Interim results 2012 - part 3 MCEV

RNS Number : 5270J

Old Mutual PLC

08 August 2012

Adjusted Group MCEV by line of business
At 30 June 2012
				£m
	Notes	At 30 June 2012	At 30 June 2011	At 31 December 2011
MCEV of the core covered business (Long Term Savings)	B3	5,875	6,147	5,713
Adjusted net worth¹		2,368	2,491	2,204
Value of in-force business		3,507	3,656	3,509
MCEV of the non-core covered business (Bermuda)	B3	141	300	66
Adjusted net worth		232	407	187
Value of in-force business		(91)	(107)	(121)
MCEV of the discontinued covered business (Nordic)²	B3	-	1,501	1,433
Adjusted net worth		-	200	285
Value of in-force business		-	1,301	1,148

Adjusted net worth of asset management and other businesses		1,847	2,127	1,955
Emerging Markets		460	483	499
Wealth Management		215	193	179
US Asset Management		1,172	1,487	1,270
Nordic²		-	(36)	7

Value of the banking business		3,517	3,847	3,286
Nedbank (market value)		3,481	3,484	2,935
Emerging Markets (adjusted net worth)		36	16	29
Nordic (adjusted net worth)²		-	347	322

Value of the general insurance business
Mutual & Federal (adjusted net worth)		292	322	294

Net other business³		1,068	379	175
Adjustment for present value of Black Economic Empowerment scheme deferred consideration		273	299	270
Adjustment for value of own shares in ESOP schemes⁴		106	113	117

Market value of perpetual preferred securities	A2(d)	(481)	(464)	(465)
Market value of perpetual preferred callable securities	A2(d)	(637)	(690)	(605)
Market value of subordinated debt	A2(d)	(1,341)	(2,041)	(1,445)
Adjusted Group MCEV⁵		10,660	11,840	10,794

Adjusted Group MCEV per share (pence)		218.1	214.1	194.1
Number of shares in issue at the end of the financial period less treasury shares - millions⁶		4,887	5,529	5,562
¹Adjusted net worth is after the elimination of inter-company loans.
²The sale of the Nordic business unit was completed during the current period.
³Includes any other business that is not included within the main lines of business, largely Old Mutual parent company IFRS equity net of Group adjustments, consolidation adjustments in respect of intercompany transactions and debt, Bermuda asset management and the proceeds from the sale of the Nordic business unit.
⁴Includes adjustment for value of excess own shares in employee share scheme trusts.
⁵The results for the six months ended 30 June 2011 have been restated to reflect the consolidation of the Rest of Africa businesses into the results of the Emerging Markets business.
⁶The Group cancelled 239 million treasury shares on 13 January 2012.
As part of the disposal of the Nordic business unit a seven for eight share consolidation was proposed and approved. For adjusted Group MCEV per share, the weighted average number of shares is effective from 23 April 2012.

Adjusted operating Group MCEV statement of earnings
For the six months ended 30 June 2012
				£m
	Notes	6 months ended 30 June 2012	6 months ended 30 June 2011	Year ended 31 December 2011
Long Term Savings
Covered business	B2	264	358	714
Asset management and other business		72	82	123
Banking		6	-	15
		342	440	852
Nedbank
Banking		406	359	755
Mutual & Federal
General insurance		34	47	89
US Asset Management
Asset management		42	39	67
Other operating segments
Finance costs¹		(88)	(74)	(155)
Corporate costs²		(18)	(21)	(43)
Other shareholders' income/(expenses)		13	5	(18)
Adjusted operating Group MCEV earnings before tax from core operations		731	795	1,547
¹This includes interest payable from Old Mutual plc to non-core operations of £13 million for 6 months ended 30 June 2012 (June 2011: £13 million; December 2011: £27 million).
²Central costs of £7 million are allocated to the covered business and provisioned in the VIF (June 2011: £7 million December 2011: £14 million). Hence net corporate costs under MCEV of £18 million (June 2011: £21 million; December 2011: £43 million) differ from the IFRS amount of £25 million (June 2011: £28 million; December 2011: £57 million).

Significant corporate activities and business changes

Disposal of Nordic business

As previously reported the Group had agreed at 31 December 2011 for the disposal of its life assurance operations, asset management and banking operations in Sweden, Denmark and Norway to Skandia Liv. Following final regulatory approval on 8 March 2012 and subsequent shareholder approval the sale was completed on 21 March 2012. The MCEV earnings of the Nordic business have been categorised as discontinued within the MCEV results and the comparative information has been restated where applicable to reflect this. Nordic has been treated as non-modelled for 2012 reporting purposes with earnings for the period to 21 March 2012 reported on an IFRS basis.

The transaction has resulted in an uplift of £202 million to the adjusted Group MCEV, based on the differences between the purchase price of £2,118 million, the removal of the MCEV balances for the Nordic business unit (VIF: £1,148 million, ANW: £286 million and other non-covered business: £330 million) and further IFRS adjustments of £152 million.

Special dividend and share consolidation

On 9 March 2012, the Group declared a special dividend of 18p per 10p ordinary share to all holders of these shares at 20 April 2012 and was paid on 7 June 2012. The Group also performed a seven-for-eight share consolidation on 23 April 2012.

For MCEV purposes, the weighted average number of shares is effective from 23 April 2012.

Inclusion of other African businesses

As reported in the Group's 2011 Annual Report and Accounts the Group's operations in Zimbabwe, Kenya, Malawi, Swaziland and Nigeria ("the other African businesses") were consolidated effective from 1 January 2011. The results of the other African businesses were included in the comparatives for the six months ended 30 June 2011 and for the year ended 31 December 2011. In June 2012 we have also included the Zimbabwean and Namibian companies as part of the covered business of Emerging Markets.

Reporting of Retail Europe within Wealth Management

On 24 January 2012 the Group announced that it will combine its Wealth Management Continental Europe business (France and Italy) with the Skandia Retail Europe business unit (Germany, Austria, Poland and Switzerland), for reporting purposes only. As a result the Retail Europe segment will now be reported within the Wealth Management segment for the six months ended 30 June 2012. Consequently the comparative information for the six months ended 30 June 2011 and the year ended 31 December 2011 has been reclassified where applicable to reflect this.

Adjusted operating Group MCEV earnings per share
For the six months ended 30 June 2012
					£m
Six months ended 30 June 2012	Notes	Core continuing operations	Non-core continuing operations	Discontinued operations	Total
Adjusted operating Group MCEV earnings before tax		731	23	28	782
Covered business	B2	264	23	18	305
Other business		467	-	10	477
Tax on adjusted operating Group MCEV earnings		(197)	-	(3)	(200)
Covered business	B2	(60)	-	-	(60)
Other business		(137)	-	(3)	(140)

Adjusted operating Group MCEV earnings after tax		534	23	25	582
Non-controlling interests
Ordinary shares		(134)	-	-	(134)
Preferred securities		(30)	-	-	(30)
Adjusted operating MCEV earnings after tax attributable to equity holders		370	23	25	418
Adjusted operating Group MCEV earnings per share¹		7.1	0.4	0.5	8.0
Adjusted weighted average number of shares - millions					5,231

	£m
Six months ended 30 June 2011	Notes	Core continuing operations	Non-core continuing operations	Discontinued operations	Total
Adjusted operating Group MCEV earnings before tax		795	11	88	894
Covered business	B2	358	11	78	447
Other business		437	-	10	447
Tax on adjusted operating Group MCEV earnings		(195)	(2)	(17)	(214)
Covered business	B2	(76)	(2)	(15)	(93)
Other business		(119)	-	(2)	(121)

Adjusted operating Group MCEV earnings after tax		600	9	71	680
Non-controlling interests
Ordinary shares		(120)	-	-	(120)
Preferred securities		(31)	-	-	(31)
Adjusted operating MCEV earnings after tax attributable to equity holders		449	9	71	529
Adjusted operating Group MCEV earnings per share¹		8.3	0.2	1.3	9.8
Adjusted weighted average number of shares - millions					5,397

	£m
Year ended 31 December 2011	Notes	Core continuing operations	Non-core continuing operations	Discontinued operations	Total
Adjusted operating Group MCEV earnings before tax		1,547	48	173	1,768
Covered business	B2	714	48	156	918
Other business		833	-	17	850
Tax on adjusted operating Group MCEV earnings		(364)	(1)	(31)	(396)
Covered business	B2	(162)	(1)	(28)	(191)
Other business		(202)	-	(3)	(205)

Adjusted operating Group MCEV earnings after tax		1,183	47	142	1,372
Non-controlling interests
Ordinary shares		(255)	-	-	(255)
Preferred securities		(62)	-	-	(62)
Adjusted operating MCEV earnings after tax attributable to equity holders		866	47	142	1,055
Adjusted operating Group MCEV earnings per share¹		15.9	0.9	2.6	19.4
Adjusted weighted average number of shares - millions					5,435
¹Adjusted 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.

