European Embedded Value Supplementary Information
for the six months ended 30 June 2006
7 Analysis of covered business embedded value results (after tax)
|
£m
|
|||||||||
|
6 months ended 30 June 2006
|
6 months ended 30 June 2005
|
Year ended 31 December 2005
|
|||||||
| Total covered business |
Adjusted
net worth |
Value of
in-force business |
Total
|
Adjusted
net worth |
Value of
in-force business |
Total
|
Adjusted
net worth |
Value of
in-force business |
Total
|
| Embedded value of the covered business at beginning of the period |
2,242
|
1,979
|
4,221
|
2,081
|
1,474
|
3,555
|
2,081
|
1,474
|
3,555
|
| Exclusion of goodwill in respect of the United States covered business |
-
|
-
|
-
|
(59)
|
-
|
(59)
|
(59)
|
-
|
(59)
|
| Acquired embedded value of Skandia |
391
|
2,085
|
2,476
|
-
|
-
|
-
|
-
|
-
|
-
|
|
2,633
|
4,064
|
6,697
|
2,022
|
1,474
|
3,496
|
2,022
|
1,474
|
3,496
|
|
| New business contribution |
(195)
|
306
|
111
|
(55)
|
109
|
54
|
(91)
|
204
|
113
|
| Expected return on existing business - return on value of in-force |
-
|
160
|
160
|
-
|
89
|
89
|
-
|
187
|
187
|
| Expected return on existing business - transfer to net worth |
304
|
(304)
|
-
|
101
|
(101)
|
-
|
240
|
(240)
|
-
|
| Experience variances |
13
|
9
|
22
|
4
|
22
|
26
|
(7)
|
13
|
6
|
| Operating assumption changes |
6
|
(7)
|
(1)
|
(22)
|
29
|
7
|
(44)
|
110
|
66
|
| Expected return on adjusted net worth |
84
|
-
|
84
|
70
|
-
|
70
|
138
|
-
|
138
|
| Adjusted operating profit after tax |
212
|
164
|
376
|
98
|
148
|
246
|
236
|
274
|
510
|
| Investment return variances on in-force business |
2
|
19
|
21
|
19
|
32
|
51
|
20
|
92
|
112
|
| Investment return variances on adjusted net worth |
70
|
-
|
70
|
86
|
-
|
86
|
264
|
-
|
264
|
| Effect of economic assumption changes |
-
|
(129)
|
(129)
|
-
|
26
|
26
|
-
|
36
|
36
|
| Effect of changes in and cost of required capital |
-
|
-
|
-
|
-
|
32
|
32
|
-
|
33
|
33
|
| Profit after tax |
284
|
54
|
338
|
203
|
238
|
441
|
520
|
435
|
955
|
| Exchange rate movements |
(351)
|
(255)
|
(606)
|
(112)
|
(60)
|
(172)
|
55
|
72
|
127
|
| Change in minority interest |
(3)
|
(26)
|
(29)
|
-
|
-
|
-
|
(4)
|
(2)
|
(6)
|
| Net transfers from covered business |
(123)
|
-
|
(123)
|
(225)
|
-
|
(225)
|
(351)
|
-
|
(351)
|
| Embedded value of the covered business at end of the period |
2,440
|
3,837
|
6,277
|
1,888
|
1,652
|
3,540
|
2,242
|
1,979
|
4,221
|
|
£m
|
|||||||||
|
6 months ended 30 June 2006
|
6 months ended 30 June 2005
|
Year ended 31 December 2005
|
|||||||
| South Africa covered business |
Adjusted
net worth |
Value of
in-force business |
Total
|
Adjusted
net worth |
Value of
in-force business |
Total
|
Adjusted
net worth |
Value of
in-force business |
Total
|
| Embedded value of the covered business at the beginning of period |
1,755
|
1,301
|
3,056
|
1,566
|
1,030
|
2,596
|
1,566
|
1,030
|
2,596
|
| New business contribution |
(17)
|
44
|
27
|
(17)
|
42
|
25
|
(22)
|
84
|
62
|
| Expected return on existing business - return on value of in-force |
-
|
75
|
75
|
-
|
66
|
66
|
-
|
137
|
137
|
| Expected return on existing business - transfer to net worth |
99
|
(99)
|
-
|
92
|
(92)
|
-
|
185
|
(185)
|
-
|
| Experience variances |
8
|
4
|
12
|
28
|
(1)
|
27
|
52
|
(8)
|
44
|
| Operating assumption changes |
-
|
13
|
13
|
(12)
|
21
|
9
|
3
|
62
|
65
|
| Expected return on adjusted net worth |
67
|
-
|
67
|
60
|
-
|
60
|
121
|
-
|
121
|
| Adjusted operating profit after tax |
157
|
37
|
194
|
151
|
36
|
187
|
339
|
90
|
429
|
| Investment return variances on in-force business |
6
|
49
|
55
|
12
|
39
|
51
|
18
|
99
|
117
|
| Investment return variances on adjusted net worth |
79
|
-
|
79
|
90
|
-
|
90
|
264
|
-
|
264
|
| Effect of economic assumption changes |
-
|
(74)
|
(74)
|
-
|
-
|
-
|
-
|
40
|
40
|
| Effect of changes in and cost of required capital |
-
|
-
|
-
|
-
|
32
|
32
|
-
|
33
|
33
|
| Profit after tax |
242
|
12
|
254
|
253
|
107
|
360
|
621
|
262
|
883
|
| Exchange rate movements |
(322)
|
(225)
|
(547)
|
(142)
|
(98)
|
(240)
|
5
|
11
|
16
|
| Change in minority interest |
2
|
(1)
|
1
|
-
|
-
|
-
|
(4)
|
(2)
|
(6)
|
| Net transfers from covered business |
(133)
|
-
|
(133)
|
(240)
|
-
|
(240)
|
(433)
|
-
|
(433)
|
| Embedded value of the covered business at end of the period |
1,544
|
1,087
|
2,631
|
1,437
|
1,039
|
2,476
|
1,755
|
1,301
|
3,056
|
| Return on embedded value (ROEV)% p.a. |
12.7%
|
14.4%
|
16.5%
|
||||||
The main operating assumption changes are a reduction in the Retirement Fund tax rate in South Africa from 18% to 9% and a change in the allocation of head-office expenses between new business and renewal expenses.
The effect of changes in and cost of required capital for South Africa reflects changes in the amount of required capital and in the mix of assets backing the capital.
The transfers from covered business include the purchase of additional shares in Nedbank Group Limited, an increase inter company loans, dividend payments, as well as head office expenses.
The segmental results of South Africa include the Old Mutual Life Insurance Company Namibia and Old Mutual International (Guernsey) both of which are managed by the South African operations.
The embedded value for the South Africa covered business is after the adjustment for market value of life funds' investments in Group equity and debt instruments.
Return on embedded value is the annualised adjusted operating profit after tax divided by opening embedded value.
|
£m
|
|||||||||
|
6 months ended 30 June 2006
|
6 months ended 30 June 2005
|
Year ended 31 December 2005
|
|||||||
| United States covered business |
Adjusted
net worth |
Value of
in-force business |
Total
|
Adjusted
net worth |
Value of
in-force business |
Total
|
Adjusted
net worth |
Value of
in-force business |
Total
|
| Embedded value of the covered business at beginning of the period |
487
|
678
|
1,165
|
515
|
444
|
959
|
515
|
444
|
959
|
| Exclusion of goodwill in respect of US covered business |
-
|
-
|
-
|
(59)
|
-
|
(59)
|
(59)
|
-
|
(59)
|
|
487
|
678
|
1,165
|
456
|
444
|
900
|
456
|
444
|
900
|
|
| New business contribution |
(45)
|
67
|
22
|
(38)
|
67
|
29
|
(69)
|
120
|
51
|
| Expected return on existing business - return on value of in-force |
-
|
32
|
32
|
-
|
23
|
23
|
-
|
50
|
50
|
| Expected return on existing business - transfer to net worth |
26
|
(26)
|
-
|
9
|
(9)
|
-
|
55
|
(55)
|
-
|
| Experience variances |
(3)
|
(1)
|
(4)
|
(24)
|
23
|
(1)
|
(59)
|
21
|
(38)
|
| Operating assumption changes |
6
|
(19)
|
(13)
|
(10)
|
8
|
(2)
|
(47)
|
48
|
1
|
| Expected return on adjusted net worth |
8
|
-
|
8
|
10
|
-
|
10
|
17
|
-
|
17
|
| Adjusted operating profit after tax |
(8)
|
53
|
45
|
(53)
|
112
|
59
|
(103)
|
184
|
81
|
| Investment return variances on in-force business |
-
|
14
|
14
|
7
|
(7)
|
-
|
2
|
(7)
|
(5)
|
| Investment return variances on adjusted net worth |
(7)
|
-
|
(7)
|
(4)
|
-
|
(4)
|
-
|
-
|
-
|
| Effect of economic assumption changes |
-
|
(36)
|
(36)
|
-
|
26
|
26
|
-
|
(4)
|
(4)
|
| Profit after tax |
(15)
|
31
|
16
|
(50)
|
131
|
81
|
(101)
|
173
|
72
|
| Exchange rate movements |
(33)
|
(48)
|
(81)
|
30
|
38
|
68
|
50
|
61
|
111
|
| Net transfers from covered business |
24
|
-
|
24
|
15
|
-
|
15
|
82
|
-
|
82
|
| Embedded value of the covered business at end of the period |
463
|
661
|
1,124
|
451
|
613
|
1,064
|
487
|
678
|
1,165
|
| Return on embedded value (ROEV)% p.a. |
8.1%
|
12.8%
|
8.5%
|
||||||
The operating assumption changes include a strengthening of the assumed rate of usage of the penalty free withdrawal option in the deferred annuity product, valuation modelling improvements and the impact of changing the definition of required capital in Old Mutual (Bermuda) Limited to that appropriate to manage the business.
The transfer to covered business is in respect of capital injections and head office expenses.
The segmental results of United States include Old Mutual Reassurance (Ireland) Limited (OMRe), which provides reinsurance to the United States life companies and Old Mutual (Bermuda) Limited.
Return on embedded value is the annualised adjusted operating profit after tax divided by opening embedded value in US dollars.
| £m | |||
|
6 months ended 30 June 2006
|
|||
| Europe covered business |
Adjusted net
worth |
Value of
in-force business |
Total
|
| Embedded value of covered business at beginning of the period | |||
| Acquired embedded value of Skandia | 391 | 2,085 | 2,476 |
| New business contribution | (134) | 196 | 62 |
| Expected return on existing business - return on value of in-force | - | 53 | 53 |
| Expected return on existing business - transfer to net worth | 180 | (180) | - |
| Experience variances | 8 | 6 | 14 |
| Operating assumption changes | - | (1) | (1) |
| Expected return on adjusted net worth | 9 | - | 9 |
| Adjusted operating profit after tax | 63 | 74 | 137 |
| Investment return variances on in-force business | (4) | (44) | (48) |
| Investment return variances on adjusted net worth | (2) | - | (2) |
| Effect of economic assumption changes | - | (19) | (19) |
| Profit after tax | 57 | 11 | 68 |
| Exchange rate movements | 4 | 18 | 22 |
| Minority interest | (5) | (25) | (30) |
| Net transfers from covered business | (14) | - | (14) |
| Embedded value of the covered business at end of the period | 433 | 2,089 | 2,522 |
| Return on embedded value (ROEV)% p.a. | 13.3% | ||
The transfers from covered business include head office expenses and repayment of internal financing arrangements.
The segmental results of Europe include the Skandia Life companies in the United Kingdom, Nordic region, Europe and Latin America.
The embedded value for the Europe covered business is after the adjustment for market value of life funds' investments in Group equity and debt instruments.
Return on embedded value is the annualised adjusted operating profit after tax divided by opening embedded value.
