Preliminary Results - Part 3 MCEV
Group Market Consistent Embedded Value statement of earnings
For the year ended 31 December 2010
|
|
|
£m |
|
|
|
Notes |
Year ended 31 December 2010 |
Year ended 31 December 2009 |
|
Long Term Savings |
|
|
|
|
Covered business |
|
705 |
252 |
|
Asset management and other business |
|
127 |
26 |
|
Banking |
|
16 |
16 |
|
|
|
848 |
294 |
|
Nedbank |
|
|
|
|
Banking |
|
601 |
470 |
|
Mutual and Federal |
|
|
|
|
General insurance |
|
103 |
70 |
|
US Asset Management |
|
|
|
|
Asset management |
|
87 |
83 |
|
Other operating segments |
|
|
|
|
Finance costs* |
|
(183) |
(144) |
|
Other shareholders' expenses |
|
(57) |
(69) |
|
Adjusted operating Group MCEV earnings before tax from core operations |
|
1,399 |
704 |
|
Adjusted operating Group MCEV earnings before tax from Bermuda non-core operations |
|
(28) |
8 |
|
Adjusted operating Group MCEV earnings before tax from continuing operations** |
|
1,371 |
712 |
|
Adjusting items from continuing operations |
C3 |
499 |
478 |
|
Total Group MCEV earnings before tax from continuing operations |
|
1,870 |
1,190 |
|
Income tax attributable to shareholders |
|
(410) |
(108) |
|
Total Group MCEV earnings after tax from continuing operations |
|
1,460 |
1,082 |
|
Total Group MCEV earnings after tax from US Life discontinued operations*** |
|
227 |
700 |
|
Total Group MCEV earnings after tax for the financial period |
|
1,687 |
1,782 |
|
|
|
|
|
|
Total Group MCEV earnings for the financial period attributable to: |
|
|
|
|
Equity holders of the parent |
|
1,429 |
1,562 |
|
Non-controlling interests |
|
|
|
|
Ordinary shares |
|
196 |
156 |
|
Preferred securities |
|
62 |
64 |
|
Total Group MCEV earnings after tax for the financial period |
|
1,687 |
1,782 |
|
Basic total Group MCEV earnings per ordinary share (pence) |
|
28.2 |
31.3 |
|
Weighted average number of shares - millions |
|
5,064 |
4,994 |
* This includes interest payable from Old Mutual plc to non-core operations of £55 million for the year ended 31 December 2010 (£40 million for the year ended 31 December 2009).
** For long-term business and general insurance businesses, adjusted operating MCEV earnings are based on short-term and long-term investment returns respectively, include investment returns on life funds' 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, put revaluations related to long-term incentive schemes, the impact of closure of unclaimed shares trusts, profit/(loss) on 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 movements.
*** This is composed of earnings before tax of £48 million, adjusting items of £180 million and tax of £(1) million for the year ended 31 December 2010 (earnings before tax of £302 million, adjusting items of £435 million and tax of £(36) million for the year ended 31 December 2009). Further detail relating to adjusting items can be found in section C3.
Adjusted operating Group MCEV earnings per share
For the year ended 31 December 2010
|
Year ended 31 December 2010 |
|
|
|
£m |
|
|
|
Notes |
Core continuing operations |
Non-core continuing operations |
Discontinued operations |
Total |
|
Adjusted operating Group MCEV earnings before tax |
|
1,399 |
(28) |
48 |
1,419 |
|
Tax on adjusted operating Group MCEV earnings |
B2 |
(313) |
4 |
(1) |
(310) |
|
Adjusted operating Group MCEV earnings after tax |
|
1,086 |
(24) |
47 |
1,109 |
|
Non-controlling interests |
|
|
|
|
|
|
Ordinary shares |
|
(217) |
- |
- |
(217) |
|
Preferred securities |
|
(62) |
- |
- |
(62) |
|
Adjusted operating MCEV earnings after tax attributable to equity holders |
|
807 |
(24) |
47 |
830 |
|
Adjusted operating Group MCEV earnings per share* |
|
15.0 |
(0.4) |
0.9 |
15.5 |
|
Adjusted weighted average number of shares - millions |
|
|
|
|
5,359 |
* 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.
|
Year ended 31 December 2009 |
|
|
|
£m |
|
|
|
Notes |
Core continuing operations |
Non-core continuing operations |
Discontinued operations |
Total |
|
Adjusted operating Group MCEV earnings before tax |
|
704 |
8 |
302 |
1,014 |
|
Tax on adjusted operating Group MCEV earnings |
B2 |
(146) |
(27) |
(36) |
(209) |
|
Adjusted operating Group MCEV earnings after tax |
|
558 |
(19) |
266 |
805 |
|
Non-controlling interests |
|
|
|
|
|
|
Ordinary shares |
|
(179) |
- |
- |
(179) |
|
Preferred securities |
|
(64) |
- |
- |
(64) |
|
Adjusted operating MCEV earnings after tax attributable to equity holders |
|
315 |
(19) |
266 |
562 |
|
Adjusted operating Group MCEV earnings per share* |
|
6.0 |
(0.4) |
5.1 |
10.7 |
|
Adjusted weighted average number of shares - millions |
|
|
|
|
5,229 |
* 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.
Components of Group MCEV and adjusted Group MCEV
At 31 December 2010
|
Components of Group MCEV |
|
|
£m |
|
|
Notes |
At 31 December 2010 |
At 31 December 2009 |
|
Adjusted net worth attributable to ordinary equity holders of the parent |
|
5,737 |
4,417 |
|
Equity |
|
8,951 |
8,464 |
|
Adjustment to include long-term business on a statutory solvency basis: |
|
|
|
|
Long Term Savings |
C5 |
(2,053) |
(2,238) |
|
Bermuda |
C5 |
(29) |
(6) |
|
US Life |
C5 |
260 |
(388) |
|
Adjustment for market value of life funds' investments in Group equity and debt instruments held in life funds |
|
306 |
268 |
|
Adjustment to remove perpetual preferred callable securities and accrued dividends |
|
(688) |
(688) |
|
Adjustment to exclude acquisition goodwill from the covered business: |
|
|
|
|
Long Term Savings |
C5 |
(1,010) |
(995) |
|
Value of in-force business |
|
4,164 |
3,212 |
|
Present value of future profits |
|
5,256 |
4,255 |
|
Additional time value of financial options and guarantees |
|
(433) |
(416) |
|
Frictional costs |
|
(276) |
(221) |
|
Cost of residual non-hedgeable risks |
|
(383) |
(406) |
|
|
|
|
|
|
Group MCEV |
|
9,901 |
7,629 |
|
Group MCEV value per share (pence) |
|
181.5 |
144.5 |
|
Return on Group MCEV (RoEV) per annum from continuing core operations |
|
10.6% |
6.0% |
|
Return on Group MCEV (RoEV) per annum from continuing non-core operations |
|
(0.3)% |
(0.4)% |
|
Return on Group MCEV (RoEV) per annum from discontinued operations |
|
0.6% |
5.1% |
|
Return on Group MCEV (RoEV) per annum |
|
10.9% |
10.7% |
|
Number of shares in issue at the end of the financial period less treasury shares - millions |
|
5,456 |
5,279 |
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 shareholders' 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 RoEV is calculated as the adjusted operating Group MCEV earnings after tax and non-controlling interests of £830 million (year ended 31 December 2009: £562 million) divided by the opening Group MCEV.
Components of Group MCEV and adjusted Group MCEV
For the year ended 31 December 2010
|
Components of adjusted Group MCEV |
|
£m |
|
|
|
Notes |
At 31 December 2010 |
At 31 December 2009 |
|
Group MCEV |
|
9,901 |
7,629 |
|
Pro forma adjustments to bring Group investments to market value |
|
|
|
|
Adjustment to bring listed subsidiaries to market value |
|
715 |
805 |
|
Nedbank |
|
715 |
623 |
|
Mutual & Federal |
|
- |
182 |
|
Adjustment for value of own shares in ESOP schemes* |
|
85 |
71 |
|
Adjustment for present value of Black Economic Empowerment scheme deferred consideration |
|
266 |
221 |
|
Adjustment to bring external debt to market value |
|
63 |
302 |
|
Adjusted Group MCEV |
B1 |
11,030 |
9,028 |
|
Adjusted Group MCEV per share (pence) |
|
202.2 |
171.0 |
|
Number of shares in issue at the end of the financial period less treasury shares - millions |
|
5,456 |
5,279 |
* Includes adjustment for value of excess own shares in employee share scheme trusts. The movement in value between 31 December 2009 and 31 December 2010 is the net effect of the increase in the Old Mutual plc share price, the reduction in excess own shares following employee share grants in March 2010 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.
|
Reconciliation of movements in Group MCEV (after tax) |
£m |
|||||||
|
|
|
Year ended 31 December 2010 |
Year ended 31 December 2009 |
|||||
|
|
Notes |
Covered business MCEV |
Non-covered business IFRS |
Total Group MCEV |
Covered business MCEV |
Non-covered business IFRS |
Total Group MCEV |
|
|
Opening Group MCEV |
|
6,027 |
1,602 |
7,629 |
4,183 |
1,079 |
5,262 |
|
|
Adjusted operating MCEV earnings |
|
590 |
240 |
830 |
492 |
70 |
562 |
|
|
Non-operating MCEV earnings |
|
786 |
(187) |
599 |
1,191 |
(191) |
1,000 |
|
|
Total Group MCEV earnings |
|
1,376 |
53 |
1,429 |
1,683 |
(121) |
1,562 |
|
|
Other movements in IFRS net equity |
C4 |
112 |
731 |
843 |
161 |
644 |
805 |
|
|
Closing Group MCEV |
|
7,515 |
2,386 |
9,901 |
6,027 |
1,602 |
7,629 |
|
Notes to the MCEV basis supplementary information
For the year ended 31 December 2010
A: MCEV policies
A1: Basis of preparation
The Market Consistent Embedded Value methodology (referred to herein and in the supplementary statements on pages 88 to 137 as 'MCEV') adopts the Market Consistent Embedded Value Principles 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 CFO Forum is undertaking further work to develop more detailed application guidance.
The Principles have been fully complied with for all businesses as at 31 December 2010. The detailed methodology and assumptions made in presenting this supplementary information are set out in notes A2 and A3.
Where reference is made to 'Europe' only, this generally captures the Nordic, Retail Europe and Wealth Management businesses.
Throughout the supplementary information the following terminology is used to distinguish between the terms 'MCEV', 'Group MCEV' and 'adjusted Group MCEV':
· 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.
· 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.
· 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
Introduction
MCEV represents the present value of shareholders' interests in the earnings distributable from assets allocated to the in-force covered business after sufficient allowance for the aggregate risks in the covered business and is measured in a way that is consistent with the value that would normally be placed on the cash flows generated by these assets and liabilities in a deep and liquid market. MCEV is therefore a risk-adjusted measure to the extent that financial risk is reflected through the use of market consistent techniques in the valuation of both assets and distributable earnings and a transparent explicit allowance is made for non-financial risks.
The MCEV consists of the sum of the following components:
· Adjusted net worth, which excludes acquired intangibles and goodwill, consisting of:
- free surplus allocated to the covered business; and
- required capital to support the covered business.
· Value of in-force covered business (VIF)
The adjusted net worth of the covered business is the market value of shareholders' assets held in respect of the covered business after allowance for the liabilities of the in-force covered business which are dictated by local regulatory reserving requirements.
MCEV is calculated net of non-controlling shareholder interests and excludes the value of future new business.
Coverage
Covered business includes, where material, any contracts that are regarded by local insurance supervisors as long-term life assurance business, and other business, where material, directly related to such long-term life assurance business where the profits are included in the IFRS long-term business profits in the primary financial statements.
The covered business does not include any business written in Skandia Liv. Skandia Liv is a mutual life insurance company wholly owned by Old Mutual plc. All assets and liabilities are wholly attributable to the policyholders of the mutual company.
Notes to the MCEV basis supplementary information
For the year ended 31 December 2010 continued
Some types of business are legally written by a life company, but under IFRS are classified as asset management because 'long-term business' only serves as a wrapper. This business continues to be excluded from covered business, for example:
· New institutional investment platform pensions business written in the United Kingdom as it is more appropriately classified as unit trust business; and
· Individual unit trusts and some group market-linked business written by the asset management companies in South Africa through the life Company as profits from this business arise in the asset management companies.
The treatment within this supplementary information of all business other than the covered business is the same as in the primary financial statements, except for the adjusted Group MCEV which 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.
Free surplus
Free surplus is the market value of any assets allocated to, but not required to support, the in-force covered business. It is determined as the market value of any excess assets attributed to the covered business but not backing the regulatory liabilities, less the required capital to support the covered business.
Required capital
Required capital is the market value of assets that are 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:
· Economic capital;
· Regulatory capital (i.e. the level of solvency capital which the local regulators require);
· Capital required by rating agencies in respect of the North American business in order to maintain the desired credit rating; and
· 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 an economic statement of financial position, with MCEV as the available capital, consistent with a 99.93% confidence level over a one-year time horizon.
For Emerging Markets, Retail Europe and Wealth Management capital determined with reference to internal management objectives is the most onerous and is the capital measure used, whilst for Nordic the regulatory capital requirement is the most onerous. For US Life the required capital is based on the amount that management deems necessary to maintain the desired credit rating for the Company, whilst for Bermuda the required capital is set with reference to internal management objectives.
The required capital in respect of OMSA'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.
|
£m |
||||||
|
|
At 31 December 2010 |
At 31 December 2009 |
||||
|
|
Required capital (a) |
Regulatory capital (b) |
Ratio (a/b) |
Required capital (a) |
Regulatory capital (b) |
Ratio (a/b) |
|
Emerging Markets |
1,498 |
1,153 |
1.3 |
1,225 |
930 |
1.3 |
|
Nordic* |
135 |
135 |
1.0 |
104 |
92 |
1.1 |
|
Retail Europe** |
62 |
85 |
0.7 |
32 |
52 |
0.6 |
|
Wealth Management*** |
278 |
162 |
1.7 |
213 |
143 |
1.5 |
|
US Life |
468 |
196 |
2.4 |
462 |
193 |
2.4 |
|
Bermuda**** |
403 |
- |
n/a |
363 |
- |
n/a |
|
Total |
2,844 |
1,731 |
1.6 |
2,399 |
1,410 |
1.7 |
* The regulatory capital for Nordic has increased from 31 December 2009 to 31 December 2010 as a result of an increase in funds under management.
** Local regulators within many of the Retail Europe 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. The required capital has increased due to a legislative change in Germany which has impacted the factoring business; receivables from factoring are required to be covered by share capital.
*** The required capital for Wealth Management has increased from 31 December 2009 to 31 December 2010 as a result of modelling refinements. The regulatory capital requirement for Wealth Management has been restated at 31 December 2009 to exclude the impact of a policyholder tax credit in Italy, which may be used to offset the capital requirement.
**** The Bermudan regulator allows intangible assets to be included as admissible regulatory capital.
Notes to the MCEV basis supplementary information
For the year ended 31 December 2010 continued
Value of in-force covered business
Under the MCEV methodology, VIF consists of the following components:
· Present value of future profits (PVFP) from in-force covered business; less
· Time value of financial options and guarantees; less
· Frictional costs of required capital; less
· Cost of residual non-hedgeable risks (CNHR).
Projected liabilities and cash flows are calculated net of outward risk reinsurance with allowance for default risk of reinsurance counterparties where material.
Present value of future profits
The PVFP is calculated as the discounted value of future distributable earnings (taking account of local statutory reserving requirements) that are expected to emerge from the in-force covered business, including the value of contractual renewal of in-force business, on a best estimate basis where assumed earned rates of return and discount rates are equal to the risk free reference rates. It therefore represents a deterministic certainty equivalent valuation of future distributable earnings. The certainty equivalent valuation approach is described in more detail in note A3. Any limitations on distribution of such earnings due to statutory or internal capital requirements are taken into account separately in the calculation of frictional costs of required capital.
PVFP captures the intrinsic and time value of financial options and guarantees on in-force covered business which are included in the local statutory reserves according to local requirements, but excludes any additional allowance for the time value of financial options and guarantees.
Financial options and guarantees
Allowance is made in the MCEV for the potential impact of variability of investment returns (i.e. asymmetric impact) on future shareholder cash flows of policyholder financial options and guarantees within the in-force covered business.
The time value of financial options and guarantees describes that part of the value of financial options and guarantees that arises from the variability of future investment returns on assets to the extent that it is not already included in the statutory reserves. The calculations are based on market consistent stochastic modelling techniques where the actual assets held at the valuation date are used as the starting point for the valuation of such financial options and guarantees. Projected cash flows are valued using economic assumptions such that they are valued in line with the price of similar cash flows that are traded in the capital markets. The time value represents the difference between the average value of shareholder cash flows under many generated economic scenarios and the deterministic shareholder value under the best estimate assumptions for the equivalent business. Closed form solutions are also applied in Europe provided the nature of any guarantees is not complex.
The time value of financial options and guarantees also includes allowance for potential burn-through costs on participating business, i.e. the extent to which shareholders are unable to recover a loan made to participating funds to meet either regulatory or internal capital management requirements or the extent to which reserves are inadequate to cover severely adverse experience.
