Final Results

RNS Number : 7885M

Hansard Global plc

21 September 2012

Hansard Global plc

Results for the year ended 30 June 2012

Hansard Global plc ("Hansard" or "the Group"), the specialist long-term savings provider, today announces its results for the year ended 30 June 2012.

Year ended 30 June	2012	2011
Regular premium New Business sales (PVNBP)	£124.4m	£112.0m
Single premium New Business sales (PVNBP)	£51.3m	£109.1m
New business margin	9.6%	8.3%
Cash payback on new business	2.6 years	2.3 years
IFRS profit after tax	£11.2m	£16.5m
EEV operating profit after tax	£4.8m	£14.9m
EEV profit after tax	(£13.7m)	£28.5m
Operating cash surplus	£37.2m	£35.7m
Recommended final dividend per share	8.0p*	8.0p
* Subject to approval by shareholders

As at 30 June	2012	2011
European Embedded Value	£224m	£257m
Assets under Administration	£1,034m	£1,230m

Summary

The performance of the Group during the financial yeardemonstrates success from the Group's investment in distribution infrastructure and its focus on regular premium business sourced from the growth economies of the Far East and Latin America. Regular premium new business flows are at a record level of £124.4m (2011: £112.0m) and have contributed to industry-leading margins of 9.6%. Almost 60% of this regular premium business has been introduced electronically through Hansard OnLine.

Continued instability in the Eurozone has hampered the progress of single premium new business flows. We do not anticipate the position to be improved within the next few years.

Despite turmoil in all major stock markets throughout the year, total new business flows are marginally higher than those of the previous financial year based on Compensation Credit, the Group's internal measure. Based on PVNBP, new business is 20.5% below last year due to lower single premiums. The initial costs of acquiring this new business have been funded by positive operating cash flows of £37.2m (2011: £35.7m) generated from the existing policy book.

However we are not immune from market forces that have combined to erode value for almost all market participants. Results under both IFRS and EEV reflect the impact of market falls during the year; reactions to the continuing uncertainties in the Eurozone; continuing investment in our business and the increased burden of legal fees, regulatory, compliance and related costs.

Trading Results

Results for the year under IFRS and EEV are in line with previous guidance.

Dividends

The Board has proposed a final dividend of 8.0p per share which, if approved by the shareholders, represents a total dividend of 13.9p per share in respect of the financial year (2011: 13.75p), an increase of 1.1%.

The proposed final dividend is at the same level as the previous year. Over the last two years the Company has paid dividends that have been £16m in excess of cash generated by the business. The Board believes that now is an appropriate time to adjust the dividend to a level commensurate with the surplus cash generated by the business.

Dividend payments for the year ended 30 June 2013 therefore are expected to total 8.0p per share and it is the Board's intention to pursue a progressive policy thereafter.

Current Trading

New business levels in the first two months of the financial year reflect the cautious stance of policyholders and are significantly below the level of the corresponding period in the prior year. However the Board expects new business to gather momentum in the second quarter on the back of new product launches and also more positive investment market conditions.

Interim Management Statement

The first Interim Management Statement in respect of the year ending 30 June 2013 is expected to be published on 8 November 2012.

Leonard Polonsky, Chief Executive of Hansard Global plc, commented:

"The performance of the Group throughout the financial year was encouraging. In line with our new business strategy we continued to invest in regular premium flows and to focus on growth markets.

Single premium business remains constrained by market volatility and the instability in the Eurozone that shows few signs of abating. While the economic environment remains challenging, we have a robust strategy in place and are successfully developing the business in the growth markets of the Far East and Latin America.

For further information

Hansard Global plc +44 (0) 1624 688000

Leonard Polonsky, Chief Executive

Gordon Marr, Managing Director

Vince Watkins, Chief Financial Officer

Pelham Bell Pottinger +44 (0) 20 7861 3232

Daniel de Belder

Notes to editors:

· Hansard Global plc is the holding company of the Hansard Group of companies. The Company was listed on the London Stock Exchange in December 2006. The Group is a specialist long-term savings provider, based in the Isle of Man.

· The Group offers a range of flexible and tax-efficient investment products within a life assurance policy wrapper, designed to appeal to affluent, international investors.

· The Group utilises a low-cost distribution model by selling policies exclusively through a network of independent financial advisors, and the retail operations of certain financial institutions who provide access to their clients in more than 170 countries. The Group's distribution model is supported by Hansard OnLine, a multi-language internet platform, and is scaleable.

· The principal geographic markets in which the Group currently services financial advisors and policyholders are the Far East, Latin America and the Middle East, in the case of Hansard International Limited, and Western Europe in the case of Hansard Europe Limited, the Group's two life assurance companies.

· The Group's objective is to grow its business by attracting new business and positioning itself to adapt rapidly to market trends and conditions. The scaleability and flexibility of the Group's operations allow it to enter or develop new geographic markets and exploit growth opportunities within existing markets without the need for significant further investment.

Forward-looking statements:

This announcement may contain certain forward-looking statements with respect to certain of Hansard Global plc's plans and its current goals and expectations relating to future financial condition, performance and results. By their nature forward-looking statements involve risk and uncertainties because they relate to future events and circumstances which are beyond Hansard Global plc's control. As a result, Hansard Global plc's actual future condition, performance and results may differ materially from the plans, goals and expectations set out in Hansard Global plc's forward-looking statements. Hansard Global plc does not undertake to update forward-looking statements contained in this announcement or any other forward-looking statement it may make. No statement in this announcement is intended to be a profit forecast or be relied upon as a guide for future performance.

Chairman's Statement

I am pleased to present the Annual Report of Hansard Global plc for the financial year ended 30 June 2012.

The performance of the Group during the financial year demonstrates success from the Group's investment in distribution infrastructure and its focus on regular premium business sourced from the growth economies of the Far East and Latin America. Almost 60% of this regular premium business has been introduced electronically through Hansard OnLine.

Despite turmoil in all major stock markets throughout the year, new business flows are marginally higher than those of the previous financial year on the Group's internal measure. The initial costs of acquiring this new business have been funded by positive cash flows generated internally.

International Financial Reporting Standards ("IFRS")

Reflecting continued investment in our business, reduced asset values and the continuing weakness of the Euro, IFRS profit after tax for the year is £11.2 million (US$17.6m), compared with the profit of £16.5m (US$25.9m) earned in the previous financial year. Earnings per share for the year are 8.2p (US 12.9 cents), compared with 12.0p (US 18.8c).

We remain confident that we will be successful following our appeal against the initial ruling in the Norwegian litigation and we anticipate continuing additional expenditure to address this and other cases of which we have been made aware.

European Embedded Value ("EEV")

Following the payment of dividends totalling £19.1m (US$30m) during the year, the Group's embedded value at 30 June 2012 is £224m (US$352m), (2011: £257m, US$403m). Falls in market levels and changes in policyholder behaviour have been incorporated in our expectations of value. EEV operating profit after tax of £4.8m (US$7.5m) has reduced from £14.9m (US$23.4m) in the previous year.

New business

Against the backdrop of volatile market conditions and global economic concerns affecting investor confidence, new business for the year is marginally above the level of the previous financial year. Increased new business levels have been driven, in large part, by the Group's continued focus on the growth markets of the Far East and Latin America, and continued investment in Hansard OnLine. Calculated on the Group's internal metric, Compensation Credit, new business has increased by 3.6% to £17.1m (US$26.9m) from £16.5m (US$25.9m).

During the year we achieved a record level of regular premium new business flows that has contributed to industry-leading margins.

Dividends

Dividends totalling 13.9p per share have been paid to shareholders during the year. This represents an increase of 3.3% over the dividends of 13.45p per share paid during the previous financial year.

The Board has resolved to pay a final dividend of 8.0p (2011: 8.0p) per share on 19 November 2012 which is subject to approval at the Annual General Meeting. If approved, this will represent total dividends for the financial year of 13.9p, an increase of 1.1% over the dividends of 13.75p per share paid in respect of the previous financial year.

Dividend payments for the year ended 30 June 2013 therefore are expected to total 8.0p per share and it is the Board's intention to pursue a progressive policy thereafter.

Hansard OnLine

Hansard OnLine is an important component of the Group's relationship with financial advisors and their clients and continues to be developed to meet their needs.

Assets under Administration

The value of policyholders' assets under administration reflects the economic environment and was £1.03 billion (US$1.6bn) at the balance sheet date, (2011; £1.23bn, US$1.9bn).

Employees

The progress that we have made in these turbulent times is a reflection of the skill and enthusiasm of our employees throughout the world. On behalf of the Board and Shareholders, I thank them all for their continued commitment to Hansard's success.

L S Polonsky

Chairman

20 September 2012

Report of the Managing Director

Throughout the year we have continued to invest in our business; to focus distribution resources; to improve support to Independent Financial Advisors (IFAs) in our target markets and to reduce our exposure to operational risk. I believe that the success of our strategy is reflected in a record level of regular premium new business and in increasing utilisation of Hansard OnLine amongst IFAs in our target markets.

Against those successes however, we need to balance: the uncertain economic conditions; increased regulatory complexity; instability in the Eurozone; and the costs of defending ourselves against asset performance-related litigation. The combined effect of these factors has depressed our results under IFRS and EEV.

Investing in new business

The Group invested £27.3m (2011: £25.7m) in new business during the year, funded by positive operating cash flows from the policies on hand at the beginning of this financial year.

We have seen a continuation of the growth in new business levels over those of the last few years, driven by our strategic focus on growth markets and supported by targeted expenditure. Using the Group's internal metric, Compensation Credit, new business is 3.6% up on the previous financial year. This statistic, however, does not fully convey that we have achieved growth of 11% in regular premium new business over the previous year. This represents a record level of regular premium new business. This growth, despite volatile markets and uncertain economic outlook, reflects a continuation of profitable relationships with IFAs in our target markets.

The design of our systems, aided by the Hansard OnLine new business functionality, allows us to capture and administer regular premium business efficiently and to deliver new business margins on the PVNBP basis of 9.6% (2011: 8.3%). These margins remain well above the industry average.

Investing for growth

The Group's investments in distribution and other infrastructure, in order to improve relationships with IFAs and policyholders, and further automate processes, have continued throughout the financial year, and have underpinned increasing regular premium flows from the growth markets of the Far East and Latin America.

In particular, Hansard OnLine new business functionality is continuing to develop in response to feedback from a wide range of intermediaries throughout the world. At time of writing, more than 4,200 new business applications have been processed through this facility.

We believe that all aspects of the lifecycle of a Hansard policy should be capable of being transacted online and we continue to develop our systems to meet that target. In partnership with a local financial services organisation we have developed systems to support online processing of policyholder investment transactions. These systems have been implemented on a targeted basis with selected intermediaries. Approximately 60% of fund switches and asset dealing instructions are now received online.

Risk management

Our business model involves the controlled acceptance and management of risk exposures. Understanding the risks we face and managing them appropriately enables effective decision making, contributes to our competitive advantage and helps us to achieve our business objectives. The mechanisms for identifying, assessing, managing and monitoring risks are an integral part of our day to day management process.

Our risk management framework is continually being refreshed to better support our objectives and to recognise regulatory and legislative change.

While the Group has designed its products, distribution methods and cost base with a view to reducing operational and financial risks, the regulatory, corporate and legislative responses to the extreme financial and market circumstances encountered over the last four years will have a significant impact on the business environment in which we operate. Like other financial services groups, we continue to adapt to these challenges.

Our business model is such that the assets linked to policies, and which determine the policy values, are selected by policyholders or their advisors yet, as has been reported in the past, a majority of the complaints we receive relate to the selection and performance of assets. This is particularly true of more complex structured products distributed throughout Europe that have been selected by policyholders and / or their advisors for inclusion in policies.

Hansard Europe has been served with writs totalling approximately £11m arising from such complaints and other asset performance-related issues. The Group does not provide investment advice and, accordingly, the Board is of the view that these complaints have no merit. The negative initial judgement in Norway was not unanticipated as our defence is very much based on technical arguments and we have appealed. The Group intends to defend itself against all claims strenuously.

Corporate Governance

Hansard is committed to achieving high standards of corporate governance. This was demonstrated by the Board implementing the provisions of the UK Corporate Governance Code with effect from 1 July 2010 and adhering to its principles throughout this financial year, as is reported elsewhere in this Report & Accounts.

Throughout the year we have refreshed Board and Committee structures and composition throughout the Group, and have also taken steps to increase the objectivity of Actuarial oversight.

The burden of increasing regulatory and governance requirements has increased costs for all financial services institutions and this trend shows no sign of abating. I expect the implementation of Solvency II, FATCA and other legislation proposed throughout the EU will occupy a significant amount of the Group's resources over the next few years.

Financial performance

Throughout the financial year we continued to generate positive operating cash flows that enable us to fund new business strain and support dividend payments. We believe that the pursuit of profitable contracts is the best use of our resources at this time.

The success of our endeavours is not immediately apparent under IFRS reporting. New business flows will contribute to income streams over many years, but our continued investment in systems and other resources currently outweighs the initial growth in income. Our business is long term in nature, and for this reason we present the results on an EEV basis, which better reflects the true profitability of new business, in addition to the IFRS basis, which are set out in the Financial Review.

Investing in our people

The Group has a dedicated dynamic workforce in the Isle of Man, the Republic of Ireland and other locations. We have a commitment to service and quality at the highest level in relation to the development of successful products, administration, distribution mechanisms and Hansard OnLine.

The progress that we have made this year is a reflection of the skill and enthusiasm of our employees. I thank them all for their continued commitment to Hansard's success.

G S Marr

Managing Director

20 September 2012

Report of the Chief Distribution Officer

I feel that our decision to better position the Group to benefit from the growth that we envisaged in the economies of the Far East and Latin America is being rewarded. Despite challenging economic conditions throughout this financial year we continued to generate strong levels of new business flows, reflecting continuing levels of interest in Hansard's products in many parts of the world, aided by the development of Hansard OnLine. Importantly, stronger flows of regular premium new business have contributed to a record level of regular premium new business at £124.4m (PVNBP) in the year (2011: £112.0m).

I believe that this is recognition, in uncertain market conditions, of our ability to develop a proposition that meets the needs of policyholders and intermediaries, and of the efforts of those intermediaries. I would like to record my thanks to all members of the Group's distribution force and to all those IFAs and intermediaries who have introduced new business to us this year.

Strategy

It is generally accepted that a regular premium-based investment approach is appropriate in uncertain economic conditions. We believe that extending the Group's proposition will allow a continued flow of regular premium business from growth markets, together with limited flows of single premium new business.

Our objective is to grow by attracting profitable new business and positioning ourselves to adapt rapidly to market trends and conditions. The continued growth in new business reflects our efforts to:

· develop and enhance relationships with IFAs, intermediaries and their clients and;

· increase the functionality of Hansard OnLine to continue to meet the needs of IFAs and policyholders.

New business volumes

New business volumes for the year on the Group's internal metric, Compensation Credit, and on two metrics widely used by the market are set out below.

The increase in Compensation Credit over last year illustrates that the Group continues to grow new business levels profitably. This is a measure of the quality of our proposition and of increased levels of interest among IFAs and their clients throughout the world. New business levels measured under the CC basis have grown by an average of 14% annually since 30 June 2009.

At first glance, the indicated fall in total new business levels under PVNBP and APE would appear problematic, however we are well aware that one impact of the uncertain market conditions that we continue to experience is to cause deferrals in certain financial planning and, therefore, in single premium business. Reporting under PVNBP and APE highlights the reduction in single premiums from the level of the previous year.

	2012	2011	%
New business sales	£m	£m	change
Compensation Credit ("CC")	17.1	16.5	3.6 %
Present Value of New Business Premiums ( "PVNBP")	175.7	221.1	(20.5)%
Annualised Premium Equivalent ("APE")	27.0	30.1	(10.3)%

To allow better comparison with results published by other companies the following commentary relates to new business flows calculated on the basis of PVNBP.

