Part 4-MCEV Restatement of HY
Part 4 of 4
Page 54
Statistical supplement: First time adoption
Financial impact of adopting MCEV methodology
The Group is replacing the EEV basis with the MCEV basis of reporting as its main measure of performance for life and related businesses. The basis of preparation and methodology adopted in compiling restated Group results and balance sheet for 2007 and the six months to 30 June 2008 is given on pages 22 to 26 of this announcement.
Reconciliation of segmental analysis of embedded value - EEV basis to MCEV basis
|
Embedded value |
EEV basis |
Operational |
Economic |
Changes to |
Cost of Non Hedgeable Risk |
Other |
MCEV basis1 £m |
Less minority interest |
MCEV |
|
United Kingdom |
6,547 |
(134) |
(407) |
(8) |
(155) |
(67) |
5,776 |
- |
5,776 |
|
France |
2,602 |
- |
178 |
9 |
(145) |
(64) |
2,580 |
(243) |
2,337 |
|
Ireland |
1,036 |
(2) |
121 |
- |
(23) |
10 |
1,142 |
(279) |
863 |
|
Italy |
1,171 |
- |
88 |
(10) |
(15) |
(13) |
1,221 |
(620) |
601 |
|
Netherlands (including Belgium and Germany) |
3,759 |
(6) |
(133) |
(45) |
(81) |
2 |
3,496 |
(159) |
3,337 |
|
Poland |
1,014 |
165 |
223 |
- |
(80) |
(17) |
1,305 |
(169) |
1,136 |
|
Spain |
1,182 |
(36) |
58 |
- |
(48) |
(2) |
1,154 |
(520) |
634 |
|
Other Europe |
185 |
- |
29 |
- |
(4) |
1 |
211 |
- |
211 |
|
Europe |
10,949 |
121 |
564 |
(46) |
(396) |
(83) |
11,109 |
(1,990) |
9,119 |
|
North America |
1,714 |
(70) |
(622) |
(32) |
(28) |
12 |
974 |
- |
974 |
|
Asia |
358 |
(10) |
77 |
- |
(7) |
(2) |
416 |
(12) |
404 |
|
Australia |
299 |
- |
23 |
- |
(18) |
- |
304 |
- |
304 |
|
Asia Pacific |
657 |
(10) |
100 |
- |
(25) |
(2) |
720 |
(12) |
708 |
|
Total |
19,867 |
(93) |
(365) |
(86) |
(604) |
(140) |
18,579 |
(2,002) |
16,577 |
|
Embedded value |
EEV basis |
Operational |
Economic |
Changes to |
Cost of Non Hedgeable Risk |
Other |
MCEV basis1 £m |
Less minority interest |
MCEV basis £m |
|
United Kingdom |
7,106 |
(142) |
183 |
(10) |
(153) |
(73) |
6,911 |
- |
6,911 |
|
France |
2,660 |
- |
208 |
12 |
(137) |
28 |
2,771 |
(235) |
2,536 |
|
Ireland |
999 |
(2) |
114 |
- |
(21) |
1 |
1,091 |
(266) |
825 |
|
Italy |
1,007 |
- |
66 |
(9) |
(22) |
(2) |
1,040 |
(551) |
489 |
|
Netherlands (including Belgium and Germany) |
4,176 |
(21) |
(122) |
(35) |
(73) |
49 |
3,974 |
(158) |
3,816 |
|
Poland |
942 |
143 |
191 |
- |
(70) |
(9) |
1,197 |
(154) |
1,043 |
|
Spain |
1,048 |
(33) |
72 |
- |
(41) |
(4) |
1,042 |
(472) |
570 |
|
Other Europe |
156 |
- |
23 |
- |
(2) |
1 |
178 |
- |
178 |
|
Europe |
10,988 |
87 |
552 |
(32) |
(366) |
64 |
11,293 |
(1,836) |
9,457 |
|
North America |
1,588 |
(69) |
(308) |
(27) |
(27) |
49 |
1,206 |
- |
1,206 |
|
Asia |
337 |
(10) |
71 |
- |
(6) |
(13) |
379 |
(12) |
367 |
|
Australia |
300 |
- |
23 |
- |
(16) |
- |
307 |
- |
307 |
|
Asia Pacific |
637 |
(10) |
94 |
- |
(22) |
(13) |
686 |
(12) |
674 |
|
Total |
20,319 |
(134) |
521 |
(69) |
(568) |
27 |
20,096 |
(1,848) |
18,248 |
|
Embedded value |
EEV basis |
Operational |
Economic |
Changes to |
Cost of Non Hedgeable Risk |
Other |
MCEV basis1 £m |
Less minority interest |
MCEV basis1 £m |
|
United Kingdom |
6,636 |
(201) |
278 |
37 |
(145) |
(70) |
6,535 |
- |
6,535 |
|
France |
2,291 |
- |
168 |
10 |
(125) |