In the generated economic scenarios allowance is made, where appropriate, for the effect of dynamic management and/or policyholder actions in different circumstances:
· Management has some discretion in managing exposure to financial options and guarantees, particularly within participating business. Such dynamic management actions are reflected in the valuation of financial options and guarantees provided that such discretion is consistent with established and justifiable practice taking into account policyholders' reasonable expectations (e.g. with due consideration of the Principles and Practices of Financial Management, or PPFM, for South African business), subject to any contractual guarantees and regulatory or legal constraints and has been passed through an appropriate approval process by the local Executive team and, where applicable, the Board. Assumptions that depend on the market performance (such as crediting rates or bonus rates) are set relative to the risk free reference rates (subject to contractual guarantees) and assuming that all market participants are subjected to the same market conditions.
· Where credible evidence exists that persistency rates are linked to economic scenarios, allowance is made for dynamic policyholder behaviour in response to changes in economic conditions.
· Modelled dynamic management and policyholders' actions include the following:
- changes in future bonus and crediting rates subject to contractual guarantees, including removing all or part of previously declared non-vested balances where circumstances warrant such action;
- dynamic persistency rates for the US Life and Bermuda businesses, and dynamic guaranteed annuity option take-up rates for the South African business driven by changes in economic conditions and management actions; and
- changes in surrender values.
In determining the time value of financial options and guarantees at least 1,000 simulations are run to ensure that a reasonable degree of convergence of results has been obtained. Where deemed appropriate, the number of simulations is increased to reduce sampling error.
Europe
Whilst certain products within the European businesses provide financial options and guarantees, these are immaterial due to the predominantly unit-linked nature of the business.
Notes to the MCEV basis supplementary information
For the year ended 31 December 2010 continued
Emerging Markets
The financial options and guarantees mainly relate to maturity guarantees and guaranteed annuity options.
As required by the applicable Actuarial Society of South Africa guidance note, the time value of the financial options and guarantees included in the statutory reserves in the Emerging Markets businesses as at 31 December 2010 has been valued using a risk-neutral market consistent asset model, and is referred to as the 'Investment Guarantee Reserve' (IGR). This reserve includes a discretionary margin as defined by local guidelines to allow for the sensitivity of the reserve to future interest rate and equity market movements. This discretionary margin is valued in the VIF.
US Life
The financial options and guarantees mainly relate to minimum crediting (bonus) rates.
Bermuda
The financial options and guarantees mainly relate to the guaranteed minimum accumulation benefits on Variable Annuity contracts.
Frictional costs of required capital
From the shareholders' viewpoint there is a cost due to restrictions on the distribution of required capital that is locked in the Company. Where material, an allowance has been made for the frictional costs in respect of the taxation on investment return (income and capital gains) and investment costs on the assets backing the required capital for covered business. The allowance for taxation is based on the taxation rates applicable to investment earnings on assets backing the required capital, although such tax rates are reduced, where applicable, to allow for interest paid on debt which is used partly to finance the required capital.
The run-off pattern of the required capital is projected on an approximate basis over the lifetime of the underlying risks in line with drivers of the capital requirement. The same drivers are used to split the total required capital between existing business and new business.
The allowance for frictional costs is independent of the allowance for the cost of residual non-hedgeable risks as described below.
Cost of residual non-hedgeable risks
Sufficient allowance for most financial risks has been made in the PVFP and the time value of financial options and guarantees by using techniques that are similar to the type of approaches used by capital markets. In addition the modelling of some non-hedgeable non-financial risks is incorporated as part of the calculation of the PVFP (e.g. to the extent that expected operational losses are incorporated in the maintenance expense assumptions) or the time value of financial options and guarantees (e.g. dynamic policyholder behaviour such as the interaction of the investment scenario and the persistency rates).
Residual non-financial risks include, for example, liability risks such as mortality, longevity and morbidity risks; business risks such as persistency, expense and reinsurance credit risks; and operational risk. All such risks for which no or insufficient allowance is made in the PVFP or time value of financial options and guarantees, together with some allowance for hedge risk and credit spread risk in the US Life and Bermudan businesses, are considered within the allowance for the CNHR.
An allowance is made in the CNHR to reflect uncertainty in the best estimate of shareholder cash flows as a result of both symmetric and asymmetric non-hedgeable risks since these risks cannot be hedged in deep and liquid capital markets and are managed, inter alia, by holding risk capital. Considering the Group as a whole, most residual non-hedgeable risks have a symmetric impact on shareholder value with the exception of operational risk.
The 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 economic capital model based on appropriate shock scenarios consistent with a 99.5% confidence level over a one-year time horizon. The internal economic capital model makes allowance for certain management actions, such as reductions in bonus and crediting rates, where deemed appropriate.
The following allowance is made for diversification benefits in determining the residual non-hedgeable risk capital at a business unit level:
· Diversification benefits within the non-hedgeable risks of the covered business are allowed for.
· No allowance is made for diversification benefits between hedgeable and non-hedgeable risks of the covered business.
· No allowance is made for diversification benefits between covered and non-covered business.
The table below shows the amounts of diversified economic capital held in respect of residual non-hedgeable risks.
Notes to the MCEV basis supplementary information
For the year ended 31 December 2010 continued
|
Capital held in respect of non-hedgeable risks |
£m |
|
|
|
At |
At |
|
Emerging Markets* |
751 |
606 |
|
Nordic |
362 |
333 |
|
Retail Europe |
115 |
143 |
|
Wealth Management** |
622 |
563 |
|
US Life |
678 |
661 |
|
Bermuda*** |
274 |
619 |
|
Total |
2,802 |
2,925 |
* The capital held in respect of non-hedgeable risk for Emerging Markets has increased from 31 December 2009 to 31 December 2010 as a result of the strengthening of the South African Rand to Sterling.
** The capital held in respect of non-hedgeable risk for Wealth Management at 31 December 2009 has been restated from £640 million to £563 million due to calculation refinements.
*** The capital held in respect of non-hedgeable risks for Bermuda has reduced from 31 December 2009 to 31 December 2010 as a result of the change in the allowance for hedging basis risk that is now made in the determination of reserves for guaranteed benefits, as well as other calculation refinements.
A weighted average cost of capital rate 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 translates into an equivalent cost of capital rate of approximately 2.9% being applied to the Group diversified capital required in respect of such non-hedgeable risks.
Participating business
For participating business in Emerging Markets, US Life and Bermuda, the method of valuation makes assumptions about future bonus or crediting rates and the determination of profit allocation between policyholders and shareholders. These assumptions are made on a basis consistent with other projection assumptions, especially the projected future risk free investment returns, established Company practice (with due consideration of the PPFM for South African business), past external communication, any payout smoothing strategy, local market practice, regulatory/contractual restrictions and bonus participation rules.
Where current benefit levels are higher than can be supported by the existing fund assets together with projected investment returns, a downward 'glide path' is projected in benefit levels so that the policyholder fund would be exhausted on payment of the last benefit.
Spread-based products
A market consistent valuation of spread-based products (such as Fixed Indexed Annuities in US Life and Bermuda, where investment returns are earned at one rate and policyholders' accounts are credited at a different rate with the difference referred to as 'spread') is dependent on the extent that management discretion can target a shareholder profit margin and the decision rules that management would follow in respect of crediting or bonus rates in any particular stochastic scenario.
Where guaranteed terms are offered at outset of a contract that dictate the payments to policyholders throughout the term of the contract, these payments are valued using the certainty equivalent valuation technique. These products, for example immediate annuities in payment, may therefore show a loss at point of sale under MCEV as investment margins are not anticipated while currently pricing practice does anticipate these margins. If returns in excess of the risk free reference rates actually emerge in the future, these will be recognised in the MCEV earnings as they arise.
For business where the crediting (bonus) rate is set in advance, crediting rates are set by considering management's target shareholder margins throughout the contract lifetime (subject to any guarantees). For other business, projected crediting rates are set equal to the risk free reference rates less the anticipated margin to cover profit and expenses (subject to any policyholder guarantees eroding the shareholder margins). However, during the period following the valuation date the existing crediting rate is applied until the next point at which it can be varied. Given the guarantees included within such products (including consideration of a 0% floor for crediting rates), stochastic modelling is used to value such contracts.
Valuation of assets and treatment of unrealised losses
The market values of assets, where quoted in deep and liquid markets, are based on the bid price on the reporting date. Unquoted assets are valued according to IFRS and marked to model.
No smoothing of market values or unrealised gains/losses is applied.
Asset mix
The time value of financial options and guarantees and PVFP (where relevant) are calculated with reference to assets that are projected using the actual asset allocation of the policyholder funds at the reporting date. However, if the current asset mix is materially different to the long-term strategic asset allocation as a result of market movements, projected assets are assumed to revert to the long-term strategic asset allocation in the short- to medium-term as appropriate.
Defined benefit pension scheme
Where a defined benefit pension scheme within the covered business is in surplus or deficit on the liability basis that is used to determine future employer contributions, the employer pension fund expense assumptions incorporated within the VIF allow appropriately for the expected release of surplus or funding of the deficit.
Look through principle
PVFP and value of new business cash flow projections look through and include the profits/losses of owned service companies, e.g. distribution and administration, related to the management of the covered business. Any profit margins that are included in investment management fees payable by the life assurance companies to the asset management subsidiaries have not been included in the value of in-force business or the value of new business on the grounds of materiality and because a significant proportion of these profits arise from performance-based fees.
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.
No allowance is made for any further additional tax that would be incurred on the remittance of dividends from the life subsidiaries to Old Mutual plc, apart from the South African business where full allowance has been made for Secondary Tax on Companies (STC) that may be payable in South Africa at a rate of 10% and the impact of capital gains tax. Furthermore, for the South African business it has been assumed that a reasonable proportion of the shareholder fund equity portfolio (excluding Group subsidiaries) will be traded each year.
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.
There is currently uncertainty around both the basis and effective date for possible taxation of fee income earned from fund managers by Swedish insurance companies and the expenses that can be relieved against such income. At present we continue to treat fee income from our Swedish unit-linked business as being exempt from corporation tax within our MCEV. An allowance for adverse taxation treatment is included as an operational risk within our CNHR.
The Emergency Budget of 22 June 2010 announced a reduction in the UK corporation tax rate by 1% per year for four years from the financial year beginning April 2011, ultimately bringing the corporation tax rate down to 24%. The MCEV results at 31 December 2010 have been calculated using an ongoing UK corporation tax rate of 27% and each reduction in the tax rate will be included in future results as and when they are enacted. The estimated positive impact on the VIF in respect of Wealth Management at 31 December 2010, assuming that all the annual reductions in the tax rate will be enacted, is £18 million. However, only £4 million is allowed for at 31 December 2010 as an assumption change relating to the first tax rate reduction to 27%. Further allowance will be made once future annual reductions are enacted.
New business and renewals
The market consistent value of new business (VNB) measures the value of the future profits expected to emerge from all new business sold, and in some cases premium increases to existing contracts, during the reporting period after allowance for the time value of financial options and guarantees, frictional costs and the cost of residual non-hedgeable risks associated with writing the new business.
VNB includes contractual renewal of premiums and recurring single premiums, where the level of premium is pre-defined and is reasonably predictable, and changes to existing contracts where these are not variations allowed for in the PVFP. Non-contractual increments are treated similarly where the volume of such increments is reasonably predictable or likely (e.g. where premiums are expected to increase in line with salary or price inflation).
Any variations in premiums on renewal of in-force business from that previously anticipated including deviations in non-contractual increases, deviations in recurrent single premiums and re-pricing of premiums for in-force business are treated as experience variances or economic variances on in-force business and not as new business.
VNB is calculated as follows:
· Economic assumptions at the start of the reporting period are used, except for OMSA's Non-Profit Annuities and Fixed Bond products and US Life products where point of sale assumptions are used (where applicable using economic assumptions at the middle of the reporting period as a proxy).
· Demographic and operating assumptions at the end of the reporting period are used.
· At point of sale and rolled forward to the end of the reporting period.
· Generally using a standalone approach unless a marginal approach would better reflect the additional value to shareholders created through the activity of writing new business.
· Expense allowances include all acquisition expenses, including any acquisition expense overruns.
· Net of tax, reinsurance and non-controlling interests.
· No attribution of any investment and operating variances to VNB.
New business margins are disclosed as:
· The ratio of VNB to the present value of new business premiums (PVNBP); and
· The ratio of VNB to annual premium equivalent (APE), where APE is calculated as annualised recurring premiums plus 10% of single premiums.
PVNBP is calculated at point of sale using premiums before reinsurance and applying a valuation approach that is consistent with the calculation of VNB.
Analysis of MCEV earnings
An analysis of MCEV earnings provides a reconciliation of the MCEV for covered business at the beginning of the reporting period and the MCEV for covered business at the end of the reporting period on a net of taxation basis.
Operating MCEV earnings are generated by the value of new business sold during the reporting period, the expected existing business contribution, operating experience variances, operating assumption changes and other operating variances:
· The value of new business includes the impact of new business strain on free surplus that arises, amongst other things, from the impact of initial expenses and additional required capital that is held in respect of such new business.
· The expected existing business contribution is determined by projecting both actual assets and actual liabilities (including assets backing the free surplus and required capital) from the start of the reporting period to the end of the reporting period using expected real-world earned rates of return. The expected existing business contribution is presented in two components:
- Expected earnings on free surplus and required capital and the expected change in VIF assuming that the assets earn the beginning of period risk free reference rates as well as the deterministic release of the time value of options and guarantees, frictional costs and CNHR; and
- Additional expected earnings on free surplus and required capital and the additional expected change in VIF as a result of real-world expected earned rates of return on assets in excess of beginning of period risk free reference rates.
· Transfers from VIF and required capital to free surplus includes the release of required capital and modelled profits from VIF into free surplus in respect of business that was in-force at the beginning of the reporting period, although the movement does not contribute to a change in the MCEV.
· Operating experience variances reflect the impact of deviations of the actual operational experience during the reporting period from the expected operational experience. It is analysed before operating assumption changes, i.e. such variances are assessed against opening operating assumptions, and reflects the total impact of in-force and new business variances.
· Operating assumption changes incorporate the impact of changes to operating assumptions from those assumed at the beginning of the reporting period to those assumed at the end of the reporting period. As VNB is calculated using operating assumptions at the end of the reporting period, this impact only relates to the value of in-force business at the end of the reporting period that was also in-force at the beginning of the reporting period.
· Other operating variances include model improvements, changes in methodology and the impact of certain management actions, such as a change in the asset allocation backing required capital.
Total MCEV earnings also include economic variances and other non-operating variances:
· Economic variances incorporate the impact of changes in economic assumptions from the beginning of the reporting period to the end of the reporting period (for example, different opening and closing interest rates and equity volatility, increases in equity market values during the period) as well as the impact on earnings resulting from actual returns on assets being different to the expected returns on those assets as reflected in the expected existing business contribution. It therefore also includes the impact of economic variances in the reporting period on projected future earnings.
· Other non-operating variances include the impact of changes in mandatory local regulations and legislative changes in taxation.
An analysis of MCEV earnings requires non-operating closing adjustments in respect of exchange rate movements and capital transfers such as those in respect of payment of dividends and acquiring/divesting businesses.
Return on MCEV for covered business is calculated as the operating MCEV earnings after tax divided by opening MCEV in local currency, except for Wealth Management, Long Term Savings and total covered business where the calculations are performed in sterling.
The anticipated expected existing business contribution for the 12 months following the year ended 31 December 2010 (at the reference rate as well as in excess of the reference rate) is provided to assist users of the MCEV supplementary information in forecasting operating MCEV earnings. Note that the exchange rates that are used for such disclosure are the same rates that are used to translate current year earnings for comparability purposes. Therefore the ultimate expected existing business contribution for the financial year ending 31 December 2011 may differ from these results.
Analysis of Group MCEV earnings
Presentation of Group MCEV consists of the covered business under the MCEV methodology and the non-covered business valued as the unadjusted IFRS net asset value. A mark to market adjustment is therefore not performed for external borrowings and other items not on a mark to market basis under IFRS relating to non-covered business.
Notes to the MCEV basis supplementary information
For the year ended 31 December 2010 continued
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.
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.
· All expected maintenance expense overruns affecting the covered business are allowed for in the calculations.
· The MCEV makes provision for future development costs and one-off exceptional expenses (such as those incurred on the integration of businesses following an acquisition, restructuring costs and costs related to Solvency II implementation) that relate to covered business to the extent that such project costs are known with sufficient certainty, based on three year business plans.
· Unallocated Group holding company expenses have been included to the extent that they relate to the covered business. The table below shows the future expenses attributable to the long-term business. The allocation of these expenses aligns to the proportion that the management expenses incurred by the covered businesses to the total management expenses incurred in the Group.
|
Group holding Company expenses attributable to long-term business |
|
|
|
|
|
% |
|
|
At |
At |
|
Emerging Markets |
17 |
16 |
|
Nordic |
4 |
4 |
|
Retail Europe |
3 |
3 |
|
Wealth Management |
6 |
8 |
|
US Life |
2 |
2 |
|
Bermuda |
- |
- |
|
Total |
32 |
33 |
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, including those costs arising in respect of new business acquisition expenses in any year. Skandia Leben in Germany therefore sets the best estimate assumptions for the amount to be shared with policyholders in future years after making an allowance for the acquisition expenses in relation to the new business expected to be written over the next three years. However note that, as previously mentioned, MCEV excludes the value of future new business.
