Interim Results 2011 Part 3 (MCEV)

RNS Number : 8041L

Old Mutual PLC

05 August 2011

 



Group Market Consistent Embedded Value statement of earnings

For the six months ended 30 June 2011

			£m
	Notes	6 months ended 30 June 2011	6 months ended 30 June 2010	Year ended 31 December 2010
Long Term Savings
Covered business		436	369	705
Asset management and other business		84	64	127
Banking		8	8	16
		528	441	848
Nedbank
Banking		359	266	601
Mutual & Federal
General insurance		47	33	103
US Asset Management
Asset management		47	40	87
Other operating segments
Finance costs*		(74)	(86)	(183)
Other shareholders' expenses**		(24)	(5)	(57)
Adjusted operating Group MCEV earnings before tax from core operations		883	689	1,399
Adjusted operating Group MCEV earnings before tax from Bermuda non-core operations		11	30	(28)
Adjusted operating Group MCEV earnings before tax from continuing operations***		894	719	1,371
Adjusting items from continuing operations	C3	(98)	(105)	499
Total Group MCEV earnings before tax from continuing operations		796	614	1,870
Income tax attributable to shareholders		(196)	(161)	(410)
Total Group MCEV earnings after tax from continuing operations		600	453	1,460
Total Group MCEV earnings after tax from US Life discontinued operations****	A4	-	(35)	227
Total Group MCEV earnings after tax for the financial period		600	418	1,687
Total Group MCEV earnings for the financial period attributable to:
Equity holders of the parent		457	303	1,429
Non-controlling interests
Ordinary shares		112	84	196
Preferred securities		31	31	62
Total Group MCEV earnings after tax for the financial period		600	418	1,687
Basic total Group MCEV earnings per ordinary share (pence)		9.0	6.0	28.2
Weighted average number of shares - millions		5,098	5,057	5,064

*     This includes interest payable from Old Mutual plc to non-core operations of £13 million for the six months ended 30 June 2011 (six months ended 30 June 2010: £18 million; year ended 31 December 2010: £55 million).

**    Other shareholder expenses in MCEV £(24) million differ from IFRS £(31) million as a result of the allocation of central costs of £(7) million allocated to the covered business and provisioned in the VIF (IFRS: £(11) million at 30 June 2010 and £(71) million at 31 December 2010; allocation of central costs: £(6) million at 30 June 2010 and £(14) million at 31 December 2010).

***  For long-term business and general insurance businesses, adjusted operating Group MCEV earnings are based on long-term and short-term investment returns respectively, include investment returns on life fund investments in Group equity and debt instruments, and are stated net of income tax attributable to policyholder returns. For the US Asset Management business it includes compensation costs in respect of certain long-term incentive schemes defined as non-controlling interests in accordance with IFRS. For all businesses, adjusted operating MCEV earnings exclude goodwill impairment, the impact of acquisition accounting, put revaluations related to long-term incentive schemes, the impact of closure of unclaimed shares trusts, profit/(loss) on disposal of subsidiaries, associated undertakings and strategic investments, dividends declared to holders of perpetual preferred callable securities, and fair value (profits)/losses on certain Group debt movements.

**** This is composed of earnings before tax of £48 million, adjusting items of £180 million and tax of £(1) million for the year ended 31 December 2010 (earnings before tax of £129 million, adjusting items of £(286) million and tax of £122 million for the six months ended 30 June 2010). Further detail relating to adjusting items can be found in section C3.

Adjusted operating Group MCEV earnings per share

For the six months ended 30 June 2011

Six months ended 30 June 2011				£m
	Notes	Core continuing operations	Non-core continuing operations	Discontinued operations	Total
Adjusted operating Group MCEV earnings before tax		883	11	-	894
Tax on adjusted operating Group MCEV earnings	B2	(212)	(2)		(214)
Adjusted operating Group MCEV earnings after tax		671	9	-	680
Non-controlling interests
Ordinary shares		(120)	-	-	(120)
Preferred securities		(31)	-	-	(31)
Adjusted operating MCEV earnings after tax attributable to equity holders		520	9	-	529
Adjusted operating Group MCEV earnings per share*		9.6	0.2	-	9.8
Adjusted weighted average number of shares - millions					5,397

Six  months ended 30 June 2010				£m
	Notes	Core continuing operations	Non-core continuing operations	Discontinued operations	Total
Adjusted operating Group MCEV earnings before tax		689	30	129	848
Tax on adjusted operating Group MCEV earnings	B2	(153)	-	(2)	(155)
Adjusted operating Group MCEV earnings after tax		536	30	127	693
Non-controlling interests
Ordinary shares		(95)	-	-	(95)
Preferred securities		(31)	-	-	(31)
Adjusted operating MCEV earnings after tax attributable to equity holders		410	30	127	567
Adjusted operating Group MCEV earnings per share*		7.7	0.5	2.4	10.6
Adjusted weighted average number of shares - millions					5,343

Year ended 31 December 2010				£m
	Notes	Core continuing operations	Non-core continuing operations	Discontinued operations	Total
Adjusted operating Group MCEV earnings before tax		1,399	(28)	48	1,419
Tax on adjusted operating Group MCEV earnings	B2	(313)	4	(1)	(310)
Adjusted operating Group MCEV earnings after tax		1,086	(24)	47	1,109
Non-controlling interests
Ordinary shares		(217)	-	-	(217)
Preferred securities		(62)	-	-	(62)
Adjusted operating MCEV earnings after tax attributable to equity holders		807	(24)	47	830
Adjusted operating Group MCEV earnings per share*		15.0	(0.4)	0.9	15.5
Adjusted weighted average number of shares - millions					5,359

*     Adjusted operating Group MCEV earnings per share is calculated on the same basis as adjusted operating Group MCEV earnings, but is stated after tax and non-controlling interests. It excludes income attributable to Black Economic Empowerment trusts of listed subsidiaries. The calculation of the adjusted weighted average number of shares includes own shares held in policyholders' funds and Black Economic Empowerment trusts.

Components of Group MCEV and adjusted Group MCEV

For the six months ended 30 June 2011

Components of Group MCEV				£m
	Notes	At 30 June 2011	At 30 June 2010	At 31 December 2010
Adjusted net worth attributable to ordinary equity holders of the parent		5,431	4,845	5,737
Equity		9,031	9,047	8,951
Adjustment to include long-term business on a statutory solvency basis*:
Long Term Savings	C5	(2,167)	(2,147)	(2,053)
Bermuda	C5	(34)	(13)	(29)
US Life	C5	-	(619)	260
Adjustment for market value of life funds' investments in Group equity and debt instruments held in life funds		314	244	306
Adjustment to remove perpetual preferred callable securities and accrued dividends		(688)	(688)	(688)
Adjustment to exclude acquisition goodwill from the covered business:
Long Term Savings	C5	(1,025)	(979)	(1,010)
Value of in-force business		4,850	3,208	4,164
Present value of future profits		5,602	4,269	5,256
Additional time value of financial options and guarantees		(163)	(456)	(433)
Frictional costs		(268)	(235)	(276)
Cost of residual non-hedgeable risks		(321)	(370)	(383)
Group MCEV		10,281	8,053	9,901
Group MCEV value per share (pence)		186.0	148.0	181.5
Return on Group MCEV (ROEV) per annum from core operations		10.7%	10.7%	10.6%
Return on Group MCEV (ROEV) per annum from continuing non-core operations		0.3%	0.5%	(0.3)%
Return on Group MCEV (ROEV) per annum from discontinued operations		0.0%	3.5%	0.6%
Return on Group MCEV (ROEV**) per annum		11.0%	14.7%	10.9%
Number of shares in issue at the end of the financial period less treasury shares - millions		5,529	5,442	5,456

*     The adjustments to include long-term business on a statutory solvency basis reflect the difference between the net worth of each business on the statutory basis (as required by the local regulator) and their portion of the Group's consolidated equity shareholder funds. In South Africa, these values exclude items that are eliminated or shown separately on consolidation (such as Nedbank and inter-company loans). For some European countries the value reflected in the adjustment to include long-term business on a statutory solvency basis includes the value of the deferred acquisition cost asset, which is part of the equity.

**    The ROEV is calculated as the adjusted operating Group MCEV earnings after tax and non-controlling interests of £529 million (six months ended 30 June 2010: £567 million; year ended 31 December 2010: £830 million) divided by the opening Group MCEV. The operating assumption changes of £(4) million (six months ended 30 June 2010: £0 million) and other operating variances of £(30) million (six months ended 30 June 2010: £12 million) are not annualised.

Components of Group MCEV and adjusted Group MCEV

For the six months ended 30 June 2011

Components of adjusted Group MCEV	£m
	Notes	At 30 June 2011	At 30 June 2010	At 31 December 2010
Group MCEV		10,281	8,053	9,901
Pro forma adjustments to bring Group investments to market value
Adjustment to bring listed subsidiary (Nedbank) to market value		969	495	715
Adjustment for value of own shares in ESOP schemes*		113	73	85
Adjustment for present value of Black Economic Empowerment scheme deferred consideration**		299	241	266
Adjustment to bring external debt to market value		(57)	206	63
Adjusted Group MCEV	B1	11,605	9,068	11,030
Adjusted Group MCEV per share (pence)		209.9	166.6	202.2
Number of shares in issue at the end of the financial period less treasury shares - millions		5,529	5,442	5,456

*     Includes adjustment for value of excess own shares in employee share scheme trusts. The movement in value between 31 December 2010 and 30 June 2011 is the net effect of the increase in the Old Mutual plc share price, the reduction in excess own shares following employee share grants in March 2011 and the reduction in overall shares held due to exercises of rights to take delivery of, or net settle, share grants during the financial period. The affect of the acquisition of the minority interest in Mutual & Federal during 2010 has been included in this adjustment for the first time at 30 June 2011.

**    The affect of the acquisition of the minority interest in Mutual & Federal during 2010 has been included in this adjustment for the first time at 30 June 2011.

Reconciliation of movements in Group MCEV (after tax)								£m
		6 months ended 30 June 2011			6 months ended 30 June 2010
	Notes	Covered business MCEV	Non-covered business IFRS	Total Group MCEV	Covered business MCEV	Non-covered business IFRS	Total Group MCEV
Opening Group MCEV		7,515	2,386	9,901	6,027	1,602	7,629
Adjusted operating MCEV earnings		354	175	529	452	115	567
Non-operating MCEV earnings		(27)	(44)	(71)	(164)	(101)	(265)
Total Group MCEV earnings		327	131	458	288	14	302
Other movements in IFRS net equity	C4	37	(115)	(78)	(141)	263	122
Closing Group MCEV		7,879	2,402	10,281	6,174	1,879	8,053

		£m
		Year ended 31 December 2010
	Notes	Covered business MCEV	Non-covered business IFRS	Total Group MCEV
Opening Group MCEV		6,027	1,602	7,629
Adjusted operating MCEV earnings		590	240	830
Non-operating MCEV earnings		786	(187)	599
Total Group MCEV earnings		1,376	53	1,429
Other movements in IFRS net equity	C4	112	731	843
Closing Group MCEV		7,515	2,386	9,901

Notes to the MCEV basis supplementary information

For the six months ended 30 June 2011

A MCEV policies

A1 Basis of preparation

The Market Consistent Embedded Value methodology (referred to herein and in the supplementary statements on pages 84 to 125 as 'MCEV') adopts the Market Consistent Embedded Value Principles (Copyright © Stichting CFO Forum Foundation 2008) issued in June 2008 and updated in October 2009 by the CFO Forum ('the Principles') as the basis for the methodology used in preparing the supplementary information.

