Final Results - Year Ended 31 December 1999 - Pt 2

Old Mutual PLC 8 March 2000 PART 2 Non-technical account -insurance and asset management activities Pro forma Year to year to 31 31 December December 1999 1998 £ £ Balance on the technical account -long term business 292 153 Tax attributable to shareholders'profits on long term business 84 18 376 171 Profit from longterm business beforetax Balance on the technical account -general business 59 86 Investment income 267 81 Unrealised gains on investments 64 - Allocatedinvestment return transferred from / (to) the long term businesstechnical account 543 (312) Investment expenses and charges (33) (2) Unrealised losses on investments - (167) Alloca ted (56) (79) investment return transferred to the general business technical account Other income 242 124 Other charges (238) (132) Insurance operating profit /(loss)on ordinary 1,224 (230) activities before tax Old Mutual plc Preliminary results for the year ended 31 December 1999 Consolidated profit and loss account Non-technical account - banking activities Pro forma Year to year to 31 31 December December 1999 1998 £ £ Interest receivable 1,652 1,940 Interest payable (1,208) (1,507) Net interest income 44 433 Dividend income 6 9 Fees and commissions receivable 229 242 Fees and commissions payable (33) (6) Dealing profits 88 74 Other operating income 7 32 Operating income 741 784 Administrative expenses (223) (233) Depreciation and amortisation (34) (26) Other operating charges (124) (173) Operating profit before provisions 360 352 Provisions (71) (163) Operating profit 197 281 Share of associated undertakings' operating profit 13 6 Banking operating profit on ordinary activities before tax 210 287 Old Mutual plc Preliminary results for the year ended 31 December 1999 Consolidated profit and loss account Non-technical account - insurance, asset management and banking activities Pro forma Year to year to 31 31 December December 1999 1998 Notes £ £ Insurance and asset management operating profit on ordinary activities before tax and non-operating items 1,224 (230) Banking operating profit on ordinary activities before tax and non-operating items 210 287 Profit on ordinary activities before tax and non-operating items 1,434 57 Non-operating items 12 54 - Profit on sale of businesses 77 - Cost of the free share selling service offered to policyholders on demutualisation (23) - Profit on ordinary activities before tax 1,488 57 Tax on profit on ordinary activities 11 (165) (85) Profit / (loss) on ordinary activities after tax 1,323 (28) Minority interests (257) (73) Profit / (loss) on ordinary activities after tax and minority interests 1,066 (101) Dividends proposed 13 (69) - Retained Profit / (loss) for the year 997 (101) Consolidated statement of total recognised gains and losses Pro forma Year to year to 31 31 December December 1999 1998 £m £m Profit / (loss) for the year 1,066 (101) Foreign exchange movements (35) (87) Total recognised gains and losses for the year 1,031 (188) Reconciliation of movements in equityshareholders' funds Pro forma Year to year to 31 31 December December 1999 1998 £m £m Total recognised gains and losses for the 1,031 (188) year Dividend proposed (69) - Retained profit / (loss) for the financial 962 (188) year Issue of new capital on self-investment 404 - transaction Issue of new capital on listing 559 - Net addition / (reduction) to equity 1,925 (188) shareholders' funds Equity shareholders' funds at the beginning 1,588 1,776 of the year Equity shareholders' funds at the end of the 3,513 1,588 year Old Mutual plc Preliminary results for the year ended 31 December 1999 Consolidated balance sheet at 31 December 1999 At At 31 31 December December 1999 1998 £m £m Insurance assets Intangible assets Goodwill 164 100 Investments Land and buildings 914 885 Other financial investments 17,167 12,398 18,081 13,283 Assets held to cover linked liabilities 5,916 5,121 23,997 18,404 Reinsurers' share of technical provisions Long term business provision 140 172 Claims outstanding 16 19 Provision for unearned premiums 5 5 161 196 Debtors 524 210 Other assets 133 89 Cash at bank and in hand 443 176 Prepayments and accrued income 317 335 1,417 810 Total insurance assets 25,739 19,510 Banking assets Cash and balances at central banks 760 537 Treasury bills and other eligible bills 744 732 Loans and advances to banks 613 137 Loans and advances to customers 9,704 9,415 Debt securities 629 412 Equity securities 145 131 Tangible fixed assets 98 92 Land and buildings 89 101 Other assets 267 50 Prepayments and accrued income 168 252 Total banking assets 13,217 11,959 Total assets 38,956 31,469 At At 31 31 December December 1999 1998 £m £m Liabilities Capital and reserves Called up share capital 344 - Share premium account 868 - Profit and loss account 2,301 - Fund for future appropriations - 1,588 Equity shareholders' funds 3,513 1,588 Minority interests 857 808 Fund for future appropriations - 6 Insurance liabilities Technical provisions Long term business provision 14,767 11,716 Claims outstanding 261 319 Provision for unearned premiums 43 41 15,129 12,018 Technical provisions for linked liabilities 5,916 5,121 Provisions for other risks and charges 317 423 Creditors 