Economic assumptions
An active basis is applied to set pre-tax investment and economic assumptions to reflect the economic conditions prevailing on the reporting date. Economic assumptions are set consistently, for example future bonus or crediting rates are set at levels consistent with the investment return assumptions.
Under a market consistent valuation, economic assumptions are determined such that projected cash flows are valued in line with the prices of similar cash flows that are traded on the capital markets. Thus, risk free cash flows are discounted at a risk free reference rate and equity cash flows at an equity rate. In practice for the PVFP, where cash flows do not depend on or vary linearly with market movements, a certainty equivalent method is used which assumes that actual assets held earn, before tax and investment management expenses, risk free reference rates (including any liquidity adjustment) and all the cash flows are discounted using risk free reference rates (including any liquidity adjustment) which are gross of tax and investment management expenses. The deterministic certainty equivalent method is purely a valuation technique and over time the expectation is still that risk premiums will be earned on assets such as equities and corporate bonds.
Notes to the MCEV basis supplementary information
For the year ended 31 December 2010
Economic assumptions continued
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 a number of sources including Bloomberg, Nordea Bank and Reuters. For the Emerging Markets and United States businesses, 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.
At 31 December 2010, no adjustments are made to swap yields to allow for liquidity premiums or credit risk premiums, apart from a liquidity adjustment to the US Life business and OMSA's Immediate Annuity business. Any other risk premiums are recognised within the MCEV as and when they are earned.
A wide range of liquidity market data and literature was reviewed at 31 December 2010. This included the CRO/CFO Forum formula which derives the liquidity premium based on corporate bond spreads, with 100% of the liquidity premium applied to immediate annuity business and 75% applied to participating business and fixed deferred annuities to allow for differences in the predictability of cash flows on these products. The review also included the Barrie+Hibbert calibration of US corporate bond spreads using a structural Merton-style model which decomposes the yields of illiquid assets into their constituent parts, and a comparison of the yields of similar durations on South African government bonds and bonds issued by state-owned enterprises.
It is the directors' view that a proportion of corporate bond spreads at 31 December 2010 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 corporate bond spreads being lost to worsening default experience. For the US Life business and OMSA's Immediate Annuity business the currency, credit quality and duration of the actual corporate bond portfolios were considered and adjusted risk free reference rates were derived at 31 December 2010 by adding 75bps of liquidity premium for the US Life business (31 December 2009: 100bps) and adding 45bps of liquidity premium for OMSA's Immediate Annuity business (31 December 2009: 50bps) to the swap rates used for setting investment return and discounting assumptions. These adjustments reflect the liquidity premium component in corporate bond spreads over swap rates that is expected to be earned on the portfolios. Old Mutual believes that the differences between market yields on US Life's and OMSA's bond portfolios and the adjusted risk free reference rates still provide substantial implied margins for default. At those durations where swap yields are not available, e.g. due to lack of a sufficiently liquid or deep swap market, the swap curve is extended using appropriate interpolation or extrapolation techniques.
Consumer price inflation assumptions are determined as those implied by index-linked government stocks or real swap yields if a liquid market of sufficient size exists. In other markets, the consumer price inflation assumptions are modelled considering a spread compared to swap rates. However, where modelling system capabilities are restricted (e.g. US Life), consumer price inflation is set as a flat assumption. Other types of inflation such as expense inflation are derived on a consistent basis and, where deemed appropriate, include a percentage addition to the consumer price inflation rate, for example as life company expenses include a large element of salary related expenses.
The risk free reference spot yields (excluding any applicable liquidity adjustments) and expense inflation rates 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.
|
Risk free reference spot yields (excluding any applicable liquidity adjustments) |
|
|
% |
||
|
At 31 December 2010 |
GBP* |
EUR |
USD |
ZAR |
SEK |
|
1 year |
0.9 |
1.3 |
0.4 |
5.6 |
2.3 |
|
5 years |
2.7 |
2.5 |
2.2 |
7.4 |
3.3 |
|
10 years |
3.6 |
3.3 |
3.4 |
8.2 |
3.7 |
|
20 years |
4.0 |
3.7 |
4.0 |
8.1 |
4.0 |
|
|
|
|
|
|
|
|
At 31 December 2009 |
|
|
|
|
|
|
1 year |
0.9 |
1.3 |
0.7 |
7.3 |
0.8 |
|
5 years |
3.4 |
2.8 |
3.0 |
8.9 |
2.9 |
|
10 years |
4.1 |
3.6 |
4.0 |
9.2 |
3.7 |
|
20 years |
4.3 |
4.1 |
4.5 |
8.2 |
4.1 |
* In prior reporting periods, the risk free spot yields disclosed for GBP were on a 1-year forward basis. The assumptions as at 31 December 2010, as well as 31 December 2009, are now shown as annualised spot yields, consistent with other regions.
Notes to the MCEV basis supplementary information
For the year ended 31 December 2010 continued
|
Expense inflation |
|
|
|
|
% |
|
At 31 December 2010 |
GBP |
EUR |
USD |
ZAR |
SEK |
|
1 year |
3.0 |
2.5 |
3.0 |
5.0 |
2.2 |
|
5 years |
4.3 |
2.5 |
3.0 |
6.4 |
3.0 |
|
10 years |
5.3 |
2.5 |
3.0 |
7.2 |
3.2 |
|
20 years |
5.1 |
2.5 |
3.0 |
7.0 |
3.3 |
|
|
|
|
|
|
|
|
At 31 December 2009 |
|
|
|
|
|
|
1 year |
3.3 |
2.5 |
3.0 |
6.4 |
1.1 |
|
5 years |
3.8 |
2.5 |
3.0 |
7.5 |
2.6 |
|
10 years |
4.4 |
2.5 |
3.0 |
7.7 |
2.8 |
|
20 years |
4.8 |
2.5 |
3.0 |
6.7 |
3.0 |
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 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. 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, e.g. volatilities for property returns. Where strict adherence to the above is not possible, for example where markets only exist at short durations such as the equity option market in South Africa, interpolation or extrapolation techniques 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.
For the Emerging Markets stochastic models, due to the immateriality of corporate bond and property holdings, corporate bonds are assumed to yield the same returns as equivalent long-term government bonds and property is assumed to earn a return equal to a portfolio that is invested 50% in local equities and 50% in long-term government bonds.
The at-the-money annualised asset volatility assumptions of the asset classes incorporated in the stochastic models are detailed below.
Notes to the MCEV basis supplementary information
For the year ended 31 December 2010 continued
|
ZAR volatilities* |
|
|
|
|
|
% |
|
At 31 December 2010 |
1 year swap |
5 year swap |
10 year swap |
20 year swap |
Equity (total return index) |
Property (total return index) |
|
Option term |
|
|
|
|
|
|
|
1 year |
18.7 |
16.9 |
15.8 |
15.1 |
23.4 |
16.0 |
|
5 years |
16.4 |
15.5 |
14.9 |
14.4 |
25.5 |
15.7 |
|
10 years |
15.6 |
15.0 |
14.5 |
13.9 |
27.0 |
15.9 |
|
20 years |
13.8 |
13.3 |
12.8 |
11.9 |
27.8 |
15.4 |
|
|
|
|
|
|
|
|
|
At 31 December 2009 |
|
|
|
|
|
|
|
1 year |
18.3 |
16.2 |
15.1 |
14.8 |
27.4 |
17.1 |
|
5 years |
16.9 |
15.8 |
15.3 |
15.1 |
25.5 |
14.8 |
|
10 years |
15.7 |
15.2 |
14.7 |
14.1 |
26.2 |
14.1 |
|
20 years |
14.5 |
13.8 |
13.1 |
12.0 |
27.0 |
14.2 |
* Due to limited liquidity in the ZAR swaption and equity option market, the market consistent asset model has been calibrated by extrapolating swaption and equity option implied volatility data beyond terms of 2 years and 3 years respectively.
|
USD volatilities* |
|
|
|
% |
|
At 31 December 2010 |
1 year swap |
5 year swap |
10 year swap |
20 year swap |
|
Option term |
|
|
|
|
|
1 year |
37.8 |
34.3 |
31.2 |
27.7 |
|
5 years |
26.2 |
24.7 |
23.0 |
20.9 |
|
10 years |
20.0 |
18.8 |
17.7 |
16.1 |
|
20 years |
16.8 |
15.7 |
14.7 |
13.1 |
|
|
|
|
|
|
|
At 31 December 2009 |
|
|
|
|
|
1 year |
39.0 |
36.5 |
33.2 |
29.6 |
|
5 years |
27.1 |
25.0 |
23.5 |
21.1 |
|
10 years |
19.4 |
18.9 |
17.6 |
16.2 |
|
20 years |
16.8 |
16.1 |
14.2 |
12.7 |
* In prior reporting periods USD volatilities were based on market quoted information. The assumptions for 31 December 2010 as well as 31 December 2009 are now shown as modelled volatilities, consistent with the disclosure of interest rate volatilities in South Africa. Market volatilities for 1-year option terms and 1-year swap tenors are significantly different to modelled volatilities, with the calibration ensuring a reasonable fit across the entire spectrum of modelled option terms and swap tenors instead of focusing the calibration in this area.
|
International equity volatilities (applicable to Old Mutual Bermuda)* |
|
|||||||||
|
At 31 December 2010 |
SPX |
RTY |
TPX |
HSCEI |
TWY |
KOSP12 |
NIFTY |
SX5E |
UKX |
|
|
Option term |
|
|
|
|
|
|
|
|
|
|
|
1 year |
21.5 |
28.1 |
26.7 |
27.8 |
21.5 |
21.4 |
22.0 |
24.3 |
21.5 |
|
|
5 years |
23.6 |
32.6 |
28.3 |
32.3 |
25.5 |
24.0 |
26.6 |
25.2 |
24.2 |
|
|
10 years |
23.6 |
32.6 |
28.3 |
32.3 |
25.5 |
24.0 |
26.6 |
25.2 |
24.2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At 31 December 2009 |
|
|
|
|
|
|
|
|
|
|
|
1 year |
22.1 |
28.6 |
28.3 |
33.5 |
22.9 |
23.3 |
26.5 |
24.7 |
23.1 |
|
|
5 years |
24.4 |
32.9 |
29.4 |
34.2 |
26.4 |
24.2 |
26.4 |
25.4 |
24.1 |
|
|
10 years |
25.0 |
32.6 |
29.0 |
37.4 |
27.5 |
30.0 |
31.2 |
27.4 |
25.9 |
|
Notes to the MCEV basis supplementary information
For the year ended 31 December 2010 continued
|
International equity volatilities (applicable to Old Mutual Bermuda)* |
|||||
|
|
% |
||||
|
At 31 December 2010 |
EEM |
USAgg |
EUAgg |
APAgg |
|
|
Option term |
|
|
|
|
|
|
1 year |
27.4 |
5.5 |
13.0 |
12.6 |
|
|
5 years |
27.7 |
5.5 |
13.0 |
12.6 |
|
|
10 years |
27.7 |
5.5 |
13.0 |
12.6 |
|
|
|
|
|
|
|
|
|
At 31 December 2009 |
|
|
|
|
|
|
1 year |
31.6 |
4.5 |
12.0 |
11.6 |
|
|
5 years |
30.8 |
4.5 |
12.0 |
11.6 |
|
|
10 years |
36.7 |
4.5 |
12.0 |
11.6 |
|
* Long-term option implied volatility has been calibrated assuming a flat volatility term structure beyond 5 years due to limited data availability for some indices. In prior reporting periods, the volatilities disclosed for Bermuda were on a 1-year forward basis for most indices. The assumptions at 31 December 2010, as well as the comparatives for prior periods, are now shown as the annualised volatilities applicable over the entire option term specified, consistent with the disclosure of volatilities for other regions. These volatilities, as represented by their Bloomberg codes, refer to the price indices. Due to ongoing enhancements in the fund mapping process, the indices referenced may vary from period to period.
Exchange rates
All MCEV figures are calculated in local currency and translated to GBP using the appropriate exchange rates as detailed in Note C2 of the IFRS statements.
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 or crediting 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. Pre-tax real-world economic assumptions are determined as follows:
· The equity risk premium is 3.5% for Africa and 3% for Europe and the United States.
· The corporate bond return is based on actual corporate bond spreads on the reporting date less an allowance for defaults.
· The property risk premium is 1.5% in Africa and 2% in Europe.
Tax
The weighted average effective tax rates that apply to the cash flow projections within the VIF at 31 December 2010 are set out below:
· OMSA - 33% (31 December 2009: 33%)
· Namibia - 0% (31 December 2009: 0%)
· Nordic - 4% (31 December 2009: 4%)
· Retail Europe - 27% (31 December 2009: 28%)
· Wealth Management -11% (31 December 2009: 13%)
· US Life - 0% (31 December 2009: 0%)
· Bermuda - 0% (31 December 2009: 0%)
Notes to the MCEV basis supplementary information
For the year ended 31 December 2010 continued
B: Segment information
B1: Adjusted Group MCEV presented per business line
|
|
£m |
|
|
|
At |
At 31 December 2009 |
|
MCEV of the core covered business |
7,417 |
6,147 |
|
Adjusted net worth* |
2,414 |
1,954 |
|
Value of in-force business |
5,003 |
4,193 |
|
MCEV of the Bermuda non core covered business |
287 |
198 |
|
Adjusted net worth* |
403 |
363 |
|
Value of in-force business |
(116) |
(165) |
|
MCEV of the US Life discontinued covered business |
(189) |
(318) |
|
Adjusted net worth* |
534 |
498 |
|
Value of in-force business |
(723) |
(816) |
|
|
|
|
|
Adjusted net worth of asset management and other businesses |
1,950 |
1,716 |
|
Emerging Markets |
289 |
216 |
|
Nordic** |
4 |
(75) |
|
Retail Europe |
14 |
12 |
|
Wealth Management |
171 |
152 |
|
US Asset Management |
1,472 |
1,411 |
|
Value of the banking business |
3,603 |
2,948 |
|
Nordic (adjusted net worth) |
328 |
314 |
|
Nedbank (market value) |
3,275 |
2,634 |
|
Value of the general insurance business |
|
|
|
Mutual & Federal*** |
409 |
448 |
|
Net other business |
31 |
123 |
|
Adjustment for present value of Black Economic Empowerment scheme deferred consideration |
266 |
221 |
|
Adjustment for value of own shares in ESOP schemes**** |
85 |
71 |
|
|
|
|
|
Perpetual preferred securities (US$ denominated) |
(449) |
(385) |
|
Perpetual preferred callable securities |
(598) |
(477) |
|
GBP denominated |
(270) |
(224) |
|
Euro denominated |
(328) |
(253) |
|
Debt |
(1,782) |
(1,664) |
|
Rand denominated |
(304) |
(290) |
|
USD denominated |
(337) |
(338) |
|
GBP denominated |
(842) |
(759) |
|
SEK denominated |
(297) |
(256) |
|
Euro denominated |
(2) |
(21) |
|
Adjusted Group MCEV |
11,030 |
9,028 |
* Adjusted net worth is after the elimination of inter-company loans.
** Includes the adjusted net worth of Nordic holding companies that are classified as non-covered business, net of the holding companies' investment in Group subsidiaries.
*** Reflected at IFRS net asset value at 31 December 2010 and at market value for 31 December 2009 as a result of the acquisition of the remaining non-controlling interest in Mutual & Federal.
**** Includes adjustment for value of excess own shares in employee share scheme trusts. The movement in value between 31 December 2009 and 31 December 2010 is the net effect of the increase in the Old Mutual plc share price, the reduction in excess own shares following employee share grants in March 2010 and the reduction in overall shares held due to exercises of rights to take delivery of, or net settle, share grants during the year.