Group market consistent embedded value statement of earnings
For the six months ended 30 June 2012
				£m
	Notes	6 months ended 30 June 2012	6 months ended 30 June 2011	Year ended 31 December 2011
Adjusted operating Group MCEV earnings before tax from core operations		731	795	1,547
Adjusted operating Group MCEV earnings before tax from non-core operations	B2	23	11	48
Adjusted operating Group MCEV earnings before tax from continuing operations¹		754	806	1,595
Adjusting items from continuing operations	C3	175	161	(437)
Total Group MCEV earnings before tax from continuing operations		929	967	1,158
Income tax attributable to shareholders		(212)	(181)	(168)
Total Group MCEV earnings after tax from continuing operations		717	786	990
Total Group MCEV earnings after tax from discontinued operations		600	(6)	(15)
MCEV earnings after tax from discontinued operations²		6	(6)	(15)
Adjusted Group MCEV uplift from sale of Nordic		202	-	-
Other Group adjustments related to the Nordic disposal		392	-	-

Total Group MCEV earnings after tax for the financial period		1,317	780	975

Total Group MCEV earnings for the financial period attributable to:
Equity holders of the parent		1,160	637	674
Non-controlling interests
Ordinary shares		127	112	239
Preferred securities		30	31	62
Total Group MCEV earnings after tax for the financial period		1,317	780	975
Basic total Group MCEV earnings per ordinary share (pence)		23.4	12.5	13.1
Weighted average number of shares - millions		4,952	5,098	5,136
¹For 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, option revaluations related to long-term incentive schemes, the impact of closure of unclaimed shares trusts, profit/(loss) on acquisition/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 instruments.
²For Nordic, these are composed of earnings before tax of £28 million (June 2011: £88 million; December 2011: £173 million), adjusting items of £(20) million (June 2011: £(79) million; December 2011: £(161) million) and tax of £(2) million (June 2011: £(15) million; December 2011: £(27) million). Further detail relating to adjusting items can be found in section C3.

Reconciliation of movements in Group and Adjusted Group MCEV (after tax)
							£m
		6 months ended 30 June 2012			6 months ended 30 June 2011
	Notes	Covered business MCEV	Non-covered business IFRS	Total Group MCEV	Covered business MCEV	Non-covered business IFRS	Total Group MCEV
Opening Group MCEV		7,212	2,516	9,728	7,515	2,386	9,901
Adjusted operating MCEV earnings	B4	245	173	418	354	175	529
Non-operating MCEV earnings		164	578	742	(27)	135	108
Total Group MCEV earnings		409	751	1,160	327	310	637
Other movements in IFRS net equity	C4	(1,605)	(110)	(1,715)	106	(128)	(22)
Closing Group MCEV		6,016	3,157	9,173	7,948	2,568	10,516
Adjustments to bring Group investments to market value	B1	-	1,487	1,487	-	1,324	1,324
Adjusted Group MCEV		6,016	4,644	10,660	7,948	3,892	11,840

				£m
		Year ended 31 December 2011
	Notes	Covered business MCEV	Non-covered business IFRS	Total Group MCEV
Opening Group MCEV		7,515	2,386	9,901
Adjusted operating MCEV earnings	B4	727	328	1,055
Non-operating MCEV earnings		(331)	(50)	(381)
Total Group MCEV earnings		396	278	674
Other movements in IFRS net equity	C4	(699)	(148)	(847)
Closing Group MCEV		7,212	2,516	9,728
Adjustments to bring Group investments to market value	B1	-	1,066	1,066
Adjusted Group MCEV		7,212	3,582	10,794

Notes to the MCEV basis supplementary information

For the six months ended 30 June 2012

A: MCEV policies

A1: Basis of preparation

The Market Consistent Embedded Value methodology (referred to herein and in the supplementary statements on pages 82 to 117 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 at 30 June 2012. The detailed methodology and assumptions made in presenting this supplementary information 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.

A2: Methodology

(a) 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 (i.e. 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 a basis, consistent with a 99.93% confidence level over a one-year time horizon.

For Emerging Markets and Wealth Management capital determined with reference to internal management objectives is the most onerous and is the capital measure used, whilst for Nordic the regulatory capital requirement was the most onerous in 30 June 2011 and 31 December 2011 comparatives. For Bermuda the required capital is set with reference to internal management objectives, i.e. the adjusted net worth.

The required capital in respect of OMLAC(SA)'s covered business 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.

The Bermuda Monetary Authority (BMA) enacted its new Class E Prudential rules in December 2011. In July 2012, it was agreed with the BMA that the Bermuda business should now directly hold capital resources comparable to those required under Solvency II, as calculated by the Group's existing internal capital model, which were previously held centrally.


The table below shows the level of required capital expressed as a percentage of the minimum local regulatory capital requirements
										£m
		At 30 June 2012			At 30 June 2011			At 31 December 2011
	Notes	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 Markets¹	B3	1,371	1,019	1.3	1,525	1,187	1.3	1,368	1,012	1.4
Wealth Management²	B3	310	232	1.3	336	252	1.3	314	241	1.3
Bermuda³	B3	232	136	1.7	407	-	n/a	187	77	2.4
Nordic	B3	n/a	n/a	n/a	141	140	1.0	127	127	1.0
Total		1,913	1,387	1.4	2,409	1,579	1.5	1,996	1,457	1.4
¹The required capital and regulatory capital relating to the other African life businesses is included from 31 December 2011 results for Emerging Markets.
²Local regulators within many of the Wealth Management 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.
³During December 2011, the BMA insurance (Prudential Standards) (Class E Solvency Requirements) Rules 2011 were formally signed into Bermudan law. The regulations allow for a transition period for the new capital requirement (75% for financial year 2012, 100% for financial year 2013). The required capital calculated on this statutory basis was approximately £136 million at 30 June 2012. As of 30 June 2012, we have determined the required capital as the adjusted net worth held in the business at that date as this exceeded the transitional capital requirement. However, in July 2012 it was agreed with the BMA that Bermuda business should now directly hold capital resources of £448 million, comparable to those required under Solvency II, as calculated by the Group's existing internal capital model, which were previously held centrally (this change is not reflected in the table above as it took place after 30 June 2012). The changes to required capital held locally that have taken place in July 2012 are not expected to have any material impact on the value of in-force business.

(b) Cost of residual non-hedgeable risks

The Cost of residual non-hedgeable risks ("CNHR") is calculated using a cost of capital approach, i.e. 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 2012	At 30 June 2011	At 31 December 2011
Emerging Markets	897	765	808
Wealth Management	833	828	831
Bermuda	275	331	335
Nordic	n/a	325	290
Total	2,005	2,249	2,264

During 2011 the methodology used to calculate non-hedgeable risk capital was enhanced and standardised across all insurance business units in order to align with emerging Solvency II requirements.

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 2.4% being applied to the Group diversified capital required in respect of such non-hedgeable risks.

United Kingdom:

The Emergency Budget that was held in June 2010 stated that the UK's mainstream corporation tax rate would be reduced from its current level of 28% down to 24% in annual 1% steps. Following that, there were further announcements for additional reductions, and accelerations of these reductions. The reduction to 25%, effective from April 2012, has been allowed for in the FY2011 results.The H1 2012 results allow for an additional 1% reduction to 24%, effective from April 2012 and the further 1% reduction to 23%, effective from April 2013. This additional 2% reduction amounts to £9 million in the H1 2012 results. The impact of the remaining reduction from 23% down to 22%, applicable from April 2014, is expected to be £4 million.

South Africa:

A new dividend withholding tax system (replacing the current Secondary Tax on Companies (STC) system) was introduced in South Africa effective from 1 April 2012. This was reflected in the results at 31 December 2011, i.e. no allowance was made in future for the impact of the new dividend withholding tax in the MCEV, except for an allowance for withholding tax on the remittance of dividends to Old Mutual plc, as the actual level of taxation would depend on the legal nature of each shareholder. The Emerging Markets MCEV increased by approximately R1,221 million (£105 million) while the value of new business for the year ended 31 December 2011 increased by approximately R104 million (£9 million).

Allowance has now been made for dividend withholding tax on dividends earned in the policyholder funds as well as allowing for the increase in capital gains tax in policyholder funds. These were the main contributors to MCEV reducing by £21 million (R270 million). The average effective tax rate remains unchanged at 28%.



(d) Value of debt
Senior and subordinated debt securities are marked to market (for IFRS reporting, debt is valued at either book value or fair value). The table below shows the comparison of debt on an IFRS and MCEV basis.