11 |
2,355 |
(180) |
2,175 |
|
Ireland |
892 |
(2) |
100 |
- |
(19) |
5 |
976 |
(237) |
739 |
|
Italy |
792 |
- |
63 |
- |
(12) |
(3) |
840 |
(441) |
399 |
|
Netherlands (including Belgium and Germany) |
3,867 |
- |
(304) |
(25) |
(67) |
75 |
3,546 |
(125) |
3,421 |
|
Poland |
719 |
143 |
141 |
- |
(52) |
(4) |
947 |
(122) |
825 |
|
Spain |
857 |
(30) |
100 |
- |
(34) |
1 |
894 |
(383) |
511 |
|
Other Europe |
106 |
- |
28 |
- |
(2) |
- |
132 |
- |
132 |
|
Europe |
9,524 |
111 |
296 |
(15) |
(311) |
85 |
9,690 |
(1,488) |
8,202 |
|
North America |
1,478 |
(62) |
(6) |
(28) |
(20) |
(94) |
1,268 |
- |
1,268 |
|
Asia |
209 |
(3) |
34 |
- |
(3) |
13 |
250 |
(10) |
240 |
|
Australia |
251 |
- |
22 |
- |
(12) |
- |
261 |
- |
261 |
|
Asia Pacific |
460 |
(3) |
56 |
- |
(15) |
13 |
511 |
(10) |
501 |
|
Total |
18,098 |
(155) |
624 |
(6) |
(491) |
(66) |
18,004 |
(1,498) |
16,506 |
1. Gross of minority interests
Page 55
Statistical supplement: First time adoption continued
Reconciliation of segmental analysis of Group operating earnings - EEV basis to MCEV basis
|
Group operating earnings |
EEV basis |
Operational assumption changes |
Economic changes |
Changes to required capital |
Cost of Non Hedgeable Risk |
Other |
MCEV basis1 £m |
Less tax and minority interest |
MCEV |
|
United Kingdom |
471 |
18 |
(80) |
2 |
(16) |
22 |
417 |
(117) |
300 |
|
France |
297 |
- |
(70) |
- |
- |
14 |
241 |
(97) |
144 |
|
Ireland |
30 |
- |
13 |
- |
- |
(3) |
40 |
(15) |
25 |
|
Italy |
89 |
- |
3 |
- |
11 |
(2) |
101 |
(67) |
34 |
|
Netherlands (including Belgium and Germany) |
139 |
42 |
(162) |
(3) |
(1) |
20 |
35 |
(20) |
15 |
|
Poland |
103 |
5 |
15 |
- |
(3) |
(6) |
114 |
(33) |
81 |
|
Spain |
157 |
1 |
22 |
- |
(5) |
(2) |
173 |
(113) |
60 |
|
Other Europe |
8 |
- |
12 |
- |
- |
4 |
24 |
(4) |
20 |
|
Europe |
823 |
48 |
(167) |
(3) |
2 |
25 |
728 |
(349) |
379 |
|
North America |
139 |
(10) |
(56) |
(7) |
2 |
6 |
74 |
(26) |
48 |
|
Asia |
23 |
(12) |
29 |
- |
- |
(6) |
34 |
(6) |
28 |
|
Australia |
24 |
- |
6 |
- |
(2) |
(1) |
27 |
(8) |
19 |
|
Asia Pacific |
47 |
(12) |
35 |
- |
(2) |
(7) |
61 |
(14) |
47 |
|
Total |
1,480 |
44 |
(268) |
(8) |
(14) |
46 |
1,280 |
(506) |
774 |
1. Gross of tax and minority interests
2. Net of tax and minority interests
|
Group operating earnings |
EEV basis |
Operational assumption changes |
Economic changes |
Changes to required capital |
Cost of Non Hedgeable Risk |
Other |
MCEV basis1 £m |
Less tax and minority interest |
MCEV |
|
United Kingdom |
864 |
81 |
(26) |
(67) |
(9) |
(21) |
822 |
(247) |
575 |
|
France |
537 |
- |
2 |
1 |
- |
28 |
568 |
(227) |
341 |
|
Ireland |
77 |
- |
10 |
- |
(2) |
- |
85 |
(30) |
55 |
|
Italy |
137 |
- |
5 |
(7) |
(11) |
13 |
137 |
(99) |
38 |
|
Netherlands (including Belgium and Germany) |
352 |
- |
(20) |
(3) |
(2) |
(11) |
316 |
(99) |
217 |
|
Poland |
206 |
- |
(25) |
- |
- |
- |
181 |
(52) |
129 |
|
Spain |
239 |
(7) |
8 |
1 |
(7) |
(1) |
233 |
(158) |
75 |
|
Other Europe |
(5) |
(16) |
8 |
(2) |
(1) |
(1) |
(17) |
5 |
(12) |
|
Europe |
1,543 |
(23) |
(12) |
(10) |
(23) |
28 |
1,503 |
(660) |
843 |
|
North America |
255 |
- |
(103) |
(11) |
(12) |
(5) |
124 |
(44) |
80 |
|
Asia |
43 |
(12) |
3 |
1 |
(2) |
12 |
45 |
(11) |
34 |
|