Notes to the MCEV basis supplementary information
For the year ended 31 December 2010 continued
B2: Adjusted operating MCEV earnings for the covered business
|
|
£m |
|
|
|
Year ended 31 December 2010 |
Year ended 31 December 2009 |
|
Adjusted operating MCEV earnings before tax for the covered business |
|
|
|
Long Term Savings |
705 |
252 |
|
Emerging Markets |
443 |
272 |
|
Nordic |
65 |
78 |
|
Retail Europe |
68 |
(58) |
|
Wealth Management |
129 |
(40) |
|
US Life |
48 |
302 |
|
Bermuda |
(28) |
8 |
|
|
725 |
562 |
|
|
|
|
|
Tax on adjusted operating MCEV earnings for the covered business |
|
|
|
Long Term Savings |
(138) |
(7) |
|
Emerging Markets |
(99) |
(60) |
|
Nordic |
(20) |
3 |
|
Retail Europe |
(2) |
14 |
|
Wealth Management |
(17) |
36 |
|
US Life |
(1) |
(36) |
|
Bermuda |
4 |
(27) |
|
|
(135) |
(70) |
|
|
|
|
|
Adjusted operating MCEV earnings after tax for the covered business |
|
|
|
Long Term Savings |
567 |
245 |
|
Emerging Markets |
344 |
212 |
|
Nordic |
45 |
81 |
|
Retail Europe |
66 |
(44) |
|
Wealth Management |
112 |
(4) |
|
US Life |
47 |
266 |
|
Bermuda |
(24) |
(19) |
|
|
590 |
492 |
|
|
|
|
|
Tax on adjusted operating MCEV earnings comprises |
|
|
|
Tax on adjusted operating MCEV earnings for the covered business |
(135) |
(70) |
|
Tax on adjusted operating MCEV earnings for other business |
(175) |
(139) |
|
Tax on adjusted operating MCEV earnings |
(310) |
(209) |
Notes to the MCEV basis supplementary information
For the year ended 31 December 2010 continued
B3: Components of MCEV of the covered business
|
|
£m |
|
|
|
At |
At |
|
MCEV of the covered business |
7,515 |
6,027 |
|
Adjusted net worth |
3,351 |
2,815 |
|
Value of in-force business |
4,164 |
3,212 |
|
Long Term Savings |
|
|
|
Adjusted net worth |
2,414 |
1,954 |
|
Free surplus |
441 |
380 |
|
Required capital |
1,973 |
1,574 |
|
Value of in-force business |
5,003 |
4,193 |
|
Present value of future profits |
5,557 |
4,667 |
|
Additional time value of financial options and guarantees |
(12) |
(7) |
|
Frictional costs |
(267) |
(211) |
|
Cost of residual non-hedgeable risks |
(275) |
(256) |
|
|
|
|
|
Consisting of : |
|
|
|
Emerging Markets |
|
|
|
Adjusted net worth* |
1,804 |
1,305 |
|
Free surplus |
306 |
80 |
|
Required capital |
1,498 |
1,225 |
|
Value of in-force business |
1,509 |
1,158 |
|
Present value of future profits |
1,849 |
1,424 |
|
Additional time value of financial options and guarantees |
- |
- |
|
Frictional costs |
(240) |
(181) |
|
Cost of residual non-hedgeable risks |
(100) |
(85) |
|
Nordic |
|
|
|
Adjusted net worth |
186 |
195 |
|
Free surplus |
51 |
91 |
|
Required capital |
135 |
104 |
|
Value of in-force business |
1,318 |
1,114 |
|
Present value of future profits |
1,397 |
1,196 |
|
Additional time value of financial options and guarantees |
- |
- |
|
Frictional costs |
(6) |
(11) |
|
Cost of residual non-hedgeable risks |
(73) |
(71) |
|
Retail Europe |
|
|
|
Adjusted net worth |
103 |
78 |
|
Free surplus |
41 |
46 |
|
Required capital |
62 |
32 |
|
Value of in-force business |
520 |
453 |
|
Present value of future profits |
573 |
507 |
|
Additional time value of financial options and guarantees |
(10) |
(6) |
|
Frictional costs |
(11) |
(7) |
|
Cost of residual non-hedgeable risks |
(32) |
(41) |
Notes to the MCEV basis supplementary information
For the year ended 31 December 2010 continued
B3: Components of MCEV of the covered business
|
|
£m |
||
|
|
At |
At |
|
|
Wealth management |
|
|
|
|
Adjusted net worth |
321 |
376 |
|
|
Free surplus |
43 |
163 |
|
|
Required capital |
278 |
213 |
|
|
Value of in-force business |
1,656 |
1,468 |
|
|
Present value of future profits |
1,738 |
1,540 |
|
|
Additional time value of financial options and guarantees |
(2) |
(1) |
|
|
Frictional costs |
(10) |
(12) |
|
|
Cost of residual non-hedgeable risks |
(70) |
(59) |
|
|
|
|
|
|
|
US Life (Discontinued) |
|
|
|
|
Adjusted net worth |
534 |
498 |
|
|
Free surplus |
66 |
36 |
|
|
Required capital |
468 |
462 |
|
|
Value of in-force business |
(723) |
(816) |
|
|
Present value of future profits |
(446) |
(511) |
|
|
Additional time value of financial options and guarantees |
(186) |
(213) |
|
|
Frictional costs |
(7) |
(6) |
|
|
Cost of residual non-hedgeable risks |
(84) |
(86) |
|
|
Bermuda (Non core) |
|
|
|
|
Adjusted net worth |
403 |
363 |
|
|
Free surplus |
- |
- |
|
|
Required capital |
403 |
363 |
|
|
Value of in-force business |
(116) |
(165) |
|
|
Present value of future profits |
145 |
99 |
|
|
Additional time value of financial options and guarantees |
(235) |
(196) |
|
|
Frictional costs |
(2) |
(4) |
|
|
Cost of residual non-hedgeable risks |
(24) |
(64) |
|
|
|
|
|
|
* The required capital in respect of OMSA 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.
Notes to the MCEV basis supplementary information
For the year ended 31 December 2010 continued
B4: Analysis of covered business MCEV earnings (after tax)
The Long Term Savings segment consists of Emerging Markets, Nordic, Retail Europe and Wealth Management.
|
|
£m |
|||||||||
|
Long Term Savings (LTS) |
Year ended 31 December 2010 |
Year ended 31 December 2009 |
||||||||
|
|
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 |
380 |
1,574 |
1,954 |
4,193 |
6,147 |
101 |
1,441 |
1,542 |
3,950 |
5,492 |
|
New business value |
(419) |
160 |
(259) |
459 |
200 |
(438) |
129 |
(309) |
462 |
153 |
|
Expected existing business contribution (reference rate) |
8 |
77 |
85 |
168 |
253 |
5 |
92 |
97 |
191 |
288 |
|
Expected existing business contribution (in excess of reference rate) |
7 |
(3) |
4 |
59 |
63 |
(1) |
5 |
4 |
59 |
63 |
|
Transfers from VIF and required capital to free surplus |
802 |
(184) |
618 |
(618) |
- |
766 |
(186) |
580 |
(580) |
- |
|
Experience variances |
(16) |
28 |
12 |
43 |
55 |
(11) |
(8) |
(19) |
(64) |
(83) |
|
Assumption changes |
23 |
2 |
25 |
(25) |
- |
33 |
(22) |
11 |
(242) |
(231) |
|
Other operating variance |
(93) |
37 |
(56) |
52 |
(4) |
154 |
(44) |
110 |
(55) |
55 |
|
Operating MCEV earnings |
312 |
117 |
429 |
138 |
567 |
508 |
(34) |
474 |
(229) |
245 |
|
Economic variances |
100 |
41 |
141 |
342 |
483 |
50 |
34 |
84 |
217 |
301 |
|
Other non-operating variance |
(7) |
25 |
18 |
- |
18 |
39 |
(20) |
19 |
168 |
187 |
|
Total MCEV earnings |
405 |
183 |
588 |
480 |
1,068 |
597 |
(20) |
577 |
156 |
733 |
|
Closing adjustments |
(344) |
216 |
(128) |
330 |
202 |
(318) |
153 |
(165) |
87 |
(78) |
|
Capital and dividend flows |
(383) |
- |
(383) |
- |
(383) |
(335) |
(1) |
(336) |
0 |
(336) |
|
Foreign exchange variance |
39 |
216 |
255 |
330 |
585 |
4 |
151 |
155 |
111 |
266 |
|
MCEV of acquired/sold business |
- |
- |
- |
- |
- |
13 |
3 |
16 |
(24) |
(8) |
|
Closing MCEV |
441 |
1,973 |
2,414 |
5,003 |
7,417 |
380 |
1,574 |
1,954 |
4,193 |
6,147 |
|
Return on MCEV (RoEV)% per annum |
|
|
|
|
9.2% |
|
|
|
|
4.5% |
|
|
£m |
|||||||||
|
|
Year ended 31 December 2010 |
Year ended 31 December 2009 |
||||||||
|
|
|
|
Adjusted net worth |
Value of in-force |
MCEV |
|
|
Adjusted net worth |
Value of in-force |
MCEV |
|
Experience variances |
|
|
12 |
43 |
55 |
|
|
(19) |
(64) |
(83) |
|
Persistency |
|
|
18 |
20 |
38 |
|
|
(18) |
(80) |
(98) |
|
Risk |
|
|
22 |
8 |
30 |
|
|
31 |
- |
31 |
|
Expenses |
|
|
(54) |
5 |
(49) |
|
|
(56) |
13 |
(43) |
|
Other |
|
|
26 |
10 |
36 |
|
|
24 |
2 |
26 |
|
Assumption changes |
|
|
25 |
(25) |
- |
|
|
11 |
(242) |
(231) |
|
Persistency |
|
|
- |
(4) |
(4) |
|
|
(29) |
(164) |
(193) |
|
Risk |
|
|
17 |
14 |
31 |
|
|
30 |
53 |
83 |
|
Expenses |
|
|
(2) |
(20) |
(22) |
|
|
10 |
(161) |
(151) |
|
Other |
|
|
10 |
(15) |
(5) |
|
|
(1) |
31 |
30 |
Return on MCEV is calculated as the operating MCEV earnings after tax divided by opening MCEV in sterling.
|
|
£m |
||||
|
Long Term Savings (LTS) |
Year ended 31 December 2011 |
||||
|
|
Free surplus |
Required capital |
Adjusted net worth |
Value of in-force |
MCEV |
|
Expected existing business contribution (reference rate) |
16 |
65 |
81 |
173 |
254 |
|
Expected existing business contribution (in excess of reference rate) |
6 |
(4) |
2 |
67 |
69 |
Notes to the MCEV basis supplementary information
For the year ended 31 December 2010 continued
B4: Analysis of covered business MCEV earnings (after tax) continued
|
|
|
|
£m |
|||||||
|
Emerging Markets* |
Year ended 31 December 2010 |
Year ended 31 December 2009 |
||||||||
|
|
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 |
80 |
1,225 |
1,305 |
1,158 |
2,463 |
(92) |
1,075 |
983 |
1,090 |
2,073 |
|
New business value |
(159) |
134 |
(25) |
111 |
86 |
(136) |
110 |
(26) |
91 |
65 |
|
Expected existing business contribution (reference rate) |
6 |
73 |
79 |
124 |
203 |
(7) |
85 |
78 |
129 |
207 |
|
Expected existing business contribution (in excess of reference rate) |
- |
(3) |
(3) |
16 |
13 |
- |
5 |
5 |
16 |
21 |
|
Transfers from VIF and required capital to free surplus |
356 |
(166) |
190 |
(190) |
- |
314 |
(146) |
168 |
(168) |
- |
|
Experience variances |
11 |
14 |
25 |
10 |
35 |
(9) |
(9) |
(18) |
(35) |
(53) |
|
Assumption changes |
19 |
- |
19 |
18 |
37 |
40 |
(29) |
11 |
(90) |
(79) |
|
Other operating variance |
(6) |
(2) |
(8) |
(22) |
(30) |
46 |
(27) |
19 |
32 |
51 |
|
Operating MCEV earnings |
227 |
50 |
277 |
67 |
344 |
248 |
(11) |
237 |
(25) |
212 |
|
Economic variances |
57 |
21 |
78 |
84 |
162 |
54 |
1 |
55 |
(39) |
16 |
|
Other non-operating variance |
4 |
- |
4 |
1 |
5 |
- |
- |
- |
- |
- |
|
Total MCEV earnings |
288 |
71 |
359 |
152 |
511 |
302 |
(10) |
292 |
(64) |
228 |
|
Closing adjustments |
(62) |
202 |
140 |
199 |
339 |
(130) |
160 |
30 |
132 |
162 |
|
Capital and dividend flows |
(93) |
- |
(93) |
- |
(93) |
(146) |
(3) |
(149) |
- |
(149) |
|
Foreign exchange variance |
31 |
202 |
233 |
199 |
432 |
3 |
160 |
163 |
156 |
319 |
|
MCEV of acquired/sold business |
- |
- |
- |
- |
- |
13 |
3 |
16 |
(24) |
(8) |
|
Closing MCEV |
306 |
1,498 |
1,804 |
1,509 |
3,313 |
80 |
1,225 |
1,305 |
1,158 |
2,463 |
|
Return on MCEV (RoEV)% per annum |
|
|
|
|
13.2% |
|
|
|
|
9.8% |
|
|
£m |
|||||||||
|
|
Year ended 31 December 2010 |
Year ended 31 December 2009 |
||||||||
|
|
|
|
Adjusted net worth |
Value of in-force |
MCEV |
|
|
Adjusted net worth |
Value of in-force |
MCEV |
|
Experience variances |
|
|
25 |
10 |
35 |
|
|
(18) |
(35) |
(53) |
|
Persistency |
|
|
29 |
5 |
34 |
|
|
(9) |
(44) |
(53) |
|
Risk |
|
|
11 |
7 |
18 |
|
|
16 |
- |
16 |
|
Expenses |
|
|
(15) |
4 |
(11) |
|
|
(30) |
11 |
(19) |
|
Other |
|
|
- |
(6) |
(6) |
|
|
5 |
(2) |
3 |
|
Assumption changes |
|
|
19 |
18 |
37 |
|
|
11 |
(90) |
(79) |
|
Persistency |
|
|
- |
2 |
2 |
|
|
(29) |
(55) |
(84) |
|
Risk |
|
|
17 |
(1) |
16 |
|
|
30 |
20 |
50 |
|
Expenses |
|
|
2 |
15 |
17 |
|
|
10 |
(55) |
(45) |
|
Other |
|
|
- |
2 |
2 |
|
|
- |
- |
- |
|
|
£m |
||||
|
Emerging Markets |
Year ended 31 December 2011 |
||||
|
|
Free surplus |
Required capital |
Adjusted net worth |
Value of in-force |
MCEV |
|
Expected existing business contribution (reference rate) |
12 |
60 |
72 |
107 |
179 |
|
Expected existing business contribution (in excess of reference rate) |
- |
(4) |
(4) |
16 |
12 |
* The MCEV for Emerging Markets is presented after the adjustment for market value of life fund investments in Group equity and debt instruments.
Notes to the MCEV basis supplementary information
For the year ended 31 December 2010 continued
B4: Analysis of covered business MCEV earnings (after tax) continued
The marginal decrease in 'expected existing business contribution (reference rate)' from 2009 to 2010 is mainly attributable to a lower one-year swap rate at 31 December 2009 (7.3%) compared to 31 December 2008 (9.3%) offset by a higher opening MCEV.
The 'expected existing business contribution (in excess of reference rate)' on the ANW has reduced from 2009 to 2010 due to a higher cash allocation assumed for shareholder funds.
The positive experience variances are mainly attributable to favourable persistency experience, as well as a small positive contribution from risk experience.
Operating assumption changes are positive in 2010 consisting mainly of an improvement in fees relative to maintenance expenses in the Corporate Segment due to economies of scale from an increasing fund membership; and an increase in annuitant mortality rates in Retail Affluent, following a recent mortality investigation which is supported by positive annuitant mortality experience variances.
The negative other operating variance was caused by various methodology changes and error corrections.
In addition to the effects above, other significant movements affecting the closing MCEV include a large positive impact from economic variances due to a combination of better than assumed equity returns and the effect of the changes in the shape of the swap yield curve. This was partially offset by modelling enhancements to the economic scenario generator used to calculate the investment guarantee reserve, which caused a decrease in the margin (buffer) held to protect against future market volatility, resulting in less value being released as profit in the future.
The capital and dividend flows mainly consist of the purchase of additional Nedbank shares.
The strengthening of the rand relative to sterling had a significant positive effect on the increase in MCEV.
Return on MCEV is the operating MCEV earnings after tax divided by opening MCEV in rand (including conversion of results for Mexico to rand).
Notes to the MCEV basis supplementary information
For the year ended 31 December 2010 continued
B4: Analysis of covered business MCEV earnings (after tax) continued
|
|
£m |
|||||||||
|
Nordic |
Year ended 31 December 2010 |
Year ended 31 December 2009 |
||||||||
|
|
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 |
91 |
104 |
195 |
1,114 |
1,309 |
58 |
105 |
163 |
882 |
1,045 |
|
New business value |
(49) |
6 |
(43) |
84 |
41 |
(57) |
6 |
(51) |
95 |
44 |
|
Expected existing business contribution (reference rate) |
- |
1 |
1 |
14 |
15 |
4 |
- |
4 |
18 |
22 |
|
Expected existing business contribution (in excess of reference rate) |
- |
- |
- |
26 |
26 |
- |
- |
- |
14 |
14 |
|
Transfers from VIF and required capital to free surplus |
103 |
- |
103 |
(103) |
- |
81 |
(17) |
64 |
(64) |
- |
|
Experience variances |
30 |
(5) |
25 |
(1) |
24 |
28 |
(7) |
21 |
10 |
31 |
|
Assumption changes |
- |
- |
- |
(55) |
(55) |
3 |
- |
3 |
(30) |
(27) |
|
Other operating variance |
(44) |
4 |
(40) |
34 |
(6) |
- |
- |
- |
(3) |
(3) |
|
Operating MCEV earnings |
40 |
6 |
46 |
(1) |
45 |
59 |
(18) |
41 |
40 |
81 |
|
Economic variances |
(4) |
12 |
8 |
86 |
94 |
(5) |
17 |
12 |
192 |
204 |
|
Other non-operating variance |
17 |
- |
17 |
- |
17 |
18 |
- |
18 |
1 |
19 |
|
Total MCEV earnings |
53 |
18 |
71 |
85 |
156 |
72 |
(1) |
71 |
233 |
304 |
|
Closing adjustments |
(93) |
13 |
(80) |
119 |
39 |
(39) |
- |
(39) |
(1) |
(40) |
|
Capital and dividend flows |
(100) |
- |
(100) |
- |
(100) |
(37) |
- |
(37) |
- |
(37) |
|
Foreign exchange variance |
7 |
13 |
20 |
119 |
139 |
(2) |
- |
(2) |
(1) |
(3) |
|
Closing MCEV |
51 |
135 |
186 |
1,318 |
1,504 |
91 |
104 |
195 |
1,114 |
1,309 |
|
Return on MCEV (RoEV)% per annum |
|
|
|
|
3.3% |
|
|
|
|
8.1% |
|
|
£m |
|||||||||
|
|
Year ended 31 December 2010 |
Year ended 31 December 2009 |
||||||||
|
|
|
|
Adjusted net worth |
Value of in-force |
MCEV |
|
|
Adjusted net worth |
Value of in-force |
MCEV |
|
Experience variances |
|
|
25 |
(1) |
24 |
|
|
21 |
10 |
31 |
|
Persistency |
|
|
(2) |
(6) |
(8) |
|
|
(2) |
5 |
3 |
|
Risk |
|
|
5 |
- |
5 |
|
|
6 |
(1) |
5 |
|
Expenses |
|
|
2 |
- |
2 |
|
|
3 |
(1) |
2 |
|
Other |
|
|
20 |
5 |
25 |
|
|
14 |
7 |
21 |
|
Assumption changes |
|
|
- |
(55) |
(55) |
|
|
3 |
(30) |
(27) |
|
Persistency |
|
|
- |
(7) |
(7) |
|
|
- |
(29) |
(29) |
|
Risk |
|
|
- |
- |
- |
|
|
- |
19 |
19 |
|
Expenses |
|
|
- |
(18) |
(18) |
|
|
- |
(18) |
(18) |
|
Other |
|
|
- |
(30) |
(30) |
|
|
3 |
(2) |
1 |
|
|
£m |
||||
|
Nordic |
Year ended 31 December 2011 |
||||
|
|
Free surplus |
Required capital |
Adjusted net worth |
Value of in-force |
MCEV |
|
Expected existing business contribution (reference rate) |
3 |
2 |
5 |
34 |
39 |
|
Expected existing business contribution (in excess of reference rate) |
- |
- |
- |
30 |
30 |
Notes to the MCEV basis supplementary information
For the year ended 31 December 2010 continued
B4: Analysis of covered business MCEV earnings (after tax) continued
The 'expected existing business contribution (in excess of reference rate)' is not significant on the adjusted net worth portion of the business. This is because shareholder assets backing capital requirements are typically invested in highly secure government paper and other short-term instruments.