New business flows on the PVNBP basis

We continue to generate the majority of our new business from the growth economies of the Far East and Latin America. Despite a reduction in the level of new business from Latin America, a combined 61% of the Group's new business was sourced from those areas (2011: 51%). This is predominantly regular premium business introduced by Independent Financial Advisors, many of whom use the Hansard OnLine new business functionality. An increase in the proportion of more profitable regular premium flows has led to the increased new business margin.

Those regular premium flows from those growth economies, together with steady flows from other parts of the world, totalled £124.4m PVNBP for the year, or 11.1% above the previous year. Consistent with our strategy of attracting a greater mix of regular premium flows, regular premium products accounted for almost 71% of the Group's PVNBP in the year (2011: 51%).

Single premium flows that are typically sourced from the EU and the Rest of the World have been reduced from previous levels as policyholder investment decisions are deferred in the face of instability in the Eurozone and a continuing difficult market environment. We do not accept new business from certain parts of Scandinavia pending the finalization of the Norwegian litigation, and that will probably not be finalized for a further year.

Single premiums in the year are £51.3m compared with £109.1m in 2011. As reported previously, large single premium cases issued in Q1 2011 totalling £20.0m have distorted the comparison to last year.

PVNBP for the year ended 30 June

	2012	2011	%
	£m	£m	change
Regular premium	124.4	112.0	11.1 %
Single premium	51.3	109.1	(53.0)%
PVNBP	175.7	221.1	(20.5)%

PVNBP new business flows by region

	2012	2011	%
	£m	£m	change
Far East	69.4	60.7	14.3 %
EU and EEA	46.6	64.0	(27.2)%
Latin America	37.1	51.4	(27.8)%
Rest of World	22.6	45.0	(49.8)%
PVNBP	175.7	221.1	(20.5)%

Developing and enhancing relationships

The Group's proposition is to develop and enhance relationships with intermediaries and their clients through the use of our people, products and technology in a way that meets shared objectives.

We continue to look to better position market development resourcesto provide local language and other support to IFAs in the Group's target markets. During the financial year we increased our exposure to the growth markets of South-East Asia and to North Africa.While we continue to develop new business opportunities in Western Europe and for intermediaries focussed on an expatriate market, we do not intend to increase distribution resource in those markets at this time.

Selective recruitment of distribution resourcescontinues, in line with our policy of expanding our reach amongst suitable financial advisors in the Group's target markets, and we look to extend the management pool. Throughout the next financial year we intend to continue to develop relationships through targeted expansion of resources in the Far East; in more countries in Latin America, Middle East, Africa and, assuming that confidence in the Eurozone returns, a better focussed activity in Europe.

Through our network of Account Executives we continue toreceive business from a strong and well-diversified range of financial advisors around the world. The growth in regular premium new business flows from target markets is reflected in the proportions of contractual premiums denominated in US Dollars and Japanese Yen. Some 60% of this year's PVNBP is denominated in those currencies (2011: 53%).

	2012	2011
Currency denominations (as a percentage of PVNBP)	%	%
US Dollars	32.5	40.5
Japanese Yen	29.1	12.7
Euro	24.4	27.1
Sterling	10.0	15.0
Other	4.0	4.7
Total	100.0	100.0

We are monitoring the discussions concerning the implementation of the Retail Distribution Review by the Financial Services Authority in the UK. While we support transparency in fee and other disclosures, the breadth of our distribution and the limited proportion of new business sourced from the UK means that we do not expect significant disruption when the Review is implemented.

New business profits

Despite market conditions, we have retained our focus on profitability. Increased regular premium flows, which earn higher margins than single premium business, have contributed to the growth in the new business margin to 9.6% on the PVNBP basis (2011: 8.3%).

These margins are well above the industry average, and are now at a higher level than the margin reported prior to the global credit crisis.

Hansard OnLine

We continue to invest in order to enhance existing relationships with IFAs and other intermediaries in the Group's target markets. In particular over 1,900 policies were introduced electronically this year by those financial advisors in international markets using the online new business facility through Hansard OnLine. This incorporates over 60% of the relevant regular premium policies issued in the year. We intend to increase the number of intermediaries using the system.

Functionality to support online submission of a range of products for European-based advisors has been rolled out to a number of those advisors over the period since the balance sheet date.

The cost savings to intermediaries of these applications is significant, and can be expected to increase as the demand for paper copies reduces.

J Kanarek

20 September 2012

BUSINESS REVIEW

Business

Hansard is a specialist long-term savings provider that began trading internationally from the Isle of Man in 1987 and has operated in the Republic of Ireland since 1995. The Group offers a range of flexible, tax-efficient investment products within life assurance policy wrappers, developed to appeal to affluent international investors and distributed byIndependent Financial Advisors ("IFAs") and other intermediaries acting for the clients they introduce.

The Company's head office is in Douglas, Isle of Man, and its principal subsidiaries operate from the Isle of Man, and Dublin, Republic of Ireland. Hansard International Limited has established a branch in Malaysia to support business flows from the Asian growth economies.

We intend to grow our business in our preferred markets and at an acceptable return on capital.

Strategy

In support of our growth targets, our strategy is to develop long term profitable relationships with IFAs and other intermediaries who introduce insurance policies to affluent international investors.

The results for the year that are summarised in this Report & Accounts reflect the successful implementation of the decisions taken by the Group to:

· invest in Hansard OnLine and the Group's systems and;

· increase the proportion of regular premium new business;

· develop profitable relationships with intermediaries in growth markets and;

· maintain levels of solvency cover that meet the requirements of regulators, policyholders, intermediaries and other stakeholders.

Hansard OnLine

Hansard OnLine is the Group's multi-language internet platform. It is a secure extranet platform hosting all information about the policies administered by the Group. We provide access to relevant portions of this information to Intermediaries and their clients to allow them to better manage their objectives.

Hansard OnLine joins together IFAs and other intermediaries around the world with Hansard's offices, and with their clients, who may also have intermediary-controlled access through their OnLine accounts. IFAs and their clients get fast, easy and secure access to current data and analytical information around the world, around the clock.

Content may be presented in any of 11 different languages - helping IFAs communicate more effectively with their clients and reinforcing their brand.

Widely and independently regarded as best in class, Hansard OnLine is a valuable sales and administration tool that continues to be developed to meet the needs of intermediaries and policyholders. Functionality introduced during the financial year aims to improve access; increase security; scalability and speed of processing and reduce operational risks.

A summary of more recent innovations include:

Meeting policyholders' requirements

Local needs in local languages

Policy information (policy valuations, premium collection, unit fund and investment performance information) is available OnLine to policyholders and intermediaries with content presented in 11 different languages.

Secure communications

Through an OnLine account policyholders can view all the documentation relating to their policy. Over 10,000 OnLine accounts are used regularly.

Approx. 40% of policyholder correspondence is no longer posted. Clients access electronic copies via their OnLine Account. The number of clients choosing not to receive hard copy post has shown a steady increase since launch in February.

Supporting intermediaries' business models

OnLine processing

 OnLine processing of new business applications

Over 4,200 new business applications have been received OnLine since launch. 60% of all new business applications are now received OnLine.

 OnLine processing of policy investment transactions

The majority of Fund Advisors now transact policy-related investment dealing Online. Over 60% of all available transactions are now processed OnLine. Development of a facility to allow Fund Advisors to transact in aggregate throughout their client range is expected to be ready to pilot in the next few months.

Up to date analytical information

· Policy Timeline

With the Policy Timeline functionality released last month the IFA is able to have a single-screen view of the entire policy history that allows them to zoom in on the correspondence and transactions at interesting points of the policy's life, and thus improve at a glance their understanding of the policyholder's relationship with Hansard.

· Unit Fund Centre

The Unit Fund Centre is an interactive research application that allows the IFA to filter the entire range of Hansard unit funds available, based on a range of specific criteria, and create bespoke, personalised reports for their clients.

· SMS Alerts

A new SMS alerting system is being piloted. The system allows the IFA to set OnLine alerts (fund and policy movement, new correspondence etc) then receive a SMS message when an event is triggered.

Reducing Operational risk

The straight-through processing of policyholder instructions (whether received directly or through their appointed agents) reduces the Group's operational risk exposures, as does the ability of the Group to communicate electronically with intermediaries and policyholders, irrespective of geographical boundaries. In certain circumstances this allows the Group to reduce its operational expense base.

Products

The Group's products are unit-linked regular or single premium life assurance contracts, issued by Hansard International and Hansard Europe, which offer access to a wide range of investment assets. The contract benefits are directly linked to the value of those assets that are selected by, or on behalf of, the policyholder. The Group does not offer investment advice. Policyholders bear the investment risk.

These contracts are distributed exclusively through IFAs and other intermediaries, supported by our multi-language internet platform, Hansard OnLine. As a result of high levels of service, the nature of the Group's products, the functionality of Hansard OnLine, and the ability of the policyholder to reposition assets within a policy, we expect to retain the policyholder relationship over the long term.

The Group's products do not include any policies with financial options and/or guarantees regarding investment performance and, hence, unlike the situation faced by many other life assurers, the Group carries no guarantee risk that can cause capital strain. Capital invested in new business is typically returned within three years.

Revenues

The main source of income for the Group is the fees earned from the administration of the insurance contracts. The new business generated in a particular year is expected to earn income for an average period of 14 years and so, with careful expense management, provides a good return on the investment. In the year under review we have seen growth of over 11% in regular premium new business flows, which will provide an income stream for the future. Our business is therefore long term in nature both from a policyholder perspective and with regards to the income that is generated.

From this income we meet the overheads of the business, invest in our business and invest to acquire new insurance contracts. Capital invested in new business earns a return in excess of 15% p.a. and is typically returned within three years. A large proportion of the annual cash generated each year from the policies under administration is re-invested in growing the business, with the aim of increasing future returns for shareholders.

Capitalisation and solvency

The Group is well capitalized to meet the requirements of regulators, policyholders and intermediaries. The required solvency margins are covered 13.6 times (2011: 13.4 times) by our capital resources, which are typically held in a wide range of deposit institutions and in highly-rated money market liquidity funds. Therefore the solvency position is well insulated against the difficult investment markets. Additionally, the in-force portfolio has no material investment options or guarantees that could cause capital strain.

The introduction of Solvency II in January 2014 will see a fundamental change in the way EU based insurers assess their capital requirements and risk management standards. The Group's EU based insurer, Hansard Europe, has participated throughout the design process. Based on current guidance the Group does not expect additional capital requirements as a result of these legislative changes.

Key performance indicators

We intend to grow our business in our preferred markets and at an acceptable return on capital. To support this the Group's senior management team monitors a range of Key Performance Indicators, both financial and non-financial, that are designed to ensure that performance against targets and expectations across significant areas of activity is monitored and variances explained.

The following is a summary of the key indicators:

Key performance indicators

New Business - The Group's prime indicator of calculating new business production, Compensation Credit ("CC"), indicates the relative value of each piece of new business and is used, therefore, in the calculation of commission payable to intermediaries. Incentive arrangements for intermediaries, the Group's Account Executives and the Chief Distribution Officer incorporate targets based on CC.

New business levels are reported daily. The Group's objective remains to grow new business at a rate of 10% - 15% per annum on this measure over the medium term. As is outlined elsewhere in this Report & Accounts, new business flows have grown by an average 14% annually on this measure since 2009, reflecting better positioning of the Group's activities to capture new business in periods of global economic weakness.

Expenses - The Group maintains rigorous focus on expense levels and the value gained from such expenditure. The objective is to develop processes to restrain increases in administrative expenses to the rates of inflation assumed in the charging structure of the Group's policies. The Group's administrative and other expenses for the year, before growth investment spend, of £15.3m were 7% above that of the previous financial year. While a proportion of this increase was anticipated in policy charging assumptions, a portion of this increase has had a negative impact on EEV and IFRS profits.

Cash - Bank balances and significant movements on balances are reported weekly. The Group's liquid funds at the balance sheet date were £65.3m (2011: £73.1m). The change reflects the increased new business investment, translation losses for Euro-based assets and dividends paid.

Business continuity - Maintenance of continual access to data is critical to the Group's operations. This has been achieved throughout the year through a robust infrastructure with inbuilt redundancy. The Group is pro-active in its consideration of threats to data, data security and data integrity. Business continuity and penetration testing is carried out regularly by internal and external parties.

Risk profile - The factors impacting on the Group's risk profile are kept under continual review. Senior management review operational risk issues at least weekly. The significant risks faced by the Group are summarized in the Corporate Governance report.

FINANCIAL REVIEW

Presentation of financial results

As noted above, our business is long term in nature, and for this reason we present the results on an EEV basis in addition to the statutory IFRS basis. We believe that EEV is a valid measure of profitability as our products are designed to minimise capital strain.

The profit that the Group expects to earn from the issue of an insurance contract is the same, irrespective of the basis of measurement, however:

· The EEV result is a discounted cash flow valuation of the future profits expected to emerge from the current book of insurance contracts and provides a more complete recognition of management's activity throughout the financial year. It demonstrates the expected emergence of shareholder cash over the long term, by reflecting the net present value of the expected future cash flows. The embedded value profit reported in one year will emerge as cash in future years.

· The IFRS methodology smoothes recognition of profit from new business by spreading the initial costs (and revenues) evenly over the life of the business. The result therefore reflects neither the future shareholder value added, nor the cash impact of the new business in a particular year.

Results for the year

Despite the volatile markets throughout the financial year and uncertain economic outlook, the Group has invested £27.3m in new business during the year, an increase of 6.2% over the previous year. As can be seen in the report of the Chief Distribution Officer, the level of regular premium new business received in the year rose to £124m, an increase of 11% over the previous year.

The increased proportion of regular premium new business has driven a growth in the new business margin, as calculated under EEV, to 9.6% (2011: 8.3%) and a growth in the level of deferred origination costs held on the IFRS balance sheet to £121.2m (2011: £113.1m).

While we enjoy significant positive operating cash flows, falling markets, instability in the Eurozone, and foreign currency rates that have tested new lows have all impacted on the Group's profitability. IFRS profit, before taking into account FX losses on the euro holdings in Hansard Europe Limited to meet regulatory capital requirements was £12.1m (2011: £15.2m). Profit after tax is £11.2m (2011: £16.5m).

Policyholders' assets under administration decreased over the year to £1.03bn (2011: £1.23bn), reflecting the continued impact of the global financial crisis on the valuation of assets selected by policyholders, which has in turn restrained the level of our asset-based income streams.

The following is a summary of key items to allow readers to better understand the results of strategy implementation, as represented under accounting disclosures.

Abridged consolidated income statement

The consolidated income statement presented under IFRS reflects the financial results of the Group's activities during the year. This income statement however, as a result of its method of presentation, incorporates a number of features that might affect an understanding of the results of the Group's underlying transactions. This relates principally to:

· investment income, gains and losses relating to the assets administered by the Group to back its liability to policyholders. These assets are generally selected by the policyholder or an authorised intermediary and the policyholder bears the investment risk. Investment losses during the year attributable to policyholder assets were £146.5m (2011: £109.2m gains).

· fund management fees paid by the Group to third parties having a relationship with the underlying contract. While fund management fees paid are properly recorded in the consolidated income statement under IFRS, it distorts results compared with an understanding of the Group's own entitlement to fund management fees and any requirement to pay such fees for services rendered in respect of the Group's own assets. In the current year third party fund management fees attributable to policyholder assets were £4.3m (2011: £4.8m). These are reflected in both income and expenses under the IFRS presentation.

An abridged consolidated income statement is presented below, excluding the items of income and expenditure indicated above.

	2012	2011
	£m	£m
Fees and commissions	50.2	50.8
Investment and other income	2.2	2.3
	52.4	53.1
Origination costs	(19.3)	(18.2)
Administrative and other expenses attributable to the Group	(21.0)	(19.7)
	12.1	15.2
Foreign exchange (losses) / gains on revaluation of net operating assets	(1.0)	1.5
Profit for the year before taxation	11.1	16.7
Taxation	0.1	(0.2)
Profit for the year after taxation	11.2	16.5

Fees and commissions

Elements of contract fee income are largely fixed in nature, representing both the smoothing of up-front income required under IFRS, and policy-servicing charges applied to the policy book annually or as required by the policy terms and conditions. Consistent levels of contract fee income reflects the strength of the existing book of business, as the increased levels of new business in this financial year will be reflected in fee income in future financial years.