Australia |
48 |
- |
5 |
1 |
(3) |
(1) |
50 |
(15) |
35 |
|
Asia Pacific |
91 |
(12) |
8 |
2 |
(5) |
11 |
95 |
(26) |
69 |
|
Total |
2,753 |
46 |
(133) |
(86) |
(49) |
13 |
2,544 |
(977) |
1,567 |
1. Gross of tax and minority interests
2. Net of tax and minority interests
Page 56
Statistical supplement: First time adoption continued
Reconciliation of segmental analysis of life and pensions present value of new business premiums (PVNBP) - EEV basis to MCEV basis
|
PVNBP |
EEV basis |
Economic |
Other |
MCEV basis1 £m |
Less minority interest |
MCEV |
|
United Kingdom |
5,863 |
160 |
(13) |
6,010 |
- |
6,010 |
|
France |
2,010 |
57 |
(5) |
2,062 |
(370) |
1,692 |
|
Ireland |
648 |
27 |
24 |
699 |
(175) |
524 |
|
Italy |
1,275 |
31 |
(1) |
1,305 |
(656) |
649 |
|
Netherlands (including Belgium and Germany) |
1,991 |
226 |
(132) |
2,216 |
(120) |
1,965 |
|
Poland |
739 |
97 |
115 |
951 |
(124) |
827 |
|
Spain |
1,259 |
73 |
(20) |
1,312 |
(599) |
713 |
|
Other Europe |
509 |
157 |
- |
667 |
- |
667 |
|
Europe |
8,431 |
668 |
(19) |
9,081 |
(2,044) |
7,037 |
|
North America |
2,205 |
22 |
- |
2,227 |
- |
2,227 |
|
Asia |
580 |
139 |
(34) |
684 |
(4) |
680 |
|
Australia |
204 |
8 |
- |
212 |
- |
212 |
|
Asia Pacific |
784 |
147 |
(34) |
896 |
(4) |
892 |
|
Total |
17,283 |
997 |
(66) |
18,345 |
(2,048) |
16,166 |
|
PVNBP |
EEV basis |
Economic |
Other |
MCEV basis1 £m |
Less minority interest |
MCEV |
|
United Kingdom |
11,655 |
170 |
(28) |
11,797 |
- |
11,797 |
|
France |
3,662 |
128 |
- |
3,790 |
(633) |
3,157 |
|
Ireland |
1,730 |
49 |
1 |
1,780 |
(445) |
1,335 |
|
Italy |
2,924 |
51 |
- |
2,975 |
(1,691) |
1,284 |
|
Netherlands (including Belgium and Germany) |
2,944 |
185 |
4 |
3,133 |
(192) |
2,941 |
|
Poland |
844 |
124 |
151 |
1,120 |
(154) |
966 |
|
Spain |
2,392 |
77 |
(35) |
2,433 |
(1,210) |
1,223 |
|
Other Europe |
418 |
35 |
- |
453 |
- |
453 |
|
Europe |
14,914 |
649 |
121 |
15,684 |
(4,325) |
11,359 |
|
North America |
3,602 |
44 |
- |
3,646 |
- |
3,646 |
|
Asia |
990 |
92 |
59 |
1,141 |
(8) |
1,133 |
|
Australia |
439 |
15 |
- |
454 |
- |
454 |
|
Asia Pacific |
1,429 |
107 |
59 |
1,595 |
(8) |
1,587 |
|
Total |
31,600 |
970 |
152 |
32,722 |
(4,333) |
28,389 |
1. Gross of minority interests
2. Net of minority interests
Page 57
Statistical supplement: First time adoption continued
Reconciliation of segmental analysis of value of new business - EEV basis to MCEV basis
|
Value of new business |
EEV basis |
Operational assumption changes |
Economic |
Changes to required capital £m |
Cost of non-hedgeable risk £m |
Other |
MCEV basis1 £m |
Less tax and minority interest |
MCEV |
|
United Kingdom3 |
154 |
(1) |
(77) |
(1) |
(15) |
13 |
73 |
(20) |
53 |
|
France |
52 |
- |
25 |
1 |
(10) |
1 |
69 |
(31) |
38 |
|
Ireland |
2 |
- |
8 |
- |
(2) |
- |
8 |
(2) |
6 |
|
Italy |
29 |
- |
8 |
(1) |
- |
(1) |
35 |
(23) |
12 |
|
Netherlands (including Belgium and Germany) |
15 |
4 |
(33) |
(6) |
(9) |
(8) |
(37) |
6 |
(31) |
|
Poland |
18 |
6 |
11 |
- |
(3) |
(1) |
31 |
(9) |
22 |
|
Spain |
124 |
(7) |
24 |
- |
(10) |
(1) |
130 |
(87) |
43 |
|
Other Europe |
5 |
- |
15 |
- |
(1) |
- |
19 |
(3) |
16 |
|
Europe |
245 |
3 |
58 |
(6) |
(35) |
(10) |
255 |
(149) |
106 |
|
North America |
68 |
- |
(71) |