		At 30 June 2012		At 30 June 2011		At 31 December 2011
Debt securities	Notes to the Consolidated Financial Statements	Book value	MCEV	Book value	MCEV	Book value	MCEV
£350 million perpetual preferred callable securities	E1	350	282	350	299	350	263
€500 million perpetual preferred callable securities	E1	338	355	338	391	338	342
US$750 million cumulative preference securities	E1	458	481	458	464	458	465
R3.0 billion repayable 27 October 2015 (8.9%)	E1 (e)	234	248	276	277	239	249
€2 million fixed rate note repayable December 2013		-	-	2	2	2	2
US$16.5 million secured senior debt repayable August 2014 (5.23%)	E1 (b)	11	11	10	10	11	11
€200 million (2010: €750 million) (4.5% to January 2012 and 6 month EURIBOR plus 0.96% thereafter)¹	E1 (e)	-	-	671	670	166	166
£500 million repayable 3 June 2021 (8.0%)²	E1 (e)	513	513	500	500	471	471
£500 million euro bond repayable October 2016 (7.125%)³	E1 (b)	504	569	503	551	504	546
US$50 million floating rate note repayable September 2011 (3 month LIBOR plus 0.35%) - repaid	E1 (a)	-	-	31	31	-	-
Value of debt		2,408	2,459	3,139	3,195	2,539	2,515
¹The principal and coupon on the bond were swapped at issue equally into Sterling and US dollars with coupons of six month GBP LIBOR plus 0.34% and six month USD LIBOR plus 0.31% respectively. During 2011 a €550 million partial repayment, together with settlements of associated currency swaps, was made. On 18 January 2012 the remaining €200 million was repaid on the first call date.
²The principal and coupon on the bond were initially swapped into floating rate Swedish Kroner, at three month STIBOR plus 5.46%. Following the Nordic sale, £375 million of the coupon is now swapped into floating rate sterling at six month GBP LIBOR plus 4.15% and £125 million of principal and coupon is swapped into US dollars at six month USD LIBOR plus 5.49%.
³This differs from the value in the Borrowed Funds note E1 (b) by the accrued interest at the end of the year, which is included within the book value of the debt in determining the MCEV market value uplift to maintain consistency and comparability with the market value.

Where either the principal or the coupon of the debt security has been swapped into an alternate currency, the mark to market value of these derivative instruments of £79 million (30 June 2011: £104 million; 31 December 2011: £86 million) has not been included in the value of debt above; however, it is included in the Net Other Business value of £1,068 million (30 June 2011: £379 million; 31 December 2011: £175 million) (Adjusted Group MCEV presented per business line). Further information relating to the debt securities can be found in Note E1 in the Notes to the Consolidated Financial Statements.

A3: Assumptions

Non-economic assumptions

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

§ All expected maintenance expense overruns affecting the covered business are allowed for in the calculations.

§ The MCEV makes provision for future development costs and one-off expenses (such as those incurred on the integration of businesses following an acquisition, restructuring costs and costs related to Solvency II implementation) that relate to covered business to the extent that such project costs are known with sufficient certainty, based on three year business plans.

§ Unallocated Group holding company expenses have been included to the extent that they are allocated to the covered business. The table below shows the proportion of 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 2012	At 30 June 2011	At 31 December 2011
Emerging Markets	18	17	17
Wealth Management	9	8	8
Nordic	-	4	3
Total	27	29	28

Economic assumptions

(a) Risk free reference rates and inflation

At 30 June 2012, 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 is applied to OMLAC(SA)'s Fixed Bond business as 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 2012 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 2012 by adding 50bps of liquidity premium for this business (30 June 2011: 55bps; 31 December 2011: 50bps) to the swap rates used for setting investment return and discounting assumptions. For OMLAC(SA)'s Fixed Bond products 55 bps of liquidity premium was added to the swap rates (30 June 2011: 60bps; 31 December 2011: 50bps).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 2012, 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 2012
1 year	1.0	0.9	0.5	5.5	-
5 years	1.4	1.3	1.0	6.5	-
10 years	2.2	2.0	1.8	7.6	-
20 years	3.0	2.4	2.5	7.8	-
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 31 December 2011
1 year	1.4	1.4	0.7	5.7	2.1
5 years	1.6	1.7	1.2	7.1	2.3
10 years	2.4	2.4	2.1	8.1	2.5
20 years	3.0	2.7	2.6	8.1	2.1

Expense inflation
					%
	GBP	EUR	USD	ZAR	SEK
At 30 June 2012
1 year	3.0	2.5	3.0	5.9	-
5 years	3.2	2.5	3.0	6.3	-
10 years	3.5	2.5	3.0	7.1	-
20 years	4.1	2.5	3.0	7.1	-
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 31 December 2011
1 year	3.0	2.5	3.0	6.1	1.3
5 years	3.4	2.5	3.0	7.0	2.2
10 years	3.8	2.5	3.0	7.7	2.5
20 years	4.3	2.5	3.0	7.5	2.6


(b) Volatilities and correlations

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

ZAR volatilities¹
					%
Option term	1 year swap	5 year swap	10 year swap	20 year swap	Equity (total return index)²
At 30 June 2012
1 year	31.9	26.0	23.1	22.9	23.3
5 years	22.0	21.3	21.5	22.3	28.2
10 years	21.0	22.2	23.1	23.0	26.8
20 years	25.1	24.9	24.7	23.6	28.9
At 30 June 2011
1 year	18.3	16.8	15.9	15.5	23.0
5 years	16.7	16.0	15.6	15.2	26.0
10 years	16.2	15.8	15.4	14.7	27.4
20 years	14.5	14.1	13.5	12.5	28.3
At 31 December 2011
1 year	30.6	25.0	23.1	23.3	26.2
5 years	21.9	21.5	22.4	23.0	28.4
10 years	22.9	23.8	24.0	23.5	26.8
20 years	25.8	25.7	25.1	23.7	29.0
¹Due to limited liquidity in the ZAR swaption market, the market consistent asset model has been calibrated by extrapolating swaption and equity implied volatility data beyond a term of one year and 5 years respectively for assumptions at 30 June 2012 and 31 December 2011 June 2011: (2 year and 3 years respectively).
²December 2011 Equity implied volatilities were restated for comparability following ESG enhancements.

USD volatilities
					%
Option term		1 year swap	5 year swap	10 year swap	20 year swap
At 30 June 2012
1 year		60.0	48.9	43.1	37.1
5 years		42.3	34.8	31.7	30.4
10 years		30.0	27.9	27.7	26.8
20 years		26.0	25.8	25.0	24.3
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 31 December 2011
1 year		71.8	49.1	45.1	41.8
5 years		42.1	36.8	34.6	33.8
10 years		32.7	31.2	31.1	29.9
20 years		29.8	29.3	27.9	27.5


International equity volatilities (applicable to Bermuda)¹
									%
Option term	SPX	EWZ	TPX	HSCEI	TWY	KOSP12	NIFTY	SX5E	UKX
At 30 June 2012
1 year	22.9	31.7	25.9	26.5	21.4	21.9	20.4	24.7	22.0
5 years	26.0	31.5	27.0	28.8	23.3	22.8	26.0	24.3	24.6
10 years	26.0	31.5	27.0	28.8	23.3	22.8	26.0	24.3	24.6
At 30 June 2011
1 year	20.8	27.6	25.8	24.8	20.3	21.4	21.1	23.0	20.6
5 years	23.4	28.0	26.7	27.2	23.2	22.7	25.1	23.7	23.2
10 years	23.4	28.0	26.7	27.2	23.2	22.7	25.1	23.7	23.2
At 31 December 2011
1 year	25.0	35.9	26.7	31.5	26.1	25.1	25.6	27.2	23.9
5 years	27.8	34.8	28.0	32.3	25.0	24.6	25.2	25.3	25.0
10 years	27.8	34.8	28.0	32.3	25.0	24.6	25.2	25.3	25.0


International equity volatilities (applicable to Bermuda)¹
									%
Option term						EEM	USAgg	EUAgg	APAgg
At 30 June 2012
1 year						29.4	5.5	13.0	12.3
5 years						30.5	5.5	13.0	12.3
10 years						30.5	5.5	13.0	12.3
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 31 December 2011
1 year						33.9	5.5	13.0	12.3
5 years						33.0	5.5	13.0	12.3
10 years						33.0	5.5	13.0	12.3
¹Long-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 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.

All MCEV figures are calculated in local currency and translated to GBP using the appropriate exchange rates as detailed in Note C2 of the Consolidated Financial Statements.

(d) Expected asset returns in excess of the risk free reference rates

The expected asset returns in excess of the risk free reference rates have no bearing on the calculated MCEV other than the calculation of the expected existing business contribution in the analysis of MCEV earnings. Real-world economic assumptions are determined with reference to one-year forward risk free reference rates applicable to the currency of the liabilities at the start of the reporting period. All other economic assumptions, for example future bonus or crediting rates, are set at levels consistent with the real-world investment return assumptions.

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.

(e) Tax
The weighted average effective tax rates that apply to the cash flow projections at 30 June 2012 are set out below:

Weighted average effective tax rates			%
	At 30 June 2012	At 30 June 2011	At 31 December 2011
OMLAC(SA)¹	28	33	28
Wealth Management	12	15	13
Bermuda	-	-	-
Nordic	n/a	4	4
¹The reduction in weighted average effective tax rate for OMLAC(SA) from 30 June 2011 to 30 June 2012 is as a result of the new dividend withholding tax effective from 1 April 2012 as detailed in Note A2 (c).