1,093 372 Accruals and deferred income 43 44 Total insurance liabilities 22,498 17,978 Banking liabilities Deposits by banks 798 1,223 Customer accounts 9,343 8,345 Debt securities in issue 1,194 896 Provisions for liabilities and charges 76 72 Other liabilities 609 493 Subordinated liabilities 68 60 Total banking liabilities 12,088 11,089 Total liabilities 38,956 31,469 Old Mutual plc Preliminary results for the year ended 31 December 1999 Consolidated cash flow statement excluding long term business Year to 31 December 1999 £m Operating activities Net cash inflow from insurance operating activities 495 Net cash inflow from banking operating activities 257 Net cash inflow from operating activities 752 Net cash outflow from returns on investments and (124) servicing of finance Total taxation paid (70) Net cash outflow from capital expenditure and (84) financial investment Net cash inflow from acquisitions and disposals 66 Net cash inflow before financing activities 540 Net cash inflow from financing 547 Net cash inflow of the Group excluding long term 1,087 business Year to 31 December 1999 £m Cash flows relating to insurance activities were invested as follows: Increase in cash holdings 122 Increase in net portfolio investments 732 854 Cash flows relating to banking activities were invested as follows: Increase in cash and balances at central banks 233 Net cash inflow of the Group excluding long term 1,087 business Old Mutual plc Preliminary results for the year ended 31 December 1999 Notes to the financial information 1. Basis of preparation The financial information for the year ended 31 December 1999, set out on pages 20 to 35, has been prepared on the basis of the accounting policies set out in the Group's Prospectus dated 19 May 1999, and in accordance with the Statement of Recommended Practice on Accounting for Insurance Business issued by the Association of British Insurers. Following the Group's decision to change its year end to 31 December, in preparation for demutualisation and listing, comparative information has been presented on a pro forma basis. The balance sheet and the pro forma profit and loss account comparatives have been substantially derived from the financial information contained in Parts 7 and 8 of the Group's Prospectus dated 19 May 1999. The pro forma profit and loss account combines the actual results for the six months from 1 July to 31 December 1998 with the first half year results to 30 June 1998 derived on a time apportioned basis. Certain reclassifications have been made to the pro forma information in the Prospectus to accord with the format adopted in this financial information. No comparative cashflow has been presented as it is not considered practicable or meaningful in a pre-demutualisation environment. Following the sale of our UK life subsidiary, Old Mutual Life Assurance Company (OMLA), in December 1999 its results for the year then ended have been disclosed as discontinued operations in the Group's long term business technical account. Rates of exchange used to translate Rand based amounts into Sterling were: Year Year ended ended 31-Dec 31-Dec 1999 1998 Profit and loss account (weighted 9.8588 9.106 average rate) Balance 9.9364 9.7763 sheet(yearend rate) Financial information presented in the preliminary announcement for the year ended 31 December 1999 constitutes non-statutory accounts within the meaning of section 240 of the Companies Act 1985. The 1999 statutory accounts for the Group have not been finalised, however, the financial information included in this announcement has been prepared by the directors based upon the results and position which will be reflected in the statutory accounts when complete. Old Mutual plc Preliminary results for the year ended 31 December 1999 Notes to the financial information 2. Long term business - gross premiums written South Rest of Rest of Total Africa Africa world £m £m £m £m Single premiums Year to 31 December 1999 Individual business Life / endowment / other 565 4 168 737 Retirement and immediate 173 9 - 182 annuities 738 13 168 919 Group business 912 19 2 933 Total continuing operations 1,650 32 170 1,852 Discontinued operations - - 6 6 Total 1,650 32 176 1,858 Single premiums Pro forma year to 31 December 1998 Individual business Life / endowment / other 273 167 446 6 Retirement and immediate annuities 315 7 - 322 588 13 167 768 Group business 956 13 - 969 Total continuing operations 1,544 26 167 1,737 Discontinued operations - - 8 8 Total 1,544 26 175 1,745 Recurring premiums Year to 31 December 1999 Individual business Life / endowment / other 650 34 69 53 Retirement and other annuities 163 13 - 176 Affinity groups 119 - - 119 932 47 69 1,048 Group business 347 54 - 401 Total continuing operations 1,279 101 69 1,449 Discontinued operations 27 27 Total 1,279 101 96 1,476 Recurring premiums Pro forma year to 31 December 1998 Individual business Life / endowment / other 727 33 51 811 Retirement and other annuities 165 7 - 172 Affinity groups 116 5 - 121 1,008 45 51 1,104 Group business 426 61 - 487 Total continuing operations 106 51 1,591 1,434 Discontinued operations - - 29 29 Total 1,434 106 80 1,620 Old Mutual plc Preliminary results for the year ended 31 December 1999 