Approximately 30% of the Group's fees and commissions, being fund management fees and commissions receivable from third parties, are related directly to the value of assets under administration ("AuA") and exposed to market movements and valuation judgements.

Reduced asset values, policyholder caution, and weaknesses in foreign currencies against sterling have contributed to a decrease over the prior year fees and commissions of £50.8m. Fees and commissions for the year attributable to Group activities are £50.2m

A summary of fees and commissions is set out below:

	2012	2011
	£m	£m
Contract fee income	35.9	36.1
Fund management fees accruing to the Group	10.1	10.2
Commissions receivable	4.2	4.5
Fees and commissions attributable to Group activities	50.2	50.8

Included in Contract fee income is £19.8m (2011: £20.2m) representing the amounts prepaid in previous years, as can be seen below in the reconciliation of Deferred income.

Origination costs

Our target is to grow new business through profitable relationships with intermediaries. Under IFRS, new business commissions paid, together with the directly attributable incremental costs incurred on the issue of a policy contract, are deferred and amortised over the life of that policy. This accounting policy reflects that the Group will continue to earn income over the long-term from policies issued in a given financial year. The impact on current year income of contracts issued this year is minimal.

The growth in new business volumes over last year is reflected in an increase of 7% in these direct costs of new business to £25.0m. This is deferred to match the longer-term income streams expected to accrue from the policies issued this year.

Amounts totalling £16.9m (2011: £15.9m) have been expensed to match contract fee income earned this year from policies issued in previous financial years.

Origination costs in the year are:

	2012		2011
	£m		£m
Origination costs - deferred to match future income streams		25.0	23.4
Origination costs - expensed as incurred		2.3	2.3
Total origination costs incurred in the year		27.3	25.7
Net amortisation of deferred origination costs		(8.1)	(7.5)
		19.3	18.2

Other elements of the Group's new business costs, for example recruitment costs and initial payments to new Account Executives, are expensed as incurred.

The life of a typical single premium contract is 15 years. The life of a regular premium contract is deemed to be the term of the individual policy. Typical terms range between 10 years and 25 years.

Administrative and other expenses

We continue to robustly manage administrative and other expenses. However we recognise that expenses for the year reflect higher new business levels, increased legal fees, continued investment in the Group's proposition and distribution capabilities as well as the costs of strengthening the governance and controls to meet the needs of a growing, complex business. Expenses have increased by 6.6% over the previous year.

Growth investment spend has increased by 4% to £2.5m as we have continued to invest for future growth in the business, with a number of Hansard OnLine and other initiatives launched during the year or in course of development.

A summary of administrative and other expenses attributable to the Group is set out below:

	2012	2011
	£m	£m
Salaries and other employment costs	9.6	8.8
Other administrative expenses	5.7	5.5
	15.3	14.3
Growth investment spend	2.5	2.4
Professional fees	3.2	3.0
	21.0	19.7

Professional fees in the year include increased legal fees of £0.9m relating to policyholder complaints and other issues (2011: £0.5m); amounts totalling £0.5m for audit related services (2011: £0.5m); and £0.5m (2011: £0.6m) for administration, custody, dealing and other charges paid under the terms of the investment processing outsourcing arrangements.

Foreign exchange losses / gains

Foreign exchange losses of £1.0m (2011: gains of £1.5m) have been recognised as a result of the strengthening of Sterling against the Euro during the financial year. The Group's own assets are held predominantly in Sterling but Hansard Europe is required to hold Euro currency balances to support its regulatory capital requirements.

You can find further information about the Group's foreign currency exposures in note 22 to the IFRS section of this Report & Accounts.

Cash Flows

Operating cash flows continue to be strongly positive. The operational surplus (fees deducted from contracts and commissions received, less operational expenses) of £37.2m has grown by £1.5m despite the increased expenses referred to above. This surplus has funded investment in new business in the year, which has increased to £27.3m, in line with the new business levels reported elsewhere in this Report & Accounts.

This demonstrates that the in-force policy book continues to generate the cash required to support the Group's main business objectives of investing in new business, and enhancing distribution and other infrastructure.

The following summarises the Group's own cash flows in the year:

	2012	2011
	£m	£m
Net cash surplus from operating activities	37.2	35.7
Interest received	2.1	0.6
Cash inflow	39.3	36.3
Investment in new business	(27.3)	(25.7)
Purchase of plant and equipment	(0.7)	(0.6)
Corporation tax paid	-	(0.2)
Net cash inflow before dividends	11.3	9.8

Dividends of £19.1m paid during the year have been funded by the Group's own resources.

	2012	2011
	£m	£m
Shareholder cash and deposits at 1 July	73.1	81.8
Net cash inflow before dividends	11.3	9.8
	84.4	91.6
Dividends paid	(19.1)	(18.5)
Shareholder cash and deposits at 30 June	65.3	73.1

Abridged consolidated balance sheet

The consolidated balance sheet presented under IFRS reflects the financial position of the Group at 30 June 2012. As a result of its method of presentation, the consolidated balance sheet incorporates the financial assets held to back the Group's liability to policyholders, and also incorporates the equivalent liability to policyholders of £1.03bn (2011: £1.23bn). Additionally, the Group's cash and bank deposits are disclosed based on maturity dates.

The abridged consolidated balance sheet presented below, excluding those assets and liabilities, allows a better understanding of the Group's own capital position and reflects continued investment in profitable new business. The successful implementation of the Group's strategy to invest in a higher proportion of regular premium new business results in an increase of deferred origination costs ("DOC"). The volume and nature of single premium new business in the financial year means that there is a more limited increase in the deferred income reserve ("DIR").

	2012	2011
	£m	£m
Assets
Deferred origination costs	121.2	113.1
Other assets	7.8	12.1
Bank deposits and money market funds	65.3	73.1
	194.3	198.3
Liabilities
Deferred income reserve	129.9	125.3
Other payables	19.5	20.4
	149.4	145.7
Net assets	44.9	52.6
Shareholders' equity
Share capital and reserves	44.9	52.6

Deferred origination costs

As mentioned above, deferral of origination costsreflects that the Group will continue to earn income over the long-term from policies issued in a given financial year. The increase of £25.0m in value since 30 June 2011 (net of amounts amortised against contract fee income in the current financial year) reflects the continued acquisition of profitable contracts.

The movement in value of DOC over the financial year is summarized below.

	2012	2011
Carrying value	£m	£m
At 1 July	113.1	105.6
Origination costs incurred during the year	25.0	23.4
Origination costs amortised during the year	(16.9)	(15.9)
	121.2	113.1

Cash and bank deposits

The Group feels that the best use of its capital is to ensure continued investment in profitable regular premium contracts. These investments earn a return of at least 15% pa. As can be seen above, the Group invested £27.3m in new business during the year which was funded by cash flows from the existing policy book. While the construction of the Group's products means that this investment will be recouped within 3 years, continued investment in profitable regular premium contracts produces a short-term cash strain as a result of the commission and other costs incurred at inception of a contract.

Following this investment and coupled with a continuation of the Group's dividend record, cash at 30 June 2012 stood at £65.3m, a reduction of £7.8m from the value reported at 30 June 2011. Despite this reduction, the Group is well capitalized to meet the requirements of regulators, intermediaries, policyholders and other stakeholders.

The Group's liquid assets at the balance sheet date are held with a wide range of deposit institutions and in highly-rated money market liquidity funds.

Deferred income reserve

Consistent with the treatment of deferred origination costs, the treatment of deferred income ensures that up-front fees are taken to the consolidated income statement in equal installments over the longer-term, reflecting the services provided over the period of the contract. The deferred income reserve represents the unamortised balance of accumulated initial amounts received on new business. The proportion of income deferred in any one year is dependent upon the mix and volume of business flows in previous years; the Group's focus on more profitable regular premium business means that the future value of DIR will not necessarily move in line with the value of DOC.

The movement in value of DIR over the financial year is summarized below.

	2012	2011
Carrying value	£m	£m
At 1 July	125.3	125.9
Income deferred during the year	24.4	19.6
Income amortised during the year	(19.8)	(20.2)
	129.9	125.3

Assets under administration

In the following paragraphs, assets under administration ("AuA"), refers to net assets held to cover financial liabilities as analysed in note 16 to the consolidated financial statements presented under IFRS.

Despite market conditions, the Group has retained positive cash flows from the large number of regular premium contracts that the Group administers on behalf of policyholders around the world. Policyholder deposits to regular premium contracts in the year increased by 13% to £87.3m.

While the change in the mix of new business towards more regular premiums is reflected in positive cash flows, these flows are offset by withdrawals of larger single premium contracts, by premium holidays affecting regular premium policies and by market valuation reductions. Accordingly, the value of AuA at 30 June 2012 is £1.03bn, a decrease of 15.9% since 30 June 2011.

	2012	2011
	£m	£m
Deposits to investment contracts - regular premiums	87.3	77.3
Deposits to investment contracts - single premiums	51.3	109.1
Withdrawals from contracts and charges	(187.9)	(200.7)
Effect of market movements	(128.3)	90.7
Effect of currency movements	(18.2)	18.5
(Decrease) / increase in year	(195.8)	94.9
Assets under Administration at 1 July	1,229.6	1,134.7
Assets under Administration at 30 June	1,033.8	1,229.6

AuA currency composition

The investment choices of policyholders and their agents generally reflect the currency of the territories in which they are resident. The currency composition of AuA at 30 June 2012 is similar to that of the previous year, with 53% designated in US dollar (2011: 50%) and 26% in Euro (2011: 28%). The Group's AuA is therefore subject to currency rate fluctuations when reported in sterling, as reflected above.

AuA Valuation

Certain assets selected by policyholders remain impacted by the global financial crisis. During this financial year we saw an increase in efforts to resolve uncertainty over some policyholder asset values. However, a further small number of funds held within policy contractsbecame affected by liquidity or other issues that hinder their sales or redemptions on normal terms with a consequent adverse impact on policy transactions. This caused us to apply a prudent valuation by writing down those assets by £41m, in accordance with our normal practice.

The write-downs in this financial year, as well as prudent valuations on other assets similarly affected, have reduced asset-based fees in the current financial year and impacted EEV profits. Any continued reductions in AuA will cause declines in the Group's future asset-based income streams but will not affect the Group's capital position.

The net effect of these particular valuation issues under IFRS is a write-down of £26m that is incorporated in "Effect of market movements" shown in the table above.

Complaints over AUA performance and related issues

In valuation issues such as those referred to above, financial services institutions are increasingly drawn into disputes in cases where the performance of assets selected directly by or on behalf of policyholders through their advisors fails to meet their expectations. This is particularly relevant in the case of more complex structured products distributed throughout Europe that have been selected for inclusion in policies.

Even though the Group does not give any investment advice, as this is left to the policyholder directly or through an agent, advisor or an entity appointed at the policyholder's request or preference, the Group has been subject to a number of policyholder complaints in relation to the selection and performance of assets linked to policies. At time of writing, writs totalling approximately £11m have been served on Hansard Europe Limited as a result of these and related complaints. An initial Court hearing into the majority of these complaints was held in Norway in April, at which the Judge concluded that the Group has a case to answer. This negative initial judgement was not unanticipated as our defence is very much based on technical arguments and we have appealed. The Group intends to defend itself against these and any other claims strenuously.

Based on the pleadings and advice received to date from legal counsel the Group has not made any provision in respect of any complaints.

Results for the year under European Embedded Value

As anticipated in the design of the Group's products, last year's value of in force business of £197.2m has, in the year, generated £38.9m of cash, of which £25.0m has been used directly in acquiring new business and the Group paid dividends of £19.1m in the year from its cash resources.

Notwithstanding increased new business, the Group's EEV has reduced over the year to £224.3m, a change of £32.7m since 30 June 2011. Beyond dividend payments totaling £19.1m (2011: £18.5m), the change largely reflects a reduction in asset values and changes in policyholder behaviour in the light of sustained uncertainly around the economic environment for medium- to long-term savings.

Within the results, trends can be observed that are consequences of the Group's strategy to:

· increase the proportion of regular premium new business,

· develop profitable relationships with intermediaries in growth markets, and

· invest in Hansard OnLine and the Group's systems.

The profitability of new business has increased, as shown by the new business margin of 9.6% (2011: 8.3%) which is well above the level of our competitors. The increase reflects the change in business mix towards more profitable products. Less business was sold in PVNBP terms (a consequence of the move from high PVNBP, low margin single premium business).

EEV return

The Group's EEV return is lower than the comparable period last year at £(13.7m) (2011: £28.5m). The main contributors were Investment Return Variances of £(17.1m) (2011: £12.0m) and Operating Profit of £4.8m (2011: £14.9m) compared to the prior year.

The three most significant components of EEV profit after tax are the New Business Contribution, Operating Assumption Changes and Investment Return Variances.

· New Business Contribution is lower by some £1.7m (2012: £16.8m, 2011: £18.5m): this masks the changing mix of new business; a greater proportion of regular premium business has been sold this year, which is inherently more profitable (hence the increased new business margin of 9.6%).

· The Operating assumption changes (2012: £(13.0m), 2011: £(11.3m)) reflect the emergence of evidence that the Group's policyholders are more inclined to reduce future premiums or surrender their contracts which is putting pressure on unit costs.

· This year, the Investment return variance, largely dictated by the assets selected by policyholders, has had a net negative impact on EEV arising primarily from the fall in assets under administration and consequentially a lower level of future fee income than previously anticipated.

The components of EEV profit after tax are set out in the table below:

Year ended 30 June	2012	2011
	£m	£m
New business contribution	16.8	18.5
Expected return on existing business	5.4	4.9
Experience variances	(6.0)	(3.0)
Operating assumption changes	(13.0)	(11.3)
Expected return on net worth	1.6	1.7
Model changes	0.0	4.1
EEV operating profit after tax	4.8	14.9
Investment return variances	(17.1)	12.0
Economic assumption changes	(1.4)	1.6
EEV (loss)/profit after tax	(13.7)	28.5

Operating performance - New business

Year ended 30 June	2012	2011
	£m	£m
New business sales (PVNBP)	175.7	221.1
New business contribution	16.8	18.5
New business margin	9.6%	8.3%
Internal rate of return (IRR)	>15%	>15%
Cash payback on new business	2.6 yrs	2.3 yrs

Under EEV reporting, it is a convention to measure sales using the Present Value of New Business Premiums ('PVNBP'). This is the capitalised value of expected premiums using the assumptions that underpin the EEV calculation. Sales using this measure have fallen in the year to £175.7m (2011: £221.1m). The Group's strategy is to increase the proportion of regular premium sales. The success of this approach is demonstrated by the increase in proportion of regular premium business from 49% to 70% of PVNBP primarily through activity in the growth markets of the Far East and Latin America, as can be seen in the report of the Chief Distribution Officer, and the increase in new business margin to 9.6% (2011: 8.3%).

The underlying profitability of the Group's new business remains consistently above those levels enjoyed by competitors, reflecting the efficiency of the Group's product design. The Internal Rate of Return of new business written in the year remains in excess of 15% p.a., reflecting the product design which sees initial capital invested in new business being returned, on average, within three years.

Operating performance - In-force business

Experience Variances

In the year, policyholders switched between unit funds less and reduced or ceased premiums to a greater extent than expected, resulting in a £6.0m fall in EEV (2011: £(3.0m)). This was driven in part by more policyholders choosing to continue their policies but opting to pay no further premiums (£1.8m reduction) and greater than expected lapses (£1.2m reduction). Costs were higher than expected (a £1.6m EEV reduction). Smaller variances arose due to actual charge inflation being lower than expected, from lower than expected FX margins and from fewer partial surrenders.

