This supplementary information has been prepared in accordance with the methodology for supplementary reporting for long term insurance business (the Achieved Profits Method) issued in December 2001 by the Association of British Insurers.
The objective of the Achieved Profits Method is to recognise profit as it is earned arising from contracts of long term assurance business. The methodology is based on an attribution of the assets of a life assurance company between those backing long term assurance contracts (backing assets) and the residual assets representing unencumbered capital.
The backing assets cover:
(i) the long term liabilities calculated in accordance with local supervisory requirements; and
(ii) the solvency capital requirements in each country (or equivalent where there is no local requirement).
Under the Achieved Profits Method the profits of the long term assurance business comprise:
(i) the cash transfers to the residual assets from the backing assets as determined following the statutory valuation;
(ii) the movement over the accounting period in the present value of the expected future cash flows to the residual assets from contracts in-force at the balance sheet date and their backing assets; and
(iii) the return on the residual assets.
Shareholder profit arises fundamentally from:
(i) the difference between (a) the amounts charged to policyholders for guarantees, expenses and insurance and (b) the actual experience of these items; and
(ii) the investment return earned on capital.
In addition for the United States business, the guarantees for interest credited to policyholders' funds are reset periodically. The assumed future credited interest rates are consistent with investment earnings made and in line with recent Company policy.
The treatment within this supplementary information of all business other than life assurance business is unchanged from the statutory financial statements.