Expected existing business contributions in 2011 are significantly higher than in 2010 due to higher one-year swap rates at 31 December 2010 relative to those at 31 December 2009 and a higher opening value of in-force.
The positive experience variances were largely caused by profit made on the sale of a private equity investment, higher than expected fee income and increased take-ups of drawdown products. There were no one-off expense variances.
Operating assumption changes were made to recognise higher expected commission payments, anticipated pricing pressure in the corporate segment, expectations of adverse persistency and adjustments to pricing of the Waiver of Premium business.
The other operating variance was mainly due to modelling refinements to deferred tax assets and more accurate valuation of tendered business.
The economic variances were mainly due to the positive effect of market movements on funds under management.
The capital and dividend flows mainly represent dividends, repayment of loans, internal re-classification and capital injections.
Return on MCEV is the operating MCEV earnings after tax divided by opening MCEV in Swedish krona.
Notes to the MCEV basis supplementary information
For the year ended 31 December 2010 continued
B4: Analysis of covered business MCEV earnings (after tax) continued
|
|
£m |
|||||||||
|
Retail Europe |
Year ended 31 December 2010 |
Year ended 31 December 2009 |
||||||||
|
|
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 |
46 |
32 |
78 |
453 |
531 |
15 |
64 |
79 |
517 |
596 |
|
New business value |
(69) |
1 |
(68) |
75 |
7 |
(74) |
1 |
(73) |
68 |
(5) |
|
Expected existing business contribution (reference rate) |
1 |
- |
1 |
8 |
9 |
1 |
- |
1 |
10 |
11 |
|
Expected existing business contribution (in excess of reference rate) |
- |
- |
- |
3 |
3 |
- |
- |
- |
3 |
3 |
|
Transfers from VIF and required capital to free surplus |
97 |
2 |
99 |
(99) |
- |
97 |
7 |
104 |
(104) |
- |
|
Experience variances |
5 |
(1) |
4 |
1 |
5 |
(20) |
1 |
(19) |
(4) |
(23) |
|
Assumption changes |
- |
- |
- |
11 |
11 |
- |
- |
- |
(26) |
(26) |
|
Other operating variance |
(9) |
- |
(9) |
40 |
31 |
18 |
(19) |
(1) |
(3) |
(4) |
|
Operating MCEV earnings |
25 |
2 |
27 |
39 |
66 |
22 |
(10) |
12 |
(56) |
(44) |
|
Economic variances |
1 |
2 |
3 |
19 |
22 |
(1) |
4 |
3 |
26 |
29 |
|
Other non-operating variance |
(26) |
25 |
(1) |
(5) |
(6) |
20 |
(20) |
- |
3 |
3 |
|
Total MCEV earnings |
- |
29 |
29 |
53 |
82 |
41 |
(26) |
15 |
(27) |
(12) |
|
Closing adjustments |
(5) |
1 |
(4) |
14 |
10 |
(10) |
(6) |
(16) |
(37) |
(53) |
|
Capital and dividend flows |
(6) |
- |
(6) |
- |
(6) |
(10) |
(3) |
(13) |
- |
(13) |
|
Foreign exchange variance |
1 |
1 |
2 |
14 |
16 |
- |
(3) |
(3) |
(37) |
(40) |
|
Closing MCEV |
41 |
62 |
103 |
520 |
623 |
46 |
32 |
78 |
453 |
531 |
|
Return on MCEV (RoEV)% per annum |
|
|
|
|
|
|
|
|
|
|
|
|
£m |
|||||||||
|
|
Year ended 31 December 2010 |
Year ended 31 December 2009 |
||||||||
|
|
|
|
Adjusted net worth |
Value of in-force |
MCEV |
|
|
Adjusted net worth |
Value of in-force |
MCEV |
|
Experience variances |
|
|
4 |
1 |
5 |
|
|
(19) |
(4) |
(23) |
|
Persistency |
|
|
(2) |
3 |
1 |
|
|
(1) |
(1) |
(2) |
|
Risk |
|
|
3 |
- |
3 |
|
|
3 |
1 |
4 |
|
Expenses |
|
|
(3) |
- |
(3) |
|
|
(5) |
- |
(5) |
|
Other |
|
|
6 |
(2) |
4 |
|
|
(16) |
(4) |
(20) |
|
Assumption changes |
|
|
- |
11 |
11 |
|
|
- |
(26) |
(26) |
|
Persistency |
|
|
- |
9 |
9 |
|
|
- |
2 |
2 |
|
Risk |
|
|
- |
- |
- |
|
|
- |
1 |
1 |
|
Expenses |
|
|
- |
(4) |
(4) |
|
|
- |
(22) |
(22) |
|
Other |
|
|
- |
6 |
6 |
|
|
- |
(7) |
(7) |
|
|
£m |
||||
|
Retail Europe |
Year ended 31 December 2011 |
||||
|
|
Free surplus |
Required capital |
Adjusted net worth |
Value of in-force |
MCEV |
|
Expected existing business contribution (reference rate) |
- |
1 |
1 |
9 |
10 |
|
Expected existing business contribution (in excess of reference rate) |
- |
- |
- |
4 |
4 |
Notes to the MCEV basis supplementary information
For the year ended 31 December 2010 continued
B4: Analysis of covered business MCEV earnings (after tax) continued
The 'expected existing business contribution (in excess of reference rate)' is not significant on the adjusted net worth portion of the business. This is because shareholder assets backing capital requirements are typically invested in highly secure government paper and other short-term instruments.
Expected existing business contributions in 2011 are higher than in 2010 due to a higher opening asset-base.
Experience variances are mainly due to higher than anticipated profit sharing on participating contracts in Germany, as well as higher than expected fee income. In addition, there was a one-off expense variance in respect of project costs. Mortality and morbidity experience continues to be positive across all Retail Europe countries.
Operating assumption changes were made to recognise higher expected fee income in Germany and Poland following sustained favourable fee income experience. Future profit sharing assumptions for the German business were revised upwards in line with expected new business levels. Further operating assumption changes were made to recognise positive persistency experience and maintenance expense experience in Switzerland, and to reflect the capitalisation of Retail Europe overhead expenses.
The other operating variances are mainly due to improvements in the modelling of disability business in Switzerland and a reduction in the cost of non-hedgeable risk due to lower non-hedgeable risk capital.
The economic variances are mainly due to the positive effect of market movements on funds under management as well as the beneficial impact of lower swap rates across the region.
The capital and dividend flows mainly represent dividends.
Return on MCEV is the operating MCEV earnings after tax divided by opening MCEV in euro.
Notes to the MCEV basis supplementary information
For the year ended 31 December 2010 continued
B4: Analysis of covered business MCEV earnings (after tax) continued
|
|
£m |
|||||||||
|
Wealth Management |
Year ended 31 December 2010 |
Year ended 31 December 2009 |
||||||||
|
|
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 |
163 |
213 |
376 |
1,468 |
1,844 |
120 |
197 |
317 |
1,461 |
1,778 |
|
New business value |
(142) |
19 |
(123) |
189 |
66 |
(171) |
12 |
(159) |
208 |
49 |
|
Expected existing business contribution (reference rate) |
1 |
3 |
4 |
22 |
26 |
7 |
7 |
14 |
34 |
48 |
|
Expected existing business contribution (in excess of reference rate) |
7 |
- |
7 |
14 |
21 |
(1) |
- |
(1) |
26 |
25 |
|
Transfers from VIF and required capital to free surplus |
246 |
(20) |
226 |
(226) |
- |
274 |
(30) |
244 |
(244) |
- |
|
Experience variances |
(62) |
20 |
(42) |
33 |
(9) |
(10) |
7 |
(3) |
(35) |
(38) |
|
Assumption changes |
4 |
2 |
6 |
1 |
7 |
(10) |
7 |
(3) |
(96) |
(99) |
|
Other operating variance |
(34) |
35 |
1 |
- |
1 |
90 |
2 |
92 |
(81) |
11 |
|
Operating MCEV earnings |
20 |
59 |
79 |
33 |
112 |
179 |
5 |
184 |
(188) |
(4) |
|
Economic variances |
46 |
6 |
52 |
153 |
205 |
2 |
12 |
14 |
38 |
52 |
|
Other non-operating variance |
(2) |
- |
(2) |
4 |
2 |
1 |
- |
1 |
164 |
165 |
|
Total MCEV earnings |
64 |
65 |
129 |
190 |
319 |
182 |
17 |
199 |
14 |
213 |
|
Closing adjustments |
(184) |
- |
(184) |
(2) |
(186) |
(139) |
(1) |
(140) |
(7) |
(147) |
|
Capital and dividend flows |
(184) |
- |
(184) |
- |
(184) |
(142) |
5 |
(137) |
- |
(137) |
|
Foreign exchange variance |
- |
- |
- |
(2) |
(2) |
3 |
(6) |
(3) |
(7) |
(10) |
|
Closing MCEV |
43 |
278 |
321 |
1,656 |
1,977 |
163 |
213 |
376 |
1,468 |
1,844 |
|
Return on MCEV (RoEV)% per annum |
|
|
|
|
6.1% |
|
|
|
|
(0.3)% |
|
|
£m |
|||||||||
|
|
Year ended 31 December 2010 |
Year ended 31 December 2009 |
||||||||
|
|
|
|
Adjusted net worth |
Value of in-force |
MCEV |
|
|
Adjusted net worth |
Value of in-force |
MCEV |
|
Experience variances |
|
|
(42) |
33 |
(9) |
|
|
(3) |
(35) |
(38) |
|
Persistency |
|
|
(7) |
18 |
11 |
|
|
(6) |
(39) |
(45) |
|
Risk |
|
|
3 |
1 |
4 |
|
|
6 |
- |
6 |
|
Expenses |
|
|
(38) |
1 |
(37) |
|
|
(24) |
2 |
(22) |
|
Other |
|
|
- |
13 |
13 |
|
|
21 |
2 |
23 |
|
Assumption changes |
|
|
6 |
1 |
7 |
|
|
(3) |
(96) |
(99) |
|
Persistency |
|
|
- |
(8) |
(8) |
|
|
- |
(81) |
(81) |
|
Risk |
|
|
- |
15 |
15 |
|
|
- |
12 |
12 |
|
Expenses |
|
|
(4) |
(13) |
(17) |
|
|
- |
(66) |
(66) |
|
Other |
|
|
10 |
7 |
17 |
|
|
(3) |
39 |
36 |
|
|
£m |
||||
|
Wealth Management |
Year ended 31 December 2011 |
||||
|
|
Free surplus |
Required capital |
Adjusted net worth |
Value of in-force |
MCEV |
|
Expected existing business contribution (reference rate) |
1 |
2 |
3 |
24 |
27 |
|
Expected existing business contribution (in excess of reference rate) |
6 |
- |
6 |
17 |
23 |
Notes to the MCEV basis supplementary information
For the year ended 31 December 2010 continued
B4: Analysis of covered business MCEV earnings (after tax) continued
The 'expected existing business contribution (in excess of reference rate)' is not significant on the required capital portion of the business. This is because shareholder assets backing capital requirements are typically invested in highly secure government paper and other short-term instruments.
Adverse expense variances were predominately one-off variances of £(38) million relating to software development and restructuring costs. The 'other' variances are predominantly fee income being higher than expected. Positive persistency variance is driven by positive experience in International and Continental Europe business.
Positive operating assumption changes were made to 'other' and risk assumptions. The 'other' assumption change relates to fee income, consistent with positive experience in 2010. The risk assumption change relates to positive experience in Skandia UK.
Expense and persistency assumptions were strengthened. The expense assumption change is largely due to changes to reflect the new expense allocation review in UK and International, and a new provision to streamline existing expense provisions relating to development projects. The persistency assumption change is driven by a reduction in persistency to allow for the potential impact of the Retail Distribution Review (RDR) in the UK offset by increasing persistency assumptions due to positive experience in International.
Economic variances are due to positive market movements, exchange rate movements and tax deductions on income and gains as a result of the current tax position of the UK tax group.
The other non-operating variance is driven by the effect from changes in the United Kingdom corporation tax rate from 28% to 27%.
The capital and dividend flows mainly represent dividends, repayments of loans and capital injections.
Return on MCEV is the operating MCEV earnings after tax divided by opening MCEV in sterling.
Notes to the MCEV basis supplementary information
For the year ended 31 December 2010 continued
B4: Analysis of covered business MCEV earnings (after tax) continued
|
|
£m |
|||||||||
|
US Life |
Year ended 31 December 2010 |
Year ended 31 December 2009 |
||||||||
|
|
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 |
36 |
462 |
498 |
(816) |
(318) |
(85) |
550 |
465 |
(1,725) |
(1,260) |
|
New business value |
(66) |
66 |
- |
(28) |
(28) |
(35) |
41 |
6 |
8 |
14 |
|
Expected existing business contribution (reference rate) |
1 |
9 |
10 |
15 |
25 |
(3) |
21 |
18 |
(45) |
(27) |
|
Expected existing business contribution (in excess of reference rate) |
- |
- |
- |
80 |
80 |
- |
1 |
1 |
257 |
258 |
|
Transfers from VIF and required capital to free surplus |
81 |
(47) |
34 |
(34) |
- |
52 |
(54) |
(2) |
2 |
- |
|
Experience variances |
33 |
(23) |
10 |
30 |
40 |
137 |
(103) |
34 |
(35) |
(1) |
|
Assumption changes |
(6) |
- |
(6) |
(57) |
(63) |
- |
- |
- |
30 |
30 |
|
Other operating variance |
- |
- |
- |
(7) |
(7) |
- |
- |
- |
(8) |
(8) |
|
Operating MCEV earnings |
43 |
5 |
48 |
(1) |
47 |
151 |
(94) |
57 |
209 |
266 |
|
Economic variances |
71 |
(18) |
53 |
127 |
180 |
(181) |
59 |
(122) |
556 |
434 |
|
Other non-operating variance |
- |
- |
- |
- |
- |
- |
- |
- |
- |
- |
|
Total MCEV earnings |
114 |
(13) |
101 |
126 |
227 |
(30) |
(35) |
(65) |
765 |
700 |
|
Closing adjustments |
(84) |
19 |
(65) |
(33) |
(98) |
151 |
(53) |
98 |
144 |
242 |
|
Capital and dividend flows |
(85) |
- |
(85) |
- |
(85) |
146 |
- |
146 |
- |
146 |
|
Foreign exchange variance |
1 |
19 |
20 |
(33) |
(13) |
5 |
(53) |
(48) |
144 |
96 |
|
Closing MCEV |
66 |
468 |
534 |
(723) |
(189) |
36 |
462 |
498 |
(816) |
(318) |
|
Return on MCEV (RoEV)% per annum |
|
|
|
|
14.1% |
|
|
|
|
22.7% |
|
|
£m |
|||||||||
|
|
Year ended 31 December 2010 |
Year ended 31 December 2009 |
||||||||
|
|
|
|
Adjusted net worth |
Value of in-force |
MCEV |
|
|
Adjusted net worth |
Value of in-force |
MCEV |
|
Experience variances |
|
|
10 |
30 |
40 |
|
|
34 |
(35) |
(1) |
|
Persistency |
|
|
4 |
38 |
42 |
|
|
(17) |
20 |
3 |
|
Risk |
|
|
- |
(10) |
(10) |
|
|
- |
17 |
17 |
|
Expenses |
|
|
25 |
- |
25 |
|
|
17 |
- |
17 |
|
Other |
|
|
(19) |
2 |
(17) |
|
|
34 |
(72) |
(38) |
|
Assumption changes |
|
|
(6) |
(57) |
(63) |
|
|
- |
30 |
30 |
|
Persistency |
|
|
(6) |
(58) |
(64) |
|
|
- |
18 |
18 |
|
Risk |
|
|
- |
(1) |
(1) |
|
|
- |
12 |
12 |
|
Expenses |
|
|
- |
2 |
2 |
|
|
- |
- |
- |
|
Other |
|
|
- |
- |
- |
|
|
- |
- |
- |
|
|
£m |
||||
|
US Life |
Year ended 31 December 2011 |
||||
|
|
Free surplus |
Required capital |
Adjusted net worth |
Value of in-force |
MCEV |
|
Expected existing business contribution (reference rate) |
1 |
6 |
7 |
18 |
25 |
|
Expected existing business contribution (in excess of reference rate) |
- |
- |
- |
62 |
62 |
Notes to the MCEV basis supplementary information
For the year ended 31 December 2010 continued
B4: Analysis of covered business MCEV earnings (after tax) continued
The results for US Life include allowance for Old Mutual Reassurance (Ireland) Limited (OMRe), which provides reinsurance to the United States Life Companies.