Summary details of sources of experience variance are shown in the tables below:

Year ended 30 June	2012	2011
	£m	£m
Premium changes and surrenders	(3.3)	(0.3)
Expenses	(1.5)	(1.6)
Other	(1.2)	(1.1)
Experience variances	(6.0)	(3.0)

Operating Assumption Changes

The experience variances indicate the changing behaviour of policyholders. These changes are assessed and generally reflected in future projections and thus affect the VIF. This year, the value of changes in assumptions driving future cash flows has resulted in a £13.0m Operating Profit reduction.

Year ended 30 June	2012	2011
	£m	£m
Lapses & paid up policies	(4.4)	0.7
Expenses	(2.8)	(10.9)
Premium reductions and holidays	(1.5)	(0.8)
Mortality	(0.5)	(0.3)
Other	(3.8)	-
Operating assumption changes	(13.0)	(11.3)

The 'Other' assumption changes relate to the future changes in the level of fees from policyholder activity.

Investment performance

Investment performance is a key driver of the EEV profit. It principally reflects the investment choices made by policyholders.

The components of investment performance impact are shown in the table below.

Year ended 30 June	2012	2011
	£m	£m
Investment performance of policyholder funds	(14.1)	11.5
Exchange rate movements	(1.4)	0.2
Other	(1.6)	0.3
	(17.1)	12.0

The exchange rate movements are a consequence of the proportion of premiums, policyholder investments and policies denominated in currencies other than Pounds Sterling and the relative exchange rate movements of those currencies.

EEV balance sheet

Following the payment of dividends totalling £19.1m, the Group's EEV has decreased by £32.7m to £224.3m (2011: £257.0m).

The table below provides a summarised breakdown of the EEV at the valuation dates:

Year ended 30 June	2012	2011
	£m	£m
Net worth	50.4	59.8
Value of future profits	173.9	197.2
EEV	224.3	257.0

Net worth is the market value of shareholders' funds on an IFRS basis with adjustments to exclude certain accounting assets and liabilities (such as deferred origination costs and deferred income reserves). At the balance sheet date, the net worth of the Group is represented by liquid cash balances.

The Value of future profits is the capitalised value of future profit with due allowance for policyholder behaviour based on the policyholder funds under administration at 30 June 2012. Given the Group's product design, the cash generation from the Value of future profits is rapid: some 50% is expected to be converted into cash within 4 years.

Net asset value per share

On an EEV basis, the net asset value per share at 30 June 2012 is 163.3p (2011: 187.2p), a decrease of 12.8%, based on the EEV at the balance sheet date divided by the number of shares in issue at that date, being 137,372,255 ordinary shares.

The Net asset value per share at 30 June 2012 on an IFRS basis, is 32.7p, a decrease of 14.6% from the value of 38.3p at 30 June 2011.

Risk management and internal control

The Board has overall responsibility for:

· determining the nature and extent of the significant risks it is willing to take in achieving its strategic objectives; and

· maintaining the Group's risk management and internal control systems and for reviewing their effectiveness.

During the year the Group has continued to invest in risk management resources to promptly identify, measure, manage, report and monitor risks that affect the achievement of strategic, operational and financial objectives.

Effectiveness of risk management and internal control

The identification and evaluation of risks to key business objectives is conducted on an ongoing and consistent basis as indicated below. These processes are managed and monitored by executive management.

The Hansard Global plc Board has sought positive assurance, and is satisfied that risk management and internal controls are functioning effectively and are operating as intended within the Group.

Risk Management Resources

The Board has established a Management Risk Committee ("MRC") covering the Group's subsidiaries and operations, to supplement the activities of the Audit and Risk Committees operated by the regulated entities within the Group. Mr R G Taylor, the Group Chief Risk Officer, is the Chairman of the MRC.

The objective and role of the Management Risk Committee is to:

· report to the Board on all risk matters across the Group;

· assist the Board in ensuring an effective system of internal control and compliance, including its obligations under applicable laws and regulations;

· assist the Board in ensuring the embedding of the Enterprise-wide Risk Management framework across the Group.

The key responsibilities of the Committee are:

· to review the Group's Risk Appetite and risk strategy and make recommendations on risk appetite to the Board;

· to review the Group's risk profile against its risk appetite and strategy and review any drivers of change in the profile;

· review the design, effectiveness and completeness of the Group's risk management framework; and

· assess the adequacy and quality of the risk management function and the effectiveness of risk reporting within the Group.

The Group operates a Three Lines of Defence model of risk management, with clearly defined roles and responsibilities for committees and individuals:

First line: Day-to-day risk management is delegated from the Board to the Managing Director and, through a system of delegated authorities and limits, to business managers.

Second Line: Risk oversight is provided by the Chief Risk Officer and established risk management committees. These committees are supported by compliance functions across the Group.

Third Line: Independent verification of the adequacy and effectiveness of the internal risk and control management system is provided by the Group Audit Committee which is supported by the Group Internal Audit function.

In support of its accountabilities to operate a sound system of internal control the Board has implemented and maintains an enterprise-wide risk management ("ERM") programme. The ERM programme has been in place throughout the year and is up to the date of this report. To support the governance process the Group relies on documented policies and guidelines. The programme has been subject to review during the year and policies have been strengthened for various areas to reflect new insights and changes in the Group's environment.

The ERM programme recognises the value to be achieved from ensuring that risk management and internal control are embedded as continuous and developing processes within strategy setting, programme level functions and day-to-day operating activities and are not treated as discrete activities, performed at certain points in time.

The systems of internal control which make up the ERM programme are designed to recognise the Board's responsibilities under the UK Corporate Governance Code to:

· safeguard assets;

· maintain proper accounting records;

· provide reliable financial information;

· identify and manage business risks;

· maintain compliance with appropriate legislation and regulation and;

· identify and adopt best practice.

The key features of the ERM system of internal control include:

· Terms of Reference for the Board and each of its committees;

· A clear organisational structure, with documented delegation of authority from the Board to executive management;

· Committees of senior managers responsible for reviewing the Group's financial and non-financial risks and;

· Risk management and internal control frameworks for the Group's operations. Each subsidiary company Board is required to attest to its adherence to these control frameworks on a quarterly basis.

The overarching objectives of the ERM programme combine five interrelated elements, which enable the management of risk at strategic, programme and operational levels to be integrated, so that the levels of activity support each other.

These five elements are defined as:

· Management oversight and the control culture;

· Risk recognition and assessment;

· Control activities and segregation of duties;

· Information and communication and;

· Monitoring activities and correcting deficiencies.

The result is a risk management strategy, which is led from the top whilst being embedded in the Group's business systems, strategy and policy setting processes and the normal working routines and activities of the organisation. In this way risk management becomes an intrinsic part of the way business is conducted within the Group.

Risk appetite

The Board has established a formal Risk Appetite Framework which specifies the level of risk that may be assumed by the Group's operating subsidiary companies in order to achieve the Group's strategic objectives.

Risks to objectives are continuously assessed by management according to their potential impact and likelihood. A Risk Profile Score, independently generated using these assessments, is reviewed by subsidiary company Boards to indicate if objectives are likely to be achieved, and whether the risks entailed are appropriate. These profiles are aggregated and considered by the Company Board at each meeting.

Risk identification and assessment

The ERM programme requires all subsidiary companies to identify and record risks to business objectives. The content of the Risk Register is addressed by the agenda of each subsidiary company Board meeting, and confirmation that it is conducted on an ongoing and consistent basis is reported to the Company Board.

All Risk Register content is rated according to the impact and likelihood of risk events, and these ratings are continuously re-assessed in response to the business environment. This aspect of the configuration and integration of the ERM programme ensures that all staff are made aware of the relevance of risk management to the achievement of their individual objectives and accountabilities.

The Group has defined a clear and simple process for identifying and managing emerging risks. The process provides for:

· the identification of emerging financial and non-financial risks;

· the creation of action plans and identification of early warning indicators;

· the effective management of emerging risks by the appropriate risk owner and;

· the passage of any risks identified into "business as usual" processes where appropriate.

Risk monitoring and management

As well as regular management monitoring activities, the MRC meet on a monthly basis to discuss emergent strategic and operational risks.

Risk reporting

A quarterly Risk Report is considered before the Boards are asked to attest to the effective functioning of the internal control framework and the ongoing identification and evaluation of risk within each subsidiary. These attestations are then presented to the Board of the Company in order to obtain the same comfort at Group level.

Financial reporting process

The Group maintains a process to assist the Board in understanding the risks to the Group failing to meet its objectives. This incorporates a system of planning and sensitivity analysis incorporating Board approval of forecast financial and other information. Operational management reports monthly to the Executive Committee on a wide range of key performance indicators and other significant matters. The Board receives regular representations from the senior executives.

Performance against targets is reported to the Board quarterly through a review of the Company's results based on accounting policies that are applied consistently throughout the Group. Draft financial statements are prepared quarterly by the Chief Financial Officer ("CFO"). The members of the Audit Committee review the draft financial statements for the half year ended 31 December annually and for the full financial year, and meet with the CFO to discuss and challenge the presentation and disclosures therein. Once the draft document is approved by the Audit Committee, it is reviewed by the Board before final approval at a Board meeting.

Risks relating to the Group's financial and other exposures

Hansard's business model involves the controlled acceptance and management of risk exposures. The steps taken to minimise those exposures include the operation of unit-linked insurance business. Under the terms of the unit-linked investment contracts issued by the Group, the policyholder bears the investment risk on the assets in the unit-linked funds, as the policy benefits are directly linked to the value of the assets in the funds. These assets are administered in a manner consistent with the expectations of the policyholders. By definition, there is a precise match between the investment assets and the policyholder liabilities, and so the market risk and credit risk lie with policyholders.

The Group's exposure on this unit-linked business is limited to the extent that income arising from asset management charges and commissions is generally based on the value of assets in the funds, and any sustained falls in value will reduce earnings. The Group's exposure to financial risks is addressed within note 22 to the consolidated financial statements.

The Board believes that the principal risks facing the Group's earnings and financial position are those relating to the operation of the Group's business model and to the environment within which the Group operates. While the Group's business model has served to minimise the principal risks facing the Group, the responses to the extreme financial and market circumstances that continue to be encountered may impact on the Group's strategic objectives, profitability or capital requirements.

The following table provides examples of the principal risks that may impact on the Group's strategic objectives, profitability or capital. Where necessary, the Group will develop alternative strategies to minimise the impact of any changes to its risk profile.

By order of the Board

Dr Leonard Polonsky

Executive Chairman

20 September 2012

Risk event examples	Risk factors and uncertainties
Group profitability affected by financial market and economic conditions	The Group's earnings and profitability are influenced by a broad range of factors including the performance and liquidity of investment markets, interest rate movements and inflation. Extreme market conditions can influence the purchase of financial services products and the period over which business is retained.
Distribution strategy compromised as a result of market changes or competitor activity	The Group closely monitors competitor activity and marketplaces for signs of any potential new entrants or threats to forecast new business levels
Non-compliance with regulations in relation to product design or intermediary behaviour	The Group maintains dialogue with the Insurance & Pensions Authority of the Isle of Man Government, Central Bank of Ireland and other regulatory and legislative authorities. However, sudden changes in legislation without prior consultation, or the differing interpretation and application of regulations over time, may have a detrimental effect on the Group's strategy, profitability and risk profile and may incur the possibility of litigation risk
Hansard OnLine development and availability	Any prolonged failure in internet capacity preventing the Group from delivering Hansard OnLine might impact on the Group's reputation and strategic objectives. The Group closely monitors technological developments in relation to the functioning of the internet and will develop alternative strategies to minimise the impact of any changes.
Operational risks	The Group investigates exceptions to expected results, behaviour and parameters, and investigates the root causes. Corrective actions are implemented in accordance with the impact and likelihood of recurrence.
Counterparty and third party risks	The Group seeks to limit exposure to loss from counterparty and third party failure through selection criteria, pre-defined risk based limits on concentrations of exposures and monitoring positions. However, in extreme conditions an event causing widespread default may impact the Group's profitability.
Outsourcing	The Group's dependence on outsourced activities comes under threat should business partners decide to revise strategy or fail.
Fraud	Recruitment and retention policies allow for appropriate vetting of staff to be conducted to determine their suitability and integrity.
Infrastructure failure	Business Continuity Plans, including full data replication at an independent recovery centre, can be invoked when required. Testing is conducted frequently.
Key staff loss	The Group actively focuses on retaining the best personnel. However, sudden unanticipated loss of pools of expertise may, in the short term, impact certain segments of the Group's business.
Introduction of business taxation on the Isle of Man	The Group maintains dialogue with the Tax authorities of the Isle of Man Government to identify any proposed or potential changes that may affect the Group's exposure. Introduction of business tax may impact on the Group's earnings and cash flows.

Consolidated Income Statement

		Year ended
		30 June	30 June
		2012	2011
	Notes	£m	£m


Fees and commissions	4	54.5	55.6

Investment income	5	(145.7)	112.9

Other operating income		0.4	0.1

		(90.8)	168.6

Change in provisions for investment contract liabilities		146.5	(109.2)

Origination costs	6	(19.3)	(18.2)

Administrative and other expenses	7	(25.3)	(24.5)
		101.9	(151.9)
Profit before taxation		11.1	16.7

Taxation	9	0.1	(0.2)

Profit for the year after taxation		11.2	16.5
Total comprehensive income		11.2	16.5

The Group has no other items of Comprehensive Income and as such has not presented a separate Consolidated
Statement of Comprehensive Income.

Earnings per share

		2012	2011
	Note	(p)	(p)

Basic	10	8.2	12.0

Diluted	10	8.2	12.0

Consolidated Statement of Changes in Equity

	Share	Other	Retained
	capital	reserves	earnings	Total
	£m	£m	£m	£m
Balance at 1 July 2010	68.6	(48.4)	34.4	54.6

Total comprehensive income	-	-	16.5	16.5

Transactions with owners
Dividends paid	-	-	(18.5)	(18.5)
Balance at 30 June 2011	68.6	(48.4)	32.4	52.6

	Share	Other	Retained
	capital	reserves	earnings	Total
	£m	£m	£m	£m
Balance at 1 July 2011	68.6	(48.4)	32.4	52.6

Total comprehensive income	-	-	11.2	11.2

Transactions with owners
Issue of new shares	0.1	0.1	-	0.2
Dividends paid	-	-	(19.1)	(19.1)
	0.1	0.1	(19.1)	(18.9)
Balance at 30 June 2012	68.7	(48.3)	24.5	44.9

Consolidated Balance Sheet

		30 June	30 June
		2012	2011
	Notes	£m	£m

Assets

Plant and equipment	12	1.1	0.9

Deferred origination costs	13	121.2	113.1

Financial investments
Equity securities		31.2	38.6
Investments in collective investment schemes		838.5	990.1
Fixed income securities		38.7	50.9
Deposits and money market funds		147.5	162.1
		1,055.9	1,241.7

Other receivables	14	7.9	12.9

Cash and cash equivalents	15	43.7	59.3
Total assets		1,229.8	1,427.9

Liabilities

Financial liabilities under investment contracts	16	1,033.8	1,229.6

Deferred income reserve		129.9	125.3

Amounts due to investment contract holders		13.2	13.9

Other payables	17	8.0	6.5
Total liabilities		1,184.9	1,375.3
Net assets		44.9	52.6


Shareholders' equity
Called up share capital	18	68.7	68.6
Other reserves	20	(48.3)	(48.4)
Retained earnings		24.5	32.4
Total shareholders' equity		44.9	52.6

L S Polonsky G S Marr

Director Director

Consolidated Cash Flow Statement

	Year ended	Year ended
	30 June	30 June
	2012	2011
	£m	£m

Cash flow from operating activities
Profit before tax for the year	11.1	16.7
Adjustments for:
Depreciation	0.5	0.5
Dividends receivable	(3.6)	(4.6)
Interest receivable	(1.0)	(1.9)
Foreign exchange losses	(1.0)	1.5

Changes in operating assets and liabilities
Decrease in debtors	4.1	2.5
Dividends received	3.6	4.6
Interest received	1.8	0.5
Increase in deferred origination costs	(8.1)	(7.5)
Increase / (decrease) in deferred income reserve	4.6	(0.6)
Increase in creditors	0.8	2.7
Decrease/(increase) in financial investments	185.8	(84.3)
(Decrease)/increase in financial liabilities	(193.3)	92.5
Cash flow from operations	5.3	22.6
Corporation tax paid	-	(0.2)
Cash flow from operations after taxation	5.3	22.4
Cash flows from investing activities
Purchase of plant and equipment	(0.7)	(0.6)
Proceeds from sale of investments	0.1	0.2
Purchase of investments	(0.1)	(0.1)
Cash flows from investing activities	(0.7)	(0.5)
Cash flows from financing activities
Proceeds from issue of shares	0.2	-
Dividends paid	(19.1)	(18.5)
Cash flows from financing activities	(18.9)	(18.5)
Net (decrease) / increase in cash and cash equivalents	(14.3)	3.4
Cash and cash equivalents at beginning of year	59.3	55.3
Effect of exchange rate changes	(1.3)	0.6
Cash and cash equivalents at year end	43.7	59.3

Notes to the financial statements

1 Principal accounting policies

These consolidated financial statements incorporate the assets, liabilities and the results of Hansard Global plc ("the Company") and of its subsidiary undertakings ("the Group").