Notes to the financial information 3. Long term business - new business premiums South Rest of Rest of Total Africa Africa world £m £m £m £m Single premiums - continuing business Year to 31 December 1999 Individual business 738 13 168 919 Group business 912 19 2 933 Total 1,650 32 170 1,852 Single premiums - continuing business Pro forma year to 31 December 1998 Individual business 588 13 167 768 Group business 956 13 - 969 Total 1,544 26 167 1,737 Recurring premiums - continuing business Year to 31 December 1999 Individual business 182 14 15 211 Group business 22 7 - 29 Total 204 21 15 240 Recurring premiums - continuingbusiness Pro forma year to 31 December 1998 Individual business 233 17 14 264 Group business 66 1 - 67 Total 299 18 14 331 Single premiums are those premiums arising on contracts where there is no expectation of future premiums. Additional single premiums are permitted on most contracts of this type and these are also classified as single premiums. Individual recurring premiums are those where there is a contractual obligation to pay on a regular basis. Group business recurring premiums are those received during the financial year in respect of new risk contracts and fund management schemes. Flows into and out of investment products for group business are dependent on the arrangements in place with individual retirement funds and will vary considerably from year to year. Old Mutual plc Preliminary results for the year ended 31 December 1999 Notes to the financial information 4. Life operating profit - continuing operations Year to 31 December 1999 £m Individual business 168 Group business 67 Rest of world 4 Life technical result from 239 continuing operations Long term investment return 187 Total life operating profit from 426 continuing operations 5. Banking operating profit In the year to 31 December 1999, the profit on the sale of NedTravel and 15% of Nedcor Investment Bank (£66 million) has been treated as a non-operating item in the consolidated profit and loss account (see note 12). The increase in general risk provisions of £71 million and property portfolio writedowns of £23 million charged by Nedcor in their financial statements have been grossed up for tax and deducted from operating earnings in this UK GAAP financial information to arrive at a banking pre-tax profit of £210 million. 6. Analysis of general insurance result Premiums Claims written incurred net of net of reinsurance reinsurance £m £m Class of business Year to 31 December 1999 Motor 123 98 Fire 40 70 Accident 86 26 Other 9 5 258 199 Pro forma year to 31 December 1998 Motor 119 96 Fire 33 26 Accident 96 69 Other 5 4 253 195 Old Mutual plc Preliminary results for the year ended 31 December 1999 Notes to the financial information 7. Other shareholder income/expenses Pro forma Year to year to 31 December 31 December 1999 1998 £m £m Investment return based on a long term 21 N/A investment return Other investment income 19 N/A Other income 11 4 Other charges (88) (37) (37) (33) 8. Funds under management At At 31 31 December December 1999 1998 £m £m Investments including assets held to cover 23,997 18,404 linked liabilities Unit trusts Capel-Cure Sharp 1,111 804 Old Mutual Asset Managers 2,686 1,979 Nedcor Investment Bank Asset Managers 1,035 857 4,832 3,640 Third party Capel-Cure Sharp 8,538 8,412 Old Mutual Asset Managers 5,107 2,100 Nedcor Investment Bank Asset Managers 2,395 2,224 16,040 12,736 Total funds under management 44,869 34,780 9. Insurance long term investment return Group operating profit is stated after allocating an investment profit in the insurance businesses based on a long term investment return. The long term investment return is based on achieved real rates of return adjusted for current inflation expectations, and consensus economic and investment forecasts. The return is applied to assets held in the shareholders' funds for life assurance, and general insurance businesses and other appropriate shareholders funds outside of life assurance entities. The difference between actual return and the long term investment return is included in short term fluctuations. The long term investment rate of return used in South Africa is 14%. For other territories, the long term investment return used was consistent with the investment returns experienced in those territories. The directors are of the opinion that these rates of return are prudent and have been selected with a view to ensuring that returns credited to operating earnings are not inconsistent with the actual returns expected to be earned over the long term. Old Mutual plc Preliminary results for the year ended 31 December 1999 Notes to the financial information 10. Analysis of short term fluctuations in investment returns Pro forma Year to year to 31 31 December December 1999 1998 £m £m Technical account - long term business Actual return attributable to shareholders 731 (180) Long term return credited to operating 187 132 results 544 (312) Technical account - general business Actual return attributable to shareholders 230 (86) Long term return credited to operating 56 79 results 174 (165) Non- technical account Actual return attributable to shareholders 81 - Long term return credited to operating 21 - results 60 - Excess/ (deficit) of actual returns over 778 (477) long term return 11. Taxation Pro forma Year to year to 31 31 December December 1999 1998 £m £m United Kingdom (7) (1) Overseas (158) (84) (165) (85) 12. Non-operating items Profit attributable to shareholders for the year ended 31 December 1999 is stated after (charging)/ crediting the following non- recurring items Year to 31 December 1999 £m Profit on sale of NedTravel 20 Profit on flotation of Nedcor Investment 46 Bank Profit on sale of UK Life assurance 15 operations Provisions for cost associated with the withdrawal of the (4) Group from its UK life assurance operation Profit on sale of businesses 77 Cost of the free share selling services offered (23) to policyholders on demutualisation Non-operating items before 54 tax and minorities Taxation - Non-operating items after tax and before minorities 54 Minority interests (35) Non-operating items after tax and minorities 19 Old Mutual plc Preliminary results for the year ended 31 December 1999 Notes to the financial information 13. Earnings and dividend per share The basic earnings per share shown in the profit and loss account is calculated by reference to the earned profit/ (loss) attributable to shareholders of £1,066 million for the year ended 31 December 1999 (1998: loss of £101 million) and a weighted average number of shares in issue of 3,127 million (1998: 2,971 million). In accordance with merger accounting principles, it has been assumed that the number of shares issued as a result of the self-investment transaction and demutualisation in February and May 1999 respectively were in issue throughout the year. The diluted earnings per share calculation reflects the impact of shares in an Employee Share Ownership Trust, which on conversion will have an anticipated dilution effect of 13 million shares. Earnings have been decreased by net short term fluctuations of £667 million and by £19 million to adjust for post tax and minority non-operating items to calculate the earnings per share based on a long term rate of return. The dividend per share of 2p has been calculated using the 3,444 million shares in issue at 31 December 1999. 14. Post balance sheet events In January 2000, the group made an offer to purchase the entire share capital of the Gerrard Group plc for approximately £525 million. The transaction remains subject to regulatory approval which is expected to be received during March 2000. EMBEDDED VALUE REPORT Supplementary embedded value information 1. Embedded value The embedded value of Old Mutual plc as at 31 December 1999 is set out below, together with the corresponding position at 31 December 1998. 31 Dec 31 Dec 1998 1999 £m £m Adjusted net worth 4,608 2,315 Equity shareholders' funds 3,513 1,588 Excess of market value of 1,114 748 listed subsidiaries over their net asset value Adjustment to include UK and (19) (21) offshore life subsidiaries on a statutory solvency basis Value of in-force business 806 771 Value of in-force business 884 849 before cost of solvency capital Cost of solvency capital (78) (78) Embedded value 5,414 3,086 An embedded value is an actuarially determined estimate of the economic value of a life assurance company, excluding any value that may be attributed to future new business. Old Mutual plc's embedded value is the sum of its adjusted net worth and the present value of the projected stream of future after-tax distributable profits from its life assurance business in force at the valuation date, adjusted for the cost of holding solvency capital equal to 100 per cent of the South African Statutory Capital Adequacy Requirement (or equivalent for non-African operations). The adjusted net worth is equal to the consolidated equity shareholders' funds adjusted to reflect the group's listed subsidiaries at market value, and UK and offshore life assurance subsidiaries on a statutory solvency basis. The embedded value does not include a market valuation of the group's asset management subsidiaries (including asset management business written through the life assurance companies), nor of any other in-force non-life business of the group. The basis of taxation of life assurance companies in South Africa changed with effect from 1 January 2000, and this has been fully taken into account in determining the embedded value as at 31 December 1999. No account has been taken of the proposed capital gains tax to be introduced in South Africa with effect from 1 April 2001, as announced by the Minister of Finance in his Budget Speech on 23 February 2000. The assumptions used to calculate the embedded value are set out in section 4. The table below sets out a geographical analysis of the value of in-force business. 