The 'expected existing business contribution (in excess of reference rate)' is calculated using the corporate bond spread that is expected to be earned over and above the adjusted risk free reference rate (inclusive of the liquidity premium adjustment).
The main reason for the significantly negative VNB result is due to very low swap yields compressing potential earnings on spread-based annuity business, resulting in significant future losses anticipated on an MCEV basis.
The experience variances were largely caused by positive persistency experience due to higher surrenders of Fixed Indexed Annuity contracts, which make future losses on an MCEV basis. Expense variances benefited from tight cost controls in this business. There were no material experience variance items that were one-off in nature.
Operating assumption changes include the increasing of premium persistency assumptions on certain unprofitable Universal Life and Term Assurance products.
The other operating variance was mainly due to modelling changes and error corrections.
The economic variances were mainly due to gains in the underlying investment portfolio and lower swap yields, partially offset by a reduction in the assumed liquidity premium from 100bps to 75bps.
The capital and dividend flows include the payment of dividends to Old Mutual plc.
Return on MCEV was calculated as the operating MCEV earnings after tax divided by the absolute value of the opening MCEV in US dollars.
Notes to the MCEV basis supplementary information
For the year ended 31 December 2010 continued
B4: Analysis of covered business MCEV earnings (after tax) continued
|
|
£m |
||||||||||
|
Bermuda |
Year ended 31 December 2010 |
Year ended 31 December 2009 |
|||||||||
|
|
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 |
- |
363 |
363 |
(165) |
198 |
342 |
34 |
376 |
(425) |
(49) |
|
|
New business value |
- |
- |
- |
- |
- |
- |
- |
- |
- |
- |
|
|
Expected existing business contribution (reference rate) |
- |
3 |
3 |
9 |
12 |
5 |
1 |
6 |
(4) |
2 |
|
|
Expected existing business contribution (in excess of reference rate) |
- |
30 |
30 |
35 |
65 |
33 |
- |
33 |
39 |
72 |
|
|
Transfers from VIF and required capital to free surplus |
16 |
(45) |
(29) |
29 |
- |
(5) |
(4) |
(9) |
9 |
- |
|
|
Experience variances |
(18) |
1 |
(17) |
(2) |
(19) |
(72) |
- |
(72) |
(21) |
(93) |
|
|
Assumption changes |
(19) |
- |
(19) |
(16) |
(35) |
(36) |
- |
(36) |
(46) |
(82) |
|
|
Other operating variance |
(32) |
37 |
5 |
(52) |
(47) |
(345) |
345 |
- |
82 |
82 |
|
|
Operating MCEV earnings |
(53) |
26 |
(27) |
3 |
(24) |
(420) |
342 |
(78) |
59 |
(19) |
|
|
Economic variances |
53 |
- |
53 |
52 |
105 |
102 |
- |
102 |
167 |
269 |
|
|
Other non-operating variance |
- |
- |
- |
- |
- |
- |
- |
- |
- |
- |
|
|
Total MCEV earnings |
- |
26 |
26 |
55 |
81 |
(318) |
342 |
24 |
226 |
250 |
|
|
Closing adjustments |
- |
14 |
14 |
(6) |
8 |
(24) |
(13) |
(37) |
34 |
(3) |
|
|
Capital and dividend flows |
- |
- |
- |
- |
- |
- |
- |
- |
- |
- |
|
|
Foreign exchange variance |
- |
14 |
14 |
(6) |
8 |
(24) |
(13) |
(37) |
34 |
(3) |
|
|
|
- |
- |
- |
|
- |
|
|
|
|
|
|
|
Closing MCEV |
- |
403 |
403 |
(116) |
287 |
- |
363 |
363 |
(165) |
198 |
|
|
Return on MCEV (RoEV)% per annum |
|
|
|
|
(11.4)% |
|
|
|
|
(41.0)% |
|
|
|
£m |
|||||||||
|
|
Year ended 31 December 2010 |
Year ended 31 December 2009 |
||||||||
|
|
|
|
Adjusted net worth |
Value of in-force |
MCEV |
|
|
Adjusted net worth |
Value of in-force |
MCEV |
|
Experience variances |
|
|
(17) |
(2) |
(19) |
|
|
(72) |
(21) |
(93) |
|
Persistency |
|
|
(15) |
(1) |
(16) |
|
|
(52) |
(13) |
(65) |
|
Risk |
|
|
- |
- |
- |
|
|
- |
- |
- |
|
Expenses |
|
|
(8) |
- |
(8) |
|
|
(10) |
1 |
(9) |
|
Other |
|
|
6 |
(1) |
5 |
|
|
(10) |
(9) |
(19) |
|
Assumption changes |
|
|
(19) |
(16) |
(35) |
|
|
(36) |
(46) |
(82) |
|
Persistency |
|
|
(16) |
9 |
(7) |
|
|
- |
(65) |
(65) |
|
Risk |
|
|
2 |
(1) |
1 |
|
|
- |
- |
- |
|
Expenses |
|
|
- |
(26) |
(26) |
|
|
- |
(29) |
(29) |
|
Other |
|
|
(5) |
2 |
(3) |
|
|
(36) |
48 |
12 |
|
|
£m |
||||
|
Bermuda |
Year ended 31 December 2011 |
||||
|
|
Free surplus |
Required capital |
Adjusted net worth |
Value of in-force |
MCEV |
|
Expected existing business contribution (reference rate) |
- |
2 |
2 |
6 |
8 |
|
Expected existing business contribution (in excess of reference rate) |
- |
24 |
24 |
16 |
40 |
Notes to the MCEV basis supplementary information
For the year ended 31 December 2010 continued
B4: Analysis of covered business MCEV earnings (after tax) continued
The 'expected existing business contribution (in excess of reference rate)' is calculated using the corporate bond spread that is expected to be earned over and above the adjusted risk free reference rate (inclusive of the liquidity premium adjustment), while the adjusted net worth component includes interest received from Old Mutual plc.
The experience variances include adverse persistency experience on Variable Annuity contracts and expense losses as a result of higher than anticipated expenditure on projects £(4) million and an increased head-count. Other experience variances include a one-off tax variance of £5 million due to the release of a tax contingency reserve. There were no other material experience variance items that were one-off in nature.
Operating assumption changes include the strengthening of expense assumptions consistent with 2010 experience and refinements to surrender assumptions as a result of the most recent experience investigation.
The other operating variance was mainly due to modelling changes and error corrections.
Economic variances were driven by good equity market performance and gains on the corporate bond portfolio, partially offset by increased variable Annuity Guarantee costs due to declining interest rates.
Return on MCEV was calculated as the operating MCEV earnings after tax divided by the absolute value of the opening MCEV in US dollars.
Notes to the MCEV basis supplementary information
For the year ended 31 December 2010 continued
B4: Analysis of covered business MCEV earnings (after tax) continued
Total covered business includes the MCEV contribution from the US Life and Bermuda business segments.
|
|
£m |
|||||||||
|
Total covered business |
Year ended 31 December 2010 |
Year ended 31 December 2009 |
||||||||
|
|
Free surplus |
Required capital |
Adjusted net worth |
Value of in-force |
MCEV |
Free surplus |
Required capital |
Adjustednet worth |
Value of in-force |
MCEV |
|
Opening MCEV |
416 |
2,399 |
2,815 |
3,212 |
6,027 |
358 |
2,025 |
2,383 |
1,800 |
4,183 |
|
New business value |
(485) |
226 |
(259) |
431 |
172 |
(473) |
170 |
(303) |
470 |
167 |
|
Expected existing business contribution (reference rate) |
9 |
89 |
98 |
192 |
290 |
7 |
114 |
121 |
142 |
263 |
|
Expected existing business contribution (in excess of reference rate) |
7 |
27 |
34 |
174 |
208 |
32 |
6 |
38 |
355 |
393 |
|
Transfers from VIF and required capital to free surplus |
899 |
(276) |
623 |
(623) |
- |
813 |
(244) |
569 |
(569) |
- |
|
Experience variances |
(1) |
6 |
5 |
71 |
76 |
54 |
(111) |
(57) |
(120) |
(177) |
|
Assumption changes |
(2) |
2 |
- |
(98) |
(98) |
(3) |
(22) |
(25) |
(258) |
(283) |
|
Other operating variance |
(125) |
74 |
(51) |
(7) |
(58) |
(191) |
301 |
110 |
19 |
129 |
|
Operating MCEV earnings |
302 |
148 |
450 |
140 |
590 |
239 |
214 |
453 |
39 |
492 |
|
Economic variances |
224 |
23 |
247 |
521 |
768 |
(29) |
93 |
64 |
940 |
1,004 |
|
Other non-operating variance |
(7) |
25 |
18 |
- |
18 |
39 |
(20) |
19 |
168 |
187 |
|
Total MCEV earnings |
519 |
196 |
715 |
661 |
1,376 |
249 |
287 |
536 |
1,147 |
1,683 |
|
Closing adjustments |
(428) |
249 |
(179) |
291 |
112 |
(191) |
87 |
(104) |
265 |
161 |
|
Capital and dividend flows |
(468) |
- |
(468) |
- |
(468) |
(189) |
(1) |
(190) |
- |
(190) |
|
Foreign exchange variance |
40 |
249 |
289 |
291 |
580 |
(15) |
85 |
70 |
289 |
359 |
|
MCEV of acquired/sold business |
- |
- |
- |
- |
- |
13 |
3 |
16 |
(24) |
(8) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Closing MCEV |
507 |
2,844 |
3,351 |
4,164 |
7,515 |
416 |
2,399 |
2,815 |
3,212 |
6,027 |
|
Return on MCEV (RoEV)% per annum |
|
|
|
|
9.8% |
|
|
|
|
11.8% |
|
|
£m |
|||||||||
|
|
Year ended 31 December 2010 |
Year ended 31 December 2009 |
||||||||
|
|
|
|
Adjusted net worth |
Value of in-force |
MCEV |
|
|
Adjusted net worth |
Value of in-force |
MCEV |
|
Experience variances |
|
|
5 |
71 |
76 |
|
|
(57) |
(120) |
(177) |
|
Persistency |
|
|
7 |
57 |
64 |
|
|
(87) |
(72) |
(159) |
|
Risk |
|
|
22 |
(2) |
20 |
|
|
31 |
17 |
48 |
|
Expenses |
|
|
(37) |
5 |
(32) |
|
|
(49) |
13 |
(36) |
|
Other |
|
|
13 |
11 |
24 |
|
|
48 |
(78) |
(30) |
|
Assumption changes |
|
|
- |
(98) |
(98) |
|
|
(25) |
(258) |
(283) |
|
Persistency |
|
|
(22) |
(53) |
(75) |
|
|
(29) |
(210) |
(239) |
|
Risk |
|
|
19 |
12 |
31 |
|
|
30 |
64 |
94 |
|
Expenses |
|
|
(2) |
(44) |
(46) |
|
|
10 |
(190) |
(180) |
|
Other |
|
|
5 |
(13) |
(8) |
|
|
(36) |
78 |
42 |
|
|
£m |
||||
|
Total covered business |
Year ended 31 December 2011 |
||||
|
|
Free surplus |
Required capital |
Adjustednet worth |
Value of in-force |
MCEV |
|
Expected existing business contribution (reference rate) |
17 |
73 |
90 |
197 |
287 |
|
Expected existing business contribution (in excess of reference rate) |
6 |
20 |
26 |
145 |
171 |
Return on MCEV for total covered business is calculated as the operating MCEV earnings after tax divided by opening MCEV in sterling.
Notes to the MCEV basis supplementary information
For the year ended 31 December 2010 continued
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 annualised recurring premiums plus 10% of single premiums.
|
|
|
£m |
|
|
Year ended 31 December 2010 |
Year ended 31 December 2009 |
|
Annualised recurring premiums |
|
|
|
Long Term Savings (LTS) |
698 |
685 |
|
Emerging Markets |
325 |
249 |
|
Nordic |
144 |
183 |
|
Retail Europe |
63 |
62 |
|
Wealth Management |
166 |
191 |
|
US Life |
10 |
14 |
|
Bermuda |
- |
- |
|
|
708 |
699 |
|
Single premiums |
|
|
|
Long Term Savings (LTS) |
7,932 |
6,257 |
|
Emerging Markets |
1,611 |
1,437 |
|
Nordic |
573 |
527 |
|
Retail Europe |
63 |
53 |
|
Wealth Management |
5,685 |
4,240 |
|
US Life |
824 |
549 |
|
Bermuda |
- |
15 |
|
|
8,756 |
6,821 |
|
PVNBP |
|
|
|
Long Term Savings (LTS) |
11,266 |
9,563 |
|
Emerging Markets |
3,269 |
2,834 |
|
Nordic |
1,104 |
1,150 |
|
Retail Europe |
513 |
537 |
|
Wealth Management |
6,380 |
5,042 |
|
US Life |
889 |
639 |
|
Bermuda |
- |
15 |
|
|
12,155 |
10,217 |
|
PVNBP capitalisation factors* |
|
|
|
Long Term Savings (LTS) |
4.8 |
4.8 |
|
Emerging Markets |
5.1 |
5.6 |
|
Nordic |
3.7 |
3.4 |
|
Retail Europe |
7.2 |
7.8 |
|
Wealth Management |
4.2 |
4.2 |
|
US Life |
6.6 |
6.6 |
|
Bermuda |
n/a |
n/a |
|
|
|
|
* The PVNBP capitalisation factors are calculated as follows: (PVNBP - single premiums)/annualised recurring premiums.
|
APE |
|
|
|
Long Term Savings (LTS) |
1,491 |
1,312 |
|
Emerging Markets |
487 |
393 |
|
Nordic |
201 |
235 |
|
Retail Europe |
69 |
67 |
|
Wealth Management |
734 |
617 |
|
US Life |
92 |
68 |
|
Bermuda |
- |
1 |
|
|
1,583 |
1,381 |
|
VNB |
|
|
|
Long Term Savings (LTS) |
200 |
153 |
|
Emerging Markets |
86 |
65 |
|
Nordic |
41 |
44 |
|
Retail Europe |
7 |
(5) |
|
Wealth Management |
66 |
49 |
|
US Life* |
(28) |
14 |
|
Bermuda |
- |
- |
|
|
172 |
167 |
|
PVNBP margin |
|
|
|
Long Term Savings (LTS) |
1.8% |
1.6% |
|
Emerging Markets |
2.6% |
2.3% |
|
Nordic |
3.7% |
3.8% |
|
Retail Europe |
1.4% |
(1.0)% |
|
Wealth Management |
1.0% |
1.0% |
|
US Life |
(3.2)% |
2.2% |
|
Bermuda |
n/a |
n/a |
|
|
1.4% |
1.6% |
|
APE margin |
|
|
|
Long Term Savings (LTS) |
13% |
12% |
|
Emerging Markets |
18% |
16% |
|
Nordic |
21% |
19% |
|
Retail Europe |
11% |
(8)% |
|
Wealth Management |
9% |
8% |
|
US Life |
(31)% |
20% |
|
Bermuda |
n/a |
n/a |
|
|
11% |
12% |
* The US Life VNB is negative then calculated on an MCEV basis, due to the reliance on spread in the pricing basis, and the current low risk free swap curve.
The value of new individual unit trust linked retirement annuities and pension fund asset management business written by the Emerging Markets long-term business is excluded as the profits on 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 Wealth Management is excluded as this is more appropriately classified as unit trust business.
|
|
|
£m |
|
Gross premium excluded from value of new business |
Year ended |
Year ended |
|
Emerging Markets** |
723 |
1,658 |
|
Wealth Management |
304 |
153 |
** New business premiums not valued have reduced compared to 2009, mainly because single premium new business figures for 2009 include inflows relating to in-force business following OMSA's acquisition of Futuregrowth and Acsis Life. The results for the year ended 31 December 2009 have also been restated to include Namibia's contribution to new business premiums not valued (£1,625 million excluding Namibia).