(4) |
(5) |
4 |
(8) |
3 |
(5) |
|
Asia |
15 |
- |
20 |
- |
(1) |
(8) |
26 |
(5) |
21 |
|
Australia |
6 |
- |
3 |
- |
(3) |
- |
6 |
(2) |
4 |
|
Asia Pacific |
21 |
- |
23 |
- |
(4) |
(8) |
32 |
(7) |
25 |
|
Total |
488 |
2 |
(67) |
(11) |
(59) |
(1) |
352 |
(173) |
179 |
1. Gross of tax and minority interests
2. Net of tax and minority interests
|
Value of new business |
EEV basis |
Operational assumption changes |
Economic |
Changes to required capital £m |
Cost of non-hedgeable risk £m |
Other |
MCEV basis1 £m |
Less tax and minority interest |
MCEV |
|
United Kingdom3 |
305 |
(27) |
7 |
(3) |
(26) |
22 |
278 |
(83) |
195 |
|
France |
117 |
- |
54 |
1 |
(19) |
(8) |
145 |
(64) |
81 |
|
Ireland |
25 |
- |
15 |
- |
(3) |
- |
37 |
(11) |
26 |
|
Italy |
61 |
- |
19 |
- |
(3) |
- |
77 |
(57) |
20 |
|
Netherlands (including Belgium and Germany) |
53 |
(1) |
(22) |
(6) |
(9) |
(7) |
8 |
(5) |
3 |
|
Poland |
32 |
6 |
15 |
- |
(5) |
- |
48 |
(14) |
34 |
|
Spain |
173 |
(13) |
37 |
- |
(12) |
(4) |
181 |
(124) |
57 |
|
Other Europe |
(5) |
- |
15 |
- |
- |
(4) |
6 |
(2) |
4 |
|
Europe |
456 |
(8) |
133 |
(5) |
(51) |
(23) |
502 |
(277) |
225 |
|
North America |
108 |
- |
(38) |
(8) |
(6) |
(4) |
52 |
(18) |
34 |
|
Asia |
27 |
- |
32 |
- |
(4) |
(6) |
49 |
(10) |
39 |
|
Australia |
16 |
- |
4 |
- |
(4) |
- |
16 |
(5) |
11 |
|
Asia Pacific |
43 |
- |
36 |
- |
(8) |
(6) |
65 |
(15) |
50 |
|
Total |
912 |
(35) |
138 |
(16) |
(91) |
(11) |
897 |
(393) |
504 |
1. Gross of tax and minority interests
2. Net of tax and minority interests
Page 58
New business premiums and analysis of PVNBP
|
|
Reviewed 30 June 2008 |
||||
|
|
Regular |
Weighted |
Present value |
Single |
Present value |
|
United Kingdom |
|
|
|
|
|
|
- Individual pensions |
218 |
4.4 |
970 |
1,068 |
2,038 |
|
- Group pensions |
40 |
4.2 |
170 |
202 |
372 |
|
- Annuities |
- |
- |
- |
1,286 |
1,286 |
|
- Bonds |
- |
- |
- |
1,628 |
1,628 |
|
- Protection |
80 |
6.8 |
545 |
61 |
606 |
|
- Equity release |
- |
- |
- |
80 |
80 |
|
United Kingdom Total |
338 |
4.9 |
1,685 |
4,325 |
6,010 |
|
Europe |
|
|
|
|
|
|
France |
|
|
|
|
|
|
- Eurofunds |
13 |
6.4 |
83 |
1,291 |
1,374 |
|
- Unit-linked funds |
23 |
6.6 |
152 |
435 |
587 |
|
- Protection business |
14 |
7.1 |
99 |
2 |
101 |
|
|
50 |
6.7 |
334 |
1,728 |
2,062 |
|
Ireland |
|
|
|
|
|
|
- Life and savings |
19 |
5.5 |
105 |
201 |
306 |
|
- Pensions |
46 |
4.6 |
210 |
183 |
393 |
|
|
65 |
4.8 |
315 |
384 |
699 |
|
Italy |
|
|
|
|
|
|
- Life and pensions |
58 |
6.0 |
346 |
959 |
1,305 |
|
|
58 |
6.0 |
346 |
959 |
1,305 |
|
Netherlands |
|
|
|
|
|
|
- Life |
34 |
8.1 |
275 |
255 |
530 |
|
- Pensions |
45 |
9.2 |
416 |
1,139 |
1,555 |
|
|
79 |
8.8 |
691 |
1,394 |
2,085 |
|
Poland |
|
|
|
|
|
|
- Life and savings |
23 |
6.5 |
149 |
323 |
472 |
|
- Pensions |
26 |
15.3 |
398 |
81 |
479 |
|
|
49 |
11.2 |
547 |
404 |
951 |
|
Spain |
|
|
|
|
|
|
- Life and savings |
61 |
5.7 |
350 |
541 |
891 |
|
- Pensions |
36 |
6.3 |
227 |
194 |
421 |
|
|
97 |
5.9 |
577 |
735 |
1,312 |
|
Other Europe |
|
|
|
|
|
|
- Life and pensions |
64 |
9.3 |
598 |
69 |
667 |
|
|
64 |
9.3 |
598 |
69 |
667 |
|
Europe Total |
462 |
7.4 |
3,408 |
5,673 |
9,081 |
|
North America |
|
|
|
|
|
|
- Life |
30 |
8.7 |
261 |
12 |
273 |
|