31 Dec 31 Dec 1998 1999 £m £m South Africa 687 632 Individual business 448 456 Group business 239 176 Rest of World 119 139 Value of in-force 806 771 business The value of in-force business as at 31 December 1999 excludes the value in respect of Old Mutual Life Assurance Company in the UK, which was sold towards the end of the year. 2. Embedded value profits Embedded value profits represent the change in embedded value over the year, adjusted for any capital raised and dividends proposed. The after-tax embedded value profits for the 12 months to 31 December 1999 are set out below. Year to 31 Dec 1999 £m Embedded value at 31 December 5,414 1999 3,086 Embedded value at 1 January 1999 Increase in embedded value 2,328 Less capital raised 963 Self-investment transaction 404 Capital raised at listing 559 Plus dividends proposed 69 Embedded value profits 1,434 The components of the embedded value profits are set out below: Year to 31 Dec 1999 £m Profits from new business (1999 75 SA tax basis) - Point of sale 69 - Expected return to end of 6 year Profits from existing business 160 - Expected return 13 - Experience variances (52) - Additional pensions mis- selling provisions 99 Investment variances 1,331 Investment return on adjusted net worth (121) Impact of 2000 SA tax change (12) Sale of UK life operation (59) Exchange rate movements Embedded value profits 1,434 The profits from new life assurance business comprise the value of new business written during the year, determined initially at the point of sale and then accumulated to the end of the year by applying the discount rate to the value of new business at the point of sale and adding back the expected cost of solvency capital between the point of sale and the end of the year. The profits from existing life assurance business consist of the expected return on the in-force business and experience variances. The expected return is determined by applying the discount rate to the value of in-force business at the beginning of the year and adding back the expected cost of solvency capital over the year. The experience variances are caused by differences between the actual experience in the year and the assumptions used to calculate the value at the start of the year, as well as changes in assumptions regarding future experience. The investment variances represent the differences between the actual returns in the year and the assumptions used to calculate the value at the start of the year, together with changes in future investment return and discount rate assumptions. The investment return on adjusted net worth represents the actual investment return earned on the adjusted net worth (which includes the return on the market value of the shareholders' investments in Nedcor, Mutual & Federal and Nedcor Investment Bank), as well as the profits arising from other non-life businesses within the group. As mentioned above, the basis of taxation of life assurance companies in South Africa changed with effect from 1 January 2000. The amount shown represents the net effect of the increased tax payable by shareholders as a result of the new tax basis (including the tax payable on transition to the new system) after allowing for the portion thereof to be borne by policyholders. Towards the end of the year, Old Mutual Life Assurance Company in the UK reinsured its annuity portfolio of some £400 million with XL Mid Ocean Reinsurance Ltd and was sold to Century Life plc, arising in a gain in net asset value of £15 million. The embedded value loss on the sale of the company of £12 million shown above includes the gain in net asset value of £15 million. 3. Value of new business The value of new business written in the year is the present value, at the point of sale, of the projected stream of after- tax profits from that business, adjusted for the cost of holding solvency capital. The table below sets out a geographical analysis of the value of new business, based on both the 1999 South African tax basis, and the 2000 South African tax basis. The value shown on the 2000 tax basis reflects the net effect of the increased tax payable by shareholders after allowing for the portion thereof to be borne by new policies. The amounts of new recurring and single premiums written during the year are also shown. 12 months to 31 December 1999 New premiums Value of new business Recur Single 1999 2000 ring SA SA tax tax basis basis £m £m £m £m South Africa 162 1,218 62 54 Individual 141 697 33 25 business 21 521 29 29 Group business 36 172 7 7 Rest of World Total 198 1,390 69* 61* * Net of cost of solvency capital of £7m The value of new group business includes £7.2 million in respect of the proceeds of free shares issued to retirement funds at demutualisation, and re-invested with Old Mutual. The value of new business excludes the value of new group market- linked and unit trust business, the profits on which arise in the asset management subsidiaries. It also excludes premium increases arising from indexation arrangements in respect of existing business, as these are already included in the value of in-force business. The value of new business however includes the value of new Investment Frontiers business that originated from existing policies that matured. A reconciliation of the new business premiums shown above to those shown in note 3 to the financial information is set out below: Recurring Single Premiums Premiums £m £m New business premiums 198 1,390 as per the embedded value report Add: - group market-linked business not valued 1 427 - unit trust business not valued - 137 - new business 41 - premiums arising from premium indexation Less transfer of maturing policies to Investment Frontiers - (96) Less discontinued operations (6) New business premiums 240 1,852 in note 3 to the financial information The assumptions used to calculate the value of new business are set out in section 4. 