Notes to the MCEV basis supplementary information
For the year ended 31 December 2010 continued
C2: Product analysis of new covered business premiums
|
|
|
|
|
£m |
|
Emerging Markets |
Recurring |
Year ended 31 December 2010 Single |
Recurring |
Year ended 31 December 2009 Single |
|
Total business |
325 |
1,611 |
249 |
1,437 |
|
Individual business |
284 |
889 |
220 |
716 |
|
Savings |
69 |
713 |
50 |
539 |
|
Protection |
70 |
- |
56 |
21 |
|
Annuity |
- |
176 |
- |
155 |
|
Mass foundation cluster* |
145 |
- |
114 |
1 |
|
Group business |
41 |
722 |
29 |
721 |
|
Savings |
20 |
585 |
13 |
564 |
|
Protection |
21 |
1 |
16 |
- |
|
Annuity |
- |
136 |
- |
157 |
* Previously described as Retail Mass.
|
|
|
|
|
£m |
|
Nordic |
Recurring |
Year ended 31 December 2010 Single |
Recurring |
Year ended 31 December 2009 Single |
|
Unit-linked and life assurance |
144 |
573 |
183 |
527 |
|
|
|
|
|
£m |
|
Retail Europe |
Recurring |
Year ended 31 December 2010 Single |
Recurring |
Year ended 31 December 2009 Single |
|
Unit-linked and life assurance |
63 |
63 |
62 |
53 |
|
|
|
|
|
£m |
|
Wealth Management |
Recurring |
Year ended 31 December 2010 Single |
Recurring |
Year ended 31 December 2009 Single |
|
Unit-linked and life assurance |
166 |
5,685 |
191 |
4,240 |
|
|
|
|
|
£m |
|
US Life |
Recurring |
Year ended 31 December 2010 Single |
Recurring |
Year ended 31 December 2009 Single |
|
Total business |
10 |
824 |
14 |
549 |
|
Fixed deferred annuity |
- |
163 |
- |
30 |
|
Fixed indexed annuity |
- |
502 |
- |
383 |
|
Variable annuity |
- |
- |
- |
- |
|
Life |
10 |
1 |
14 |
13 |
|
Immediate annuity |
- |
158 |
- |
123 |
The table above does not include the contribution from the mutual fund business. This is detailed in the Business Review section.
Notes to the MCEV basis supplementary information
For the year ended 31 December 2010 continued
C3: Adjustments applied in determining total Group MCEV earnings before tax
|
|
£m |
|||||
|
|
Year ended 31 December 2010 |
Year ended 31 December 2009 |
||||
|
Analysis of adjusting items |
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 |
- |
(20) |
(20) |
- |
65 |
65 |
|
Economic variances |
864 |
(7) |
857 |
1,108 |
(10) |
1,098 |
|
Other non-operating variances |
17 |
- |
17 |
18 |
- |
18 |
|
Acquired/divested business |
- |
(22) |
(22) |
- |
(48) |
(48) |
|
Closure of unclaimed share trust |
- |
- |
- |
- |
- |
- |
|
Dividends declared to holders of perpetual preferred callable securities |
- |
44 |
44 |
- |
45 |
45 |
|
Adjusting items relating to US Asset Management equity plans and non-controlling interests |
- |
6 |
6 |
- |
(1) |
(1) |
|
Fair value gains on Group debt instruments |
- |
(203) |
(203) |
- |
(264) |
(264) |
|
Adjusting items |
881 |
(202) |
679 |
1,126 |
(213) |
913 |
|
|
|
|
|
|
|
|
|
Adjusting items from continuing operations |
701 |
(202) |
499 |
691 |
(213) |
478 |
|
Adjusting items from discontinued operations |
180 |
- |
180 |
435 |
- |
435 |
|
Total MCEV adjusting items |
881 |
(202) |
679 |
1,126 |
(213) |
913 |
C4: Other movements in IFRS net equity impacting Group MCEV
|
|
£m |
|||||
|
|
Year ended 31 December 2010 |
Year ended 31 December 2009 |
||||
|
|
Covered business MCEV |
Non-covered business IFRS |
Total Group MCEV |
Covered business MCEV |
Non-covered business IFRS |
Total Group MCEV |
|
Fair value gains/(losses) |
- |
8 |
8 |
- |
2 |
2 |
|
Net investment hedge |
- |
(86) |
(86) |
- |
(41) |
(41) |
|
Currency translation differences/exchange differences on translating foreign operations |
580 |
448 |
1,028 |
359 |
197 |
556 |
|
Aggregate tax effects of items taken directly to or transferred from equity |
- |
14 |
14 |
- |
13 |
13 |
|
Correction to transfers* |
- |
- |
- |
- |
316 |
316 |
|
Other movements |
- |
(24) |
(24) |
(8) |
(7) |
(15) |
|
Net income recognised directly into equity |
580 |
360 |
940 |
351 |
480 |
831 |
|
Capital and dividend flows for the year |
(468) |
322 |
(146) |
(190) |
145 |
(45) |
|
Net sale of treasury shares |
- |
(28) |
(28) |
- |
- |
- |
|
Share buy back |
- |
- |
- |
- |
- |
- |
|
Net issues of ordinary share capital by the Company |
|
162 |
162 |
- |
2 |
2 |
|
Acquisition of non-controlling interest in Mutual & Federal |
- |
(93) |
(93) |
- |
- |
- |
|
Exercise of share options |
- |
4 |
4 |
- |
3 |
3 |
|
Change in share based payment reserve |
- |
4 |
4 |
- |
14 |
14 |
|
Other movements in net equity |
112 |
731 |
843 |
161 |
644 |
805 |
* Refinement arising from the allocation of assets between covered and non-covered business at 31 December 2008
Notes to the MCEV basis supplementary information
For the year ended 31 December 2010 continued
C5: 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 31 December 2010 |
Total |
Long Term Savings |
Emerging Markets |
Nordic |
Retail |
Wealth Management |
US Life |
Bermuda |
|
IFRS net asset value* |
5,794 |
5,088 |
1,216 |
1,243 |
632 |
1,997 |
274 |
432 |
|
Adjustment to include long-term business on a statutory solvency basis |
(1,822) |
(2,053) |
207 |
(851) |
(331) |
(1,078) |
260 |
(29) |
|
Inclusion of Group equity and debt instruments held in life funds |
389 |
389 |
389 |
- |
- |
- |
- |
- |
|
Goodwill |
(1,010) |
(1,010) |
(8) |
(206) |
(198) |
(598) |
- |
- |
|
Adjusted net worth attributable to ordinary equity holders of the parent |
3,351 |
2,414 |
1,804 |
186 |
103 |
321 |
534 |
403 |
|
£m |
||||||||
|
At 31 December 2009 |
Total |
Long Term Savings |
Emerging Markets |
Nordic |
Retail |
Wealth Management |
US Life |
Bermuda |
|
IFRS net asset value* |
6,103 |
4,848 |
821 |
1,222 |
664 |
2,141 |
886 |
369 |
|
Adjustment to include long-term business on a statutory solvency basis |
(2,632) |
(2,238) |
153 |
(841) |
(382) |
(1,168) |
(388) |
(6) |
|
Inclusion of Group equity and debt instruments held in life funds |
339 |
339 |
339 |
- |
- |
- |
- |
- |
|
Goodwill |
(995) |
(995) |
(8) |
(186) |
(204) |
(597) |
- |
- |
|
Adjusted net worth attributable to ordinary equity holders of the parent |
2,815 |
1,954 |
1,305 |
195 |
78 |
376 |
498 |
363 |
* IFRS net asset value is after elimination of inter-company loans.
The adjustment to include long-term business on a statutory solvency basis includes the following:
· 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.
· 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 the US Life business, the reversal of the IFRS impairment for discontinued operations which is included in the IFRS net asset value, as this is not recognised on a statutory solvency basis.
Notes to the MCEV basis supplementary information
As at 31 December 2010 continued
D: Other income statement notes
D1: Drivers of new business value for covered business
|
PVNBP Margin |
|
% |
|
|
Long Term Savings* |
Year ended 31 December 2010 |
Year ended 31 December 2009 |
|
|
Margin at the end of comparative period |
1.6 |
1.5 |
|
|
Change in volume |
(0.1) |
(0.1) |
|
|
Change in product mix |
0.2 |
- |
|
|
Change in country mix |
- |
- |
|
|
Change in operating assumptions |
0.1 |
0.1 |
|
|
Change in economic assumptions |
(0.1) |
- |
|
|
Change in tax/regulation |
- |
0.1 |
|
|
Exchange rate movements |
0.1 |
- |
|
|
Margin at the end of the period |
1.8 |
1.6 |
|
|
Emerging Markets** |
|
|
|
|
Margin at the end of comparative period |
2.3 |
2.2 |
|
|
Change in volume |
0.1 |
(0.1) |
|
|
Change in product mix |
0.4 |
(0.2) |
|
|
Change in country mix |
- |
- |
|
|
Change in operating assumptions |
(0.1) |
0.4 |
|
|
Change in economic assumptions |
(0.1) |
- |
|
|
Margin at the end of the period |
2.6 |
2.3 |
|
|
Nordic*** |
|
|
|
|
Margin at the end of comparative period |
3.8 |
3.3 |
|
|
Change in volume |
(0.1) |
(0.1) |
|
|
Change in product mix |
0.6 |
- |
|
|
Change in country mix |
- |
- |
|
|
Change in operating assumptions |
(0.4) |
0.4 |
|
|
Change in economic assumptions |
(0.2) |
0.2 |
|
|
Margin at the end of the period |
3.7 |
3.8 |
|
|
Retail Europe**** |
|
|
|
|
Margin at the end of comparative period |
(1.0) |
1.8 |
|
|
Change in volume |
1.6 |
(2.1) |
|
|
Change in product mix |
(0.2) |
(0.8) |
|
|
Change in country mix |
- |
(0.1) |
|
|
Change in operating assumptions |
0.9 |
0.5 |
|
|
Change in economic assumptions |
0.1 |
(0.3) |
|
|
Margin at the end of the period |
1.4 |
(1.0) |
|
|
Wealth Management* |
|
|
|
|
Margin at the end of comparative period |
1.0 |
1.2 |
|
|
Change in volume |
(0.1) |
(0.2) |
|
|
Change in product mix |
(0.1) |
- |
|
|
Change in country mix |
- |
- |
|
|
Change in operating assumptions |
0.2 |
(0.2) |
|
|
Change in economic assumptions |
- |
- |
|
|
Change in tax/regulation |
- |
0.2 |
|
|
Margin at the end of the period |
1.0 |
1.0 |
|
|
US Life***** |
|
|
|
Margin at the end of comparative period |
2.2 |
(0.9) |
|
Change in volume |
(0.1) |
- |
|
Change in product mix |
(0.9) |
1.5 |
|
Change in country mix |
- |
- |
|
Change in operating assumptions |
(0.6) |
- |
|
Change in economic assumptions |
(3.8) |
1.6 |
|
Margin at the end of the period |
(3.2) |
2.2 |
|
|
|
|
|
Total covered business* |
|
|
|
Margin at the end of comparative period |
1.6 |
0.8 |
|
Change in volume |
(0.1) |
0.8 |
|
Change in product mix |
0.1 |
- |
|
Change in country mix |
- |
- |
|
Change in operating assumptions |
0.1 |
0.1 |
|
Change in economic assumptions |
(0.4) |
- |
|
Change in tax/regulation |
- |
0.1 |
|
Exchange rate movements |
0.1 |
(0.2) |
|
Margin at the end of the period |
1.4 |
1.6 |
* The PVNBP margin changes are calculated in sterling.
** The PVNBP margin changes are calculated in rand.
*** The PVNBP margin changes are calculated in krona.
**** The PVNBP margin changes are calculated in euro.
*****The PVNBP margin changes are calculated in dollars.
Notes to the MCEV basis supplementary information
For the year ended 31 December 2010 continued
E1: Sensitivity tests
The tables below show the sensitivity of the MCEV, value of in-force business at 31 December 2010 and the value of new business for the year ended 31 December 2010 to changes in key assumptions.
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.
In some jurisdictions the reserving basis that underlies shareholder distributable cash flows is dynamic, and in theory some sensitivities could change not only future experience but also reserving levels. Modelling of dynamic reserves is extremely complex and the effect on value is second-order. Therefore, in performing the sensitivities, reserving bases have been kept constant for non-linked business (including non-linked reserves for linked business) whilst only varying future experience assumptions with similar considerations applying to required capital. However the sensitivities for South Africa in respect of an increase/decrease of all pre-tax investment and economic assumptions, an increase/decrease in equity and property market values and increases in equity, property and swaption implied volatilities allow for the change in the time value of financial options and guarantees that form part of the IGR.
The sensitivities for an increase/decrease in all pre-tax investment and economic assumptions (with credited rates and discount rates changing commensurately) are calculated in line with a parallel shift in risk free reference spot rates rather than risk free reference forward rates. However, the 1% reduction is limited so that it does not lead to negative risk free reference rates.
The equity and property sensitivities make allowance for rebalancing of asset portfolios.
VNB sensitivities assume that the scenario arises immediately after point of sale of the contract. Therefore no allowance is made for the ability to re-price any contracts in the sensitivity scenarios, apart from the mortality sensitivities for the South African business where allowance is made for changes in the pricing basis for products with reviewable premiums.
Long term savings (LTS)
|
|
|
£m |
|
|
At 31 December 2010 |
MCEV |
Value of business |
Value of new business |
|
Central assumptions |
7,417 |
5,003 |
200 |
|
Effect of: |
|
|
|
|
Required capital equal to the minimum statutory requirement |
7,474 |
5,060 |
204 |
|
Increasing all pre-tax investment and economic assumptions by 1%, with credited rates and discount rates changing commensurately |
7,289 |
4,887 |
185 |
|
Decreasing all pre-tax investment and economic assumptions by 1%, with credited rates and discount rates changing commensurately |
7,553 |
5,125 |
216 |
|
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 |
7,425 |
5,011 |
202 |
|
Equity and property market value increasing by 10%, with all pre-tax investment and economic assumptions unchanged |
7,736 |
5,274 |
208 |
|
Equity and property market value decreasing by 10%, with all pre-tax investment and economic assumptions unchanged |
7,107 |
4,741 |
193 |
|
50bps contraction on corporate bond spreads |
7,437 |
5,003 |
200 |
|
25% multiplicative increase in equity and property implied volatilities |
7,395 |
4,981 |
200 |
|
25% multiplicative increase in swaption implied volatilities |
7,408 |
4,994 |
200 |
|
Voluntary discontinuance rates decreasing by 10% |
7,606 |
5,193 |
238 |
|
Maintenance expense levels decreasing by 10%, with no corresponding decrease in policy charges |
7,653 |
5,239 |
220 |
|
Mortality and morbidity assumptions for assurances decreasing by 5%, with no corresponding decrease in policy charges |
7,536 |
5,122 |
212 |
|
Mortality assumption for annuities decreasing by 5%, with no corresponding increase in policy charges |
7,392 |
4,979 |
199 |
|
For value of new business, acquisition expenses other than commission and commission related expenses increasing by 10%, with no corresponding increase in policy charges |
n/a |
n/a |
185 |
|
Value of new business calculated on economic assumptions at the end of reporting period |
n/a |
n/a |
219 |
|
Residual non-hedgeable risk capital reduced to incorporate diversification benefits between hedgeable and non-hedgeable risks for covered business |
7,462 |
5,049 |
203 |
|
Economic capital for residual non-hedgeable risks calculated assuming a 99.93% confidence level which is targeted by an internal economic capital model |
7,365 |
4,952 |
196 |
Notes to the MCEV basis supplementary information
For the year ended 31 December 2010 continued
Emerging Markets
|
|
|
£m |
|
|
At 31 December 2010 |
MCEV |
Value of business |
Value of new business |
|
Central assumptions |
3,313 |
1,509 |
86 |
|
Effect of: |
|
|
|
|
Required capital equal to the minimum statutory requirement |
3,366 |
1,562 |
90 |
|
Increasing all pre-tax investment and economic assumptions by 1%, with credited rates and discount rates changing commensurately |
3,285 |
1,479 |
80 |
|
Decreasing all pre-tax investment and economic assumptions by 1%, with credited rates and discount rates changing commensurately |
3,342 |
1,540 |
91 |
|
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 |
3,321 |
1,517 |
88 |
|
Equity and property market value increasing by 10%, with all pre-tax investment and economic assumptions unchanged |
3,446 |
1,594 |
86 |
|
Equity and property market value decreasing by 10%, with all pre-tax investment and economic assumptions unchanged |
3,180 |
1,422 |
86 |
|
50bps contraction on corporate bond spreads |
3,333 |
1,509 |
86 |
|
25% multiplicative increase in equity and property implied volatilities |
3,292 |
1,488 |
86 |
|
25% multiplicative increase in swaption implied volatilities |
3,306 |
1,502 |
86 |
|
Voluntary discontinuance rates decreasing by 10% |
3,369 |
1,566 |
105 |
|
Maintenance expense levels decreasing by 10%, with no corresponding decrease in policy charges |
3,446 |
1,641 |
98 |
|
Mortality and morbidity assumptions for assurances decreasing by 5%, with no corresponding decrease in policy charges |
3,414 |
1,609 |
97 |
|
Mortality assumption for annuities decreasing by 5%, with no corresponding increase in policy charges* |
3,290 |
1,487 |
85 |
|
For value of new business, acquisition expenses other than commission and commission related expenses increasing by 10%, with no corresponding increase in policy charges |
n/a |
n/a |
79 |
|
Value of new business calculated on economic assumptions at the end of reporting period |
n/a |
n/a |
100 |
|
Residual non-hedgeable risk capital reduced to incorporate diversification benefits between hedgeable and non-hedgeable risks for covered business |
3,330 |
1,526 |
87 |
|
Economic capital for residual non-hedgeable risks calculated assuming a 99.93% confidence level which is targeted by an internal economic capital model |
3,290 |
1,486 |
85 |
* No impact on with-profit annuities as the mortality risk is borne by policyholders.