B: Segment information
B1: Components of Group MCEV and Adjusted Group MCEV
				£m
	Notes	At 30 June 2012	At 30 June 2011	At 31 December 2011
Adjusted net worth attributable to ordinary equity holders of the parent		5,757	5,666	5,193
Equity		7,965	9,266	8,488
Adjustment to IFRS net asset value	C5	(1,520)	(2,912)	(2,607)
Adjustment to remove perpetual preferred callable securities		(688)	(688)	(688)
Value of in-force business		3,416	4,850	4,535
Present value of future profits		4,042	5,602	5,248
Additional time value of financial options and guarantees		(100)	(163)	(136)
Frictional costs		(245)	(268)	(243)
Cost of residual non-hedgeable risks		(281)	(321)	(334)

Group MCEV		9,173	10,516	9,728
Adjustments to bring Group investments to market value
Adjustment to bring listed subsidiary (Nedbank) to market value		1,159	969	655
Adjustment for value of own shares in ESOP schemes¹		106	113	117
Adjustment for present value of Black Economic Empowerment scheme deferred consideration¹		273	299	270
Adjustment to bring external debt to market value		(51)	(57)	24
Adjusted Group MCEV		10,660	11,840	10,794

Group MCEV value per share (pence)		187.7	190.2	174.9
Adjusted Group MCEV per share (pence)		218.1	214.1	194.1
Number of shares in issue at the end of the financial period less treasury shares - millions		4,887	5,529	5,562

Return on Group MCEV (ROEV) per annum from core operations		8.0%	9.2%	8.8%
Return on Group MCEV (ROEV) per annum from continuing non-core operations		0.5%	0.3%	0.5%
Return on Group MCEV (ROEV) per annum from discontinued operations		0.5%	1.5%	1.4%
Return on Group MCEV (ROEV²) per annum		9.0%	11.0%	10.7%
¹Includes adjustment for value of excess own shares in employee share scheme trusts. The movement in value between 31 December 2011 and 30 June 2012 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.
²The ROEV is calculated as the adjusted operating Group MCEV earnings after tax and non-controlling interests of £418 million (June 2011:£529 million; December 2011: £1,055 million) divided by the opening Group MCEV.

B: Segment information continued
B2: Adjusted operating MCEV earnings for the covered business
	£m
	Total covered business	Long Term Savings	Emerging Markets	Wealth Management	Bermuda	Nordic

Six months ended 30 June 2012
Adjusted operating Group MCEV earnings before tax	305	264	198	66	23	18
Tax on adjusted operating Group MCEV earnings	(60)	(60)	(54)	(6)	-	-
Adjusted operating Group MCEV earnings after tax	245	204	144	60	23	18

	£m
	Total covered business	Long Term Savings	Emerging Markets	Wealth Management	Bermuda	Nordic

Six months ended 30 June 2011
Adjusted operating Group MCEV earnings before tax	447	358	241	117	11	78
Tax on adjusted operating Group MCEV earnings	(93)	(76)	(53)	(23)	(2)	(15)
Adjusted operating Group MCEV earnings after tax	354	282	188	94	9	63

	£m
	Total covered business	Long Term Savings	Emerging Markets	Wealth Management	Bermuda	Nordic

Year ended 31 December 2011
Adjusted operating Group MCEV earnings before tax	918	714	468	246	48	156
Tax on adjusted operating Group MCEV earnings	(191)	(162)	(119)	(43)	(1)	(28)
Adjusted operating Group MCEV earnings after tax	727	552	349	203	47	128


B3: Components of MCEV of the covered business
	£m
	Total covered business	Long Term Savings	Emerging Markets	Wealth Management	Bermuda	Nordic

At 30 June 2012
Adjusted net worth	2,600	2,368	1,891	477	232	-
Free surplus	687	687	520	167	-	-
Required capital	1,913	1,681	1,371	310	232	-
Value of in-force	3,416	3,507	1,440	2,067	(91)	-
Present value of future profits	4,042	4,020	1,799	2,221	22	-
Additional time value of financial options and guarantees	(100)	(15)	-	(15)	(85)	-
Frictional costs	(245)	(243)	(227)	(16)	(2)	-
Cost of residual non-hedgeable risks	(281)	(255)	(132)	(123)	(26)	-

MCEV	6,016	5,875	3,331	2,544	141	-

	£m
	Total covered business	Long Term Savings	Emerging Markets	Wealth Management	Bermuda	Nordic

At 30 June 2011
Adjusted net worth	3,098	2,491	1,995	496	407	200
Free surplus	689	630	470	160	-	59
Required capital	2,409	1,861	1,525	336	407	141
Value of in-force	4,850	3,656	1,440	2,216	(107)	1,301
Present value of future profits	5,602	4,146	1,778	2,368	79	1,377
Additional time value of financial options and guarantees	(163)	(8)	-	(8)	(155)	-
Frictional costs	(268)	(260)	(238)	(22)	(2)	(6)
Cost of residual non-hedgeable risks	(321)	(222)	(100)	(122)	(29)	(70)

MCEV	7,948	6,147	3,435	2,712	300	1,501

	£m
	Total covered business	Long Term Savings	Emerging Markets¹	Wealth Management	Bermuda	Nordic

At 31 December 2011
Adjusted net worth	2,676	2,204	1,768	436	187	285
Free surplus	680	522	400	122	-	158
Required capital	1,996	1,682	1,368	314	187	127
Value of in-force	4,536	3,509	1,399	2,110	(121)	1,148
Present value of future profits	5,248	4,001	1,740	2,261	36	1,211
Additional time value of financial options and guarantees	(136)	(14)	-	(14)	(122)	-
Frictional costs	(243)	(236)	(218)	(18)	(2)	(5)
Cost of residual non-hedgeable risks	(333)	(242)	(123)	(119)	(33)	(58)

MCEV	7,212	5,713	3,167	2,546	66	1,433
¹The required capital in respect of Emerging Markets 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.

B: Segment information continued
B4: Analysis of covered business MCEV earnings (after tax)

					£m
Total covered business	6 months ended 30 June 2012
	Free surplus	Required capital	Adjusted net worth	Value of in-force	MCEV
Opening MCEV	680	1,996	2,676	4,536	7,212
New business value	(154)	74	(80)	154	74
Expected existing business contribution (reference rate)	11	36	47	79	126
Expected existing business contribution (in excess of reference rate)	2	18	20	24	44
Transfers from VIF and required capital to free surplus	379	(113)	266	(266)	-
Experience variances	8	17	25	13	38
Assumption changes	(5)	-	(5)	-	(5)
Other operating variance	(44)	48	4	(36)	(32)
Operating MCEV earnings	197	80	277	(32)	245
Economic variances	86	5	91	108	199
Other non-operating variance	(32)	-	(32)	(3)	(35)
Total MCEV earnings	251	85	336	73	409
Closing adjustments	(244)	(168)	(412)	(1,193)	(1,605)
Capital and dividend flows	(70)	(1)	(71)	-	(71)
Foreign exchange variance	(15)	(40)	(55)	(45)	(100)
MCEV of acquired/sold business	(159)	(127)	(286)	(1,148)	(1,434)

Closing MCEV	687	1,913	2,600	3,416	6,016
Return on MCEV (RoEV)% per annum					7.3%

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




	6 months ended 30 June 2011					Year ended 31 December 2011
	Free surplus	Required capital	Adjusted net worth	Value of in-force	MCEV	Free surplus	Required capital	Adjusted net worth	Value of in-force	MCEV
Opening MCEV	507	2,844	3,351	4,164	7,515	507	2,844	3,351	4,164	7,515
New business value	(231)	82	(149)	257	108	(444)	187	(257)	490	233
Expected existing business contribution (reference rate)	7	36	43	92	135	17	65	82	179	261
Expected existing business contribution (in excess of reference rate)	3	18	21	44	65	7	34	41	87	128
Transfers from VIF and required capital to free surplus	496	(119)	377	(377)	-	943	(236)	707	(707)	-
Experience variances	19	13	32	48	80	10	30	40	111	151
Assumption changes	2	-	2	(6)	(4)	23	4	27	1	28
Other operating variance	(21)	24	3	(33)	(30)	188	(205)	(17)	(57)	(74)
Operating MCEV earnings	275	54	329	25	354	744	(121)	623	104	727
Economic variances	38	(8)	30	(63)	(33)	(221)	(22)	(243)	(214)	(457)
Other non-operating variance	-	-	-	6	6	32	1	33	93	126
Total MCEV earnings	313	46	359	(32)	327	555	(142)	413	(17)	396
Closing adjustments	(131)	(481)	(612)	718	106	(382)	(706)	(1,088)	389	(699)
Capital and dividend flows	(56)	69	13	-	13	(243)	55	(188)	-	(188)
Foreign exchange variance	(11)	(101)	(112)	23	(89)	(75)	(312)	(387)	(306)	(693)
MCEV of acquired/sold business	(64)	(449)	(513)	695	182	(64)	(449)	(513)	695	182

Closing MCEV	689	2,409	3,098	4,850	7,948	680	1,996	2,676	4,536	7,212
Return on MCEV (RoEV)% per annum					9.9%					9.7%

B: Segment Information continued

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

The Long Term Savings segment consists of Emerging Markets and Wealth Management.