4. Assumptions The principal assumptions used in the calculation of the value of in-force business and the value of new business are set out below. * The pre-tax investment and economic assumptions used for South African business were as follows: South Africa 31 December 31 December 1999 1998 Fixed Interest 14.0% 16.5% Return Equity & Property 17.0% 19.5% Return Inflation 10.0% 12.5% Risk Discount Rate 18.0% 20.5% For the non-South African operations, appropriate investment and economic assumptions were chosen on bases consistent with those adopted in South Africa. * Rates of future bonuses have been set at levels consistent with the investment return assumptions. * For the in-force business, projected company taxation is based on the new tax basis that applies to SA life assurers, and includes an estimate of STC that may be payable in South Africa. * For the in-force business, assumed future policy charges are based on the policy charges that will apply in 2000 as a result of the new tax basis in South Africa. * The assumed future mortality, morbidity and voluntary discontinuance rates have been based as far as possible on analyses of recent operating experience. Allowance has been made where appropriate for the effect of expected AIDS-related claims. * The management expenses attributable to life assurance business have been split between expenses relating to the acquisition of new business and the maintenance of business in force. Assumed future expenses were based on current levels of expenses. Expense savings arising from Project 500 have been only partially taken into account. Further savings are expected to materialise in 2000, and will be reflected in subsequent valuations. The future expenses attributable to life insurance business do not include group expenses incurred at the holding company level. * Future investment expenses were based on the current scales of fees payable by the life insurance companies to the asset management subsidiaries. To the extent that these fees include profit margins for the asset management subsidiaries, these margins have not been included in the value of in-force business or the value of new business. * The effect of increases in premiums over the period for policies in-force as at 31 December 1998 has been included in the value of in-force business only where such increases are associated with indexation arrangements. Other increases in premiums of existing policies are included in the value of new business. 5. Alternative Assumptions The discount rate appropriate to an investor will depend on the investor's own requirements, tax position and perception of the risks associated with the realisation of the future profits. To illustrate the effect of using different discount rates, the table below shows the embedded value of Old Mutual plc at 31 December 1999 at alternative discount rates. In determining the values at different discount rates, all other assumptions have been left unchanged. The sensitivity of the value of in-force business and value of new business to changes in other assumptions is shown later. Value Value Value at at at Central Central Central Discount Discount Discount Rate Rate Rate +1% -1% £m £m £m Adjusted net 4,608 4,608 4,608 worth Value of in- 930 806 693 force business Value before 932 884 839 cost of capital (2) (78) (146) Cost of solvency capital Embedded value 5,538 5,414 5,301 The table below sets out the value of new life assurance business on the 2000 South African tax basis for the 12 months to 31 December 1999 at alternative discount rates. 12 months to 31 December 1999 Value at Value at Value at Central Central Central Discount Discount Discount Rate Rate Rate +1% -1% £m £m £m Value 73 68 63 before cost of capital Cost of - (7) (13) solvency capital Value of 73 61 50 new business The table below shows the sensitivity of the value of in-force business at 31 December 1999 and the value of new business on the 2000 South African tax basis for the 12 months to 31 December 1999 to changes in key assumptions. All of the sensitivities have been determined at the central discount rates and for each sensitivity illustrated, all other assumptions have been left unchanged. Value of in- Value of new force life business business at for year to 31 Dec 1999 31 Dec 1999 £m £m Central assumptions 806 61 Effect of: * Decreasing the (109) (10) pre-tax investment return assumptions by 1% with bonus rates changing commensurately * Voluntary (35) (9) discontinuance rates increasing by 25% * Maintenance (87) (8) expense levels increasing by 20% with no corresponding increase in policy charges * Increasing the (11) (2) inflation assumption by 1% 6. External review These results have been reviewed by Tillinghast-Towers Perrin who have confirmed to the Directors that the methodology and assumptions used to determine the embedded value are reasonable and that the embedded value profits are reasonable in the context of the operating performance and experience of the insurance business during the 12 months to 31 December 1999.

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