The principal accounting policies adopted in the preparation of these consolidated financial statements are now set out below or, in the case of policies that relate to separately disclosed values in the primary statements, within the relevant note to these consolidated financial statements. These policies have been consistently applied, unless otherwise stated.

1.1 Basis of presentation

The consolidated financial statements have been prepared in accordance with International Financial Reporting Standards as adopted by the European Union ("IFRS"), International Financial Reporting Standards Interpretations Committee ("IFRSIC") interpretations, and with the Isle of Man Companies Acts 1931 to 2004. The financial statements have been prepared under the historical cost convention as modified by the revaluation of financial investments and financial liabilities at fair value through profit or loss. The comparative classification of financial investments has been restated to better reflect the underlying assets.

The Group has applied all IFRS standards adopted by the European Union and effective at 30 June 2012.

The following new standards and interpretations are in issue but not yet effective and have not been early adopted by the Group:

· IAS 1, 'Financial statement presentation'

· IAS 12, 'Income taxes'.

· IFRS 9, 'Financial Instruments'

· IFRS 10, 'Consolidated financial statements'

· IFRS 12, 'Disclosures of interest in other entities'

· IFRS 13, 'Fair value measurement'

The adoption of the above standards is not expected to have any material impact on the Group's results.

There are no other standards, amendments or interpretations to existing standards that are not yet effective, that would have a material impact on the Group's financial statements.

The financial statements are presented in millions of pounds sterling rounded to the nearest one hundred thousand pounds.

The preparation of financial statements in conformity with IFRS requires management to make judgements, estimates and assumptions that affect the application of policies and reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting year. The estimates and associated assumptions are based on historical experience and various other factors that are believed to be reasonable under the circumstances. Actual results may differ from these estimates.

The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the year in which the estimate is revised if the revision affects only that year or in the year of the revision and future years if the revision affects both current and future years.

The areas involving a higher degree of judgement or complexity, or areas where assumptions and estimates are significant to the consolidated financial statements, are disclosed in note 2.

1.2 Basis of consolidation

The consolidated financial statements incorporate the assets, liabilities and the results of the Company and of its subsidiary undertakings. Subsidiaries are those entities in which the Company directly or indirectly has the power to govern the financial and operating policies generally accompanying a shareholding of more than one half of the voting rights. The financial statements of subsidiaries are included in the consolidated financial statements from the date that control commences until the date that control ceases. Where necessary, accounting policies applied by subsidiary companies have been adjusted to present consistent disclosures on a consolidated basis.

Intra-group transactions, balances and unrealised gains and losses arising from intra-group transactions, are eliminated in preparing these consolidated financial statements.

1.3 Product classification

The Directors have determined that the products issued by the Company's subsidiaries are classified for accounting purposes as investment contracts, as they do not transfer significant insurance risk.

2 Critical accounting estimates and judgements in applying accounting policies

Estimates, assumptions and judgements are used in the application of accounting policies in these financial statements. Critical accounting estimates are those which involve the most complex or subjective judgements or assessments. Estimates, assumptions and judgements are evaluated continually and are based on historical experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances. Actual outcomes may differ from assumptions and estimates made by management.

2.1 Accounting estimates and assumptions

The principal areas in which the Group applies accounting estimates and assumptions are in deciding the amount of management expenses that are treated as origination costs and the period of amortisation of deferred origination costs ("DOC") and deferred income ("DIR"). Estimates are also applied in determining the recoverability of deferred origination costs.

2.1.1 Origination costs

Management expenses have been reviewed to determine the relationship of such expense to the issue of an investment contract. Certain expenses vary with the level of new business production and have been treated as origination costs. Other expenses are written off as incurred.

2.1.2 Amortisation of DOC and DIR

Deferred origination costs and deferred income are amortised on a straight-line basis over the life of the underlying investment contract. The life of a contract is either the contractual term thereof or the expected life of a single premium contract which is currently estimated at 15 years. This is calculated in a manner consistent with the assumptions used in the calculation of European Embedded Value.

2.1.3 Recoverability of DOC

Deferred origination costs are tested annually, at product group level, for recoverability by reference to expected future income levels.

2.2 Judgements

The primary areas in which the Group has applied judgement in applying accounting policies are:

· to determine whether a provision is required in respect of pending or threatened litigation and;

· the fair value of certain financial investments. Where the directors determine that there is no active market for a particular financial instrument, fair value is assessed using valuation techniques based on available, relevant, information and an appraisal of all associated risks. This process requires the exercise of significant judgement on the part of Directors. Where significant inputs to the valuation technique are observable, the instrument is categorised as Level 2. Otherwise, it is categorised as Level 3. This is discussed further in note 22 to these consolidated financial statements.

3 Segmental information

Disclosure of operating segments in these financial statements is consistent with reports provided to the Chief Operating Decision Maker ("CODM") which, in the case of the Group, has been identified as the Executive Committee of Hansard Global plc.

In the opinion of the CODM, the Group operates in a single reportable segment, that of the distribution and servicing of long-term investment products through the Group's subsidiaries.

The Group's Executive Committee uses two principal measures when appraising the performance of the business: Net Issued Compensation Credit ("NICC") and expenses. NICC is a measure of the value of new in-force business and top-ups on existing single premium contracts. NICC is the total amount of basic initial commission payable to intermediaries for business sold in a period and is calculated on each piece of new business. It excludes override commission paid to intermediaries over and above the basic level of commission. The Group maintains a close control over the margins realised on new business which are consistent across the Group's products and, hence, NICC is a reliable indicator of value.

The following table analyses NICC geographically and reconciles NICC to origination costs incurred during the year (note 13):

	2012	2011
	£m	£m
Far East	7.8	5.2
Latin America	3.8	5.2
EU and EEA	2.9	3.5
Rest of World	1.6	1.8
Net Issued Compensation Credit	16.1	15.7
Other commission costs paid to third parties	7.2	6.3
Enhanced unit allocations	1.7	1.4
Origination costs incurred during the year	25.0	23.4

Revenues and expenses allocated to geographical locations contained in sections 3.1 to 3.4 below, reflect the revenues and expenses generated in or incurred by the legal entities in those locations.

3.1 Geographical analysis of fees and commissions by origin

	2012	2011
	£m	£m
Isle of Man	42.0	42.5
Republic of Ireland	12.5	13.1
	54.5	55.6

3.2 Geographical analysis of profit before taxation

	2012	2011
	£m	£m
Isle of Man	11.2	14.1
Republic of Ireland	(0.1)	2.6
	11.1	16.7

3.3 Geographical analysis of gross assets

	2012	2011
	£m	£m
Isle of Man	870.9	989.0
Republic of Ireland	358.9	438.9
	1,229.8	1,427.9

3.4 Geographical analysis of gross liabilities

	2012	2011
	£m	£m
Isle of Man	854.0	956.4
Republic of Ireland	330.9	418.9
	1,184.9	1,375.3

4 Fees and commissions

Fees are charged to investment contracts for policy administration services, investment management services, payment of benefits and other services related to the administration of investment contracts. Fees are recognised as revenue as the services are provided. Initial fees that exceed the level of recurring fees and relate to the future provision of services are deferred in the balance sheet and amortised on a straight-line basis over the life of the relevant contract. These fees are accounted for on the issue of a contract and on receipt of incremental premiums on existing single premium contracts.

Regular fees charged to contracts are recognised on a straight-line basis over the period in which the service is provided. Transactional fees are recorded when the required action is complete.

Commissions receivable arise principally from fund houses with which investments are held. Commissions are recognised on an accruals basis in accordance with the relevant agreement.

	2012	2011
	£m	£m
Contract fee income	35.9	36.1
Fund management charges	14.4	15.0
Commissions receivable	4.2	4.5
	54.5	55.6

5 Investment income

Investment income comprises dividends, interest and other income receivable, realised gains and losses on investments and unrealised gains and losses. Dividends are accrued on the date notified. Interest is accounted for on a time proportion basis using the effective interest method.

	2012	2011
	£m	£m
Interest income	1.6	1.9
Dividend income	3.6	4.6
(Losses) / gains on realisation of investments	(2.3)	21.0
Movement in unrealised gains and losses	(148.6)	85.4
	(145.7)	112.9

6 Origination costs

Origination costs include commissions, intermediary incentives and other distribution-related expenditure. Origination costs which vary with, and are directly related to, securing new contracts and incremental premiums on existing single premium contracts are deferred to the extent that they are recoverable out of future net income from the relevant contract. Deferred origination costs are amortised on a straight-line basis over the life of the relevant contracts. Origination costs that do not meet the criteria for deferral are expensed as incurred.

	2012	2011
	£m	£m
Amortisation of deferred origination costs	16.9	15.9
Other origination costs	2.4	2.3
	19.3	18.2

7 Administrative and other expenses

Included in administrative and other expenses is the following:

	2012	2011
	£m	£m

Auditors' remuneration:
- Fees payable to the Company's auditor for the audit of the
Company's annual accounts	0.1	0.1
- Fees payable for the audit of the Company's subsidiaries
pursuant to legislation	0.3	0.3
Employee costs	12.1	10.9
Directors' fees	0.4	0.3
Investment management fees	4.3	4.8
Renewal and other commission	1.3	1.6
Professional and other fees	2.9	2.5
Operating lease rentals	0.6	0.7
Licences and maintenance fees	0.8	0.7
Insurance costs	0.7	0.7
Depreciation of plant and equipment	0.5	0.5
Communications	0.4	0.4

8 Employee costs

8.1 The aggregate remuneration in respect of employees (including sales staff and executive

Directors) was as follows:

	2012	2011
	£m	£m
Wages and salaries	14.4	13.3
Social security costs	1.1	1.0
Contributions to pension plans	0.9	0.8
	16.4	15.1

The Group operates a defined contribution group personal pension scheme that is open to all Group employees based on the Isle of Man aged between 25 and 65 years of age, with two years of service with the Group. Employees based in the Republic of Ireland with one year of service are eligible to be members of a personal retirement savings account scheme.

Group companies contribute to employees' individual defined contribution pension plans. Contributions are charged to the income statement as they become payable under the terms of the relevant employment contract. The Group has no further payment obligations once pension contribution requirements have been met.

8.2 The average number of employees during the year, including executive directors, was as follows:

	2012	2011
	No.	No.
Administration	164	160
Distribution and marketing	34	36
IT development	35	28
	233	224

8.3 Share-based payments

Details of the costs attributed to the share-based payments programme implemented by the Company can be found in note 19.

9 Taxation

Taxation is based on profits and income for the period as determined with reference to the relevant tax legislation in the countries in which the Company and its subsidiaries operate. Tax payable is calculated using tax rates that have been enacted or substantively enacted by the balance sheet date. Tax is recognised in the income statement except to the extent that it relates to items recognised in equity. Tax on items relating to equity is recognised in equity.

The Group's profits arising from its Isle of Man-based operations are taxable at zero percent. Profits in the Republic of Ireland are taxed at 12.5%.

There is no material difference between the current tax charge in the income statement and the current tax charge that would result from applying standard rates of tax to the profit before tax.

10 Earnings per share

The calculation for earnings per share is based on the profit for the year after taxation divided by the average number of shares in issue throughout the year.

	2012	2011
Profit after tax (£m)	11.2	16.5
Weighted average number of shares in issue	137,311,224	137,283,469
Basic earnings per share in pence	8.2	12.0

The Directors believe that there is no material difference between the weighted average number of shares in issue for the purposes of calculating either basic or diluted earnings per share. The figure under both measures is 8.2 pence per share.

11 Dividends

Interim dividends payable to shareholders are recognised in the year in which the dividends are paid. Final dividends payable are recognised as liabilities when approved by the shareholders at the annual general meeting.

The following dividends have been paid by the Group during the year:

	Per share	Total	Per share	Total
	2012	2012	2011	2011
	p	£m	p	£m
Final dividend paid	8.0	11.0	7.7	10.6
Interim dividend paid	5.9	8.1	5.75	7.9
	13.9	19.1	13.45	18.5

The Board has resolved to pay a final dividend of 8.0p per share on 19 November 2012, subject to approval at the Annual General Meeting, based on shareholders on the register on 28 September 2012. If approved, this would bring the total dividends in respect of the year ended 30 June 2012 to 13.9p per share and will represent an increase of 1.1% over the dividends in respect of the financial year ended 30 June 2011 (13.75p per share).

12 Plant and equipment

Plant and equipment is stated at historical cost less depreciation and any impairment. The historical cost of plant and equipment is the purchase cost, together with any incremental costs directly attributable to the acquisition. Depreciation is calculated so as to write off the cost of the assets, less their estimated residual values, on a straight-line basis over the expected useful economic lives of the assets concerned, as follows:

Computer equipment and software	3 years
Fixtures and fittings	4 years

Depreciation is included in administration and other expenses in the income statement.

The carrying amount, residual value and useful life of the Group's plant and equipment is reviewed annually to determine whether there is any indication of impairment, or a change in residual value or expected useful life. If there is any indication of impairment, the asset's carrying value is revised.

The cost of plant and equipment at 30 June 2012 is £7.5m (2011: £6.8m). Accumulated depreciation at 30 June 2012 is £6.4m (2011: £5.9m).

13 Deferred origination costs

Formal reviews to assess the recoverability of deferred origination costs on investment contracts are carried out at each balance sheet date to determine whether there is any indication of impairment. If there is any indication of irrecoverability or impairment, the asset's recoverable amount is estimated.

Impairment losses are reversed through the income statement if there is a change in the estimates used to determine the recoverable amount. Such losses are reversed only to the extent that the asset's carrying amount does not exceed the carrying amount that would have been determined, net of amortisation where applicable, if no impairment loss had been recognised.

	2012	2011
Carrying value	£m		£m
At 1 July	113.1		105.6
Origination costs incurred during the year	25.0		23.4
Origination costs amortised during the year	(16.9)		(15.9)
	121.2		113.1

14 Other receivables

Other receivables are initially recognised at fair value and subsequently measured at amortised cost.

	2012	2011
	£m	£m
Contract fees receivable	3.2	5.1
Outstanding investment trades	1.3	3.9
Commission receivable	1.0	1.1
Corporation tax recoverable	0.3	0.1
Other debtors	2.1	2.7
	7.9	12.9

Expected to be settled within 12 months	5.9	10.0
Expected to be settled after 12 months	2.0	2.9
	7.9	12.9

At the balance sheet date there are no receivables overdue but not impaired (2011: £nil) or impaired (2011: £nil). Due to the short-term nature of these assets the carrying value is considered to reflect fair value.

15 Cash and cash equivalents and deposits

Cash and cash equivalents include cash in hand, deposits held at call with banks, and other short-term highly liquid investments with original maturities of three months or less, net of short-term overdraft positions where a right of set-off exists.