				£m
Long Term Savings (LTS)	6 months ended 30 June 2012
	Free surplus	Required capital	Adjusted net worth	Value of in-force	MCEV
Opening MCEV	522	1,682	2,204	3,509	5,713
New business value	(154)	74	(80)	154	74
Expected existing business contribution (reference rate)	11	35	46	76	122
Expected existing business contribution (in excess of reference rate)	2	6	8	19	27
Transfers from VIF and required capital to free surplus	386	(97)	289	(289)	-
Experience variances	(27)	17	(10)	23	13
Assumption changes	-	-	-	-	-
Other operating variance	8	(1)	7	(39)	(32)
Operating MCEV earnings	226	34	260	(56)	204
Economic variances	39	5	44	102	146
Other non-operating variance	(14)	-	(14)	(3)	(17)
Total MCEV earnings	251	39	290	43	333
Closing adjustments	(86)	(40)	(126)	(45)	(171)
Capital and dividend flows	(70)	(1)	(71)	-	(71)
Foreign exchange variance	(16)	(39)	(55)	(45)	(100)
MCEV of acquired/sold business	-	-	-	-	-

Closing MCEV	687	1,681	2,368	3,507	5,875
Return on MCEV (RoEV)% per annum					7.7%

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
	6 months ended 30 June 2011					Year ended 31 December 2011
	Free surplus	Required capital	Adjusted net worth	Value of in-force	MCEV	Free surplus	Required capital	Adjusted net worth	Value of in-force		MCEV
Opening MCEV	390	1,838	2,228	3,685	5,913	390	1,838	2,228	3,685		5,913
New business value	(202)	78	(124)	204	80	(390)	179	(211)	388		177
Expected existing business contribution (reference rate)	5	34	39	71	110	14	60	74	137		211
Expected existing business contribution (in excess of reference rate)	3	6	9	20	29	7	10	17	40		57
Transfers from VIF and required capital to free surplus	397	(91)	306	(306)	-	748	(179)	569	(569)		-
Experience variances	17	10	27	61	88	(5)	32	27	103		130
Assumption changes	1	-	1	(3)	(2)	9	4	13	27		40
Other operating variance	11	(8)	3	(26)	(23)	33	(28)	5	(68)		(63)
Operating MCEV earnings	232	29	261	21	282	416	78	494	58		552
Economic variances	39	(2)	37	(13)	24	23	(6)	17	(24)		(7)
Other non-operating variance	4	-	4	6	10	(7)	-	(7)	96		89
Total MCEV earnings	275	27	302	14	316	432	72	504	130		634
Closing adjustments	(35)	(4)	(39)	(43)	(82)	(300)	(228)	(528)	(306)		(834)
Capital and dividend flows	(25)	69	44	-	44	(232)	55	(177)	-		(177)
Foreign exchange variance	(10)	(73)	(83)	(43)	(126)	(68)	(283)	(351)	(306)		(657)
MCEV of acquired/sold business	-	-	-	-	-	-	-	-	-		-

Closing MCEV	630	1,861	2,491	3,656	6,147	522	1,682	2,204	3,509		5,713
Return on MCEV (RoEV)% per annum					10.0%						9.3%

B: Segment Information continued

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


				£m
Emerging Markets ¹	6 months ended 30 June 2012
	Free surplus	Required capital	Adjusted net worth	Value of in-force	MCEV
Opening MCEV	400	1,368	1,768	1,399	3,167
New business value	(84)	63	(21)	73	52
Expected existing business contribution (reference rate)	9	34	43	56	99
Expected existing business contribution (in excess of reference rate)	2	6	8	7	15
Transfers from VIF and required capital to free surplus	196	(76)	120	(120)	-
Experience variances	(2)	7	5	8	13
Assumption changes	-	-	-	-	-
Other operating variance	5	-	5	(40)	(35)
Operating MCEV earnings	126	34	160	(16)	144
Economic variances	24	3	27	94	121
Other non-operating variance	(14)	-	(14)	(7)	(21)
Total MCEV earnings	136	37	173	71	244
Closing adjustments	(16)	(34)	(50)	(30)	(80)
Capital and dividend flows	(1)	-	(1)	-	(1)
Foreign exchange variance	(15)	(34)	(49)	(30)	(79)
MCEV of acquired/sold business	-	-	-	-	-

Closing MCEV	520	1,371	1,891	1,440	3,331
Return on MCEV (RoEV)% per annum					10.2%

¹ The MCEV for Emerging Markets is presented after the adjustment for market value of life fund investments in Group equity and debt instruments.
Return on MCEV is calculated as the operating MCEV earnings after tax divided by opening MCEV in rand. The operating assumption changes and other operating variances are not annualised.

Overview

New Business: The new business value increased (compared to H1 2011) largely driven by an improvement in new business margins, with higher recurring premium sales, particularly in the Mass Foundation cluster. This is mostly offset by lower single premium sales in Retail Affluent and Corporate .

Operating earnings: Operating profits on the in-force book decreased (compared to H1 2011) largely due to lower experience variances in aggregate following assumption changes at 31 December 2011.

Non-operating earnings and closing adjustments: The most material impacts were a positive contribution from favourable market conditions and foreign exchange losses due to the depreciation of the rand against sterling .

										£m
	6 months ended 30 June 2011					Year ended 31 December 2011
	Free surplus	Required capital	Adjusted net worth	Value of in-force	MCEV	Free surplus	Required capital	Adjusted net worth	Value of in-force		MCEV
Opening MCEV	306	1,498	1,804	1,509	3,313	306	1,498	1,804	1,509		3,313
New business value	(93)	66	(27)	65	38	(189)	155	(34)	133		99
Expected existing business contribution (reference rate)	6	31	37	54	91	11	58	69	105		174
Expected existing business contribution (in excess of reference rate)	1	6	7	9	16	2	10	12	18		30
Transfers from VIF and required capital to free surplus	193	(75)	118	(118)	-	359	(150)	209	(209)		-
Experience variances	35	6	41	33	74	28	24	52	50		102
Assumption changes	-	-	-	-	-	1	4	5	1		6
Other operating variance	(21)	(2)	(23)	(8)	(31)	(7)	(11)	(18)	(44)		(62)
Operating MCEV earnings	121	32	153	35	188	205	90	295	54		349
Economic variances	29	4	33	(25)	8	1	8	9	23		32
Other non-operating variance	4	-	4	-	4	(7)	-	(7)	100		93
Total MCEV earnings	154	36	190	10	200	199	98	297	177		474
Closing adjustments	10	(9)	1	(79)	(78)	(105)	(228)	(333)	(287)		(620)
Capital and dividend flows	25	69	94	-	94	(39)	51	12	-		12
Foreign exchange variance	(15)	(78)	(93)	(79)	(172)	(66)	(279)	(345)	(287)		(632)
MCEV of acquired/sold business	-	-	-	-	-	-	-	-	-		-

Closing MCEV	470	1,525	1,995	1,440	3,435	400	1,368	1,768	1,399		3,167
Return on MCEV (RoEV)% per annum					13.3%						11.9%

New Business

New business margins were positively impacted by operating assumption changes at 31 December 2011 (mainly those relating to persistency), a more favourable economic basis, the effect of moving to a dividend withholding tax regime, as well as a shift in mix of sales towards higher margin recurring premium products.

Expected existing business contribution

The unwind of returns on the in-force business over H1 2012 was slightly higher than H1 2011. The higher unwind was the combined effect of higher 1-year risk-free rates and a higher opening MCEV balance on which the unwind is based.

Experience variances

Experience variances were less positive (compared to H1 2011) following the operating assumption changes made in December 2011. Mortality and morbidity variances were consistent with 2011 as a result of continued good experience in Retail Affluent and Mass Foundation Cluster, as well as an improvement on the Corporate Group Assurance business. Experience variances were also impacted by higher than expected taxation and central costs, partially offset by the release of provisions held in respect of legacy products.

Other operating variances

The negative other operating variance consists of miscellaneous modelling and methodology changes, including an increase in the CNHR resulting from the recalculation of the non-hedgeable risk capital.

Economic variances

Favourable economic variances in 2012 were a result of positive market performance, including a 7% rise in the JSE SWIX price index, and a reduction in the level of the South African swap curve.

Other non-operating variances

Other non-operating variances consist mainly of modelling changes to incorporate the new South African dividend withholding tax regime and higher capital gains tax in the calculation of policyholder investment returns in MCEV models.

Capital and dividend flows

This includes the net impact of dividends, partially offset by the proceeds from the net sale of the plc loan note in Bahamas, and the transfer of the Zimbabwean and Namibian holding companies from the non-covered to the covered business.

Foreign exchange effects

The negative foreign exchange result was due to a 2% depreciation in the rand against sterling over H1 2012.

B: Segment Information continued

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

				£m
Wealth Management	6 months ended 30 June 2012
	Free surplus	Required capital	Adjusted net worth	Value of in-force	MCEV
Opening MCEV	122	314	436	2,110	2,546
New business value	(70)	11	(59)	81	22
Expected existing business contribution (reference rate)	2	1	3	20	23
Expected existing business contribution (in excess of reference rate)	-	-	-	12	12
Transfers from VIF and required capital to free surplus	190	(21)	169	(169)	-
Experience variances	(25)	10	(15)	15	-
Assumption changes	-	-	-	-	-
Other operating variance	3	(1)	2	1	3
Operating MCEV earnings	100	-	100	(40)	60
Economic variances	15	2	17	8	25
Other non-operating variance	-	-	-	4	4
Total MCEV earnings	115	2	117	(28)	89
Closing adjustments	(70)	(6)	(76)	(15)	(91)
Capital and dividend flows	(69)	(1)	(70)	-	(70)
Foreign exchange variance	(1)	(5)	(6)	(15)	(21)
MCEV of acquired/sold business	-	-	-	-	-

Closing MCEV	167	310	477	2,067	2,544
Return on MCEV (RoEV)% per annum					4.6%

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.

Overview

New business: The new business value decreased (compared to H1 2011), driven by lower volumes and lower new business margins. UK Legacy sales were impacted by the managed reduction in available product range, whereas offshore international market sales decreased largely due to concerns relating to the eurozone and uncertainty surrounding the Qualifying Recognised Overseas Pensions Scheme (QROPS) proposition given changes in qualifying criteria published by the HMRC.

Operating earnings: Operating profits on the in-force book decreased (compared to H1 2011) due to a reduced new business value and lower experience variances following the release of prudence margins at 31 December 2011.

Non-operating earnings and closing adjustments: The most material impacts were from capital returned to Group in the year, a positive contribution from favourable market conditions, and foreign exchange losses due to the depreciation of the euro against sterling.

										£m
	6 months ended 30 June 2011					Year ended 31 December 2011
	Free surplus	Required capital	Adjusted net worth	Value of in-force	MCEV	Free surplus	Required capital	Adjusted net worth	Value of in-force		MCEV
Opening MCEV	84	340	424	2,176	2,600	84	340	424	2,176		2,600
New business value	(109)	12	(97)	139	42	(201)	24	(177)	255		78
Expected existing business contribution (reference rate)	(1)	3	2	17	19	3	2	5	32		37
Expected existing business contribution (in excess of reference rate)	2	-	2	11	13	5	-	5	22		27
Transfers from VIF and required capital to free surplus	204	(16)	188	(188)	-	389	(29)	360	(360)		-
Experience variances	(18)	4	(14)	28	14	(33)	8	(25)	53		28
Assumption changes	1	-	1	(3)	(2)	8	-	8	26		34
Other operating variance	32	(6)	26	(18)	8	40	(17)	23	(24)		(1)
Operating MCEV earnings	111	(3)	108	(14)	94	211	(12)	199	4		203
Economic variances	10	(6)	4	12	16	22	(14)	8	(47)		(39)
Other non-operating variance	-	-	-	6	6	-	-	-	(4)		(4)
Total MCEV earnings	121	(9)	112	4	116	233	(26)	207	(47)		160
Closing adjustments	(45)	5	(40)	36	(4)	(195)	-	(195)	(19)		(214)
Capital and dividend flows	(50)	-	(50)	-	(50)	(193)	4	(189)	-		(189)
Foreign exchange variance	5	5	10	36	46	(2)	(4)	(6)	(19)		(25)
MCEV of acquired/sold business	-	-	-	-	-	-	-	-	-		-

Closing MCEV	160	336	496	2,216	2,712	122	314	436	2,110		2,546
Return on MCEV (RoEV)% per annum					7.0%						7.8%

New Business

New business margins were negatively affected by a reduction in sales volumes and the shift to a less profitable product mix in the offshore international market, partially offset a more favourable economic basis and favourable UK corporation tax changes.

Experience variances

Experience variances reduced (compared to H1 2011) following the release of prudence margins at 31 December 2011. A positive persistency variance emerged as assumptions made to anticipate the effects of the Retail Distribution Review (RDR) have yet to emerge on the legacy business in the UK. This was offset by maintenance expense losses due to expense over-runs in Wealth Management Europe.

Economic variances

Favourable economic variances in 2012 were a result of positive market performance and a reduction in the level of the UK and euro swap curves.

Other non-operating variances

Other non-operating variances include the benefit of reductions in headline UK corporation tax from 25% to 23% of £9m.

Capital and dividend flows and Foreign exchange effects

Transfers from covered business mainly relate to dividend payments to Group, namely a £27m dividend from International and a £36m dividend from Wealth Management Europe.

Foreign exchange effects

The foreign exchange variance is mainly due to unfavourable exchange rate movements on translation as a result of a 4% depreciation of the euro against sterling over H1 2011.

B: Segment Information continued

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

					£m
Bermuda	6 months ended 30 June 2012
	Free surplus	Required capital	Adjusted net worth	Value of in-force	MCEV
Opening MCEV	-	187	187	(121)	66
New business value	-	-	-	-	-
Expected existing business contribution (reference rate)	-	1	1	3	4
Expected existing business contribution (in excess of reference rate)	-	12	12	5	17
Transfers from VIF and required capital to free surplus	(7)	(16)	(23)	23	-
Experience variances	17	-	17	(10)	7
Assumption changes	(5)	-	(5)	-	(5)
Other operating variance	(52)	49	(3)	3	-
Operating MCEV earnings	(47)	46	(1)	24	23
Economic variances	47	-	47	6	53
Other non-operating variance	-	-	-	-	-
Total MCEV earnings	-	46	46	30	76
Closing adjustments	-	(1)	(1)	-	(1)
Capital and dividend flows	-	-	-	-	-
Foreign exchange variance	-	(1)	(1)	-	(1)
MCEV of acquired/sold business	-	-	-	-	-

Closing MCEV	-	232	232	(91)	141
Return on MCEV (RoEV)% per annum					76.5%

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

Bermuda

Overview

Operating earnings: Operating profits increased (compared to H1 2011) mainly due to positive persistency variances on Variable Annuity products mainly due to the release of reserves for guaranteed benefits and the impact of one-off modelling changes in 2011 that were not repeated.

Non-operating earnings and closing adjustments: The most material impact was the reduction in Variable Annuity Guaranteed Minimum Accumulation Benefit (GMAB) reserves, largely due to positive capital market conditions in H1 2011.


										£m
	6 months ended 30 June 2011					Year ended 31 December 2011
	Free surplus	Required capital	Adjusted net worth	Value of in-force	MCEV	Free surplus	Required capital	Adjusted net worth	Value of in-force		MCEV
Opening MCEV	-	403	403	(116)	287	-	403	403	(116)		287
New business value	-	-	-	-	-	-	-	-	-		-
Expected existing business contribution (reference rate)	-	1	1	3	4	-	2	2	6		8
Expected existing business contribution (in excess of reference rate)	-	12	12	8	20	-	24	24	14		38
Transfers from VIF and required capital to free surplus	34	(28)	6	(6)	-	66	(57)	9	(9)		-
Experience variances	1	-	1	(9)	(8)	16	(1)	15	9		24
Assumption changes	1	-	1	(3)	(2)	14	-	14	(22)		(8)
Other operating variance	(32)	32	-	(5)	(5)	155	(177)	(22)	7		(15)
Operating MCEV earnings	4	17	21	(12)	9	251	(209)	42	5		47
Economic variances	(4)	-	(4)	18	14	(251)	-	(251)	(10)		(261)
Other non-operating variance	-	-	-	-	-	-	-	-	-		-
Total MCEV earnings	-	17	17	6	23	-	(209)	(209)	(5)		(214)
Closing adjustments	-	(13)	(13)	3	(10)	-	(7)	(7)	-		(7)
Capital and dividend flows	-	-	-	-	-	-	-	-	-		-
Foreign exchange variance	-	(13)	(13)	3	(10)	-	(7)	(7)	-		(7)
MCEV of acquired/sold business	-	-	-	-	-	-	-	-	-		-

Closing MCEV	-	407	407	(107)	300	-	187	187	(121)		66
Return on MCEV (RoEV)% per annum					9.4%						17.0%

Experience variances

The positive experience variance in 2012 was mainly driven by higher than expected surrenders of Variable Annuity contracts with Universal Guarantee Option (UGO) benefits. Both non-Hong-Kong UGO and Hong-Kong UGO contracts had better than anticipated experience following 5^th anniversary top-up dates. The improved persistency experience resulted in an ANW increase of £17 million (due to the release of reserves for guaranteed benefits), partially offset by a reduction in the VIF of £9 million (due to the lower expected fee income).

Operating assumption changes

The negative variance of £5 million is primarily due to updates to assumed global index exposure used in the valuation of Variable Annuity guarantees.

Other operating variances

The movement between free surplus and required capital is mainly due to the current policy of calculating required capital as the ANW held in the business.

Economic variances

Favourable economic variances were largely due to positive capital market conditions reducing the value of Variable Annuity GMAB reserves.

B: Segment Information continued

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

				£m
Nordic	6 months ended 30 June 2012
	Free surplus	Required capital	Adjusted net worth	Value of in-force	MCEV
Opening MCEV	158	127	285	1,148	1,433
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	18	-	18	-	18
Assumption changes	-	-	-	-	-
Other operating variance	-	-	-	-	-
Operating MCEV earnings	18	-	18	-	18
Economic variances	-	-	-	-	-
Other non-operating variance	(18)	-	(18)	-	(18)
Total MCEV earnings	-	-	-	-	-
Closing adjustments	(158)	(127)	(285)	(1,148)	(1,433)
Capital and dividend flows	-	-	-	-	-
Foreign exchange variance	1	-	1	-	1
MCEV of acquired/sold business	(159)	(127)	(286)	(1,148)	(1,434)

Closing MCEV	-	-	-	-	-
Return on MCEV (RoEV)% per annum					2.6%

Return on MCEV for total covered business is calculated as the operating MCEV earnings after tax divided by opening MCEV in Krona.

Following the sale of the Nordic business unit, the MCEV earnings of the business unit have been categorised as discontinued within the MCEV results and the comparative information has been reclassified where applicable to reflect this. Nordic has been treated as non-modelled for 2012 reporting purposes with earnings for the period to 21 March 2012 reported on an IFRS basis.







										£m
	6 months ended 30 June 2011					Year ended 31 December 2011
	Free surplus	Required capital	Adjusted net worth	Value of in-force	MCEV	Free surplus	Required capital	Adjusted net worth	Value of in-force		MCEV
Opening MCEV	51	135	186	1,318	1,504	51	135	186	1,318		1,504
New business value	(29)	4	(25)	53	28	(54)	8	(46)	102		56
Expected existing business contribution (reference rate)	2	1	3	18	21	3	3	6	36		42
Expected existing business contribution (in excess of reference rate)	-	-	-	16	16	-	-	-	33		33
Transfers from VIF and required capital to free surplus	65	-	65	(65)	-	129	-	129	(129)		-
Experience variances	1	3	4	(4)	-	(1)	(1)	(2)	(1)		(3)
Assumption changes	-	-	-	-	-	-	-	-	(4)		(4)
Other operating variance	-	-	-	(2)	(2)	-	-	-	4		4
Operating MCEV earnings	39	8	47	16	63	77	10	87	41		128
Economic variances	3	(6)	(3)	(68)	(71)	7	(16)	(9)	(180)		(189)
Other non-operating variance	(4)	-	(4)	-	(4)	39	1	40	(3)		37
Total MCEV earnings	38	2	40	(52)	(12)	123	(5)	118	(142)		(24)
Closing adjustments	(30)	4	(26)	35	9	(16)	(3)	(19)	(28)		(47)
Capital and dividend flows	(31)	-	(31)	-	(31)	(11)	-	(11)	-		(11)
Foreign exchange variance	1	4	5	35	40	(5)	(3)	(8)	(28)		(36)
MCEV of acquired/sold business	-	-	-	-	-	-	-	-	-		-

Closing MCEV	59	141	200	1,301	1,501	158	127	285	1,148		1,433
Return on MCEV (RoEV)% per annum					8.4%						8.5%

B: Segment Information continued B4: Analysis of covered business MCEV earnings (after tax) continued
B4: Analysis of covered business MCEV earnings (after tax) continued




										£m
US Life	Six months ended 30 June 2011					Year ended 31 December 2011
	Free surplus	Required capital	Adjusted net worth	Value of in-force	MCEV	Free surplus	Required capital	Adjusted net worth	Value of in-force		MCEV
Opening MCEV	66	468	534	(723)	(189)	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	(66)	(468)	(534)	723		189
Capital and dividend flows	-	-	-	-	-	-	-	-	-		-
Foreign exchange variance	(2)	(19)	(21)	28	7	(2)	(19)	(21)	28		7
MCEV of acquired/sold business	(64)	(449)	(513)	695	182	(64)	(449)	(513)	695		182

Closing MCEV	-	-	-	-	-	-	-	-	-		-
Return on MCEV (RoEV)% per annum					-						-

For the year ended 31 December 2011, Old Mutual Reassurance (Ireland) Limited (OMRe), which provides reinsurance to the United States Life Companies, is included within the Old Mutual 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.

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.


Six months ended 30 June 2012								£m
	Annualised recurring premiums	Single premiums	PVNBP	PVNBP capitalisation factors¹	APE	VNB	PVNBP margin	APE margin


Long Term Savings	259	2,836	4,122	5.0	542	74	1.8%	14%
Emerging Markets	177	593	1,498	5.1	235	52	3.5%	22%
Wealth Management	82	2,243	2,624	4.6	307	22	0.8%	7%
Nordic	-	-	-	-	-	-	-	-
Total covered business	259	2,836	4,122	5.0	542	74	1.8%	14%


Six months ended 30 June 2011								£m
	Annualised recurring premiums	Single premiums	PVNBP	PVNBP capitalisation factors¹	APE	VNB	PVNBP margin	APE margin


Long Term Savings	292	3,455	4,909	5.0	637	80	1.6%	13%
Emerging Markets	176	797	1,656	4.9	255	38	2.3%	15%
Wealth Management	116	2,658	3,253	5.1	382	42	1.3%	11%
Nordic	83	420	736	3.8	126	28	3.9%	23%
Total covered business	375	3,875	5,645	4.7	763	108	1.9%	14%


Year ended 31 December 2011								£m
	Annualised recurring premiums	Single premiums	PVNBP	PVNBP capitalisation factors¹	APE	VNB	PVNBP margin	APE margin


Long Term Savings	569	6,211	9,113	5.1	1,189	177	1.9%	15%
Emerging Markets	363	1,441	3,295	5.1	506	99	3.0%	20%
Wealth Management	206	4,770	5,818	5.1	683	78	1.3%	11%
Nordic	153	753	1,347	3.9	229	56	4.2%	25%
Total covered business	722	6,964	10,460	4.8	1,418	233	2.2%	16%

¹The PVNBP capitalisation factors are calculated as follows: (PVNBP - single premiums)/annualised recurring premiums.

The value of new individual unit trust linked retirement annuities and pension fund asset management business written by the Emerging Markets long-term business of £518 million (30 June 2011: £465 million; 31 December 2011: £884 million) 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 of £322 million (30 June 2011: £229 million; 31 December 2011: £704 million) is excluded as this is more appropriately classified as unit trust business.

New business single premiums of £16 million (31 December 2011: £31 million), annualised recurring premiums of £9 million (31 December 2011: £14 million), and APE of £11 million (31 December 2011: £17 million), in respect of the life business in Kenya, Malawi, Nigeria, Swaziland, and Zimbabwe have been excluded from the above tables, as no value of new business and PVNBP calculations have been performed for these businesses.

New business recurring premiums of £8 million in relation to credit life sales in Emerging Markets have been excluded in APE figures and annualised recurring premium.



C: Other key performance information continued

C2: Drivers of new business value for covered business (PVNBP margin)¹
					%
12 months ended 30 June 2012	Total covered business	Long Term Savings	Emerging Markets	Wealth Management		Nordic


Margin at the end of comparative period	1.6	1.6	2.3	1.3		-
Change in volume	(0.4)	(0.4)	-	(0.6)		-
Change in country and product mix	0.2	0.2	0.2	-		-
Change in operating assumptions	0.2	0.2	0.6	-		-
Change in economic assumptions	0.1	0.1	0.2	0.1		-
Change in tax/regulation	0.1	0.1	0.2	-		-
Exchange rate movements	-	-	-	-		-

Margin at the end of the period	1.8	1.8	3.5	0.8		-

¹The PVNBP margin changes are calculated in the business unit reporting currency.
					%
12 months ended 31 December 2011	Total covered business	Long Term Savings	Emerging Markets	Wealth Management		Nordic


Margin at the end of comparative period	1.8	1.6	2.6	1.1		3.7
Change in volume	0.2	0.1	0.3	-		0.1
Change in country and product mix	(0.2)	(0.2)	(0.6)	(0.1)		0.4
Change in operating assumptions	0.2	0.2	0.4	0.1		(0.1)
Change in economic assumptions	0.2	0.2	0.4	0.1		0.1
Change in tax/regulation	-	-	(0.1)	0.1		-

Margin at the end of the period	2.2	1.9	3.0	1.3		4.2

C3: Adjustments applied in determining total Group MCEV earnings before tax

						£m
		6 months ended 30 June 2012			6 months ended 30 June 2011
		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		-	(5)	(5)	-	(11)	(11)
Economic variances		214	(5)	209	(49)	(11)	(60)
Other non-operating variances		(54)	-	(54)	1	-	1
Acquired/divested business		-	20	20	-	180	180
Other Group adjustments related to Nordic disposal		-	392	392	-	-	-
Adjusted Group MCEV uplift from sale of Nordic		-	202	202	-	-	-
Dividends declared to holders of perpetual preferred callable securities		-	21	21	-	22	22
Adjusting items relating to US Asset Management equity plans and non-controlling interests		-	-	-	-	-	-
Fair value gains on Group debt instruments		-	(36)	(36)	-	(50)	(50)
Adjusting items		160	589	749	(48)	130	82
Adjusting items from continuing operations		178	(3)	175	28	133	161
Adjusting items from discontinued operations		(18)	592	574	(76)	(3)	(79)
Total MCEV adjusting items		160	589	749	(48)	130	82




				£m
		Year ended 31 December 2011
		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		-	(283)	(283)
Economic variances		(554)	(28)	(582)
Other non-operating variances		22	-	22
Acquired/divested business¹		-	182	182
Dividends declared to holders of perpetual preferred callable securities		-	44	44
Adjusting items relating to US Asset Management equity plans and non-controlling interests		-	(3)	(3)
Fair value gains on Group debt instruments		-	22	22
Adjusting items		(532)	(66)	(598)
Adjusting items from continuing operations		(378)	(59)	(437)
Adjusting items from discontinued operations		(154)	(7)	(161)
Total MCEV adjusting items		(532)	(66)	(598)

¹	This relates to the non-covered businesses in Kenya, Malawi, Nigeria, Swaziland, and Zimbabwe that were included for the first time during 2011.



C: Other key performance information continued

C4: Other movements in IFRS net equity impacting Group MCEV

						£m
		6 months ended 30 June 2012			6 months ended 30 June 2011
		Covered business MCEV	Non- covered business IFRS	Total Group MCEV	Covered business MCEV	Non- covered business IFRS	Total Group MCEV
Fair value movements¹		-	(347)	(347)	-	1	1
Net investment hedge		-	123	123	-	(25)	(25)
Currency translation/ exchange differences and other movements		(100)	(326)	(426)	(89)	(207)	(296)
Aggregate tax effects of items taken directly to or transferred from equity		-	4	4	-	6	6
Other movements²		(1,434)	1,434	-	182	18	200
Net income recognised directly into equity		(1,534)	888	(646)	93	(207)	(114)
Capital and dividend flows for the year		(71)	(1,044)	(1,115)	(56)	(19)	(75)
Inclusion of other African life businesses		-	-	-	69	-	69
Net purchase of treasury shares		-	(2)	(2)	-	(18)	(18)
Shares issued in lieu of cash dividends		-	-	-	-	91	91
Other shares issued		-	25	25	-	4	4
Change in share based payment reserve		-	23	23	-	21	21
Other movements in net equity		(1,605)	(110)	(1,715)	106	(128)	(22)

				£m
		Year ended 31 December 2011
		Covered business MCEV	Non- covered business IFRS	Total Group MCEV
Fair value gains		-	24	24
Net investment hedge		-	28	28
Currency translation/ exchange differences and other movements		(693)	(498)	(1,191)
Aggregate tax effects of items taken directly to or transferred from equity		-	11	11
Other movements		182	128	310
Net income recognised directly into equity		(511)	(307)	(818)
Capital and dividend flows for the year		(257)	(8)	(265)
Inclusion of other African life businesses		69	-	69
Net purchase of treasury shares		-	(17)	(17)
Shares issued in lieu of cash dividends		-	124	124
Other shares issued		-	10	10
Change in share based payment reserve		-	50	50
Other movements in net equity		(699)	(148)	(847)

¹	Fair value movements include realisation of foreign exchange reserve on disposal of £(350) million and a fair value movement of £3 million
²	The June 2012 amount relates to the transfer of Nordic covered MCEV balance on disposal. June 2011 reflects movements in respect of the disposal of US Life.

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 2012	Total covered business	Long Term Savings	Emerging Markets	Wealth Management	Bermuda	Nordic


IFRS net asset value¹	4,062	3,813	1,355	2,458	249	-
Adjustment to include long-term business on a statutory solvency basis	(1,024)	(1,007)	187	(1,194)	(17)	-
Inclusion of Group equity and debt instruments held in life funds²	353	353	356	(3)	-	-
Goodwill	(791)	(791)	(7)	(784)	-	-
Adjusted net worth attributable to ordinary equity holders of the parent	2,600	2,368	1,891	477	232	-
¹ IFRS net asset value is after elimination of inter-company loans.
²A further £(58) million (June 2011: £(82) million; December 2011: £(69) million) relates to the non-covered business.

					£m
At 30 June 2011	Total covered business	Long Term Savings	Emerging Markets	Wealth Management	Bermuda	Nordic


IFRS net asset value¹	5,859	3,995	1,339	2,656	441	1,423
Adjustment to include long-term business on a statutory solvency basis	(2,201)	(1,155)	199	(1,354)	(34)	(1,012)
Inclusion of Group equity and debt instruments held in life funds²	396	396	396	-	-	-
Goodwill	(1,025)	(814)	(8)	(806)	-	(211)
Adjusted net worth attributable to ordinary equity holders of the parent	3,029	2,422	1,926	496	407	200

					£m
At 31 December 2011	Total covered business	Long Term Savings	Emerging Markets	Wealth Management	Bermuda	Nordic


IFRS net asset value¹	5,214	3,744	1,230	2,514	201	1,269
Adjustment to include long-term business on a statutory solvency basis	(1,905)	(1,108)	182	(1,290)	(14)	(783)
Inclusion of Group equity and debt instruments held in life funds²	365	365	365	-	-	-
Goodwill	(998)	(797)	(9)	(788)	-	(201)
Adjusted net worth attributable to ordinary equity holders of the parent	2,676	2,204	1,768	436	187	285

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 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 with the exception of the Bermuda business where DAC is an admissible asset under local statutory basis.

§ 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 Bermuda business, VIF reflects the impact of amortizing DAC allowed under the ANW.

D1: Sensitivity tests

The tables below show the sensitivity of the MCEV, value of in-force business at 30 June 2012 and the value of new business for the six months ended 30 June 2012 to changes in key assumptions.

§ Economic assumptions 1% increase: Increasing all pre-tax investment and economic assumptions by 1%, with credited rates and discount rates changing commensurately

§ Economic assumptions 1% decrease: Decreasing all pre-tax investment and economic assumptions by 1%, with credited rates and discount rates changing commensurately

§ 10bps increase of liquidity spreads: 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 ( for Emerging Markets only).

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.

Sensitivity tests: MCEV
				£m
	Total covered business	Long Term Savings	Emerging Markets	Wealth Management	Bermuda

At 30 June 2012
Central assumptions	6,016	5,875	3,331	2,544	141
Effect on MCEV of:
Increasing all pre-tax investment and economic assumptions by 1%, with credited rates and discount rates changing commensurately	5,881	5,688	3,226	2,462	193
Decreasing all pre-tax investment and economic assumptions by 1%, with credited rates and discount rates changing commensurately	6,135	6,042	3,419	2,623	93
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	6,025	5,884	3,340	2,544	141


Sensitivity tests: Value of in-force business
				£m
At 30 June 2012	Total covered business	Long Term Savings	Emerging Markets	Wealth Management	Bermuda


Central assumptions	3,416	3,507	1,440	2,067	(91)
Effect on value of in-force business of:
Increasing all pre-tax investment and economic assumptions by 1%, with credited rates and discount rates changing commensurately	3,299	3,397	1,392	2,005	(98)
Decreasing all pre-tax investment and economic assumptions by 1%, with credited rates and discount rates changing commensurately	3,513	3,597	1,475	2,122	(84)
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	3,425	3,516	1,449	2,067	(91)


Sensitivity tests: Value of new business
				£m
At 30 June 2012	Total covered business	Long Term Savings	Emerging Markets	Wealth Management	Bermuda


Central assumptions	74	74	52	22	-
Effect on value of new business of:
Increasing all pre-tax investment and economic assumptions by 1%, with credited rates and discount rates changing commensurately	67	67	48	19	-
Decreasing all pre-tax investment and economic assumptions by 1%, with credited rates and discount rates changing commensurately	82	82	56	26	-
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	74	74	52	22	-

This information is provided by RNS

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