Notes to the MCEV basis supplementary information
For the year ended 31 December 2010 continued
Nordic
|
|
|
£m |
||
|
At 31 December 2010 |
MCEV |
Value of business |
Value of new business |
|
|
Central assumptions |
1,504 |
1,318 |
41 |
|
|
Effect of: |
|
|
|
|
|
Required capital equal to the minimum statutory requirement |
1,504 |
1,318 |
41 |
|
|
Increasing all pre-tax investment and economic assumptions by 1%, with credited rates and discount rates changing commensurately |
1,480 |
1,294 |
41 |
|
|
Decreasing all pre-tax investment and economic assumptions by 1%, with credited rates and discount rates changing commensurately |
1,532 |
1,346 |
42 |
|
|
Equity and property market value increasing by 10%, with all pre-tax investment and economic assumptions unchanged |
1,610 |
1,424 |
45 |
|
|
Equity and property market value decreasing by 10%, with all pre-tax investment and economic assumptions unchanged |
1,398 |
1,213 |
37 |
|
|
50bps contraction on corporate bond spreads |
1,504 |
1,318 |
41 |
|
|
25% multiplicative increase in equity and property implied volatilities |
1,504 |
1,318 |
41 |
|
|
25% multiplicative increase in swaption implied volatilities |
1,504 |
1,318 |
41 |
|
|
Voluntary discontinuance rates decreasing by 10% |
1,544 |
1,358 |
49 |
|
|
Maintenance expense levels decreasing by 10%, with no corresponding decrease in policy charges |
1,545 |
1,360 |
43 |
|
|
Mortality and morbidity assumptions for assurances decreasing by 5%, with no corresponding decrease in policy charges |
1,506 |
1,320 |
41 |
|
|
Mortality assumption for annuities decreasing by 5%, with no corresponding increase in policy charges |
1,502 |
1,316 |
41 |
|
|
For value of new business, acquisition expenses other than commission and commission related expenses increasing by 10%, with no corresponding increase in policy charges |
n/a |
n/a |
40 |
|
|
Value of new business calculated on economic assumptions at the end of reporting period |
n/a |
n/a |
41 |
|
|
Residual non-hedgeable risk capital reduced to incorporate diversification benefits between hedgeable and non-hedgeable risks for covered business |
1,522 |
1,337 |
43 |
|
|
Economic capital for residual non-hedgeable risks calculated assuming a 99.93% confidence level which is targeted by an internal economic capital model |
1,504 |
1,318 |
41 |
|
Notes to the MCEV basis supplementary information
For the year ended 31 December 2010 continued
Retail Europe
|
|
|
£m |
|
|
At 31 December 2010 |
MCEV |
Value of business |
Value of new business |
|
Central assumptions |
623 |
520 |
7 |
|
Effect of: |
|
|
|
|
Required capital equal to the minimum statutory requirement |
626 |
523 |
7 |
|
Increasing all pre-tax investment and economic assumptions by 1%, with credited rates and discount rates changing commensurately |
606 |
505 |
5 |
|
Decreasing all pre-tax investment and economic assumptions by 1%, with credited rates and discount rates changing commensurately |
637 |
533 |
10 |
|
Equity and property market value increasing by 10%, with all pre-tax investment and economic assumptions unchanged |
636 |
533 |
7 |
|
Equity and property market value decreasing by 10%, with all pre-tax investment and economic assumptions unchanged |
610 |
508 |
7 |
|
50bps contraction on corporate bond spreads |
623 |
520 |
7 |
|
25% multiplicative increase in equity and property implied volatilities |
623 |
520 |
7 |
|
25% multiplicative increase in swaption implied volatilities |
621 |
518 |
7 |
|
Voluntary discontinuance rates decreasing by 10% |
638 |
535 |
9 |
|
Maintenance expense levels decreasing by 10%, with no corresponding decrease in policy charges |
648 |
546 |
9 |
|
Mortality and morbidity assumptions for assurances decreasing by 5%, with no corresponding decrease in policy charges |
627 |
525 |
8 |
|
Mortality assumption for annuities decreasing by 5%, with no corresponding increase in policy charges |
623 |
520 |
7 |
|
For value of new business, acquisition expenses other than commission and commission related expenses increasing by 10%, with no corresponding increase in policy charges |
n/a |
n/a |
6 |
|
Value of new business calculated on economic assumptions at the end of reporting period |
n/a |
n/a |
8 |
|
Residual non-hedgeable risk capital reduced to incorporate diversification benefits between hedgeable and non-hedgeable risks for covered business |
624 |
521 |
6 |
|
Economic capital for residual non-hedgeable risks calculated assuming a 99.93% confidence level which is targeted by an internal economic capital model |
615 |
513 |
7 |
Notes to the MCEV basis supplementary information
For the year ended 31 December 2010 continued
Wealth management
|
|
|
£m |
||
|
At 31 December 2010 |
MCEV |
Value of business |
Value of new business |
|
|
Central assumptions |
1,977 |
1,656 |
66 |
|
|
Effect of: |
|
|
|
|
|
Required capital equal to the minimum statutory requirement |
1,978 |
1,657 |
66 |
|
|
Increasing all pre-tax investment and economic assumptions by 1%, with credited rates and discount rates changing commensurately |
1,918 |
1,609 |
59 |
|
|
Decreasing all pre-tax investment and economic assumptions by 1%, with credited rates and discount rates changing commensurately |
2,042 |
1,706 |
73 |
|
|
Equity and property market value increasing by 10%, with all pre-tax investment and economic assumptions unchanged |
2,044 |
1,723 |
70 |
|
|
Equity and property market value decreasing by 10%, with all pre-tax investment and economic assumptions unchanged |
1,919 |
1,598 |
63 |
|
|
50bps contraction on corporate bond spreads |
1,977 |
1,656 |
66 |
|
|
25% multiplicative increase in equity and property implied volatilities |
1,976 |
1,655 |
66 |
|
|
25% multiplicative increase in swaption implied volatilities |
1,977 |
1,656 |
66 |
|
|
Voluntary discontinuance rates decreasing by 10% |
2,055 |
1,734 |
75 |
|
|
Maintenance expense levels decreasing by 10%, with no corresponding decrease in policy charges |
2,014 |
1,692 |
70 |
|
|
Mortality and morbidity assumptions for assurances decreasing by 5%, with no corresponding decrease in policy charges |
1,989 |
1,668 |
66 |
|
|
Mortality assumption for annuities decreasing by 5%, with no corresponding increase in policy charges |
1,977 |
1,656 |
66 |
|
|
For value of new business, acquisition expenses other than commission and commission related expenses increasing by 10%, with no corresponding increase in policy charges |
n/a |
n/a |
60 |
|
|
Value of new business calculated on economic assumptions at the end of reporting period |
n/a |
n/a |
70 |
|
|
Residual non-hedgeable risk capital reduced to incorporate diversification benefits between hedgeable and non-hedgeable risks for covered business |
1,986 |
1,665 |
67 |
|
|
Economic capital for residual non-hedgeable risks calculated assuming a 99.93% confidence level which is targeted by an internal economic capital model |
1,956 |
1,635 |
63 |
|
Notes to the MCEV basis supplementary information
For the year ended 31 December 2010 continued
US Life
|
|
|
£m |
|
|
At 31 December 2010 |
MCEV |
Value of business |
Value of new business |
|
Central assumptions |
(189) |
(723) |
(28) |
|
Effect of: |
|
|
|
|
Required capital equal to the minimum statutory requirement |
(185) |
(719) |
(28) |
|
Increasing all pre-tax investment and economic assumptions by 1%, with credited rates and discount rates changing commensurately |
(380) |
(914) |
(5) |
|
Decreasing all pre-tax investment and economic assumptions by 1%, with credited rates and discount rates changing commensurately |
(18) |
(552) |
(60) |
|
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 |
(145) |
(679) |
(26) |
|
Recognising the present value of an additional 50% of liquidity spreads assumed on corporate bonds over the lifetime of the liabilities, with credited rates and discount rates changing commensurately* |
(34) |
(568) |
(18) |
|
Equity and property market value increasing by 10%, with all pre-tax investment and economic assumptions unchanged |
(189) |
(723) |
(28) |
|
Equity and property market value decreasing by 10%, with all pre-tax investment and economic assumptions unchanged |
(189) |
(723) |
(28) |
|
50bps contraction on corporate bond spreads |
80 |
(454) |
(28) |
|
25% multiplicative increase in swaption implied volatilities |
(270) |
(804) |
(53) |
|
Voluntary discontinuance rates decreasing by 10% |
(137) |
(671) |
(27) |
|
Maintenance expense levels decreasing by 10%, with no corresponding decrease in policy charges |
(173) |
(707) |
(28) |
|
Mortality and morbidity assumptions for assurances decreasing by 5%, with no corresponding decrease in policy charges |
(169) |
(703) |
(27) |
|
Mortality assumption for annuities decreasing by 5%, with no corresponding increase in policy charges |
(215) |
(749) |
(28) |
|
For value of new business, acquisition expenses other than commission and commission related expenses increasing by 10%, with no corresponding increase in policy charges |
n/a |
n/a |
(31) |
|
Value of new business calculated on economic assumptions at the end of reporting period |
n/a |
n/a |
(30) |
|
Residual non-hedgeable risk capital reduced to incorporate diversification benefits between hedgeable and non-hedgeable risks for covered business |
(187) |
(721) |
(28) |
|
Economic capital for residual non-hedgeable risks calculated assuming a 99.93% confidence level which is targeted by an internal economic capital model |
(209) |
(743) |
(30) |
* At 31 December 2010 the size of the base liquidity premium adjustment for US Life business of 75bps is greater than the base liquidity premium adjustment for OMSA's Retail Affluent Immediate Annuity business of 45bps. Therefore in addition to the 10bps liquidity spread sensitivity that is also shown for Emerging Markets, a sensitivity was calculated to illustrate the impact of an additional 50% of liquidity spreads for US Life business.
Notes to the MCEV basis supplementary information
For the year ended 31 December 2010 continued
Bermuda
|
|
|
£m |
|
|
At 31 December 2010 |
MCEV |
Value of business |
Value of new business |
|
Central assumptions |
287 |
(116) |
n/a |
|
Effect of: |
|
|
|
|
Required capital equal to the minimum statutory requirement |
289 |
(114) |
n/a |
|
Increasing all pre-tax investment and economic assumptions by 1%, with credited rates and discount rates changing commensurately |
350 |
(126) |
n/a |
|
Decreasing all pre-tax investment and economic assumptions by 1%, with credited rates and discount rates changing commensurately |
226 |
(105) |
n/a |
|
Equity and property market value increasing by 10%, with all pre-tax investment and economic assumptions unchanged |
339 |
(110) |
n/a |
|
Equity and property market value decreasing by 10%, with all pre-tax investment and economic assumptions unchanged |
229 |
(123) |
n/a |
|
50bps contraction on corporate bond spreads |
298 |
(105) |
n/a |
|
25% multiplicative increase in equity and property implied volatilities |
190 |
(120) |
n/a |
|
25% multiplicative increase in swaption implied volatilities |
285 |
(118) |
n/a |
|
Voluntary discontinuance rates decreasing by 10% |
278 |
(107) |
n/a |
|
Maintenance expense levels decreasing by 10%, with no corresponding decrease in policy charges |
297 |
(106) |
n/a |
|
Mortality and morbidity assumptions for assurances decreasing by 5%, with no corresponding decrease in policy charges |
287 |
(115) |
n/a |
|
Mortality assumption for annuities decreasing by 5%, with no corresponding increase in policy charges |
287 |
(116) |
n/a |
|
For value of new business, acquisition expenses other than commission and commission related expenses increasing by 10%, with no corresponding increase in policy charges |
n/a |
n/a |
n/a |
|
Value of new business calculated on economic assumptions at the end of reporting period |
n/a |
n/a |
n/a |
|
Residual non-hedgeable risk capital reduced to incorporate diversification benefits between hedgeable and non-hedgeable risks for covered business |
290 |
(113) |
n/a |
|
Economic capital for residual non-hedgeable risks calculated assuming a 99.93% confidence level which is targeted by an internal economic capital model |
281 |
(122) |
n/a |
Notes to the MCEV basis supplementary information
For the year ended 31 December 2010 continued
Total covered business
Total covered business includes the MCEV contribution from the US Life and Bermuda business segments.
|
|
|
£m |
|
|
At 31 December 2010 |
MCEV |
Value of business |
Value of new business |
|
Central assumptions |
7,515 |
4,164 |
172 |
|
Effect of: |
|
|
|
|
Required capital equal to the minimum statutory requirement |
7,578 |
4,227 |
176 |
|
Increasing all pre-tax investment and economic assumptions by 1%, with credited rates and discount rates changing commensurately |
7,259 |
3,847 |
180 |
|
Decreasing all pre-tax investment and economic assumptions by 1%, with credited rates and discount rates changing commensurately |
7,761 |
4,468 |
156 |
|
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 |
7,567 |
4,216 |
176 |
|
Equity and property market value increasing by 10%, with all pre-tax investment and economic assumptions unchanged |
7,886 |
4,441 |
180 |
|
Equity and property market value decreasing by 10%, with all pre-tax investment and economic assumptions unchanged |
7,147 |
3,895 |
165 |
|
50bps contraction on corporate bond spreads |
7,815 |
4,444 |
172 |
|
25% multiplicative increase in equity and property implied volatilities |
7,396 |
4,138 |
172 |
|
25% multiplicative increase in swaption implied volatilities |
7,423 |
4,072 |
147 |
|
Voluntary discontinuance rates decreasing by 10% |
7,747 |
4,415 |
211 |
|
Maintenance expense levels decreasing by 10%, with no corresponding decrease in policy charges |
7,777 |
4,426 |
192 |
|
Mortality and morbidity assumptions for assurances decreasing by 5%, with no corresponding decrease in policy charges |
7,654 |
4,304 |
185 |
|
Mortality assumption for annuities decreasing by 5%, with no corresponding increase in policy charges |
7,464 |
4,114 |
171 |
|
For value of new business, acquisition expenses other than commission and commission related expenses increasing by 10%, with no corresponding increase in policy charges |
n/a |
n/a |
154 |
|
Value of new business calculated on economic assumptions at the end of reporting period |
n/a |
n/a |
189 |
|
Residual non-hedgeable risk capital reduced to incorporate diversification benefits between hedgeable and non-hedgeable risks for covered business |
7,565 |
4,215 |
175 |
|
Economic capital for residual non-hedgeable risks calculated assuming a 99.93% confidence level which is targeted by an internal economic capital model |
7,437 |
4,087 |
166 |
|
|
|
£m |
|
|
At 31 December 2009 |
MCEV |
Value of business |
Value of new business |
|
Central assumptions |
6,027 |
3,212 |
167 |
|
Effect of: |
|
|
|
|
Required capital equal to the minimum statutory requirement |
6,076 |
3,262 |
172 |
|
Increasing all pre-tax investment and economic assumptions by 1%, with credited rates and discount rates changing commensurately |
5,746 |
2,865 |
161 |
|
Decreasing all pre-tax investment and economic assumptions by 1%, with credited rates and discount rates changing commensurately |
6,346 |
3,589 |
167 |
|
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 |
6,080 |
3,266 |
169 |
|
Equity and property market value increasing by 10%, with all pre-tax investment and economic assumptions unchanged |
6,401 |
3,447 |
179 |
|
Equity and property market value decreasing by 10%, with all pre-tax investment and economic assumptions unchanged |
5,671 |
2,996 |
157 |
|
50bps contraction on corporate bond spreads |
6,360 |
3,530 |
167 |
|
25% multiplicative increase in equity and property implied volatilities |
5,929 |
3,190 |
167 |
|
25% multiplicative increase in swaption implied volatilities |
5,906 |
3,092 |
161 |
|
Voluntary discontinuance rates decreasing by 10% |
6,211 |
3,492 |
209 |
|
Maintenance expense levels decreasing by 10%, with no corresponding decrease in policy charges |
6,269 |
3,454 |
188 |
|
Mortality and morbidity assumptions for assurances decreasing by 5%, with no corresponding decrease in policy charges |
6,166 |
3,351 |
185 |
|
Mortality assumption for annuities decreasing by 5%, with no corresponding increase in policy charges |
5,989 |
3,175 |
167 |
|
For value of new business, acquisition expenses other than commission and commission related expenses increasing by 10%, with no corresponding increase in policy charges |
n/a |
n/a |
150 |
|
Value of new business calculated on economic assumptions at the end of reporting period |
n/a |
n/a |
153 |
|
Residual non-hedgeable risk capital reduced to incorporate diversification benefits between hedgeable and non-hedgeable risks for covered business |
6,160 |
3,345 |
173 |
|
Economic capital for residual non-hedgeable risks calculated assuming a 99.93% confidence level which is targeted by an internal economic capital model |
5,932 |
3,118 |
161 |
This information is provided by RNS