	2012	2011
	£m	£m
Money market funds	26.1	23.3
Short-term deposits with credit institutions	17.6	36.0
Shareholders' cash and cash equivalents	43.7	59.3
Shareholders' long-term deposits with credit institutions	21.6	13.8
Total shareholder cash and deposits	65.3	73.1

16 Financial liabilities under investment contracts

16.1.1 Investment contract liabilities

Investment contracts consist of unit-linked contracts written through subsidiary companies in the Group. Unit-linked liabilities are measured at fair value by reference to the value of the underlying net asset value of the Group's unitised investment funds, determined on a bid basis, at the balance sheet date.

The decision by the Group to designate its unit-linked liabilities at fair value through profit or loss reflects the fact that the liabilities are calculated with reference to the value of the underlying assets.

16.1.2 Investment contract premiums

Investment contract premiums are not included in the income statement but are reported as deposits to investment contracts and are included in financial liabilities in the balance sheet. On existing business, a liability is recognized at the point the premium falls due. The liability for premiums received on new business is deemed to commence at the acceptance of risk.

16.1.3 Benefits paid

Withdrawals from policy contracts and other benefits paid are not included in the income statement but are deducted from financial liabilities under investment contracts in the balance sheet. Benefits are deducted from financial liabilities and transferred to amounts due to investment contract holders on the basis of notifications received, when the benefit falls due for payment or, on the earlier of the date when paid or when the contract ceases to be included within those liabilities.

16.2 Movement in financial liabilities under investment contracts

The following table summarises the movement in liabilities under investment contracts during the year:

	2012	2011
	£m	£m
Deposits to investment contracts	138.6	186.4
Deductions from contracts	(187.9)	(200.7)
Change in provisions for investment contract liabilities	(146.5)	109.2
Movement in year	(195.8)	94.9
At 1 July	1,229.6	1,134.7
	1,033.8	1,229.6

Investment contract benefits comprise of dividend and interest income and net realised and unrealised gains and losses on financial investments held to cover financial liabilities.

Expected to be settled within 12 months	15.5	15.9
Expected to be settled after 12 months	1,018.3	1,213.7
	1,033.8	1,229.6

16.3 Investments held to cover liabilities under investment contracts

The Group classifies its financial assets into the following categories: financial investments and loans and receivables. Financial investments consist of units in collective investment schemes, equity securities, fixed income securities and deposits with credit institutions. All financial investments are designated at fair value through profit or loss.

The decision by the Group to designate its financial investments at fair value through profit or loss reflects the fact that the investment portfolio is managed, and its performance evaluated, on a fair value basis.

The Group recognises purchases and sales of investments on trade date. Investment transaction costs are written off in administration expenses as incurred.

All gains and losses derived from financial investments, realised or unrealised, are recognised within investment income in the income statement, in the period in which they arise.

The value of financial assets at fair value through profit or loss that are traded in active markets (such as trading securities) is based on quoted market prices at the balance sheet date. The quoted market price for financial assets held by the Group is the current bid price. Investments in funds and certain other unquoted securities are valued at the latest available net asset valuation provided by the administrators or managers of the funds and companies, unless the directors are aware of good reasons why such valuations would not be the most appropriate or indicative of fair value. Where necessary, the Group uses other valuation methods to arrive at the stated fair value of its financial assets, such as recent arms' length transactions or reference to similar listed investments.

Loans and receivables are financial assets with fixed or determinable payments that are not quoted on an active market. Loans and receivables consist, primarily, of contract fees receivable, long-term cash deposits (i.e. with a maturity duration in excess of three months) and cash and cash equivalents.

The following investments, cash and cash equivalents, other assets and liabilities are held to cover financial liabilities under investment contracts. They are included within the relevant headings on the consolidated balance sheet.

		(restated
		Note 1.1)
	2012	2011
	£m	£m
Equity securities	31.2	38.6
Investments in collective investment schemes	838.4	990.1
Fixed income securities	38.7	50.9
Cash and cash equivalents	125.8	148.3
Other receivables	1.3	3.9
Total assets	1,035.4	1,231.8
Other payables	(1.6)	(2.2)
Net financial assets held to cover financial liabilities	1,033.8	1,229.6

17 Other payables

Other payables are initially recognised at fair value and subsequently measured at amortised cost. They are recognised at the point where service is received but payment is due after the balance sheet date.

	2012	2011
	£m	£m
Commission payable	4.0	2.8
Other creditors and accruals	4.0	3.7
	8.0	6.5

All payable balances, including amounts due to contract holders, are deemed to be current. Due to the short-term nature of
these payables the carrying value is considered to reflect fair value.

18 Called up share capital

	2012	2011
	£m	£m
Authorised:
200,000,000 ordinary shares of 50p	100.0	100.0
Issued and fully paid:
137,372,255 (2011: 137,291,385) ordinary shares of 50p	68.7	68.6

During the year, 80,870 shares (2011: 8,729) were issued under the terms of the Save as You Earn (SAYE) share save programme.

The Company has received clearance from the London Stock Exchange to list a maximum of 500,000 shares necessary to meet its obligations to employees under the terms of the SAYE programme.

19 Equity settled share-based payments

The Company has established a number of equity-based payment programmes for eligible employees. The fair value of expected equity-settled share-based payments under these programmes is calculated at date of grant using a standard option-pricing model and is amortised over the vesting period on a straight-line basis through the income statement. A corresponding amount is credited to equity over the same period.

At each balance sheet date, the Group reviews its estimate of the number of options expected to be exercised. The impact of any revision in the number of such options is recognised in the income statement so that the charge to the income statement is based on the number of options that actually vest. A corresponding adjustment is made to equity.

19.1 SAYE programme

At the date of this report, the following options remain outstanding under each tranche:

Scheme year	2012	2011
2008	24,781	55,770
2009	124,826	246,997
2010	22,550	39,324
2011	115,740	123,322
	287,897	465,413

A summary of the transactions in the existing SAYE programmes during the year is as follows:

	Year ended 30 June
	2012		2011
		Weighted		Weighted
		average		average
	No. of	exercise	No. of	exercise
	options	price (p)	options	price (p)
Outstanding at the start of year	465,413	132	416,436	133
Granted	-	-	123,560	131
Exercised	(80,870)	132	(8,729)	133
Forfeited	(96,646)	132	(65,854)	133
Outstanding at end of year*	287,897	132	465,413	132

* 44,271 of these options are exercisable as at 30 June 2012.

19.2 Long Term Incentive Plan (LTIP)

The Company has introduced LTIPs for the Executive and senior management based on EEV performance over the 3 years ending 30 June 2012, the 3 years ending 30 June 2013 and the 3 years ending 30 June 2014. The awards may take the form of a conditional right to acquire shares, a nil-cost option or a forfeitable award.

The minimum condition required under the plan was not achieved in the year ended 30 June 2012 therefore there is no charge in the Consolidated Income Statement (2011: nil).

20 Other reserves

Other reserves comprise the merger reserve arising on the acquisition by the Company of its subsidiary companies on 1 July 2005, the share premium account and the share save reserve. The merger reserve represents the difference between the par value of shares issued by the Company for the acquisition of those companies, compared to the par value of the share capital and the share premium of those companies at the date of acquisition.

	2012	2011
	£m	£m
Merger reserve	(48.5)	(48.5)
Share premium	0.1	-
Share save reserve	0.1	0.1
	(48.3)	(48.4)

21 Capital position statement

The capital position statement sets out the financial strength of the businesses of the Group, measured on the basis of the presentation within the financial statements of the Company's life assurance subsidiaries. These are located in the Isle of Man and the Republic of Ireland. As both entities provide unit-linked contracts only, the majority of surplus can be distributed to shareholders subject to meeting the regulatory and working capital requirements of each business.

The capital, defined as total shareholders' funds, is available to meet the regulatory capital requirements without any restrictions.

	2012	2011
	£m	£m
Consolidated shareholders' funds	44.9	52.6
Adjustment arising from change in GAAP basis (*)	17.8	18.4
	62.7	71.0

Comprising shareholders' funds of:
Non-life assurance Group companies	26.6	27.9
Life assurance subsidiary companies	36.1	43.1
Total capital available to meet regulatory capital requirements	62.7	71.0

*These consolidated financial statements have been prepared in accordance with the requirements of IFRS whilst the regulatory capital of the life assurance subsidiaries is calculated based on local regulatory requirements under applicable GAAP. The financial statements of these subsidiary undertakings are prepared under the insurance accounting requirements of the relevant jurisdiction. The adjustment referred to arises out of the treatment of initial fees and costs relating to new business under the different accounting codes. IFRS smoothes these fees and costs over the life of the relevant policies, whereas under the GAAP applicable to the subsidiary undertakings, fees are recognised when received and the relevant costs of new business are deferred, where applicable, to match these income streams.

Regulatory Minimum Solvency Margin

For both the Isle of Man and the Irish subsidiary companies, the relevant capital requirement is the required minimum margin under the locally applicable regulatory regimes. The aggregate required minimum margin of the regulated entities at each balance sheet date was as set out below.

	2012	2011
	£m	£m
Aggregate minimum margin	4.6	5.3

Group policy is for regulated insurance subsidiaries to hold prudential reserves in excess of the minimum regulatory requirements.

As the financial liabilities of the unit-linked business held by those subsidiary companies are based on the fair value of the unit funds backing those contracts, unit-linked business assets and liabilities move together in line with changes in investment market conditions.

The Group's other assets are largely cash and cash equivalents, deposits with credit institutions and money market funds.

Capital management

The Group's objectives in managing its capital are to:

· match the profile of its assets and liabilities, taking account of the risks inherent in the business;

· maintain financial strength to support new business growth;

· satisfy the requirements of its policyholders and regulators;

· retain financial flexibility by maintaining strong liquidity and access to a range of capital markets; and

· generate operating cash flows to meet dividend requirements.

22 Financial risk management

The Group's objective in the management of financial risk is to minimise, where practicable, its exposure to such risk, except when necessary to support other objectives. The principal methods by which the Group seeks to manage risk is through the operation of unit-linked business and to restrict the investment of its capital to institutions with Board-approved minimum ratings.

Overall responsibility for the management of the Group's exposure to risk is vested in the Board. To support it in this role, an enterprise-wide risk management framework is in place comprising risk identification, risk assessment, control and reporting processes. The framework provides assurance that risks are being appropriately identified and managed. Additionally, the Board and the Boards of subsidiary companies have established a number of Committees with defined terms of reference. These are the Actuarial Review, Audit, Credit Control, Executive, Investment and Risk Committees. Additional information concerning the operation of the Board Committees is contained in the Corporate Governance section of this Report & Accounts.

Policyholders bear the financial riskrelating to the investments underpinning their contracts, as the policy benefits are directly linked to the value of the assets. These assets are managed consistent with the expectations of the policyholders. By definition, there is a precise match between the investment assets and the policyholder liabilities, and so the market risk and credit risk lie with policyholders.

The Group's exposure is limited to the extent that certain contract income is based on the value of assets under administration.

The more significant financial risks to which the Group is exposed are set out below. For each category of risk, the Group determines its risk appetite and sets its investment, treasury and associated policies accordingly.

22.1 Market risk

This is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in market prices, analysed between price, interest rate and currency risk.

(a) Price risk

An overall change in the market value of the unit-linked funds would affect the annual management charges accruing to the Group since these charges, which are typically 1% p.a., are based on the market value of assets under administration. Similarly, due to the fact that these charges are deducted from policies in policy currency, a change in foreign exchange rates relative to sterling can result in fluctuations in reported management fee income and expenses. The approximate impact on the Group's profits and equity of a 10% change in fund values, either as a result of price or currency fluctuations, is £1.5m (2011: £1.6m).

(b) Interest rate risk

Interest rate risk is the risk that the Group is exposed to lower returns or loss as a direct or indirect result of fluctuations in the value of, or income from, specific assets arising from changes in underlying interest rates.

The Group is primarily exposed to interest rate risk on the balances that it holds with credit institutions and in money market funds. The Group has mitigated its exposure to cash flow interest rate risk by placing a proportion of its cash holdings on longer-term fixed deposits (see note 22.4 below).

Taking into account the proportion of Group funds held on longer-term, fixed-rate deposits, a change of 1% p.a. in interest rates will result in an increase or decrease of approximately £0.4m (2011: £0.7m) in the Group's equity and annual investment income.

A summary of the Group's liquid assets at the balance sheet date is set out in note 22.2 below.

Currency risk is the risk that the Group is exposed to higher or lower returns as a direct or indirect result of fluctuations in the value of, or income from, specific assets and liabilities arising from changes in underlying exchange rates.

(c)(i) Group foreign currency exposures

The Group is exposed to currency risk on the foreign currency denominated bank balances, contract fees receivable and other liquid assets that it holds to the extent that they do not match liabilities in those currencies. The impact of the Group's currency risk is minimized by frequent repatriation of excess foreign currency funds to sterling. At the balance sheet date the Group had exposures in the following currencies:

	2012	2012	2011	2011
	US$m	€m	US$m	€m
Gross assets	12.4	8.6	12.0	17.5
Matching currency liabilities	(7.6)	(2.0)	(9.3)	(2.3)
	4.8	6.6	2.7	15.2

The approximate impact on profit and equity of a 5% change in the value of the Euro to Sterling is £0.3m (2011: £0.7m). The approximate effect of a 5% change in the value of US Dollars to Sterling is £0.2m (2011: £0.1m).

(c)(ii) Financial investments by currency

Certain fees and commissions are earned in currencies other than Sterling, based on the value of financial investments held in those currencies from time to time.

The sensitivity of the Group to the currency risk inherent in investments held to cover financial liabilities under investment contracts is incorporated within the analysis set out in (a) above.

At the balance sheet date the analysis of financial investments by currency denomination is as follows:

Currency	2012	2011
	%	%
US Dollars	53.0	50.0
Euro	26.0	28.0
Sterling	17.0	16.0
Others	4.0	6.0
	100.0	100.0

22.2 Credit risk

Credit risk is the risk that the Group is exposed to lower returns or loss if another party fails to perform its financial obligations to the Group.

The Group's main exposure to credit risk is in relation to deposits with credit institutions. Deposits are made, in accordance with established policy, with credit institutions having a short-term rating of at least F1 and P1 from Fitch IBCA and Moody's respectively and a long term rating of at least A and A3. Additionally funds are invested in AAA rated unitized money market funds.

At the balance sheet date, an analysis of the Group's own cash and cash equivalent balances and liquid investments was as follows (an analysis by maturity date is provided in note 22.4 below):

	2012	2011
	£m	£m
Deposits with credit institutions	39.2	49.8
Investments in money market funds	26.1	23.3
	65.3	73.1

Maximum counterparty exposure limits are set both at an individual subsidiary company level and on a Group-wide basis. There are no significant concentrations of credit risk at the balance sheet date.

22.3 Liquidity risk

Liquidity risk is the risk that the Group, though solvent, does not have sufficient financial resources to enable it to meet its obligations as they fall due, or can only secure them at excessive cost.

The Group's objective is to ensure that it has sufficient liquidity over short- (up to one year) and medium-term time horizons to meet the needs of the business. This includes liquidity to cover, amongst other things, new business costs, planned strategic activities, servicing of equity capital as well as working capital to fund day-to-day cash flow requirements.

Liquidity risk is principally managed in the following ways:

· Assets of a suitable marketability are held to meet policyholder liabilities as they fall due.

· Forecasts are prepared regularly to predict required liquidity levels over both the short and medium term.

The Group's exposure to liquidity risk is considered to be low since it maintains a high level of liquid assets to meet its liabilities.

22.4 Undiscounted contractual maturity analysis

Set out below is a summary of the undiscounted contractual maturity profile of the Group's assets.