- Annuities |
- |
- |
- |
1,579 |
1,579 |
|
- Funding agreements |
- |
- |
- |
375 |
375 |
|
North America Total |
30 |
8.7 |
261 |
1,966 |
2,227 |
|
Asia Pacific |
|
|
|
|
|
|
Asia |
|
|
|
|
|
|
- Life and pensions |
69 |
6.3 |
434 |
250 |
684 |
|
|
69 |
6.3 |
434 |
250 |
684 |
|
Australia |
|
|
|
|
|
|
- Life and pensions |
32 |
3.5 |
111 |
101 |
212 |
|
|
32 |
3.5 |
111 |
101 |
212 |
|
Asia Pacific Total |
101 |
5.4 |
545 |
351 |
896 |
|
Total |
931 |
6.3 |
5,899 |
12,315 |
18,214 |
Page 59
New business premiums and analysis of PVNBP
|
|
Audited 12 months 2007 |
||||
|
|
Regular |
Weighted |
Present value |
Single |
Present value |
|
United Kingdom |
|
|
|
|
|
|
- Individual pensions |
389 |
4.3 |
1,653 |
1,717 |
3,370 |
|
- Group pensions |
83 |
2.1 |
171 |
615 |
786 |
|
- Annuities |
- |
- |
- |
1,965 |
1,965 |
|
- Bonds |
- |
- |
- |
4,192 |
4,192 |
|
- Protection |
131 |
7.9 |
1,028 |
213 |
1,241 |
|
- Equity release |
- |
- |
- |
243 |
243 |
|
United Kingdom Total |
603 |
4.7 |
2,852 |
8,945 |
11,797 |
|
Europe |
|
|
|
|
|
|
France |
|
|
|
|
|
|
- Eurofunds |
17 |
7.0 |
119 |
1,930 |
2,049 |
|
- Unit-linked funds |
53 |
6.8 |
361 |
1,225 |
1,586 |
|
- Protection business |
20 |
7.6 |
152 |
3 |
155 |
|
|
90 |
7.0 |
632 |
3,158 |
3,790 |
|
Ireland |
|
|
|
|
|
|
- Life and savings |
40 |
5.1 |
203 |
627 |
830 |
|
- Pensions |
99 |
4.2 |
412 |
538 |
950 |
|
|
139 |
4.4 |
615 |
1,165 |
1,780 |
|
Italy |
|
|
|
|
|
|
- Life and pensions |
107 |
5.7 |
608 |
2,367 |
2,975 |
|
|
107 |
5.7 |
608 |
2,367 |
2,975 |
|
Netherlands |
|
|
|
|
|
|
- Life |
68 |
8.0 |
544 |
434 |
978 |
|
- Pensions |
92 |
9.1 |
834 |
1,321 |
2,155 |
|
|
160 |
8.6 |
1,378 |
1,755 |
3,133 |
|
Poland |
|
|
|
|
|
|
- Life and savings |
28 |
6.3 |
177 |
264 |
441 |
|
- Pensions |
35 |
15.1 |
530 |
149 |
679 |
|
|
63 |
11.2 |
707 |
413 |
1,120 |
|
Spain |
|
|
|
|
|
|
- Life and savings |
80 |
5.7 |
457 |
1,192 |
1,649 |
|
- Pensions |
34 |
6.2 |
215 |
569 |
784 |
|
|
114 |
5.9 |
672 |
1,761 |
2,433 |
|
Other Europe |
|
|
|
|
|
|
- Life and pensions |
73 |
4.4 |
318 |
135 |
453 |
|
|
73 |
4.4 |
318 |
135 |
453 |
|
Europe Total |
746 |
6.6 |
4,930 |
10,754 |
15,684 |
|
North America |
|
|
|
|
|
|
- Life |
70 |
8.2 |
575 |
42 |
617 |
|
- Annuities |
1 |
4.0 |
4 |
2,596 |
2,600 |
|
- Funding agreements |
- |
- |
- |
429 |
429 |
|
North America Total |
71 |
8.2 |
579 |
3,067 |
3,646 |
|
Asia Pacific |
|
|
|
|
|
|
Asia |
|
|
|
|
|
|
- Life and pensions |
114 |
6.0 |
683 |
458 |
1,141 |
|
|
114 |
6.0 |
683 |
458 |
1,141 |
|
Australia |
|
|
|
|
|
|
- Life and pensions |
54 |
3.5 |
191 |
263 |
454 |
|
|
54 |
3.5 |
191 |
263 |
454 |
|
Asia Pacific Total |
168 |
5.2 |
874 |
721 |
1,595 |
|
Total |
1,588 |
5.8 |
9,235 |
23,487 |
32,722 |
Page 60
Statement of Directors' responsibilities in respect of the Market Consistent Embedded Value (MCEV) basis
When compliance with the European Insurance CFO Forum Market Consistent Embedded Value Principles (MCEV Principles), published in June 2008, is stated, those principles require the directors to prepare supplementary information in accordance with the methodology contained in the MCEV Principles and to disclose and explain any non-compliance with the guidance included in the MCEV Principles.
In preparing this supplementary information, the directors have done so in accordance with these MCEV Principles and have also fully complied with all the guidance included therein, with the exception of the use of an adjusted risk-free yield due to current market conditions for immediate annuities in the UK and Netherlands and immediate annuities, deferred annuities and other US contracts. Specifically, the directors have:
- determined assumptions on a realistic basis, having regard to past, current and expected future experience and to relevant external data, and then applied them consistently;
- made estimates that are reasonable and consistent; and,
- provided additional disclosures when compliance with the specific requirements of the MCEV Principles is insufficient to enable users to understand the impact of particular transactions, other events and conditions and the Group's financial position and financial performance.
By order of the Board
Philip Scott
Chief Financial Officer
Date: 3 February 2009
Page 61
Independent auditors' report to the directors of Aviva plc on the consolidated Market Consistent Embedded Value financial statements for the year ended 31 December 2007
We have audited the consolidated Aviva MCEV financial statements of the Group for the year ended 31 December 2007 which comprises the Summarised Consolidated Income Statement, the Consolidated Statement of Recognised Income and Expense, and the Group MCEV Analysis of Earnings for the year ended 31 December 2007; the Reconciliation of Movements in Consolidated Shareholders' Equity, the Summarised Consolidated Balance Sheet, the Reconciliation between Shareholder's equity on an IFRS basis and an MCEV basis and the Segmentation of summarised consolidated balance sheet as at 30 June 2008 together with the related notes on pages 22 to 53; and the sections on adoption of market consistent embedded value methodology and impact on results on pages 2 to 14 and the statistical supplement on pages 54 to 59. The consolidated Aviva MCEV financial statements have been prepared in accordance with the basis of preparation set out on pages 22 to 26.
We have reported separately on the statutory Group financial statements of Aviva plc for the year ended 31 December 2006 and the year ended 31 December 2007. The information contained in the consolidated Aviva MCEV financial statements should be read in conjunction with the financial statements prepared on an IFRS basis. This information is described within the consolidated Aviva MCEV financial statements as having being audited.
This report is made solely to the Company in accordance with our engagement letter dated 23 January 2008. Our audit work has been undertaken so that we might state to the Company those matters we are required to state to them in an auditors' report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility or liability to anyone other than the Company for our audit work, for this report, or for the opinions we have formed.
Respective responsibilities of directors and auditors
The directors are responsible for preparing the consolidated Aviva MCEV financial statements under the basis of preparation as set out on pages 22 to 26.
Our responsibilities, as independent auditors, in relation to the consolidated Aviva MCEV financial statements are set out in our engagement letter dated 23 January 2008. We report to you our opinion as to whether the consolidated Aviva MCEV financial statements have been properly prepared in all material respects in accordance with the basis of preparation set out on pages 22 to 26. We also report to you if we have not received all the information and explanations we require for our audit of the consolidated Aviva MCEV financial statements.
We read other information contained in the Aviva MCEV announcement and consider whether it is consistent with the consolidated Aviva MCEV financial statements.
Basis of audit opinion
We conducted our audit in accordance with International Standards on Auditing (UK and Ireland) issued by the Auditing Practices Board. An audit includes examination, on a test basis, of evidence relevant to the amounts and disclosures in the consolidated Aviva MCEV financial statements. It also includes an assessment of the significant estimates and judgments made by the directors in the preparation of the consolidated Aviva MCEV financial statements, and of whether the accounting policies are appropriate to the group's circumstances, consistently applied and adequately disclosed.
We planned and performed our audit so as to obtain all the information and explanations which we considered necessary in order to provide us with sufficient evidence to give reasonable assurance that the consolidated Aviva MCEV financial statements are free from material misstatement, whether caused by fraud or other irregularity or error. In forming our opinion we also evaluated the overall adequacy of the presentation of the consolidated Aviva MCEV financial statements.
Opinion
In our opinion the consolidated Aviva MCEV financial statements. for the year ended 31 December 2007 have been properly prepared, in all material respects, in accordance with the basis of preparation set out on pages 22 to 26.
Ernst & Young LLP
London
Date: 3 February 2009
Page 62
Independent auditors' report to the directors of Aviva plc on the consolidated Market Consistent Embedded Value financial statements for the six months ended 30 June 2008
We have been engaged by the Company to review the half-yearly consolidated Aviva MCEV financial statements for the six months ended 30 June 2008 which comprises the Summarised Consolidated Income Statement, the Consolidated Statement of Recognised Income and Expense, the Group MCEV Analysis of Earnings for the six months ended 30 June 2008; the Reconciliation of Movements in Consolidated Shareholders' Equity, the Summarised Consolidated Balance Sheet, the Reconciliation between Shareholder's equity on an IFRS basis and an MCEV basis and the Segmentation of summarised consolidated balance sheet as at 30 June 2008 together with the related notes on pages 22 to 53; and the sections on adoption of Aviva market consistent embedded value methodology and impact on results on pages 2 to 14 and the statistical supplement on pages 54 to 59. The half-yearly consolidated Aviva MCEV financial statements have been prepared in accordance with the basis of preparation set out on pages 22 to 26.
We have reported separately on the condensed financial statements of Aviva plc for the six months ended 30 June 2008. The information contained in the consolidated Aviva MCEV financial statements should be read in conjunction with the financial statements prepared on an IFRS basis. This information is described within the half-yearly consolidated Aviva MCEV financial statements as having being reviewed.
This report is made solely to the Company in accordance with guidance contained in ISRE 2410 (UK and Ireland) 'Review of Interim Financial Information Performed by the Independent Auditor of the Entity' issued by the Auditing Practice Board. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the company, for our work, for this report, or for the conclusions we have formed.
Directors' Responsibilities
The half-yearly consolidated Aviva MCEV financial statements are the responsibility of, and have been approved by, the directors. The Directors are responsible for preparing the half-yearly consolidated Aviva MCEV financial statements in accordance with the basis of preparation set out on pages 22 to 26.
Our Responsibility
Our responsibilities, as independent auditors, in relation to the half-yearly consolidated Aviva MCEV financial statements are set out in our engagement letter with you dated 23 January 2008. We report to you our opinion as to whether the half-yearly consolidated Aviva MCEV financial statements have been properly prepared, in all material respects, in accordance with the basis of preparation set out on pages 22 to 26.
We read other information contained in the Aviva MCEV announcement and consider whether it is consistent with the consolidated Aviva MCEV financial statements.
Scope of Review
We conducted our review in accordance with International Standard on Review Engagements (UK and Ireland) 2410, 'Review of Interim Financial Information Performed by the Independent Auditor of the Entity' issued by the Auditing Practices Board for use in the United Kingdom. A review consists of making enquiries, primarily with Group management and applying analytical and other review procedures. A review is substantially less in scope than an audit conducted in accordance with International Standards on Auditing (UK and Ireland) and consequently does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion.
Conclusion
Based on our review, nothing has come to our attention that causes us to believe that the half-yearly consolidated Aviva MCEV financial statement for the six months ended 30 June 2008 are not prepared, in all material respects, in accordance with the basis of preparation set out on pages 22 to 26.
Ernst & Young LLP
London
Date: 3 February 2009
Page 63
Glossary
Definitions of Group key performance indicators and other terms
|
Asymmetric risk
|
Risks that will cause shareholder profits to vary where the variation above and below the average are not equal in distribution.
|
|
Cost of non-hedgeable risks
|
This is the cost of undertaking those risks for which a deep and liquid market in which to hedge that risk does not exist. This can include both financial risks and non-financial risks such as mortality, persistency and expense.
|
|
Covered business
|
The contracts to which the MCEV methodology has been applied.
|
|
CFO Forum
|
The CFO Forum www.cfoforum.nl is a high-level group formed by the Chief Financial Officers of major European listed and
non-listed insurance companies. Its aim is to discuss issues relating to proposed new accounting regulations for their businesses and how they can create greater transparency for investors. The Forum was created in 2002, the Market Consistent Embedded Value principles were launched in June 2008 and CFO Forum members across Europe have agreed to adopt these for their 2009 published accounts. The principles are a further development of the European Embedded Value principles first launched in May 2004. |
|
EU solvency
|
The excess of assets over liabilities and the world-wide minimum solvency margins, excluding goodwill and the additional value of in-force long-term business, and excluding the surplus held in the Group's life funds. The Group solvency calculation is determined according to the UK Financial Services Authority application of EU Insurance Group's Directive rules.
|
|
Financial options and guarantees
|
Features of the covered business conferring potentially valuable guarantees underlying, or options to change, the level or nature of policyholder benefits and exercisable at the discretion of the policyholder, whose potential value is impacted by the behaviour of financial variables.
|
|
Free surplus
|
The amount of any capital and surplus allocated to, but not required to support, the in-force covered business.
|
|
Frictional costs
|
The additional taxation and investment costs incurred by shareholders through investing the Required Capital in the Company rather than directly.
|
|
Funds under management
|
Represents all assets actively managed or administered by or on behalf of the Group including those funds managed by third parties.
|
|
Funds under management by Aviva
|
Represents all assets actively managed or administered by the fund management operations of the Group.
|
|
Group MCEV
|
A measure of the total consolidated value of the Group with covered life business included on an MCEV basis and non-covered business (including pension schemes and goodwill) included on an IFRS basis.
|
|
Gross risk-free yields
|
Gross of tax yields on risk-free fixed interest investments, generally swap rates under MCEV.
|
|
Holding company
|
A legal entity with a function of being a consolidating entity for primary financial reporting of covered business.
|
|
IFRS operating profit
|
From continuing operations on an IFRS basis, stated before tax attributable to shareholders' profits, impairment of goodwill and exceptional items.
|
|
Implicit items
|
Amounts allowed by local regulators to be deducted from capital amounts when determining the EU required minimum margin.
|
|
Inherited estate
|
The assets of the long-term with-profit funds less the realistic reserves for non-profit policies, less asset shares aggregated across the with-profit policies and any additional amounts expected at the valuation date to be paid to in-force policyholders in the future in respect of smoothing costs and guarantees.
|
|
Life business
|
Subsidiaries selling life and pensions contracts that are classified as covered business under MCEV.
|
|
Life MCEV
|
The MCEV balance sheet value of covered business as at the reporting date. Excludes non-covered business including pension schemes and goodwill.
|
|
Life MCEV operating earnings
|
Operating earnings on the MCEV basis relating to the lines of business included in the embedded value calculations. From continuing operations and is stated before tax, impairment of goodwill and exceptional items.
|
|
Life MCEV earnings
|
Total earnings on the MCEV basis relating to the lines of business included in the embedded value calculations. From continuing operations.
|
|
Look-through basis
|
Inclusion of the capitalised value of profits and losses arising from subsidiary companies providing administration, investment management and other services to the extent that they relate to covered business.
|
|
Market consistent
|
A measurement approach where economic assumptions are such that projected asset cashflows are valued consistently with current market prices for traded assets.
|
|
MCEV
|
Aviva's Market Consistent Embedded Value methodology which is in accordance with the MCEV Principles published by the CFO Forum in June 2008 with the exception of the use of an adjusted risk-free yield due to current market conditions for immediate annuities in the UK and the Netherlands and for immediate annuity, deferred annuity and other contracts in the US.
|
|
Net asset value per ordinary share
|
Net asset value divided by the number of ordinary shares in issue. Net asset value is based on equity shareholders' funds.
|
|
Net worth
|
The market value of the shareholders' funds and the shareholders' interest in the surplus held in the non-profit component of the long-term business funds, determined on a statutory solvency basis and adjusted to add back any non-admissible assets, and consists of the required capital and free surplus.
|
|
New business margin
|
New business margins are calculated as the value of new business divided by the present value of new business premiums (PVNBP), and expressed as a percentage.
|
|
Present value of new business premiums (PVNBP)
|
Present value of new regular premiums plus 100% of single premiums, calculated using assumptions consistent with those used to determine the value of new business.
|
|
Required capital
|
The amount of assets, over and above the value placed on liabilities in respect of covered business, whose distribution to shareholders is restricted.
|
|
Risk-free rate (reference rate in CFO Forum terminology)
|
The risk-free return that can be earned on investments in the currency of the liability being valued.
In stable markets, including the period from 31 December 2006 to 30 June 2007, the risk-free rate is taken as the swap curve yield.
In current markets, including the period from 1st July 2007, the risk-free rate is taken as swaps except for UK and Netherlands immediate annuities and immediate annuities, deferred annuities and other US contracts. The adjusted risk-free rate is taken as swaps plus the additional return available for products and where backing asset portfolios can be held to maturity.
|
|
Service companies
|
Companies providing administration or fund management services to the covered business.
|
|
Solvency cover
|
The excess of the regulatory value of total assets over total liabilities, divided by the regulatory value of the required minimum solvency margin.
|
|
Spread business
|
Contracts where a significant source of shareholder profits is the taking of credit spread risk that is not passed on to policyholders. The most significant spread business in Aviva are immediate annuities and US deferred annuities and life business.
|
|
Statutory basis
|
The valuation basis and approach used for reporting financial statements to local regulators.
|
|
Stochastic techniques
|
Techniques that incorporate the potential future variability in assumptions.
|
|
Symmetric risks
|
Risks that will cause shareholder profits to vary where the variation above and below the average are equal and opposite. Financial theory says that investors do not require compensation for non-market risks that are symmetrical as the risks can be diversified away by investors.
|
|
Time value and intrinsic value
|
A financial option or guarantee has two elements of value, the time value and intrinsic value. The intrinsic value is the discounted value of the option or guarantee at expiry, assuming that future economic conditions follow best estimate assumptions. The time value is the additional value arising from uncertainty about future economic conditions.
|
|
Value of new business
|
Is calculated using economic assumptions set at the start of each quarter and the same operating assumptions as those used to determine the embedded values at the beginning of each year and is stated after the effect of any frictional costs. Unless otherwise stated, it is also quoted net of tax and minority interests.
|
End of Part 4 of 4.
This information is provided by RNS
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