non-covered business acquired intangible assets and impact of acquisition accounting |
- |
(2) |
(2) |
- |
(5) |
(5) |
|
Economic variances |
186 |
(6) |
180 |
214 |
(5) |
209 |
|
Other non-operating variances |
(6) |
- |
(6) |
(54) |
- |
(54) |
|
Acquired/divested business |
- |
(1) |
(1) |
- |
20 |
20 |
|
Other Group adjustments related to Nordic disposal |
(9) |
- |
(9) |
- |
392 |
392 |
|
Adjusted Group MCEV uplift from sale of Nordic |
- |
- |
- |
- |
202 |
202 |
|
Dividends declared to holders of perpetual preferred callable securities |
- |
22 |
22 |
- |
21 |
21 |
|
Adjusting items relating to US Asset Management equity plans and non-controlling interests |
- |
(17) |
(17) |
- |
(4) |
(4) |
|
Fair value (losses)/gains on Group debt instruments |
- |
1 |
1 |
- |
(36) |
(36) |
|
Adjusting items |
171 |
(3) |
168 |
160 |
585 |
745 |
|
Adjusting items from continuing operations |
171 |
6 |
177 |
178 |
(7) |
171 |
|
Adjusting items from discontinued operations |
- |
(9) |
(9) |
(18) |
592 |
574 |
|
Total MCEV adjusting items |
171 |
(3) |
168 |
160 |
585 |
745 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
£m |
|
|
|
|
|
Year ended 31 December 2012 |
|
||||
|
|
Covered business MCEV |
Non-covered business IFRS |
Total Group MCEV |
|
|
|
|
Income/(expense) |
|
|
|
|
|
|
|
Goodwill impairment and amortisation of non-covered business acquired intangible assets and impact of acquisition accounting |
- |
(7) |
(7) |
|
|
|
|
Economic variances |
657 |
(11) |
646 |
|
|
|
|
Other non-operating variances |
(56) |
- |
(56) |
|
|
|
|
Acquired/divested business |
- |
(12) |
(12) |
|
|
|
|
Other Group adjustments related to Nordic disposal |
(14) |
414 |
400 |
|
|
|
|
Adjusted Group MCEV uplift from sale of Nordic |
- |
201 |
201 |
|
|
|
|
Dividends declared to holders of perpetual preferred callable securities |
- |
42 |
42 |
|
|
|
|
Premium paid on early repayment of senior debt |
- |
(71) |
(71) |
|
|
|
|
Adjusting items relating to US Asset Management equity plans and non-controlling interests |
- |
(13) |
(13) |
|
|
|
|
Fair value gains on Group debt instruments |
- |
(57) |
(57) |
|
|
|
|
Adjusting items |
587 |
486 |
1,073 |
|
|
|
|
Adjusting items from continuing operations |
605 |
(113) |
492 |
|
|
|
|
Adjusting items from discontinued operations |
(18) |
599 |
581 |
|
|
|
|
Total MCEV adjusting items |
587 |
486 |
1,073 |
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
|
|
|
|
|
|
|
|
|
C3: Other movements in IFRS net equity impacting Group MCEV |
|
£m |
||||
|
|
|
|
|
|
|
|
|
|
Six months ended 30 June 2013 |
Six months ended 30 June 2012 |
||||
|
|
Covered business MCEV |
Non-covered business IFRS |
Total Group MCEV |
Covered business MCEV |
Non-covered business IFRS |
Total Group MCEV |
|
Fair value movements |
- |
(1) |
(1) |
- |
(347) |
(347) |
|
Net investment hedge |
- |
9 |
9 |
- |
123 |
123 |
|
Currency translation differences/exchange differences on translating foreign operations |
(197) |
(199) |
(396) |
(100) |
(326) |
(426) |
|
Aggregate tax effects of items taken directly to or transferred from equity |
- |
5 |
5 |
- |
4 |
4 |
|
Other movements1 |
15 |
(15) |
- |
(1,425) |
1,428 |
3 |
|
Net income recognised directly into equity |
(182) |
(201) |
(383) |
(1,525) |
882 |
(643) |
|
Capital and dividend flows for the year |
(4) |
(256) |
(260) |
(71) |
(1,044) |
(1,115) |
|
Old Mutual Bermuda valuation change basis |
35 |
- |
35 |
- |
- |
- |
|
Net purchase of treasury shares |
- |
(29) |
(29) |
- |
(2) |
(2) |
|
Other shares issued |
- |
8 |
8 |
- |
25 |
25 |
|
Change in share based payment reserve |
- |
2 |
2 |
- |
23 |
23 |
|
Other movements in net equity |
(151) |
(476) |
(627) |
(1,596) |
(116) |
(1,712) |
|
|
|
|
|
|
|
|
|
|
|
|
£m |
|
|
|
|
|
Year ended 31 December 2012 |
|
||||
|
|
Covered business MCEV |
Non- covered business IFRS |
Total Group MCEV |
|
|
|
|
Fair value movements |
- |
(328) |
(328) |
|
|
|
|
Net investment hedge |
- |
160 |
160 |
|
|
|
|
Currency translation differences/exchange differences on translating foreign operations |
(338) |
(677) |
(1,015) |
|
|
|
|
Aggregate tax effects of items taken directly to or transferred from equity |
- |
9 |
9 |
|
|
|
|
Other movements1 |
(1,444) |
1,449 |
5 |
|
|
|
|
Net income recognised directly into equity |
(1,782) |
613 |
(1,169) |
|
|
|
|
Capital and dividend flows for the year |
24 |
(1,238) |
(1,214) |
|
|
|
|
Net purchase of treasury shares |
- |
8 |
8 |
|
|
|
|
Other shares issued |
- |
33 |
33 |
|
|
|
|
Change in share based payment reserve |
- |
62 |
62 |
|
|
|
|
Other movements in net equity |
(1,758) |
(522) |
(2,280) |
|
|
|
|
1 The June 2013 and December 2012 amounts include the sale of the Finnish branch in Old Mutual Wealth. The December 2012 and June 2012 amounts include the impact of the IAS 19 restatement and the transfer of the Nordic covered MCEV balance on disposal. |
||||||
|
C: Other key performance information continued |
|
|||||
|
|
|
|
|
|
|
|
|
C4: Reconciliation of MCEV adjusted net worth to IFRS net asset value for the covered business |
|
|||||
|
The table below provides a reconciliation of the MCEV adjusted net worth (ANW) to the IFRS net asset value (NAV) for the covered business. |
||||||
|
|
|
|
|
|
|
|
|
|
£m |
|||||
|
At 30 June 2013 |
Total covered business |
Core covered business |
Emerging Markets |
Old Mutual Wealth |
Non-core covered business |
|
|
IFRS net asset value1 |
4,487 |
3,737 |
1,353 |
2,384 |
750 |
|
|
Adjustment to include long-term business on a statutory solvency basis |
(841) |
(841) |
165 |
(1,006) |
- |
|
|
Inclusion of Group equity and debt instruments held in life funds2 |
366 |
366 |
358 |
8 |
- |
|
|
Goodwill |
(775) |
(775) |
(8) |
(767) |
- |
|
|
Old Mutual Bermuda guarantee cost valuation change3 |
(37) |
- |
- |
- |
(37) |
|
|
Adjusted net worth attributable to ordinary equity holders of the parent |
3,200 |
2,487 |
1,868 |
619 |
713 |
|
|
|
|
|
|
|
|
|
|
|
£m |
|||||
|
At 30 June 2012 |
Total covered business |
Core covered business |
Emerging Markets |
Old Mutual Wealth |
Non-core covered business |
|
|
IFRS net asset value1 |
4,076 |
3,827 |
1,369 |
2,458 |
249 |
|
|
Adjustment to include long-term business on a statutory solvency basis |
(1,024) |
(1,007) |
187 |
(1,194) |
(17) |
|
|
Inclusion of Group equity and debt instruments held in life funds2 |
353 |
353 |
356 |
(3) |
- |
|
|
Goodwill |
(791) |
(791) |
(7) |
(784) |
- |
|
|
Adjusted net worth attributable to ordinary equity holders of the parent |
2,614 |
2,382 |
1,905 |
477 |
232 |
|
|
|
|
|
|
|
|
|
|
|
£m |
|||||
|
At 31 December 2012 |
Total covered business |
Core covered business |
Emerging Markets |
Old Mutual Wealth |
Non-core covered business |
|
|
IFRS net asset value1 |
4,308 |
3,600 |
1,295 |
2,305 |
708 |
|
|
Adjustment to include long-term business on a statutory solvency basis |
(926) |
(898) |
187 |
(1,085) |
(28) |
|
|
Inclusion of Group equity and debt instruments held in life funds2 |
367 |
367 |
364 |
3 |
- |
|
|
Goodwill |
(765) |
(765) |
(8) |
(757) |
- |
|
|
Adjusted net worth attributable to ordinary equity holders of the parent |
2,984 |
2,304 |
1,838 |
466 |
680 |
|
|
|
|
|
|
|
|
|
|
1 IFRS net asset value is after elimination of inter-company loans. |
||||||
|
2 A further £(28) million (June 2012: £(58) million; December 2012: £(36) million) relates to the non-covered business. This brings the total adjustment to IFRS net asset value to £1,315 million (June 2012: £1,520 million; December 2012: £1,360million). |
||||||
|
3 Variable annuity guarantee liabilities are restated from an IFRS basis to reflect a best estimate valuation consistent with MCEV principles. |
||||||
The adjustments to include long-term business on a statutory solvency basis reflect the difference between the net worth of each business on the statutory basis (as required by the local regulator) and their portion of the Group's consolidated equity shareholder funds. In South Africa, these values exclude items that are eliminated or shown separately on consolidation (such as Nedbank and inter-company loans). For some European countries the value reflected in the adjustment to include long-term business on a statutory solvency basis includes the value of the deferred acquisition cost asset, which is part of the equity.
The adjustment to include long-term business on a statutory solvency basis includes the following:
n The excess of the IFRS amount of the deferred acquisition cost (DAC) and value of business acquired (VOBA) assets over the statutory levels included in the VIF with the exception of the Old Mutual Bermuda business where DAC is an admissible asset under local statutory basis.
n When projecting future profits on a statutory basis, the VIF includes the shareholders' value of unrealised capital gains. To the extent that assets in IFRS are valued at market and the market value is higher than the statutory book value, these profits have already been taken into account in the IFRS equity. For Old Mutual Bermuda business, VIF reflects the impact of amortising DAC allowed under the ANW at 31 December 2011. DAC has been completely written off at 31 December 2012.
D1: Sensitivity tests
The table below shows the sensitivity of the MCEV, value of in-force business at 30 June 2013 and the value of new business for the six months ended 30 June 2013 to the following:
n Economic assumptions 100bps increase/ decrease: Increasing/ decreasing all pre-tax investment and economic assumptions (projected investment returns and inflation) by 100bps, with credited rates and discount rates changing commensurately.
n 10bps increase of liquidity spreads: Recognising the present value of an additional 10bps of liquidity spreads assumed on corporate bonds over the lifetime of the liabilities, with credited rates and discount rates changing commensurately.
For each sensitivity illustrated, all other assumptions have been left unchanged except where they are directly affected by the revised conditions. Sensitivity scenarios therefore include consistent changes in cash flows directly affected by the changed assumption(s), for example future bonus participation in changed economic scenarios.
|
Sensitivity tests: MCEV |
|
|
|
|
|
|
|
£m |
||||
|
|
At 30 June 2013 |
|
|
||
|
|
MCEV |
Value of in-force business |
Value of new business |
|
|
|
Central assumptions |
6,557 |
3,357 |
108 |
|
|
|
MCEV, VIF & VNB given changes in: |
|
|
|
|
|
|
Economic assumption 100bps increase |
6,437 |
3,240 |
98 |
|
|
|
Economic assumption 100bps decrease |
6,673 |
3,463 |
117 |
|
|
|
10bps increase of liquidity spreads |
6,564 |
3,364 |
108 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
This information is provided by RNS
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