	2012	2011
	£m	£m
Maturity within 1 year
Deposits and Money Market funds	43.7	59.3
Other assets	4.2	3.3
	47.9	62.6
Maturity from 1 to 5 years
Deposits with credit institutions	21.6	13.8
Other assets	2.0	2.9
	23.6	16.7
Assets with maturity values	71.5	79.3
Other shareholder assets	122.9	116.8
Shareholder assets	194.4	196.1
Gross assets held to cover financial liabilities under investment contracts	1,035.4	1,231.8
Total assets	1,229.8	1,427.9

Maturity analyses of financial and other liabilities are included in the relevant notes to the consolidated balance sheet. There is no significant difference between the value of the Group's assets on an undiscounted basis and the balance sheet values.

22.5 Fair value measurement hierarchy

IFRS 7 requires the Group to classify fair value measurements into a fair value hierarchy by reference to the observability and significance of the inputs used in measuring that fair value. The hierarchy is as follows:

· Level 1: fair value is determined as the unadjusted quoted price for an identical instrument in an active market.

· Level 2: fair value is determined using observable inputs other than unadjusted quoted prices for an identical instrument and that does not use significant unobservable inputs.

· Level 3: fair value is determined using significant unobservable inputs.

Where the directors determine that there is no active market for a particular financial instrument, fair value is assessed using valuation techniques based on available, relevant, information and an appraisal of all associated risks. This process requires the exercise of significant judgement on the part of Directors. Where significant inputs to the valuation technique are observable, the instrument is categorised as Level 2. Otherwise, it is categorised as Level 3. Due to the linked nature of the contracts sold by the Group's insurance undertakings, any change in the value of financial assets held to cover financial liabilities under those contracts will result in an equal and opposite change in the value of contract liabilities. The separate effect on financial assets and financial liabilities is included in investment income and investment contract benefits, respectively, in the consolidated Income Statement. The following table analyses the Group's financial assets and liabilities at fair value through profit or loss, at 30 June 2012:

	Level 1	Level 2	Level 3	Total
Financial assets at fair value through profit or loss	£m	£m	£m	£m
Equity securities	31.2	-	-	31.2
Collective investment schemes	806.1	32.4	-	838.5
Fixed income securities	38.7	-	-	38.7
Deposits and money market funds	147.5	-	-	147.5
Total financial assets at fair value through profit or loss	1,023.5	32.4	-	1,055.9

During this financial year, assets with a fair value at 30 June 2011 of £22.2m were transferred from Level 2 to Level 1, following the restructure of a number of underlying funds. In addition, assets with a fair value of £14.2m were transferred from Level 1 to Level 2.

Assets with a value of £29.3m (2011: £2.0m) were reclassified from Level 1 to Level 3 and valued at zero by the Directors, as they believe this reflects the fair value of these assets. No assets were reclassified from Level 3 to Level 1 or Level 2 during the financial year.

	Level 1	Level 2	Level 3	Total
	£m	£m	£m	£m
Financial liabilities at fair value through profit or loss	-	1,033.8	-	1,033.8

The following table analyses the Group's financial assets and liabilities at fair value through profit or loss, at 30 June 2011 (restated):

	Level 1	Level 2	Level 3	Total
Financial assets at fair value through profit or loss	£m	£m	£m	£m
Equity securities	38.6	-	-	38.6
Collective investment schemes	955.8	34.3	-	990.1
Fixed income securities	50.9	-	-	50.9
Deposits and money market funds	162.1	-	-	162.1
Total financial assets at fair value through profit or loss	1,207.4	34.3	-	1,241.7

Assets with a fair value of £24.5m were transferred to Level 2 during the year ending 30 June 2011.

	Level 1	Level 2	Level 3	Total
	£m	£m	£m	£m
Financial liabilities at fair value through profit or loss	-	1,229.6	-	1,229.6

23 Financial commitments

Operating leases are defined as leases in which the lessor retains a significant proportion of the risks and rewards. Costs in respect of operating leases, less any incentives received from the lessor, are charged to the income statement on a straight-line basis over the lease term.

The total of future minimum lease payments under non-cancellable operating leases is as follows:

	2012	2011
	£m	£m
Amounts due:
Within one year	0.5	0.7
Between one and five years	2.1	1.5
After five years	1.4	0.2
	4.0	2.4

24 Related party transactions

24.1 Intra-group transactions

Various subsidiary companies within the Group perform services for other Group companies in the normal course of business. The financial results of these activities are eliminated in the consolidated financial statements.

24.2 Key management personnel compensation

Key management consists of 10 individuals (2011: 10), being executive Directors of the Company, executive Directors of direct subsidiaries of the Company and the Company Secretary.

The aggregate remuneration paid to key management as at 30 June 2012 is as follows:

	2012		2011
	£m		£m
Salaries, wages and bonuses	2.6		2.2
Benefits under SAYE share save programme	-		-
Charged to the income statement	2.6		2.2
Payments during the year by key management in respect of policies issued by the Group		-	-
Payments during the year to key management in respect of policies issued by the Group		-	(0.1)
The sum assured or fund balance of those policies at 30 June		17.0	17.1

All these transactions were completed on terms available to employees in general.

24.3 Employee Benefit Trust

An Employee Benefit Trust was established on 16th November 2011 with the transfer to it of 400,000 ordinary shares in Hansard Global plc by Dr Polonsky. The purpose of the Trust is to use the income derived from dividends to reward longer serving staff, where sales targets are met. The first awards by the Trust are expected to total approximately £33,000 and to be made in December 2012.

24.4 Other transactions with Directors

The Company has entered into a contract with Mr. Gordon Marr to purchase a property owned by Mr. Marr for the sum of £481,000, exercisable at his discretion. Mr. Marr purchased the property on 7 July 2011 for £501,000. The contract has not been exercised at the date of these Report & Accounts.

25 Provisions and contingent liabilities

25.1 Provisions

Provisions are recognised when the Group has a present legal or constructive obligation as a result of past events such that it is probable that an outflow of economic benefits will be required to settle the obligation and a reliable estimate of the amount of the obligation can be made.

Provisions, where necessary, are calculated at the present value of the estimate of the expenditure required to settle the obligation utilising a rate that reflects the expected time value of money at the creation date of the provision. Any increase in the value of provisions due to the passage of time is recognised as an interest expense.

25.2 Contingent liabilities

The Group does not give any investment advice and this is left to the policyholder directly or through an agent, advisor or an entity appointed at the policyholder's request or preference. Policyholders bear the financial risk relating to the investments underpinning their contracts, as the policy benefits are linked to the value of the assets.

Notwithstanding the above, financial services institutions are increasingly drawn into disputes in cases where the value and performance of assets selected by or on behalf of policyholders fails to meet their expectations. This is particularly true of more complex structured products distributed throughout Europe that have been selected for inclusion in policies by policyholders and / or their agents. At the balance sheet date a number of those fund structures remain affected by liquidity or other issues that hinder their sales or redemptions on normal terms with a consequent adverse impact on policy transactions.

As reported previously, the Group has been subject to a number of policyholder complaints in relation to the selection and performance of assets linked to policies. The company has been served with a number of writs arising from such complaints and other asset-related issues, and believes that other writs might be served in the next few months. Claims under writs served to date total approximately £11m. An initial Court hearing into the majority of these complaints was held in Norway in April, at which the Judge concluded that the Group has a case to answer.

The Group has appealed this judgement and intends to defend its position strenuously. Any further court hearings linked to these writs are not anticipated to take place before August 2013.

While it is not possible to forecast or determine the final results of pending or threatened legal proceedings, based on the pleadings and advice received from the Group's legal representatives, the Directors believe that the Group will be successful in its defence of these claims. Accordingly no provisions have been made.

26 Foreign exchange rates

The Group's presentational and functional currency is pounds sterling, being the currency of the primary economic environment in which the Group operates.

Foreign currency transactions are translated into sterling using the applicable exchange rate prevailing at the date of the transactions. Monetary assets and liabilities denominated in foreign currencies are translated into sterling at the rates of exchange prevailing at the balance sheet date, and the gains or losses on translation are recognised in the income statement.

Non-monetary assets and liabilities that are held at historical cost are translated using exchange rates prevailing at the date of transaction; those held at fair value are translated using exchange rates ruling at the date on which the fair value was determined.

The closing exchange rates used by the Group for the conversion of balance sheet items from US Dollar and Euro to Sterling were as follows:

	30 June	30 June
	2012	2011
US Dollar	1.57	1.61
Euro	1.24	1.11

27 Non statutory accounts

The financial information set out above does not constitute the Company's statutory accounts for the years ended 30 June 2011 or 2010, but is derived from those accounts.

28 Annual report

The Company's annual report and accounts for the year ended 30 June 2012 is expected to be posted to shareholders by 15 October 2012. Copies of both this announcement and the annual report and accounts will be available to the public at the Company's registered office at Harbour Court, Lord Street, PO Box 192, Douglas, Isle of Man, IM99 1QL and through the Company's website at www.Hansard.com.

Responsibility statement of the directors in respect of the annual financial report

The consolidated financial statements, prepared in accordance with International Financial Reporting Standards as adopted by the EU, give a true and fair view of the assets, liabilities, financial position and profit for the Group and the undertakings included in the consolidation taken as a whole; and pursuant to Disclosure and Transparency Rules, Chapter 4, the Directors' Report of the Company's annual report includes a fair review of the development and performance of the business and the position of the Group, and the undertakings included in the consolidation taken as a whole, together with a description of the principal risks and uncertainties faced by the business.

Dr L S Polonsky	G S Marr
Director	Director
On behalf of the Board
20 September 2012

EUROPEAN EMBEDDED VALUE INFORMATION

1 INTRODUCTION

The European Embedded Value (EEV) measure is an estimate of the value of the shareholders' interest in the Group. The EEV covers the entire business of the Group, including its life assurance companies and subsidiaries providing administration, distribution and other services.

The EEV comprises net worth and the value of future profits from business in-force at the valuation date, 30 June 2012. It excludes the value of any future new business that the Group may write after the valuation date. All results are calculated net of corporation tax.

The Group's EEV methodology complies fully with the set of EEV Principles published by the CFO Forum in May 2004 and extended in October 2005. It has been calculated using market consistent economic assumptions and best estimate operating assumptions having regard for the Group's own past, current and expected future experience. A description of the EEV methodology is set out in the Notes to the EEV Information. There have been no significant changes in the EEV methodology from that used in the previous financial year.

2 EEV PROFIT PERFORMANCE FOR THE YEAR

2.1 EEV profit

EEV profit provides a measure of the Group's performance over the year. The components of EEV profit after tax are set out in the table below.

	2012	2011
	£m	£m
New business contribution	16.8	18.5
Expected return on existing business	5.4	4.9
Experience variances	(6.0)	(3.0)
Operating assumption changes	(13.0)	(11.3)
Expected return on net worth	1.6	1.7
Model changes	0.0	4.1
EEV operating profit after tax	4.8	14.9

Investment return variances	(17.1)	12.0
Economic assumption changes	(1.4)	1.6
EEV profit after tax	(13.7)	28.5

2.1.1 New Business Contribution (NBC)

New Business Contribution is the value of new business written in the year. It is calculated at point of sale, including any acquisition expense overrun. NBC for the year is £16.8m (2011: £18.5m).

2.1.2 Expected return on existing business

The table below shows the return on existing business in-force at the start of the year in greater detail. The table also provides valuable insight into cashflows generated by the business relating to both new and existing business.

The expected return on existing business of £5.4m (2011: £4.9m) represents, in large part, the Group's view of the factors impacting upon the increase in the value of future profits over the year and in new business between the point of sale and the end of the year due to the time value of money,

	2012				2011

	EEV	Net	VIF	Non-	EEV	Net	VIF	Non-
		worth		market		worth		market
				Risk*				Risk*
	£m	£m	£m	£m	£m	£m	£m	£m
Cash flows generated by existing business	0.0	38.9	(38.9)	0.0	0.0	35.1	(35.1)	0.0
New business strain	0.0	(22.6)	22.6	0.0	0.0	(20.8)	20.8	0.0
Time value of existing business	5.4	0.7	4.7	0.0	4.9	0.4	4.5	0.0
Time value of new business	0.2	(0.3)	0.5	0.0	0.2	(0.3)	0.5	0.0
Time value of non-market risk	(0.2)	0.0	0.0	(0.2)	(0.2)	0.0	0.0	(0.2)
	5.4	16.7	(11.1)	(0.2)	4.9	14.4	(9.3)	(0.2)

*this includes frictional costs

2.1.3 Experience variances

Experience variances arise where the Group's actual experience during the year in areas such as expenses, policy persistency, premium persistency, mortality and fees from policyholder activity differ from the assumptions used to calculate the EEV at the previous year-end.

Experience variances are summarised in the following table.

	2012 £m	2011 £m
Premium changes and surrenders	(3.3)	(0.3)
Expenses	(1.5)	(1.6)
Other	(1.2)	(1.1)
	(6.0)	(3.0)

2.1.4 Operating assumption changes

The operating assumption changes reflect management's view of the future impact of the experience variances described above. A review of operating assumptions is conducted each year. Changes are made to the EEV assumptions to reflect current expectations about future levels of future expenses, premiums, lapses and other operating matters.

These operating assumption changes reduced the EEV by £13.0m (2011: £11.3m), as shown below.

	2012 £m	2011 £m
Lapses & PUPs	(4.4)	0.7
Switches	(3.5)	0.0
Premium reductions and holidays	(1.5)	(0.8)
Expenses	(2.8)	(10.9)
Mortality	(0.5)	(0.3)
Other	(0.3)	0.0
	(13.0)	(11.3)

2.1.5 Expected return on net worth

The expected return on net worth of £1.6m (2011: £1.7m) reflects the anticipated increase in shareholder assets over the period due to the time value of money. In line with the Group's policy its calculation is based on the 2.7% risk discount rate at the previous financial year-end (2011: 2.5%).

2.1.6 Model changes

The Group continues to develop its modelling functionality. There were no significant changes to the model used to determine the EEV this year (2011: £4.1m).

2.1.7 Investment return variances

The impact of market and other external conditions gave rise to EEV investment return of (£17.1m) in the year (2011: £12.0m profit). The investment return affects the value of the assets under administration. The investment return primarily reflects the investment choices made by policyholders. The performance of the resulting investments will then affect the value of future income to the Group.

The main elements contributing are as follows:

	2012	2011
	£m	£m
Investment performance of policyholder funds	(14.1)	11.5
Exchange rate movements	(1.4)	0.2
Treasury Margins	(0.4)	0.2
Commissions receivable	0.1	0.0
Other	(1.3)	0.1
	(17.1)	12.0

2.1.8 Economic assumption changes

Economic assumption changes resulted in an EEV loss of £1.4m (2011: £1.6m profit). This reflects changes to government bonds yields for the currencies in which the Group is exposed.

2.2 DETAILED ANALYSIS OF EEV PROFIT

The table below shows a detailed analysis of EEV profit after tax. This is split between net worth, the value of in-force business (VIF), non-market risk and frictional costs. The increase in net worth of £9.6m demonstrates the continued ability of the Group to generate cash from the in-force book through volatile economic conditions while at the same time continuing to invest in new business as shown in 2.1.2 above.

	2012					2011
	Movement In					Movement In
	EEV	Net Worth	VIF	Non-market risk	Frictional costs	EEV	Net Worth	VIF	Non- market risk	Frictional costs
	£m	£m	£m	£m	£m	£m	£m	£m	£m	£m
New business contribution	16.8	0.0	16.8	0.0	0.0	18.5	0.0	18.5	0.0	0.0
Expected return on new and existing business	5.4	16.6	(11.0)	(0.2)	0.0	4.9	14.4	(9.3)	(0.2)	0.0
Experience variances	(6.0)	(4.7)	(1.1)	0.0	(0.2)	(3.0)	(6.3)	3.3	0.0	0.0
Operating assumption changes	(13.0)	0.0	(13.0)	0.0	0.0	(11.3)	0.0	(11.3)	0.0	0.0
Expected return on net worth	1.6	1.6	0.0	0.0	0.0	1.7	1.7	0.0	0.0	0.0
Model changes	0.0	0.0	0.0	0.0	0.0	4.1	0.0	4.1	0.0	0.0
EEV operating profit after tax	4.8	13.5	(8.3)	(0.2)	(0.2)	14.9	9.8	5.3	(0.2)	0.0
Investment return variances	(17.1)	(3.9)	(13.2)	0.0	0.0	12.0	0.5	11.5	0.0	0.0
Economic assumption changes	(1.4)	0.0	(1.4)	0.0	0.0	1.6	0.0	1.6	0.0	0.0
EEV profit after tax	(13.7)	9.6	(22.9)	(0.2)	(0.2)	28.5	10.3	18.4	(0.2)	0.0

3 EMBEDDED VALUE AT 30 JUNE 2012

3.1 EEV BALANCE SHEET

Following the payment of dividends totalling £19.1m, the Group's EEV has decreased by £32.7m to £224.3m (2011: £257.0m). The EEV balance sheet is presented below.