The CFO Forum announced changes to the MCEV Principles in October 2009 to reflect inter alia the inclusion of a liquidity premium. These changes affirm that the risk free reference rate to be applied under MCEV should include both the swap yield curve appropriate to the currency of the cash flows and a liquidity premium where appropriate. The CFO Forum is undertaking further work to develop more detailed application guidance.

The Principles have been fully complied with for all businesses as at 30 June 2011. Any changes in the methodology and assumptions made in presenting this supplementary information compared to those disclosed in the annual report and accounts 2010 are set out in notes A2 and A3.

Throughout the supplementary information the following terminology is used to distinguish between the terms 'MCEV', 'Group MCEV' and 'adjusted Group MCEV':

·     MCEV is a measure of the consolidated value of shareholders' interests in the covered business and consists of the sum of the shareholders' adjusted net worth in respect of the covered business and the value of the in-force covered business.

·     Group MCEV is a measure of the consolidated value of shareholders' interests in covered and non-covered business. Non-covered business is valued at the IFRS net asset value detailed in the primary financial statements adjusted to eliminate inter-company loans.

·     The adjusted Group MCEV, a measure used by management to assess the shareholders' interest in the value of the Group, includes the impact of marking all debt to market value, the market value of the Group's listed banking subsidiary, marking the value of deferred consideration due in respect of Black Economic Empowerment arrangements in South Africa ('the BEE schemes') to market, as well as including the market value of excess own shares held in ESOP schemes and the US Life sale proceeds.

A2 Methodology

Required capital

Required capital is the market value of assets that is attributed to support the covered business, over and above that required to back statutory liabilities for covered business, whose distribution to shareholders is restricted. The following capital measures are considered in determining the required capital held for covered business so that it reflects the level of capital considered by the directors to be appropriate to manage the business:

·     Economic capital;

·     Regulatory capital (ie the level of solvency capital which the local regulators require);

·     Capital required by rating agencies in order to maintain the desired credit rating; and

·     Any other required capital definition to meet internal management objectives.

Economic capital for the covered business is based upon Old Mutual's own internal assessment of risks inherent in the underlying business. It measures capital requirements on an economic statement of financial position, with MCEV as the available capital, consistent with a 99.93% confidence level over a one-year time horizon.

The table below shows the level of required capital expressed as a percentage of the minimum local regulatory capital requirements.

	£m
	At 30 June 2011			At 30 June 2010			At 31 December 2010
	Required capital (a)	Regulatory capital (b)	Ratio (a/b)	Required capital (a)	Regulatory capital (b)	Ratio (a/b)	Required capital (a)	Regulatory capital (b)	Ratio (a/b)
Emerging Markets	1,456	1,118	1.3	1,318	1,011	1.3	1,498	1,153	1.3
Nordic	141	140	1.0	109	95	1.1	135	135	1.0
Retail Europe*	65	88	0.7	38	52	0.7	62	85	0.7
Wealth Management**	271	164	1.7	246	142	1.7	278	162	1.7
US Life	n/a	n/a	n/a	491	204	2.4	468	196	2.4
Bermuda***	407	-	n/a	341	-	n/a	403	-	n/a
Total	2,340	1,510	1.5	2,543	1,504	1.7	2,844	1,731	1.6

*     Local regulators within many of the Retail Europe countries allow intangible assets to be included as admissible regulatory capital. In such cases the required capital reported for MCEV is net of these items, although each of the countries continues to be sufficiently capitalised on the local solvency basis. Skandia Leben in Germany is permitted under local regulations to include the unallocated policyholder profit sharing liability as admissible capital.

**    The required capital for Wealth Management has been restated at 30 June 2010 to reflect a modelling refinement.

***  The Bermudan regulator allows intangible assets to be included as admissible regulatory capital.

Notes to the MCEV basis supplementary information

For the six months ended 30 June 2011

Cost of residual non-hedgeable risks

The cost of residual non-hedgeable risks ('CNHR') is calculated using a cost of capital approach, ie it is determined as the present value of capital charges for all future non-hedgeable risk capital requirements until the liabilities have run off. The capital charge in each year is the product of the projected expected non-hedgeable risk capital held after allowance for some diversification benefits and the cost of capital charge.

The table below shows the amounts of diversified economic capital held in respect of residual non-hedgeable risks.

Capital held in respect of non-hedgeable risks	£m
	At 30 June 2011	At 30 June 2010	At 31 December 2010
Emerging Markets	765	643	751
Nordic	325	315	362
Retail Europe	174	128	115
Wealth Management	654	553	622
US Life	n/a	703	678
Bermuda	331	285	274
Total	2,249	2,627	2,802

A weighted average cost of capital rate of 2.0% has been applied to residual symmetric and asymmetric non-hedgeable capital at a business unit level over the life of the contracts. This translates into an equivalent cost of capital rate of approximately 2.6% being applied to the Group diversified capital required in respect of such non-hedgeable risks.

Taxation

There was previously uncertainty around both the basis and effective date for possible taxation of fee income earned from fund managers by Swedish insurance companies and the expenses that can be relieved against such income. On 10 June 2011 the Supreme Administrative Court in Sweden delivered the final verdict stating that fund rebates are not taxable for corporate income tax purposes. We will therefore continue to treat fee income from our Swedish unit-linked business as being exempt from corporation tax within our MCEV.

The Emergency Budget of 22 June 2010 announced a reduction in the UK corporation tax rate by 1% per year for four years from the financial year beginning April 2011, ultimately bringing the corporation tax rate down to 24%. The first reduction to 27% was included within the 31 December 2010 MCEV results. The Budget of 23 March 2011 announced an additional 1% reduction to be enacted during 2011, bringing the ultimate tax rate down to 23%. The 30 June 2011 MCEV results therefore reflect this 1% reduction and have been calculated using an ongoing UK corporation tax rate of 26%. The estimated positive impact on the VIF in respect of Wealth Management at 30 June 2011, assuming that all the annual reductions in the tax rate will be enacted, is £24 million, of which the impact of the remaining reduction from 26% down to 23% is estimated to be an MCEV profit of £14m. However, only £6 million is allowed for at 30 June 2011 as an assumption change relating to the tax rate reduction from 27% to 26% (£4 million was allowed for at 31 December 2010 as an assumption change relating to the first tax reduction to 27%). Further allowance will be made once future annual reductions are enacted.

A new dividend withholding tax system (replacing the current Secondary Tax on Companies (STC) system) will be introduced in South Africa effective from 1 April 2012. For 30 June 2011, we continued to use the current STC basis within the MCEV. The current view is that no allowance will be made in future for the impact of the new withholding tax in the MCEV, as the actual level of taxation will depend on the legal nature of each shareholder. It is estimated that the Emerging Markets MCEV will increase by approximately R1.5 billion (£138 million) while the value of new business for the six months to June 2011 will increase by approximately R40 million (£4 million). The impact on the Group MCEV is still to be determined, as withholding tax may reduce this benefit at Group level.

Notes to the MCEV basis supplementary information

For the six months ended 30 June 2011 continued

A3 Assumptions

Non-economic assumptions

The management expenses attributable to life assurance business have been allocated to expenses relating to the acquisition of new business, maintenance of in-force business (including investment management expenses) and development projects.

Unallocated Group holding company expenses have been included to the extent that they relate to the covered business. The table below shows the future expenses attributable to the long-term business. The allocation of these expenses aligns to the proportion that the management expenses incurred by the covered businesses to the total management expenses incurred in the Group.

Group holding Company expenses attributable to long-term business	%
	At 30 June 2011	At 30 June 2010	At 31 December 2010
Emerging Markets	17	16	17
Nordic	4	4	4
Retail Europe	3	2	3
Wealth Management	5	8	6
US Life	-	-	2
Total	29	30	32

Economic assumptions

Risk free reference rates and inflation

At 30 June 2011, no adjustments are made to swap yields to allow for liquidity premiums or credit risk premiums, apart from a liquidity premium adjustment to OMLAC(SA)'s Immediate Annuity business and Fixed Bond business. A liquidity premium adjustment has been applied to OMLAC(SA)'s Fixed Bond business at 30 June 2011 because OMLAC(SA) holds a portfolio of non-government bonds which have a market yield in excess of the risk free rate and the duration of the asset portfolio and the liability duration are a good match (meaning the asset portfolio is held to maturity). Cash flows on this product are also predictable and the company has adequate liquidity to withstand a substantial increase in lapses at all durations without having to sell bonds which further strengthens the case for applying a liquidity premium.

It is the directors' view that a proportion of non-government bond spreads at 30 June 2011 is attributable to a liquidity premium rather than only to credit and default allowances and that returns in excess of swap rates can be achieved, rather than entire spreads being lost to worsening default experience. For OMLAC(SA)'s Immediate Annuity business the currency, credit quality and duration of the actual bond portfolios were considered and adjusted risk free reference rates were derived at 30 June 2011 by adding 55bps of liquidity premium for this business (30 June 2010: 50bps; 31 December 2010: 45bps) to the swap rates used for setting investment return and discounting assumptions. For OMLAC(SA)'s Fixed Bond products 60 bps of liquidity premium was added to the swap rates. These adjustments reflect the liquidity premium component in non-government bond spreads over swap rates that is expected to be earned on the portfolios. In deriving the liquidity premia at 30 June 2011, we have reviewed emerging Solvency II matching premium guidance and a comparison of the yields of similar durations on South African government bonds and bonds issues by state-owned enterprises. At those durations where swap yields are not available, e.g. due to lack of a sufficiently liquid or deep swap market, the swap curve is extended using appropriate interpolation or extrapolation techniques.

The risk free reference spot yields (excluding any applicable liquidity adjustments) and expense inflation rates at various terms for each of the significant regions are provided in the table below. The risk free reference spot yield curve has been derived from mid swap rates at the reporting date.

 

 

Risk free reference spot yields (excluding any applicable liquidity adjustments)						%
	GBP*	EUR	USD*		ZAR	SEK
At 30 June 2011
1 year	0.9	2.0	0.4		6.2	2.8
5 years	2.4	2.8	2.1		8.0	3.3
10 years	3.5	3.4	3.5		8.6	3.6
20 years	4.0	3.9	4.3		8.2	3.8
At 30 June 2010
1 year	0.9	1.2	0.7		6.7	1.3
5 years	2.3	2.1	2.1		8.0	2.3
10 years	3.3	2.9	3.2		8.6	3.1
20 years	3.8	3.4	3.9		8.2	3.6
At 31 December 2010
1 year	0.9	1.3	0.4		5.6	2.3
5 years	2.7	2.5	2.2		7.4	3.3
10 years	3.6	3.3	3.5		8.2	3.7
20 years	4.0	3.7	4.3		8.1	4.0

*     For prior reporting periods, the risk free spot yields disclosed for GBP were on a 1-year forward basis, and the risk free spot yields disclosed for USD were on a semi-annual par basis. The assumptions at 30 June 2011, as well as the comparatives for prior periods, are now shown as annualised spot yields, consistent with other regions.

Expense inflation					%
	GBP	EUR	USD	ZAR	SEK
At 30 June 2011
1 year	3.0	2.5	3.0	5.7	2.3
5 years	3.9	2.5	3.0	7.0	2.9
10 years	4.3	2.5	3.0	7.5	3.2
20 years	4.8	2.5	3.0	7.1	3.1
At 30 June 2010
1 year	3.3	2.5	3.0	6.2	1.5
5 years	3.5	2.5	3.0	6.3	2.3
10 years	4.0	2.5	3.0	6.7	2.6
20 years	4.5	2.5	3.0	6.4	2.9
At 31 December 2010
1 year	3.0	2.5	3.0	5.0	2.2
5 years	4.3	2.5	3.0	6.4	3.0
10 years	5.3	2.5	3.0	7.2	3.2
20 years	5.1	2.5	3.0	7.0	3.3

Notes to the MCEV basis supplementary information

For the six months ended 30 June 2011 continued

Volatilities

The at-the-money annualised asset volatility assumptions of the asset classes incorporated in the stochastic models are detailed below.

ZAR volatilities*						%
Option term	1 year swap	5 year swap	10 year swap	20 year swap	Equity (total return index)	Property (total return index)
At 30 June 2011
1 year	18.3	16.8	15.9	15.5	23.0	16.0
5 years	16.7	16.0	15.6	15.2	26.0	16.0
10 years	16.2	15.8	15.4	14.7	27.4	16.0
20 years	14.5	14.1	13.5	12.5	28.3	15.6
At 30 June 2010
1 year	15.6	13.9	12.9	12.4	28.4	16.9
5 years	14.5	13.7	13.2	12.8	26.3	14.8
10 years	13.6	13.2	12.8	12.3	26.6	14.3
20 years	12.8	12.2	11.7	10.9	26.9	14.2
At 31 December 2010
1 year	18.7	16.9	15.8	15.1	23.4	16.0
5 years	16.4	15.5	14.9	14.4	25.5	15.7
10 years	15.6	15.0	14.5	13.9	27.0	15.9
20 years	13.8	13.3	12.8	11.9	27.8	15.4

*     Due to limited liquidity in the ZAR swaption and equity option market, the market consistent asset model has been calibrated by extrapolating swaption and equity option implied volatility data beyond terms of 2 years and 3 years respectively.

USD volatilities*				%
Option term	1 year swap	5 year swap	10 year swap	20 year swap
At 30 June 2011
1 year	72.3	43.3	33.8	26.4
5 years	25.0	23.4	21.4	18.0
10 years	20.1	20.3	18.7	15.5
20 years	17.2	17.8	16.1	14.1
At 30 June 2010
1 year	37.5	34.6	32.3	29.0
5 years	28.5	27.3	25.7	23.4
10 years	22.4	21.3	20.2	18.5
20 years	18.8	17.8	16.8	15.3
At 31 December 2010
1 year	37.8	34.3	31.2	27.7
5 years	26.2	24.7	23.0	20.9
10 years	20.0	18.8	17.7	16.1
20 years	16.8	15.7	14.7	13.1

*     In prior reporting periods USD volatilities were based on market quoted information. The assumptions at 30 June 2011, as well as the comparatives for prior periods, are now shown as modelled volatilities, consistent with the disclosure of interest rate volatilities in South Africa.

 

International equity volatilities (applicable to Old Mutual Bermuda)*										%
Option term	SPX	RTY	EWZ	TPX	HSCEI	TWY	KOSP12	NIFTY	SX5E	UKX
At 30 June 2011
1 year	20.8	n/a	27.6	25.8	24.8	20.3	21.4	21.1	23.01	20.6
5 years	23.4	n/a	28.0	26.7	27.2	23.2	22.7	25.1	23.7	23.2
10 years	23.4	n/a	28.0	26.7	27.2	23.2	22.7	25.1	23.7	23.2
At 30 June 2010
1 year	29.0	37.2	n/a	29.1	31.0	24.3	23.1	21.9	29.7	27.3
5 years	28.0	39.0	n/a	29.3	31.8	27.3	23.7	23.5	27.9	26.9
10 years	28.0	39.0	n/a	29.3	31.8	27.3	23.7	23.5	27.9	26.9
At 31 December 2010
1 year	21.5	28.1	n/a	26.7	27.8	21.5	21.4	22.0	24.3	21.5
5 years	23.6	32.6	n/a	28.3	32.3	25.5	24.0	26.6	25.2	24.2
10 years	23.6	32.6	n/a	28.3	32.3	25.5	24.0	26.6	25.2	24.2

International equity volatilities (applicable to Old Mutual Bermuda)*				%
Option term	EEM	USAgg	EUAgg	APAgg
At 30 June 2011
1 year	26.4	5.4	12.9	12.5
5 years	28.0	5.4	12.9	12.5
10 years	28.0	5.4	12.9	12.5
At 30 June 2010
1 year	35.2	5.5	13.0	12.6
5 years	32.4	5.5	13.0	12.6
10 years	32.4	5.5	13.0	12.6
At 31 December 2010
1 year	27.4	5.5	13.0	12.6
5 years	27.7	5.5	13.0	12.6
10 years	27.7	5.5	13.0	12.6

*     Long-term option implied volatility has been calibrated assuming a flat volatility term structure beyond 5 years due to limited data availability for some indices. The assumptions at 30 June 2011, as well as the comparatives for prior periods, are shown as the annualised volatilities applicable over the entire option term specified, consistent with the disclosure of volatilities for other regions. These volatilities, as represented by their Bloomberg codes, refer to the price indices. Due to ongoing enhancements in the fund mapping process, the indices referenced may vary from period to period. In the first half of 2011, a decision was made to remove the Russell 2000 Index (RTY) and add the MSCI Brazil Index (EWZ) which provides exposure to Latin America.

Notes to the MCEV basis supplementary information

For the six months ended 30 June 2011 continued

Expected asset returns in excess of the risk free reference rates

Equity and property risk premiums incorporate both historical relationships and the directors' view of future projected returns in each region over the analysis period. Pre-tax real-world economic assumptions are determined as follows:

·     The equity risk premium is 3.5% for Africa and 3% for Europe .

·     The cash return equals the one year risk free reference rate for all regions.

·     The corporate bond return is based on actual corporate bond spreads on the reporting date less an allowance for defaults.

·     The property risk premium is 1.5% in Africa and 2% in Europe.

Tax

The weighted average effective tax rates that apply to the cash flow projections at 30 June 2011 are set out below:

·     OMLAC(SA) - 33% (30 June 2010: 34%; 31 December 2010: 33%)

·     Namibia - 0% (30 June 2010: 0%; 31 December 2010: 0%)

·     Nordic - 4% (30 June 2010: 0%; 31 December 2010: 4%)

·     Retail Europe - 27% (30 June 2010: 27%; 31 December 2010: 27%)

·     Wealth Management* - 11% (30 June 2010: 11%; 31 December 2010: 11%)

·     Bermuda - 0% (30 June 2010: 0%; 31 December 2010: 0%)

*     The weighted average effective tax rate for Wealth Management at 30 June 2010 has been restated from 13% to 11% to reflect a calculation correction.

A4 Disposal of US Life

On 6 August 2010, the Company announced that it had entered into an agreement to sell the assets and liabilities of its US Life insurance business to Harbinger Capital Partners for the sum of £215 million ($350 million) subject to regulatory approval. The sale was completed, following regulatory approval, on 7 April 2011. This transaction has resulted in an uplift of £451 million to the adjusted Group MCEV, as analysed below.

Adjusted Group MCEV uplift from sale of US Life	£m
Headline purchase price	215
Advisor fees and costs	(17)
US Life sale proceeds	198
Retention of OM Re	71
Total proceeds from US Life disposal*	269
Removal of US Life MCEV**	182
Adjusted Group MCEV uplift	451

*     The total proceeds from the sale of US Life are included within the adjusted net worth attributable to the ordinary equity holders of the parent

**    The MCEV results for US Life include allowance for Old Mutual Reassurance (Ireland) Limited (OM Re)

The total earnings over the period are equal to the MCEV uplift, however we have not attributed these earnings to specific line items in the analysis of MCEV earnings.

 

 

B Segment information

B1 Adjusted Group MCEV presented per business line

			£m
	At 30 June 2011	At 30 June 2010	At 31 December 2010
MCEV of the core covered business	7,579	6,393	7,417
Adjusted net worth*	2,622	2,031	2,414
Value of in-force business	4,957	4,362	5,003
MCEV of the Bermuda non-core covered business	300	168	287
Adjusted net worth	407	341	403
Value of in-force business	(107)	(173)	(116)
MCEV of the US Life discontinued covered business	-	(387)	(189)
Adjusted net worth	-	594	534
Value of in-force business	-	(981)	(723)
Adjusted net worth of asset management and other businesses	1,983	1,968	1,950
Emerging Markets	333	250	289
Nordic**	(36)	32	4
Retail Europe	15	13	14
Wealth Management	178	157	171
US Asset Management	1,493	1,516	1,472
Value of the banking business	3,831	2,998	3,603
Nordic (adjusted net worth)	347	292	328
Nedbank (market value)	3,484	2,706	3,275
Value of the general insurance business
Mutual & Federal	322	321	409
Net other business	373	(88)	31
Adjustment for present value of Black Economic Empowerment scheme deferred consideration	299	241	266
Adjustment for value of own shares in ESOP schemes***	113	73	85
Perpetual preferred securities (US$ denominated)	(464)	(435)	(449)
Perpetual preferred callable securities	(690)	(487)	(598)
GBP denominated	(299)	(236)	(270)
Euro denominated	(391)	(251)	(328)
Debt	(2,041)	(1,697)	(1,782)
Rand denominated	(277)	(309)	(304)
USD denominated	(376)	(323)	(337)
GBP denominated	(886)	(790)	(842)
SEK denominated	(500)	(273)	(297)
Euro denominated	(2)	(2)	(2)
Adjusted Group MCEV	11,605	9,068	11,030

*     Adjusted net worth is after the elimination of inter-company loans.

**    Includes the adjusted net worth of Nordic holding companies that are classified as non-covered business, net of the holding companies' investment in Group subsidiaries.

***  Includes adjustment for value of excess own shares in employee share scheme trusts. The movement in value between 31 December 2010 and 30 June 2011 is the net effect of the decrease in the Old Mutual plc share price, the reduction in excess own shares following employee share grants in March 2010 and the reduction in overall shares held due to exercises of rights to take delivery of, or net settle, share grants during the financial period. The affect of the acquisition of the minority interest in Mutual & Federal during 2010 has been included in this adjustment for the first time at 30 June 2011.

Notes to the MCEV basis supplementary information

For the six months ended 30 June 2011 continued

B2 Adjusted operating MCEV earnings for the covered business

			£m
	6 months ended 30 June 2011	6 months ended 30 June 2010	Year ended 31 December 2010
Adjusted operating MCEV earnings before tax for the covered business
Long Term Savings	436	369	705
Emerging Markets	241	182	443
Nordic	78	79	65
Retail Europe	-	31	68
Wealth Management	117	77	129
US Life	-	129	48
Bermuda	11	30	(28)
	447	528	725
Tax on adjusted operating MCEV earnings for the covered business
Long Term Savings	(91)	(74)	(138)
Emerging Markets	(53)	(38)	(99)
Nordic	(15)	(16)	(20)
Retail Europe	(6)	(7)	(2)
Wealth Management	(17)	(13)	(17)
US Life	-	(2)	(1)
Bermuda	(2)	-	4
	(93)	(76)	(135)
Adjusted operating MCEV earnings after tax for the covered business
Long Term Savings	345	295	567
Emerging Markets	188	144	344
Nordic	63	63	45
Retail Europe	(6)	24	66
Wealth Management	100	64	112
US Life	-	127	47
Bermuda	9	30	(24)
	354	452	590
Tax on adjusted operating MCEV earnings comprises
Tax on adjusted operating MCEV earnings for the covered business	(93)	(76)	(135)
Tax on adjusted operating MCEV earnings for other business	(121)	(79)	(175)
Tax on adjusted operating MCEV earnings	(214)	(155)	(310)

 

 

B3 Components of MCEV of the covered business

		£m
	At 30 June 2011	At 30 June 2010	At 31 December 2010
MCEV of the covered business	7,879	6,174	7,515
Adjusted net worth	3,029	2,966	3,351
Value of in-force business	4,850	3,208	4,164
Long Term Savings
Adjusted net worth	2,622	2,031	2,414
Free surplus	689	351	441
Required capital	1,933	1,680	1,973
Value of in-force business	4,957	4,362	5,003
Present value of future profits	5,523	4,840	5,557
Additional time value of financial options and guarantees	(8)	(11)	(12)
Frictional costs	(266)	(223)	(267)
Cost of residual non-hedgeable risks	(292)	(244)	(275)
Consisting of:
Emerging Markets
Adjusted net worth*	1,926	1,415	1,804
Free surplus	470	97	306
Required capital	1,456	1,318	1,498
Value of in-force business	1,440	1,231	1,509
Present value of future profits	1,778	1,525	1,849
Additional time value of financial options and guarantees	-	-	-
Frictional costs	(238)	(204)	(240)
Cost of residual non-hedgeable risks	(100)	(90)	(100)
Nordic
Adjusted net worth	200	143	186
Free surplus	59	34	51
Required capital	141	109	135
Value of in-force business	1,301	1,154	1,318
Present value of future profits	1,377	1,210	1,397
Additional time value of financial options and guarantees	-	-	-
Frictional costs	(6)	(5)	(6)
Cost of residual non-hedgeable risks	(70)	(51)	(73)
Retail Europe
Adjusted net worth	119	84	103
Free surplus	54	46	41
Required capital	65	38	62
Value of in-force business	530	451	520
Present value of future profits	595	504	573
Additional time value of financial options and guarantees	(6)	(10)	(10)
Frictional costs	(12)	(6)	(11)
Cost of residual non-hedgeable risks	(47)	(37)	(32)

Notes to the MCEV basis supplementary information

For the six months ended 30 June 2011 continued

B3 Components of MCEV of the covered business continued

		£m
	At 30 June 2011	At 30 June 2010	At 31 December 2010
Wealth Management
Adjusted net worth	377	389	321
Free surplus	106	174	43
Required capital	271	215	278
Value of in-force business	1,686	1,526	1,656
Present value of future profits	1,773	1,601	1,738
Additional time value of financial options and guarantees	(2)	(1)	(2)
Frictional costs	(10)	(8)	(10)
Cost of residual non-hedgeable risks	(75)	(66)	(70)
US Life (Discontinued and non-core)
Adjusted net worth	-	594	534
Free surplus	-	103	66
Required capital	-	491	468
Value of in-force business	-	(981)	(723)
Present value of future profits	-	(648)	(446)
Additional time value of financial options and guarantees	-	(228)	(186)
Frictional costs	-	(9)	(7)
Cost of residual non-hedgeable risks	-	(96)	(84)
Bermuda (Non-core)
Adjusted net worth	407	341	403
Free surplus	-	-	-
Required capital	407	341	403
Value of in-force business	(107)	(173)	(116)
Present value of future profits	79	77	145
Additional time value of financial options and guarantees	(155)	(217)	(235)
Frictional costs	(2)	(3)	(2)
Cost of residual non-hedgeable risks	(29)	(30)	(24)

*     The required capital in respect of OMSA is partially covered by the market value of the Group's investments in banking and general insurance in South Africa. On consolidation these investments are shown separately.

 

 

B4 Analysis of covered business MCEV earnings (after tax) continued

£m
Long Term Savings (LTS)	6 months ended 30 June 2011
	Free surplus	Required capital	Adjusted net worth	Value of in-force	MCEV
Opening MCEV	441	1,973	2,414	5,003	7,417
New business value	(231)	82	(149)	257	108
Expected existing business contribution (reference rate)	7	35	42	89	131
Expected existing business contribution (in excess of reference rate)	3	6	9	36	45
Transfers from VIF and required capital to free surplus	462	(91)	371	(371)	-
Experience variances	18	13	31	57	88
Assumption changes	1	-	1	(3)	(2)
Other operating variance	11	(8)	3	(28)	(25)
Operating MCEV earnings	271	37	308	37	345
Economic variances	42	(8)	34	(81)	(47)
Other non-operating variance	-	-	-	6	6
Total MCEV earnings	313	29	342	(38)	304
Closing adjustments	(65)	(69)	(134)	(8)	(142)
Capital and dividend flows	(56)	-	(56)	-	(56)
Foreign exchange variance	(9)	(69)	(78)	(8)	(86)
Closing MCEV	689	1,933	2,622	4,957	7,579
Return on MCEV (ROEV) % per annum					9.7%

Return on MCEV is calculated as the operating MCEV earnings after tax divided by opening MCEV in sterling. The operating assumption changes and other operating variances are not annualised.

	£m
Long Term Savings (LTS)*	Year ended 31 December 2011
	Free surplus	Required capital	Adjusted net worth	Value of  in-force	MCEV
Expected existing business contribution (reference rate)	16	65	81	173	254
Expected existing business contribution (in excess of reference rate)	8	11	19	72	91

*     The expected return for the year ended 31 December 2011 has been restated to reflect the change in the expected real world cash return to equal the risk free rate over the analysis period (as opposed to the risk free reference rate less a deduction).

Notes to the MCEV basis supplementary information

For the six months ended 30 June 2011 continued

 

£m
6 months ended 30 June 2010					Year ended 31 December 2010
Free surplus	Required capital	Adjusted net worth	Value of in-force	MCEV	Free surplus	Required capital	Adjusted net worth	Value of in-force	MCEV
380	1,574	1,954	4,193	6,147	380	1,574	1,954	4,193	6,147
(227)	76	(151)	247	96	(419)	160	(259)	459	200
8	38	46	83	129	8	77	85	168	253
-	(2)	(2)	29	27	7	(3)	4	59	63
435	(106)	329	(329)	-	802	(184)	618	(618)	-
(18)	31	13	23	36	(16)	28	12	43	55
-	2	2	(6)	(4)	23	2	25	(25)	-
(43)	5	(38)	49	11	(93)	37	(56)	52	(4)
155	44	199	96	295	312	117	429	138	567
(20)	20	-	73	73	100	41	141	342	483
(1)	-	(1)	1	-	(7)	25	18	-	18
134	64	198	170	368	405	183	588	480	1,068
(163)	42	(121)	(1)	(122)	(344)	216	(128)	330	202
(157)	(6)	(163)	(1)	(164)	(383)	-	(383)	-	(383)
(6)	48	42	-	42	39	216	255	330	585
351	1,680	2,031	4,362	6,393	441	1,973	2,414	5,003	7,417
				9.5%					9.2%

 

 

B4 Analysis of covered business MCEV earnings (after tax) continued

£m
Emerging Markets*	6 months ended 30 June 2011
	Free surplus	Required capital	Adjusted net worth	Value of in-force	MCEV
Opening MCEV	306	1,498	1,804	1,509	3,313
New business value	(93)	66	(27)	65	38
Expected existing business contribution (reference rate)	6	31	37	54	91
Expected existing business contribution (in excess of reference rate)	1	6	7	9	16
Transfers from VIF and required capital to free surplus	193	(75)	118	(118)	-
Experience variances	35	6	41	33	74
Assumption changes	-	-	-	-	-
Other operating variance	(21)	(2)	(23)	(8)	(31)
Operating MCEV earnings	121	32	153	35	188
Economic variances	29	4	33	(25)	8
Other non-operating variance	4	-	4	-	4
Total MCEV earnings	154	36	190	10	200
Closing adjustments	10	(78)	(68)	(79)	(147)
Capital and dividend flows	25	-	25	-	25
Foreign exchange variance	(15)	(78)	(93)	(79)	(172)
Closing MCEV	470	1,456	1,926	1,440	3,366
Return on MCEV (ROEV) % per annum					13.3%

*     The MCEV for Emerging Markets is presented after the adjustment for market value of life fund investments in Group equity and debt instruments.

	£m
Emerging Markets**	Year ended 31 December 2011
	Free surplus	Required capital	Adjusted net worth	Value of  in-force	MCEV
Expected existing business contribution (reference rate)	12	60	72	106	178
Expected existing business contribution (in excess of reference rate)	2	11	13	18	31

**    The expected return for the year ended 31 December 2011 has been restated to reflect the change in the expected real world cash return to equal the risk free rate over the analysis period (as opposed to the risk free reference rate less a 2% deduction).

The positive experience variances are attributable to favourable mortality, expense and persistency experience. These are at unusually high levels and are therefore not expected to continue at the same rate and may even reduce.

The negative other operating variance mainly consists of a management decision to strengthen the investment guarantee reserve to allow for dynamic policyholder behaviour in the Corporate Segment.

The small positive impact of economic assumption changes is made up of a number of largely offsetting items. The positive adjusted net worth amount is due to favourable investment variances on immediate annuity portfolios and a higher than assumed after tax investment return on shareholder funds. The negative amount within value of in-force is mainly due to lower than assumed investment returns earned on policyholder funds (due predominantly to flat equity markets) and to the impact of a small increase in swap yields for terms up to 20 years.

The capital and dividend flows mainly consist of dividends paid more than offset by inter-company dividends received.

Return on MCEV is the operating MCEV earnings after tax divided by opening MCEV in rand (including conversion of results for Mexico to rand). The operating assumption changes and other operating variances are not annualised.

Notes to the MCEV basis supplementary information

For the six months ended 30 June 2011 continued

 

£m
6 months ended 30 June 2010					Year ended 31 December 2010
Free surplus	Required capital	Adjusted net worth	Value of in-force	MCEV	Free surplus	Required capital	Adjusted net worth	Value of in-force	MCEV
80	1,225	1,305	1,158	2,463	80	1,225	1,305	1,158	2,463
(74)	59	(15)	53	38	(159)	134	(25)	111	86
4	35	39	59	98	6	73	79	124	203
-	(2)	(2)	8	6	-	(3)	(3)	16	13
183	(83)	100	(100)	-	356	(166)	190	(190)	-
4	13	17	2	19	11	14	25	10	35
-	-	-	-	-	19	-	19	18	37
1	-	1	(18)	(17)	(6)	(2)	(8)	(22)	(30)
118	22	140	4	144	227	50	277	67	344
(45)	22	(23)	22	(1)	57	21	78	84	162
-	-	-	-	-	4	-	4	1	5
73	44	117	26	143	288	71	359	152	511
(56)	49	(7)	47	40	(62)	202	140	199	339
(61)	-	(61)	-	(61)	(93)	-	(93)	-	(93)
5	49	54	47	101	31	202	233	199	432
97	1,318	1,415	1,231	2,646	306	1,498	1,804	1,509	3,313
				11.9%					13.2%

 

 

B4 Analysis of covered business MCEV earnings (after tax) continued

£m
Nordic	6 months ended 30 June 2011
	Free surplus	Required capital	Adjusted net worth	Value of in-force	MCEV
Opening MCEV	51	135	186	1,318	1,504
New business value	(29)	4	(25)	53	28
Expected existing business contribution (reference rate)	2	1	3	18	21
Expected existing business contribution (in excess of reference rate)	-	-	-	16	16
Transfers from VIF and required capital to free surplus	65	-	65	(65)	-
Experience variances	1	3	4	(4)	-
Assumption changes	-	-	-	-	-
Other operating variance	-	-	-	(2)	(2)
Operating MCEV earnings	39	8	47	16	63
Economic variances	3	(6)	(3)	(68)	(71)
Other non-operating variance	(4)	-	(4)	-	(4)
Total MCEV earnings	38	2	40	(52)	(12)
Closing adjustments	(30)	4	(26)	35	9
Capital and dividend flows	(31)	-	(31)	-	(31)
Foreign exchange variance	1	4	5	35	40
Closing MCEV	59	141	200	1,301	1,501
Return on MCEV (ROEV) % per annum					8.4%

	£m
Nordic*	Year ended 31 December 2011
	Free surplus	Required capital	Adjusted net worth	Value of  in-force	MCEV
Expected existing business contribution (reference rate)	3	2	5	34	39
Expected existing business contribution (in excess of reference rate)	-	-	-	30	30

*     The expected return for the year ended 31 December 2011 has been restated to reflect the change in the expected real world cash return to equal the risk free rate over the analysis period (as opposed to the risk free reference rate less a deduction).

The experience variances are primarily driven by restructuring costs, and seasonal persistency losses, offset by positive rebate experience and other miscellaneous items.

The other operating variance was mainly due to a positive effect from a reduction in CNHR, offset by a negative impact due to a change in the modelling treatment of Group holding Company expenses.

The negative other non-operating variance was caused by impairment losses on shares in the China Guodian business held by Nordic.

The economic variances were mainly due to the negative effect of market movements on funds under management.

The capital and dividend flows mainly represent dividends, repayment of loans and capital injections.

The foreign exchange variance is mainly due to favourable exchange rate movements on translation as a result of the Swedish krona appreciating against sterling.

Return on MCEV is the operating MCEV earnings after tax divided by opening MCEV in Swedish krona. The operating assumption changes and other operating variances are not annualised.

Notes to the MCEV basis supplementary information

For the six months ended 30 June 2011 continued

 

£m
6 months ended 30 June 2010					Year ended 31 December 2010
Free surplus	Required capital	Adjusted net worth	Value of in-force	MCEV	Free surplus	Required capital	Adjusted net worth	Value of in-force	MCEV
91	104	195	1,114	1,309	91	104	195	1,114	1,309
(24)	3	(21)	46	25	(49)	6	(43)	84	41
1	-	1	8	9	-	1	1	14	15
-	-	-	13	13	-	-	-	26	26
55	(4)	51	(51)	-	103	-	103	(103)	-
10	6	16	1	17	30	(5)	25	(1)	24
-	-	-	(4)	(4)	-	-	-	(55)	(55)
(39)	-	(39)	42	3	(44)	4	(40)	34	(6)
3	5	8	55	63	40	6	46	(1)	45
5	-	5	(2)	3	(4)	12	8	86	94
-	-	-	-	-	17	-	17	-	17
8	5	13	53	66	53	18	71	85	156
(65)	-	(65)	(13)	(78)	(93)	13	(80)	119	39
(59)	-	(59)	-	(59)	(100)	-	(100)	-	(100)
(6)	-	(6)	(13)	(19)	7	13	20	119	139
34	109	143	1,154	1,297	51	135	186	1,318	1,504
				9.5%					3.3%

 

 

B4 Analysis of covered business MCEV earnings (after tax) continued

£m
Retail Europe	6 months ended 30 June 2011
	Free surplus	Required capital	Adjusted net worth	Value of in-force	MCEV
Opening MCEV	41	62	103	520	623
New business value	(38)	-	(38)	41	3
Expected existing business contribution (reference rate)	-	-	-	5	5
Expected existing business contribution (in excess of reference rate)	-	-	-	2	2
Transfers from VIF and required capital to free surplus	46	1	47	(47)	-
Experience variances	(1)	2	1	(2)	(1)
Assumption changes	-	-	-	(2)	(2)
Other operating variance	-	-	-	(13)	(13)
Operating MCEV earnings	7	3	10	(16)	(6)
Economic variances	2	(2)	-	(3)	(3)
Other non-operating variance	-	-	-	-	-
Total MCEV earnings	9	1	10	(19)	(9)
Closing adjustments	4	2	6	29	35
Capital and dividend flows	-	-	-	-	-
Foreign exchange variance	4	2	6	29	35
Closing MCEV	54	65	119	530	649
Return on MCEV (ROEV) % per annum					0.6%

	£m
Retail Europe*	Year ended 31 December 2011
	Free surplus	Required capital	Adjusted net worth	Value of  in-force	MCEV
Expected existing business contribution (reference rate)	-	1	1	9	10
Expected existing business contribution (in excess of reference rate)	-	-	-	5	5

*     The expected return for the year ended 31 December 2011 has been restated to reflect the change in the expected real world cash return to equal the risk free rate over the analysis period (as opposed to the risk free reference rate less a deduction).

There were no material experience variances or operating assumption changes.

The other operating variance was mainly due to a change in the methodology used to calculate the capital underlying the cost of non-hedgeable risks.

The economic variances were mainly due to the negative effect of market movements on funds under management, partly offset by a reduction in the cost of guarantees in Germany due to higher euro swap rates.

There were no material other non-operating variances or capital and dividend flows.

The foreign exchange variance is mainly due to favourable exchange rate movements on translation as a result of the euro appreciating against sterling.

Return on MCEV is the operating MCEV earnings after tax divided by opening MCEV in euro. The operating assumption changes and other operating variances are not annualised.

Notes to the MCEV basis supplementary information

For the six months ended 30 June 2011 continued

 

£m
6 months ended 30 June 2010					Year ended 31 December 2010
Free surplus	Required capital	Adjusted net worth	Value of in-force	MCEV	Free surplus	Required capital	Adjusted net worth	Value of in-force	MCEV
46	32	78	453	531	46	32	78	453	531
(33)	-	(33)	35	2	(69)	1	(68)	75	7
-	-	-	5	5	1	-	1	8	9
-	-	-	2	2	-	-	-	3	3
51	1	52	(52)	-	97	2	99	(99)	-
(6)	1	(5)	-	(5)	5	(1)	4	1	5
2	-	2	(2)	-	-	-	-	11	11
(5)	5	-	20	20	(9)	-	(9)	40	31
9	7	16	8	24	25	2	27	39	66
1	1	2	11	13	1	2	3	19	22
(1)	-	(1)	1	-	(26)	25	(1)	(5)	(6)
9	8	17	20	37	-	29	29	53	82
(9)	(2)	(11)	(22)	(33)	(5)	1	(4)	14	10
(7)	-	(7)	-	(7)	(6)	-	(6)	-	(6)
(2)	(2)	(4)	(22)	(26)	1	1	2	14	16
46	38	84	451	535	41	62	103	520	623
				5.1%					12.8%

 

 

B4 Analysis of covered business MCEV earnings (after tax) continued

£m
Wealth Management	6 months ended 30 June 2011
	Free surplus	Required capital	Adjusted net worth	Value of in-force	MCEV
Opening MCEV	43	278	321	1,656	1,977
New business value	(71)	12	(59)	98	39
Expected existing business contribution (reference rate)	(1)	3	2	12	14
Expected existing business contribution (in excess of reference rate)	2	-	2	9	11
Transfers from VIF and required capital to free surplus	158	(17)	141	(141)	-
Experience variances	(17)	2	(15)	30	15
Assumption changes	1	-	1	(1)	-
Other operating variance	32	(6)	26	(5)	21
Operating MCEV earnings	104	(6)	98	2	100
Economic variances	8	(4)	4	15	19
Other non-operating variance	-	-	-	6	6
Total MCEV earnings	112	(10)	102	23	125
Closing adjustments	(49)	3	(46)	7	(39)
Capital and dividend flows	(50)	-	(50)	-	(50)
Foreign exchange variance	1	3	4	7	11
Closing MCEV	106	271	377	1,686	2,063
Return on MCEV (ROEV) % per annum					9.0%

	£m
Wealth Management*	Year ended 31 December 2011
	Free surplus	Required capital	Adjusted net worth	Value of  in-force	MCEV
Expected existing business contribution (reference rate)	1	2	3	24	27
Expected existing business contribution (in excess of reference rate)	6	-	6	17	23

*     The expected return for the year ended 31 December 2011 has been restated to reflect the change in the expected real world cash return to equal the risk free rate over the analysis period (as opposed to the risk free reference rate less a deduction).

Experience variances were caused by positive persistency experience, where the anticipated impacts of the Retail Distribution Review have not yet emerged. In addition there has been higher than expected fee income across all divisions, partly offset by adverse expense experience.

There were no material operating assumption changes.

The other operating variance was mainly due to the impact of modelling improvements for the Platform business following a migration of valuation models.

The economic variances were caused by marginally lower swap yields.

The other non-operating variance is due to the additional 1% reduction in UK corporation tax enacted in April.

The capital and dividend flows mainly represent dividends, repayments of loans and capital injections.

The foreign exchange variance is driven by the strengthened euro and swiss franc against sterling.

Return on MCEV is the operating MCEV earnings after tax divided by opening MCEV in sterling. The operating assumption changes and other operating variances are not annualised.

Notes to the MCEV basis supplementary information

For the six months ended 30 June 2011 continued

 

£m
6 months ended 30 June 2010					Year ended 31 December 2010
Free surplus	Required capital	Adjusted net worth	Value of in-force	MCEV	Free surplus	Required capital	Adjusted net worth	Value of in-force	MCEV
163	213	376	1,468	1,844	163	213	376	1,468	1,844
(96)	14	(82)	113	31	(142)	19	(123)	189	66
3	3	6	11	17	1	3	4	22	26
-	-	-	6	6	7	-	7	14	21
146	(20)	126	(126)	-	246	(20)	226	(226)	-
(26)	11	(15)	20	5	(62)	20	(42)	33	(9)
(2)	2	-	-	-	4	2	6	1	7
-	-	-	5	5	(34)	35	1	-	1
25	10	35	29	64	20	59	79	33	112
19	(3)	16	42	58	46	6	52	153	205
-	-	-	-	-	(2)	-	(2)	4	2
44	7	51	71	122	64	65	129	190	319
(33)	(5)	(38)	(13)	(51)	(184)	-	(184)	(2)	(186)
(30)	(6)	(36)	(1)	(37)	(184)	-	(184)	-	(184)
(3)	1	(2)	(12)	(14)	-	-	-	(2)	(2)
174	215	389	1,526	1,915	43	278	321	1,656	1,977
				6.7%					6.1%

 

 

B4 Analysis of covered business MCEV earnings (after tax) continued

£m
US Life	6 months ended 30 June 2011
	Free surplus	Required capital	Adjusted net worth	Value of in-force	MCEV
Opening MCEV	66	468	534	(723)	(189)
New business value	-	-	-	-	-
Expected existing business contribution (reference rate)	-	-	-	-	-
Expected existing business contribution (in excess of reference rate)	-	-	-	-	-
Transfers from VIF and required capital to free surplus	-	-	-	-	-
Experience variances	-	-	-	-	-
Assumption changes	-	-	-	-	-
Other operating variance	-	-	-	-	-
Operating MCEV earnings	-	-	-	-	-
Economic variances	-	-	-	-	-
Other non-operating variance	-	-	-	-	-
Total MCEV earnings	-	-	-	-	-
Closing adjustments	(66)	(468)	(534)	723	189
Capital and dividend flows	-	-	-	-	-
Foreign exchange variance	(2)	(19)	(21)	28	7
MCEV of acquired/sold business	(64)	(449)	(513)	695	182
Closing MCEV	-	-	-	-	-
Return on MCEV (ROEV) % per annum					0.0%

For 30 June 2011 reporting period, Old Mutual Reassurance (Ireland) Limited (OMRe), which provides reinsurance to the United States Life Companies, is included within the OM plc results. For all comparative periods, the results for US Life include allowance for OMRe.

The sale of the US Life insurance business to Harbinger Capital Partners was completed, following regulatory approval, on 7 April 2011. This transaction has resulted in an uplift of £451 million to the adjusted Group MCEV, based on the 31 December 2010 value for US Life. Further details relating to the MCEV impact of this transaction are noted in A4.

Notes to the MCEV basis supplementary information

For the six months ended 30 June 2011 continued

B4 Analysis of covered business MCEV earnings (after tax) continued

£m
6 months ended 30 June 2010					Year ended 31 December 2010
Free surplus	Required capital	Adjusted net worth	Value of in-force	MCEV	Free surplus	Required capital	Adjusted net worth	Value of in-force	MCEV
36	462	498	(816)	(318)	36	462	498	(816)	(318)
(36)	48	12	(16)	(4)	(66)	66	-	(28)	(28)
-	4	4	6	10	1	9	10	15	25
-	-	-	36	36	-	-	-	80	80
41	(23)	18	(18)	-	81	(47)	34	(34)	-
80	(24)	56	43	99	33	(23)	10	30	40
-	-	-	2	2	(6)	-	(6)	(57)	(63)
-	-	-	(16)	(16)	-	-	-	(7)	(7)
85	5	90	37	127	43	5	48	(1)	47
(15)	(12)	(27)	(135)	(162)	71	(18)	53	127	180
-	-	-	-	-	-	-	-	-	-
70	(7)	63	(98)	(35)	114	(13)	101	126	227
(3)	36	33	(67)	(34)	(84)	19	(65)	(33)	(98)
(8)	-	(8)	-	(8)	(85)	-	(85)	-	(85)
5	36	41	(67)	(26)	1	19	20	(33)	(13)
-	-	-	-	-	-	-	-	-	-
103	491	594	(981)	(387)	66	468	534	(723)	(189)
				79.7%					14.1%

 

 

B4 Analysis of covered business MCEV earnings (after tax) continued

£m
Bermuda	6 months ended 30 June 2011
	Free surplus	Required capital	Adjusted net worth	Value of in-force	MCEV
Opening MCEV	-	403	403	(116)	287
New business value	-	-	-	-	-
Expected existing business contribution (reference rate)	-	1	1	3	4
Expected existing business contribution (in excess of reference rate)	-	12	12	8	20
Transfers from VIF and required capital to free surplus	34	(28)	6	(6)	-
Experience variances	1	-	1	(9)	(8)
Assumption changes	1	-	1	(3)	(2)
Other operating variance	(32)	32	-	(5)	(5)
Operating MCEV earnings	4	17	21	(12)	9
Economic variances	(4)	-	(4)	18	14
Other non-operating variance	-	-	-	-	-
Total MCEV earnings	-	17	17	6	23
Closing adjustments	-	(13)	(13)	3	(10)
Capital and dividend flows	-	-	-	-	-
Foreign exchange variance	-	(13)	(13)	3	(10)
Closing MCEV	-	407	407	(107)	300
Return on MCEV (ROEV) % per annum					9.4%

	£m
Bermuda	Year ended 31 December 2011
	Free surplus	Required capital	Adjusted net worth	Value of  in-force	MCEV
Expected existing business contribution (reference rate)	-	2	2	6	8
Expected existing business contribution (in excess of reference rate)	-	24	24	16	40

The experience variances include a high number of Variable Annuity UGO contract surrenders as a result of a surrender fee waiver offer given to clients, where GMAB reserve releases (ANW impact) were mostly offset by lost future fee income (VIF impact). ANW experience variances also consist of an expense overrun and Branch Level Interest Tax for 2010 and 2011.

There were no material operating assumption changes.  

The other operating variance was mainly due to bond portfolio and fixed annuity modelling changes, as well changes to capital requirements used in the calculation of CNHR.

The economic variances were largely due to favourable portfolio movements during the reporting period producing a positive Variable Annuity economic result and gains on the corporate bond portfolio.

Return on MCEV was calculated as the operating MCEV earnings after tax divided by the opening MCEV in US dollars. The operating assumption changes and other operating variances are not annualised.

Notes to the MCEV basis supplementary information

For the six months ended 30 June 2011 continued

 

£m
6 months ended 30 June 2010					Year ended 31 December 2010
Free surplus	Required Capital	Adjusted net worth	Value of in-force	MCEV	Free surplus	Required capital	Adjusted net worth	Value of in-force	MCEV
-	363	363	(165)	198	-	363	363	(165)	198
-	-	-	-	-	-	-	-	-	-
-	1	1	5	6	-	3	3	9	12
-	16	16	16	32	-	30	30	35	65
6	(22)	(16)	16	-	16	(45)	(29)	29	-
(8)	-	(8)	(19)	(27)	(18)	1	(17)	(2)	(19)
2	-	2	-	2	(19)	-	(19)	(16)	(35)
70	(44)	26	(9)	17	(32)	37	5	(52)	(47)
70	(49)	21	9	30	(53)	26	(27)	3	(24)
(70)	-	(70)	(5)	(75)	53	-	53	52	105
-	-	-	-	-	-	-	-	-	-
-	(49)	(49)	4	(45)	-	26	26	55	81
-	27	27	(12)	15	-	14	14	(6)	8
-	-	-	-	-	-	-	-	-	-
-	27	27	(12)	15	-	14	14	(6)	8
-	341	341	(173)	168	-	403	403	(116)	287
				19.5%					(11.4)%

 

 

B4 Analysis of covered business MCEV earnings (after tax)

Total covered business	£m
	6 months ended 30 June 2011
	Free surplus	Required capital	Adjusted net worth	Value of in-force	MCEV
Opening MCEV	507	2,844	3,351	4,164	7,515
New business value	(231)	82	(149)	257	108
Expected existing business contribution (reference rate)	7	36	43	92	135
Expected existing business contribution (in excess of reference rate)	3	18	21	44	65
Transfers from VIF and required capital to free surplus	496	(119)	377	(377)	-
Experience variances	19	13	32	48	80
Assumption changes	2	-	2	(6)	(4)
Other operating variance	(21)	24	3	(33)	(30)
Operating MCEV earnings	275	54	329	25	354
Economic variances	38	(8)	30	(63)	(33)
Other non-operating variance	-	-	-	6	6
Total MCEV earnings	313	46	359	(32)	327
Closing adjustments	(131)	(550)	(681)	718	37
Capital and dividend flows	(56)	-	(56)	-	(56)
Foreign exchange variance	(11)	(101)	(112)	23	(89)
MCEV of acquired/sold business	(64)	(449)	(513)	695	182
Closing MCEV	689	2,340	3,029	4,850	7,879
Return on MCEV (ROEV) % per annum					9.9%

Return on MCEV for total covered business is calculated as the operating MCEV earnings after tax divided by opening MCEV in sterling. The operating assumption changes and other operating variances are not annualised.

	£m
Total covered business*	Year ended 31 December 2011
	Free surplus	Required capital	Adjusted net worth	Value of  in-force	MCEV
Expected existing business contribution (reference rate)	16	67	83	179	262
Expected existing business contribution (in excess of reference rate)	8	35	43	88	131

*     The expected return for the year ended 31 December 2011 has been restated to reflect the change in the expected real world cash return to equal the risk free rate over the analysis period (as opposed to the risk free reference rate less a deduction), and to exclude any contribution from US Life.

Notes to the MCEV basis supplementary information

For the six months ended 30 June 2011 continued

 

					£m
6 months ended 30 June 2010					Year ended 31 December 2010
Free surplus	Required capital	Adjusted net worth	Value of in-force	MCEV	Free surplus	Required capital	Adjusted net worth	Value of in-force	MCEV
416	2,399	2,815	3,212	6,027	416	2,399	2,815	3,212	6,027
(263)	124	(139)	231	92	(485)	226	(259)	431	172
8	43	51	94	145	9	89	98	192	290
-	14	14	81	95	7	27	34	174	208
482	(151)	331	(331)	-	899	(276)	623	(623)	-
54	7	61	47	108	(1)	6	5	71	76
2	2	4	(4)	-	(2)	2	-	(98)	(98)
27	(39)	(12)	24	12	(125)	74	(51)	(7)	(58)
310	-	310	142	452	302	148	450	140	590
(105)	8	(97)	(67)	(164)	224	23	247	521	768
(1)	-	(1)	1	-	(7)	25	18	-	18
204	8	212	76	288	519	196	715	661	1,376
(166)	105	(61)	(80)	(141)	(428)	249	(179)	291	112
(165)	(6)	(171)	(1)	(172)	(468)	-	(468)	-	(468)
(1)	111	110	(79)	31	40	249	289	291	580
-	-	-	-	-	-	-	-	-	-
454	2,512	2,966	3,208	6,174	507	2,844	3,351	4,164	7,515
				14.8%					9.8%

 

 

C Other key performance information

C1 Value of new business (after tax)

The tables below set out the regional analysis of the value of new business ('VNB') after tax. New business profitability is measured by both the ratio of the VNB to the present value of new business premiums ('PVNBP') as well as to the annual premium equivalent ('APE'), and shown under PVNBP margin and APE margin below. APE is calculated as recurring premiums plus 10% of single premiums. Bermuda is excluded from the tables below as it is closed to new business.

			£m
	6 months ended 30 June 2011	6 months ended 30 June 2010	Year ended 31 December 2010
Annualised recurring premiums
Long Term Savings	375	339	698
Emerging Markets	176	143	325
Nordic	83	74	144
Retail Europe	33	29	63
Wealth Management	83	93	166
US Life	-	5	10
	375	344	708
Single premiums
Long Term Savings	3,875	4,296	7,932
Emerging Markets	797	803	1,611
Nordic	420	284	573
Retail Europe	34	34	63
Wealth Management	2,624	3,175	5,685
US Life	-	400	824
	3,875	4,696	8,756
PVNBP
Long Term Savings	5,645	5,968	11,266
Emerging Markets	1,656	1,561	3,269
Nordic	736	553	1,104
Retail Europe	276	243	513
Wealth Management	2,977	3,611	6,380
US Life	-	432	889
	5,645	6,400	12,155
PVNBP capitalisation factors*
Long Term Savings	4.7	4.9	4.8
Emerging Markets	4.9	5.3	5.1
Nordic	3.8	3.6	3.7
Retail Europe	7.4	7.2	7.2
Wealth Management	4.2	4.6	4.2
US Life	-	6.6	6.6

*     The PVNBP capitalisation factors are calculated as follows: (PVNBP - single premiums)/annualised recurring premiums.

Notes to the MCEV basis supplementary information

For the six months ended 30 June 2011 continued

C1 Value of new business (after tax) continued

			£m
	6 months ended 30 June 2011	6 months ended 30 June 2010	Year ended 31 December 2010
APE
Long Term Savings	763	769	1,491
Emerging Markets	255	223	487
Nordic	126	102	201
Retail Europe	36	32	69
Wealth Management	346	412	734
US Life	n/a	45	92
	763	814	1,583
VNB
Long Term Savings	108	96	200
Emerging Markets	38	38	86
Nordic	28	25	41
Retail Europe	3	2	7
Wealth Management	39	31	66
US Life*	n/a	(4)	(28)
	108	92	172
PVNBP margin
Long Term Savings	1.9%	1.6%	1.8%
Emerging Markets	2.3%	2.5%	2.6%
Nordic	3.9%	4.6%	3.7%
Retail Europe	1.0%	0.7%	1.4%
Wealth Management	1.3%	0.9%	1.0%
US Life	n/a	(0.9)%	(3.2)%
	1.9%	1.4%	1.4%
APE margin
Long Term Savings	14%	13%	13%
Emerging Markets	15%	17%	18%
Nordic	23%	25%	21%
Retail Europe	8%	6%	11%
Wealth Management	11%	8%	9%
US Life	n/a	(9)%	(31)%
	14%	11%	11%

*     The US Life VNB is negative when calculated on an MCEV basis, due to the reliance on spread in the pricing basis, and the low risk free swap            curve.

 

 

C1 Value of new business (after tax) continued

The value of new individual unit trust linked retirement annuities and pension fund asset management business written by the Emerging Markets long-term business is excluded as the profits on this business arise in the asset management business. The value of new business also excludes premium increases arising from indexation arrangements in respect of existing business, as these are already included in the value of in-force business.

The value of new institutional investment platform pensions business written in Wealth Management is excluded as this is more appropriately classified as unit trust business.

			£m
Gross premium excluded from value of new business	6 months ended 30 June 2011	6 months ended 30 June 2010	Year ended 31 December 2010
Emerging Markets	465	386	723
Wealth Management	229	75	304

Notes to the MCEV basis supplementary information

For the six months ended 30 June 2011 continued

C2 Product analysis of new covered business premiums

£m
	6 months ended 30 June 2011			6 months ended 30 June 2010			Year ended 31 December 2010
Emerging Markets	Recurring	Single		Recurring	Single		Recurring	Single
Total business	176	797		143	803		325	1,611
Individual business	157	440		120	486		284	889
Savings	35	352		29	387		69	713
Protection	33	-		31	-		70	-
Annuity	-	87		-	98		-	176
Mass Foundation Cluster*	89	1		60	1		145	-
Group business	19	357		23	317		41	722
Savings	11	250		9	257		20	585
Protection	8	-		14	-		21	1
Annuity	-	107		-	60		-	136

*     Previously described as Retail Mass Market.

£m
	6 months ended 30 June 2011			6 months ended 30 June 2010			Year ended 31 December 2010
Nordic	Recurring	Single		Recurring	Single		Recurring	Single
Unit-linked and life assurance	83	420		74	284		144	573

£m
	6 months ended 30 June 2011			6 months ended 30 June 2010			Year ended 31 December 2010
Retail Europe	Recurring	Single		Recurring	Single		Recurring	Single
Unit-linked and life assurance	33	34		29	34		63	63

£m
	6 months ended 30 June 2011			6 months ended 30 June 2010			Year ended 31 December 2010
Wealth Management	Recurring	Single		Recurring	Single		Recurring	Single
Unit-linked and life assurance	83	2,624		93	3,175		166	5,685

£m
	6 months ended 30 June 2011			6 months ended 30 June 2010			Year ended 31 December 2010
US Life	Recurring	Single		Recurring	Single		Recurring	Single
Total business	-	-		5	400		10	824
Fixed deferred annuity	-	-		-	79		-	163
Fixed indexed annuity	-	-		-	234		-	502
Variable annuity	-	-		-	-		-	-
Life	-	-		5	1		10	1
Immediate annuity	-	-		-	86		-	158

The table above does not include the contribution from the mutual fund business. This is detailed in the Business Review section.

 

 

C3 Adjustments applied in determining total Group MCEV earnings before tax

	£m
	6 months ended 30 June 2011			6 months ended 30 June 2010
Analysis of adjusting items	Covered business MCEV	Non-covered business IFRS	Total Group MCEV	Covered business MCEV	Non-covered business IFRS	Total Group MCEV
Income/(expense)
Goodwill impairment and amortisation of non-covered business acquired intangible assets and impact of acquisition accounting	-	(11)	(11)	-	(7)	(7)
Economic variances	(49)	(11)	(60)	(277)	(20)	(297)
Other non-operating variances	1	-	1	2	-	2
Acquired/divested business	-	-	-	-	(22)	(22)
Closure of unclaimed share trust	-	-	-	-	-	-
Dividends declared to holders of perpetual preferred callable securities	-	22	22	-	21	21
Adjusting items relating to US Asset Management equity plans and non-controlling interests	-	-	-	-	2	2
Fair value gains on Group debt instruments	-	(50)	(50)	-	(90)	(90)
Adjusting items	(48)	(50)	(98)	(275)	(116)	(391)

Adjusting items from continuing operations	(48)	(50)	(98)	11	(116)	(105)
Adjusting items from discontinued operations	-	-	-	(286)	-	(286)
Total MCEV adjusting items	(48)	(50)	(98)	(275)	(116)	(391)

	£m
	Year ended 31 December 2010
Analysis of adjusting items	Covered business MCEV	Non-covered business IFRS	Total Group MCEV
Income/(expense)
Goodwill impairment and amortisation of non-covered business acquired intangible assets and impact of acquisition accounting	-	(20)	(20)
Economic variances	864	(7)	857
Other non-operating variances	17	-	17
Acquired/divested business	-	(22)	(22)
Closure of unclaimed share trust	-	-	-
Dividends declared to holders of perpetual preferred callable securities	-	44	44
Adjusting items relating to US Asset Management equity plans and non-controlling interests	-	6	6
Fair value gains on Group debt instruments	-	(203)	(203)
Adjusting items	881	(202)	679
Adjusting items from continuing operations	701	(202)	499
Adjusting items from discontinued operations	180	-	180
Total MCEV adjusting items	881	(202)	679

Notes to the MCEV basis supplementary information

For the six months ended 30 June 2011 continued

C4 Other movements in IFRS net equity impacting Group MCEV

	£m
	6 months ended 30 June 2011			6 months ended 30 June 2010
	Covered business MCEV	Non-covered business IFRS	Total Group MCEV	Covered business MCEV	Non-covered business IFRS	Total Group MCEV
Fair value gains/(losses)	-	1	1	-	(5)	(5)
Net investment hedge	-	(25)	(25)	-	(34)	(34)
Currency translation differences/exchange differences on translating foreign operations	(89)	(194)	(283)	31	200	231
Aggregate tax effects of items taken directly to or transferred from equity	-	6	6	-	6	6
Other movements*	182	18	200	-	(28)	(28)
Net income recognised directly into equity	93	(194)	(101)	31	139	170
Capital and dividend flows for the year	(56)	(19)	(75)	(172)	73	(99)
Net sale of treasury shares	-	(18)	(18)	-	(20)	(20)
Net issues of ordinary share capital by the Company	-	91	91	-	160	160
Acquisition of non-controlling interest in Mutual & Federal	-	-	-	-	(93)	(93)
Exercise of share options	-	4	4	-	3	3
Change in share based payment reserve	-	21	21	-	1	1
Other movements in net equity	37	(115)	78	(141)	263	122

*     This relates to the reversal of the US Life MCEV on the covered business.

	£m
	Year ended 31 December 2010
	Covered business MCEV	Non-covered business IFRS	Total Group MCEV
Fair value gains/(losses)	-	8	8
Net investment hedge	-	(86)	(86)
Currency translation differences/exchange differences on translating foreign operations	580	448	1,028
Aggregate tax effects of items taken directly to or transferred from equity	-	14	14
Other movements	-	(24)	(24)
Net income recognised directly into equity	580	360	940
Capital and dividend flows for the year	(468)	322	(146)
Net sales of treasury shares	-	(28)	(28)
Net issues of ordinary share capital by the Company	-	162	162
Acquisition of non-controlling interest in Mutual & Federal	-	(93)	(93)
Exercise of share options	-	4	4
Change in share based payment reserve	-	4	4
Other movements in net equity	112	731	843

 

 

C5 Reconciliation of MCEV adjusted net worth to IFRS net asset value for the covered business

The table below provides a reconciliation of the MCEV adjusted net worth ('ANW') to the IFRS net asset value ('NAV') for the covered business.

£m
At 30 June 2011	Total	Long Term Savings	Emerging Markets	Nordic	Retail Europe	Wealth Management	US Life	Bermuda
IFRS net asset value*	5,859	5,418	1,339	1,423	664	1,992	-	441
Adjustment to include long-term business on a statutory solvency basis	(2,201)	(2,167)	199	(1,012)	(338)	(1,016)	-	(34)
Inclusion of Group equity and debt instruments held in life funds	396	396	396	-	-	-	-	-
Goodwill	(1,025)	(1,025)	(8)	(211)	(207)	(599)	-	-
Adjusted net worth attributable to ordinary equity holders of the parent	3,029	2,622	1,926	200	119	377	-	407

£m
At 30 June 2010	Total	Long Term Savings	Emerging Markets	Nordic	Retail Europe	Wealth Management	US Life	Bermuda
IFRS net asset value*	6,394	4,827	932	1,147	586	2,162	1,213	354
Adjustment to include long-term business on a statutory solvency basis	(2,779)	(2,147)	161	(818)	(314)	(1,176)	(619)	(13)
Inclusion of Group equity and debt instruments held in life funds	330	330	330	-	-	-	-	-
Goodwill	(979)	(979)	(8)	(186)	(188)	(597)	-	-
Adjusted net worth attributable to ordinary equity holders of the parent	2,966	2,031	1,415	143	84	389	594	341

£m
At 31 December 2010	Total	Long Term Savings	Emerging Markets	Nordic	Retail Europe	Wealth Management	US Life	Bermuda
IFRS net asset value*	5,794	5,088	1,216	1,243	632	1,997	274	432
Adjustment to include long-term business on a statutory solvency basis	(1,822)	(2,053)	207	(851)	(331)	(1,078)	260	(29)
Inclusion of Group equity and debt instruments held in life funds	389	389	389	-	-	-	-	-
Goodwill	(1,010)	(1,010)	(8)	(206)	(198)	(598)	-	-
Adjusted net worth attributable to ordinary equity holders of the parent	3,351	2,414	1,804	186	103	321	534	403

*     IFRS net asset value is after elimination of inter-company loans.

The adjustment to include long-term business on a statutory solvency basis includes the following:

·     The excess of the IFRS amount of the deferred acquisition cost ('DAC') and value of business acquired ('VOBA') assets over the statutory levels included in the VIF.

·     When projecting future profits on a statutory basis, the VIF includes the shareholders' value of unrealised capital gains. To the extent that assets in IFRS are valued at market and the market value is higher than the statutory book value, these profits have already been taken into account in the IFRS equity.

·     For the US Life business, the reversal of the IFRS impairment for discontinued operations which is included in the IFRS net asset value, as this is not recognised on a statutory solvency basis.

Notes to the MCEV basis supplementary information

For the six months ended 30 June 2011 continued

D Other income statement notes

D1 Drivers of new business value for covered business

PVNBP Margin		%
Long Term Savings (excludes US Life)*	12 months ended 30 June 2011	12 months ended 31 December 2010
Margin at the end of comparative period	1.6	1.6
Change in volume	0.2	(0.1)
Change in product mix	-	0.2
Change in country mix	-	-
Change in operating assumptions	-	0.1
Change in economic assumptions	0.2	(0.1)
Change in tax/regulation	(0.1)	-
Exchange rate movements	-	0.1
Margin at the end of the period	1.9	1.8
Emerging Markets**
Margin at the end of comparative period	2.5	2.3
Change in volume	0.2	0.1
Change in product mix	(0.2)	0.4
Change in country mix	-	-
Change in operating assumptions	(0.1)	(0.1)
Change in economic assumptions	0.4	(0.1)
Change in tax/regulation	(0.5)	-
Margin at the end of the period	2.3	2.6
Nordic***
Margin at the end of comparative period	4.6	3.8
Change in volume	(0.1)	(0.1)
Change in product mix	(0.1)	0.6
Change in country mix	-	-
Change in operating assumptions	(0.5)	(0.4)
Change in economic assumptions	-	(0.2)
Margin at the end of the period	3.9	3.7
Retail Europe****
Margin at the end of comparative period	0.7	(1.0)
Change in volume	-	1.6
Change in product mix	0.5	(0.2)
Change in country mix	(0.1)	-
Change in operating assumptions	(0.1)	0.9
Change in economic assumptions	-	0.1
Margin at the end of the period	1.0	1.4
Wealth Management*
Margin at the end of comparative period	0.9	1.0
Change in volume	-	(0.1)
Change in product mix	0.2	(0.1)
Change in country mix	-	-
Change in operating assumptions	0.1	0.2
Change in economic assumptions	0.1	-
Margin at the end of the period	1.3	1.0

 

 

 

D1 Drivers of new business value for covered business continued

		%
US Life*****	12 months ended 30 June 2011	12 months ended 31 December 2010
Margin at the end of comparative period	-	2.2
Change in volume	-	(0.1)
Change in product mix	-	(0.9)
Change in country mix	-	-
Change in operating assumptions	-	(0.6)
Change in economic assumptions	-	(3.8)
Margin at the end of the period	-	(3.2)
Total covered business*
Margin at the end of comparative period	1.6	1.6
Change in volume	0.2	(0.1)
Change in product mix	-	0.1
Change in country mix	-	-
Change in operating assumptions	-	0.1
Change in economic assumptions	0.2	(0.4)
Change in tax/regulation	(0.1)	-
Exchange rate movements	-	0.1
Margin at the end of the period	1.9	1.4

*        The PVNBP margin changes are calculated in sterling.

**       The PVNBP margin changes are calculated in rand.

***     The PVNBP margin changes are calculated in krona.

****    The PVNBP margin changes are calculated in euro.

*****   The PVNBP margin changes are calculated in dollars.

Notes to the MCEV basis supplementary information

For the six months ended 30 June 2011 continued

E1 Sensitivity tests

The tables below show the sensitivity of the MCEV and value of in-force business at 30 June 2011 and the value of new business for the six months ended 30 June 2011 to changes in key assumptions.

For each sensitivity illustrated all other assumptions have been left unchanged except where they are directly affected by the revised conditions. Sensitivity scenarios therefore include consistent changes in cash flows directly affected by the changed assumption(s), for example future bonus participation in changed economic scenarios.

	At 30 June 2011		£m
Long Term Savings	MCEV	Value of in-force business	Value of new business
Central assumptions	7,579	4,957	108
Effect of:
Increasing all pre-tax investment and economic assumptions by 1%, with credited rates and discount rates changing commensurately	7,418	4,810	98
Decreasing all pre-tax investment and economic assumptions by 1%, with credited rates and discount rates changing commensurately	7,752	5,112	118
Recognising the present value of an additional 10bps of liquidity spreads assumed on corporate bonds over the lifetime of the liabilities, with credited rates and discount rates changing commensurately	7,889	4,860	109

	At 30 June 2011		£m
Emerging Markets	MCEV	Value of in-force business	Value of new business
Central assumptions	3,366	1,440	38
Effect of:
Increasing all pre-tax investment and economic assumptions by 1%, with credited rates and discount rates changing commensurately	3,308	1,381	34
Decreasing all pre-tax investment and economic assumptions by 1%, with credited rates and discount rates changing commensurately	3,426	1,501	41
Recognising the present value of an additional 10bps of liquidity spreads assumed on corporate bonds over the lifetime of the liabilities, with credited rates and discount rates changing commensurately	3,376	1,450	39

	At 30 June 2011		£m
Nordic	MCEV	Value of in-force business	Value of new business
Central assumptions	1,501	1,301	28
Effect of:
Increasing all pre-tax investment and economic assumptions by 1%, with credited rates and discount rates changing commensurately	1,474	1,274	28
Decreasing all pre-tax investment and economic assumptions by 1%, with credited rates and discount rates changing commensurately	1,532	1,332	29

	At 30 June 2011		£m
Retail Europe	MCEV	Value of in-force business	Value of new business
Central assumptions	649	530	3
Effect of:
Increasing all pre-tax investment and economic assumptions by 1%, with credited rates and discount rates changing commensurately	630	512	1
Decreasing all pre-tax investment and economic assumptions by 1%, with credited rates and discount rates changing commensurately	664	544	4

 

 

E1 Sensitivity tests continued

	At 30 June 2011			£m
Wealth Management	MCEV	Value of in-force business	Value of new business
Central assumptions	2,063	1,686	39
Effect of:
Increasing all pre-tax investment and economic assumptions by 1%, with credited rates and discount rates changing commensurately	2,006	1,643	35
Decreasing all pre-tax investment and economic assumptions by 1%, with credited rates and discount rates changing commensurately	2,130	1,735	44

	At 30 June 2011			£m
Bermuda	MCEV	Value of in-force business	Value of new business
Central assumptions	300	(107)	-
Effect of:
Increasing all pre-tax investment and economic assumptions by 1%, with credited rates and discount rates changing commensurately	351	(111)	-
Decreasing all pre-tax investment and economic assumptions by 1%, with credited rates and discount rates changing commensurately	257	(98)	-

	At 30 June 2011		£m
Total covered business	MCEV	Value of in-force business	Value of new business
Central assumptions	7,879	4,850	108
Effect of:
Increasing all pre-tax investment and economic assumptions by 1%, with credited rates and discount rates changing commensurately	7,769	4,699	98
Decreasing all pre-tax investment and economic assumptions by 1%, with credited rates and discount rates changing commensurately	8,009	5,014	118
Recognising the present value of an additional 10bps of liquidity spreads assumed on corporate bonds over the lifetime of the liabilities, with credited rates and discount rates changing commensurately	7,889	4,860	109

Shareholder information

Listings and shares in issue

The Company's shares are listed on the London, Malawi, Namibian and Zimbabwe Stock Exchanges and on the JSE Limited (JSE). The primary listing is on the London Stock Exchange and the other listings are all secondary listings. The ISIN number of the Company's shares is GB0007389926.

Websites

Further information on the Company can be found on the following websites:
www.oldmutual.com
www.oldmutual.co.za

 

END

 

 

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