	2012	2011
	£m	£m
Free surplus	35.1	44.5
Required capital	15.3	15.3
Net worth	50.4	59.8
VIF	180.9	203.9
Reduction for non-market risk Frictional costs	(6.0) (1.0)	(5.8) (0.9)
Value of future profits	173.9	197.2
EEV	224.3	257.0

3.2 RECONCILIATION OF EEV

The following table provides a reconciliation of the opening and closing EEV for each of the components.

	2012					2011
	EEV	Net	VIF	Non-	Frictional	EEV	Net	VIF	Non-	Frictional
		worth		market	costs		worth		market	costs
				risk					risk
	£m	£m	£m	£m	£m	£m	£m	£m	£m	£m
Opening	257.0	59.8	203.9	(5.8)	(0.9)	247.0	68.0	185.6	(5.7)	(0.9)
EEV profit after tax*	(13.7)	9.6	(22.9)	(0.2)	(0.1)	28.5	10.3	18.3	(0.1)	(0.0)
	243.4	69.4	181.0	(6.0)	(1.0)	275.5	78.3	203.9	(5.8)	(0.9)
Dividends paid	(19.1)	(19.1)	0.0	0.0	0.0	(18.5)	(18.5)	0.0	0.0	0.0
Closing	224.3	50.3	181.0	(6.0)	(1.0)	257.0	59.8	203.9	(5.8)	(0.9)

*Numbers do not sum because of rounding

4 NEW BUSINESS PROFITABILITY

The Group writes business on a profitable basis. The following metrics illustrate an indication of the profitability of the Group's new business written in the year.

4.1 NEW BUSINESS MARGIN

New business margin is defined as New Business Contribution (NBC) divided by Present Value of New Business Premiums (PVNBP).

The new business margin for the year is 9.6% (2011: 8.3%), an increase of 15.7%. This increase is primarily due to the change in mix of sales towards higher-margin regular-premium business.

	2012	2011
	£m	£m
New business sales (PVNBP)	175.7	221.1
New business contribution	16.8	18.5
New business margin	9.6%	8.3%

NBC and PVNBP have been calculated using the same economic assumptions as those used to determine the EEV as at the start of the year and the same operating assumptions used to determine the EEV as at the end of the year. No credit is taken in the calculation of NBC for returns in excess of risk-free returns. NBC is shown after allowing for the cost of required capital, calculated on the same basis as for in-force business.

4.2 INTERNAL RATE OF RETURN (IRR)

New business requires initial capital investment to cover set-up costs, commission payments, statutory reserves and solvency capital requirements. IRR is a measure of the post tax shareholder return on this initial capital invested. It is defined as the discount rate at which the present value of expected cash flows over the life of the new business written in the year is equal to the total capital invested to support the writing of that business.

The average IRR on new business written during the year continues to be in excess of 15% per annum.

4.3 BREAK EVENPOINT (BEP)

BEP indicates how quickly shareholders can expect new business to repay its capital support. In effect, it is defined as the point at which initial capital invested to support the writing of new business in the year (including its share of overhead expenses) is recouped from revenue from that same business. BEP is calculated ignoring the time-value of money.

The average BEP for new business written during the year is 2.6 years (2011: 2.3 years).

5 EEV SENSITIVITY ANALYSIS

Sensitivities provide an indication of the impact of changes in particular assumptions on the EEV at 30 June 2012 and the NBC for the year then ended.

The sensitivities will be affected by the change in the Group's business mix: different product types are sensitive to different assumptions in particular.

The sensitivity analysis indicates that the Group's exposure to operating factors is limited, largely as a result of product design. A change in the level of expenses is the main operating exposure of the Group. The largest sensitivities for the Group are related to economic factors. In particular, as a result of the diversified portfolio of assets under administration, it is exposed to movements in exchange rates and asset values through the impact on the level of future fund-based management income.

Impact on: EEV NBC

£m £m

Central assumptions 224.3 16.8

Operating sensitivities

10% increase in expenses (8.6) (1.3)

1% increase in expense inflation (7.0) (1.6)

1% increase in charge inflation 6.3 1.3

1% increase in expense & charge inflation (0.5) (0.2)

10% decrease in lapse rates 2.4 0.3

10% increase in paid-up rates (1.4) (0.4)

10% increase in mortality rates (0.3) 0.0

10% increase in partial withdrawals (1.6) (0.2)

10% increase in premium reductions (0.7) (0.3)

10% increase in premium holidays (0.6) (0.1)

Economic sensitivities

1% increase in risk discount rate (8.6) (1.8)

1% decrease in investment return rate (6.6) (0.9)

1% increase in risk discount rate & investment return rate (2.1) (1.0)

10% decrease in the value of equities and property (8.1) 0.0

10% depreciation against sterling (16.6) (2.0)

In each sensitivity calculation, all other assumptions remain unchanged, except where indicated. There is a natural correlation between many of the sensitivity scenarios tested, so the impact of two occurring together is likely to be different from the sum of the individual sensitivities. No changes to statutory valuation bases, pricing bases and required capital have been allowed for. No future management action has been modelled in reaction to the changing assumptions. For new business, the sensitivities reflect the impact of a change from inception of the policy.

NOTES TO THE EUROPEAN EMBEDDED VALUE INFORMATION

1 BASIS OF PREPARATION OF EEV

1.1 EEV Principles

In June 2008, the CFO Forum published the European Insurance CFO Forum Market Consistent Embedded Value Principles (MCEV Principles) (Copyright© Stichting CFO Forum Foundation 2008) with a view to bringing greater consistency and improved disclosure to the European insurance industry's embedded value disclosures. In April 2012, the CFO Forum withdrew the intention that the MCEV are the only recognised format of embedded value reporting from 31 December 2012. The withdrawal reflects the ongoing development of insurance reporting under Solvency II and IFRS. The CFO Forum remains committed to the value in supplementary information, including embedded value.

That said, the Group's EEV is already calculated on a market-consistent bottom-up basis using interest swap rates to determine the risk discount rate. Therefore, adoption of the MCEV Principles as currently proposed is not expected to have a material financial impact on the embedded value results, although it will necessitate formatting and disclosure changes.

1.3 Covered business

EEV covers the entire business of the Group, including its life assurance companies and subsidiaries providing administration, distribution and other services. It excludes the value of any future new business that the Group may write after the valuation date. All results are calculated net of corporation tax. The Group does not have any debt or financial reinsurance arrangements in place at the valuation date.

1.4 New business premiums

The following premiums are included in the calculation of the NBC, PVNBP, IRR and BEP:

· Premiums arising from the sale of new policies during the period, including:

o Contractual premiums;

o Non-contractual recurrent single premiums where the level of premium and period of payment is pre-defined and reasonably predictable.

· Non-contractual top-up premiums received during the period on existing single premium policies.

1.5 Timing of cash flows

The EEV has been calculated using economic and operating assumptions as at the end of the financial year (i.e. the valuation date). The NBC, PVNBP, IRR and BEP have been calculated using economic assumptions as at the start of the year and operating assumptions as at the end of the year.

1.6 Real world returns

No credit is taken in the calculation of EEV, NBC, PVNBP, IRR or BEP for returns in excess of risk-free returns. This approach may differ, particularly with regards to the calculation of IRR and BEP, from that used by some of our competitors, who include an asset risk premium.

2 METHODOLOGY

2.1 Overview

The methodology used to derive the EEV results at the valuation date is consistent with the EEV methodology used in relation to the consolidated financial statements for the year ended 30 June 2011. Under EEV methodology, profit is recognised as margins are released from policy related balances over the lifetime of each policy within the Group's in-force covered business. The total projected profit recognised over the lifetime of a policy under EEV methodology is the same as reported under IFRS, but the timing of recognition is different.

2.2 Embedded value

Embedded value is a measure of the value of the shareholders' interest in the life and related businesses of the Group, represented by the total of the net worth of the Group and the value of in-force covered business written by the Group as at the relevant valuation date. The embedded value is calculated on the Group's entire in-force covered business and is shown net of corporation tax. It ignores the value of any future new business.

2.3 Net worth

Net worth is the market value of the shareholders' funds, determined on an IFRS basis, adjusted to exclude certain assets such as the deferred origination costs and liabilities such as the deferred income reserve and to add back any non-admissible assets. The net worth consists of required capital and free surplus.

2.3.1 Required capital

Required capital is the market value of assets, attributed to the covered business over and above that required to back liabilities for covered business, whose distribution to shareholders is restricted. It comprises the prudential liabilities of the Group's two life assurance companies calculated on a statutory valuation basis and the regulatory solvency margin and an internal margin held in excess of these statutory requirements.

2.3.2 Free surplus

Free surplus is the market value of assets allocated to, but not required to support, the in-force covered business at the valuation date. In effect, it is the excess of net worth over required capital.

2.4 Present value of future profits

The present value of future profits is calculated as:

· value of in-force covered business (VIF)

· less frictional cost of required capital

· less a reduction for non-market risk.

2.4.1 Value of in-force covered business (VIF)

The VIF is determined by calculating, on a best estimate basis, the stream of future shareholder cash flows expected to arise from assets backing the liabilities of the covered business and then calculating the present value of the cash flows using an appropriate risk discount rate. Future shareholder cash flows are deemed to arise when they are released from policyholder funds, following an actuarial valuation by the appointed actuary. The VIF is calculated on a 'look through' basis whereby it includes all net cash flows arising from the products supported by the subsidiary companies providing administration, distribution and other services.

2.4.2 Frictional cost of required capital

Though the present value of future profits assumes that in future years any capital in excess of the Group's capital requirements is transferred to shareholders, some assets are not immediately transferable as they are needed to satisfy regulatory capital requirements and provide working capital. An allowance is made for the frictional cost of required capital in order to reflect that there is a cost to shareholders of delaying the distribution of such assets, for example, taxation on interest on required capital. This cost is explicitly deducted from the VIF and NBC in the calculation of the present value of future profits.

2.4.3 Non-market risk

Allowance is made for the cost of non-market risks not already covered in the VIF. The main risks covered are mortality, persistency, expense and other operating risks. In choosing best estimate assumptions, directors have already made some allowance for risk. However, best estimate assumptions may fail to represent the full impact on shareholder value where adverse experience has a higher impact on shareholder value than favourable experience.

2.5 Cost of financial options and guarantees

The Group's business does not include any policies with material options and/or guarantees regarding investment performance and, hence, unlike the situation faced by many other life assurers, the Group's cost of financial options and guarantees is zero.

3 OPERATING ASSUMPTIONS

The EEV was calculated using best estimate operating assumptions (e.g. expenses, mortality, lapses, premium persistency, partial withdrawals and policyholder activity) having regard for the Group's own past, current and expected future experience, together with other relevant data.

The Group's in-force covered business is unit-linked in nature, and consists mainly of investment-type products with minimal life cover and no financial options or guarantees. The three main product groups are regular premium, single premium and recurrent single premium. Variations in experience between the product classes have been considered and, where appropriate, separate assumptions have been used.

All assumptions were based on the business being part of a going concern.

3.1 Expense assumptions

A realistic estimate of the Group's future expenses is allowed for in the EEV calculations, based on actual recent expense levels and the directors' estimate of realistic future expense levels.

The allocation of expenses between acquisition and maintenance is consistent with prior years and the allocation used to derive the pricing and reserving bases.

Development costs to enable future new business have been allocated to new business and are fully reflected in the calculation of the NBC. Other non-recurring development costs and any other expenditure of an exceptional nature are generally charged as incurred, and hence will be reflected as a profit or loss in the year. Such costs amounted to £1.9m in the year ended 30 June 2012 (2011: £1.8m).

There has been no change from the previous year to the Group's methodology for allocating expenses between different types of cost.

3.2 Demographic assumptions

Assumptions for future rates of mortality, lapses, partial withdrawals, policies being made paid-up, premium reductions and premium holidays have been derived from investigations of the Group's own recent experience and having regard for expected future experience and relevant market data. Separate assumptions have been set for each product class, where appropriate.

3.3 Taxation

After considering current and expected future tax legislation, regulation and the Company's own tax position, the tax rate assumptions have remained unaltered as follows:

Corporation tax rates	30 June 2012	30 June 2011
Isle of Man	0%	0%
Republic of Ireland	12.5%	12.5%

3.4 Non-market risk

The directors have established an allowance of £6.0m (2011: £5.8m) to account for the cost of non-market risks. This amount is equivalent to an increase of 0.6% (2011: 0.6%) per annum in the risk discount rate assumption at the valuation date. It has been assessed after considering past experience, the operational characteristics of the business and market information. The suitability of this allowance is kept under review.

3.5 Other operating assumptions

Assumptions for the rate of policyholder activity, such as fund switching, have been derived from investigations of the Group's own recent experience and having regard for expected future experience.

4 ECONOMIC ASSUMPTIONS

The principal economic assumptions used in the EEV calculations are actively reviewed at each valuation date and are internally consistent.

4.1 Risk-free rate

In line with EEV Principles,the risk-free rate is based on the bid swap yield curve appropriate to the currency of the cash flows. This risk-free rate is then used to derive the risk discount rate and investment return assumptions.

There are difficulties in valuing each individual cash flow with a different risk-free rate. So for practical reasons a single equivalent risk-free rate is derived (using the term and currency of individual cash flows) that would produce similar results to those using individual cash flow risk-free rates.

In order to determine the appropriate single equivalent risk-free rate, the weighted-average term of cash flows is derived from all projected cash flows on the in-force book of covered business. This process resulted in an average cash flow term of 6 years at the valuation date. Bid swap yield curves are then collated for each of the major currencies in which the Group's cash flows are denominated, including Sterling, US$ and Euro and a weighted average yield is calculated.

Risk-free rate	30 June 2012	30 June 2011
per annum	1.6%	2.7%

4.2 Risk discount rate

The risk discount rate is set equal to the risk-free rate. The EEV calculation uses the risk-free rate applicable at the end of the year (i.e. at the valuation date), while the calculation of NBC and PVNBP uses the risk-free rate applicable at the start of the year (i.e. at the previous year-end date).

Risk discount rate	Year ended 30 June 2012		Year ended 30 June 2011
	EEV	NBC	EEV	NBC
per annum	1.6%	2.7%	2.7%	2.5%

4.3 Investment returns

All investments are assumed to provide a return equal to the risk-free rate less external fund manager investment charges and any other investment expenses charged directly against policyholder funds.

4.4 Risk premium

No credit is taken in the calculation of EEV, NBC, PVNBP, IRR or BEP for returns in excess of risk-free returns i.e. a cautious approach is adopted by assuming an asset risk premium of zero.

4.5 Inflation rates

In setting the expense inflation assumption, consideration is given to price and salary inflation rates in both the Isle of Man and the Republic of Ireland, and to the Group's own expense experience and expectations. For service companies, expense inflation relates to the underlying expenses rather than the fees charged to the life assurance companies.

By design, contractual monetary-charge inflation is broadly matched to expense inflation and in some cases is subject to a minimum level of inflation. This correlation between expense inflation and charge inflation dampens the impact of inflation on the embedded value results.

Inflation assumptions are as follows: