Interim Results 2011 Part 3 (MCEV)

RNS Number : 8041L
Old Mutual PLC
05 August 2011
 



Group Market Consistent Embedded Value statement of earnings

For the six months ended 30 June 2011

 

 

 

 

£m

 

Notes

6 months ended 30 June 2011

6 months ended 30 June 2010

Year ended

31 December

2010

Long Term Savings

 

 

 

 

Covered business

 

436

369

705

Asset management and other business

 

84

64

127

Banking

 

8

8

16

 

 

528

441

848

Nedbank

 

 

 

 

Banking

 

359

266

601

Mutual & Federal

 

 

 

 

General insurance

 

47

33

103

US Asset Management

 

 

 

 

Asset management

 

47

40

87

Other operating segments

 

 

 

 

Finance costs*

 

(74)

(86)

(183)

Other shareholders' expenses**

 

(24)

(5)

(57)

Adjusted operating Group MCEV earnings before tax from core operations

 

883

689

1,399

Adjusted operating Group MCEV earnings before tax from Bermuda non-core operations

 

11

30

(28)

Adjusted operating Group MCEV earnings before tax from continuing operations***

 

894

719

1,371

Adjusting items from continuing operations

C3

(98)

(105)

499

Total Group MCEV earnings before tax from continuing operations

 

796

614

1,870

Income tax attributable to shareholders

 

(196)

(161)

(410)

Total Group MCEV earnings after tax from continuing operations

 

600

453

1,460

Total Group MCEV earnings after tax from US Life discontinued operations****

A4

-

(35)

227

Total Group MCEV earnings after tax for the financial period

 

600

418

1,687

 

 

 

 

 

Total Group MCEV earnings for the financial period attributable to:

 

 

 

 

Equity holders of the parent

 

457

303

1,429

Non-controlling interests

 

 

 

 

Ordinary shares

 

112

84

196

Preferred securities

 

31

31

62

Total Group MCEV earnings after tax for the financial period

 

600

418

1,687

Basic total Group MCEV earnings per ordinary share (pence)

 

9.0

6.0

28.2

Weighted average number of shares - millions

 

5,098

5,057

5,064

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

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

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

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

 

Adjusted operating Group MCEV earnings per share

For the six months ended 30 June 2011

 

Six months ended 30 June 2011

£m


Notes

Core continuing operations

Non-core continuing operations

 

Discontinued operations

 

 

Total

Adjusted operating Group MCEV earnings before tax

 

883

11

-

894

Tax on adjusted operating Group MCEV earnings

B2

(212)

(2)

 

(214)

Adjusted operating Group MCEV earnings after tax

 

671

9

-

680

Non-controlling interests

 





Ordinary shares

 

(120)

-

-

(120)

Preferred securities

 

(31)

-

-

(31)

Adjusted operating MCEV earnings after tax attributable to equity holders

 

520

9

-

529

Adjusted operating Group MCEV earnings per share*

 

9.6

0.2

-

9.8

Adjusted weighted average number of shares - millions

 




5,397

 

Six  months ended 30 June 2010

£m


Notes

Core continuing operations

Non-core continuing operations

 

Discontinued operations

 

 

Total

Adjusted operating Group MCEV earnings before tax

 

689

30

129

848

Tax on adjusted operating Group MCEV earnings

B2

(153)

-

(2)

(155)

Adjusted operating Group MCEV earnings after tax

 

536

30

127

693

Non-controlling interests

 





Ordinary shares

 

(95)

-

-

(95)

Preferred securities

 

(31)

-

-

(31)

Adjusted operating MCEV earnings after tax attributable to equity holders

 

410

30

127

567

Adjusted operating Group MCEV earnings per share*

 

7.7

0.5

2.4

10.6

Adjusted weighted average number of shares - millions

 




5,343

 

Year ended 31 December 2010

£m


Notes

Core continuing operations

Non-core continuing operations

 

Discontinued operations

 

 

Total

Adjusted operating Group MCEV earnings before tax

 

1,399

(28)

48

1,419

Tax on adjusted operating Group MCEV earnings

B2

(313)

4

(1)

(310)

Adjusted operating Group MCEV earnings after tax

 

1,086

(24)

47

1,109

Non-controlling interests

 

 

 

 

 

Ordinary shares

 

(217)

-

-

(217)

Preferred securities

 

(62)

-

-

(62)

Adjusted operating MCEV earnings after tax attributable to equity holders

 

807

(24)

47

830

Adjusted operating Group MCEV earnings per share*

 

15.0

(0.4)

0.9

15.5

Adjusted weighted average number of shares - millions

 

 

 

 

5,359

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

Components of Group MCEV and adjusted Group MCEV

For the six months ended 30 June 2011

 

Components of Group MCEV

 

 

 

£m

 

Notes

At

30 June

2011

At

30 June
2010

At

31 December

2010

Adjusted net worth attributable to ordinary equity holders of the parent

 

5,431

4,845

5,737

Equity

 

9,031

9,047

8,951

Adjustment to include long-term business on a statutory solvency basis*:

 

 

 

 

Long Term Savings

C5

(2,167)

(2,147)

(2,053)

Bermuda

C5

(34)

(13)

(29)

US Life

C5

-

(619)

260

Adjustment for market value of life funds' investments in Group equity and debt instruments held in life funds

 

314

244

306

Adjustment to remove perpetual preferred callable securities and accrued dividends

 

(688)

(688)

(688)

Adjustment to exclude acquisition goodwill from the covered business:

 

 

 

 

Long Term Savings

C5

(1,025)

(979)

(1,010)

Value of in-force business

 

4,850

3,208

4,164

Present value of future profits

 

5,602

4,269

5,256

Additional time value of financial options and guarantees

 

(163)

(456)

(433)

Frictional costs

 

(268)

(235)

(276)

Cost of residual non-hedgeable risks

 

(321)

(370)

(383)

Group MCEV

 

10,281

8,053

9,901

Group MCEV value per share (pence)

 

186.0

148.0

181.5

Return on Group MCEV (ROEV) per annum from core operations

 

10.7%

10.7%

10.6%

Return on Group MCEV (ROEV) per annum from continuing non-core operations

 

0.3%

0.5%

(0.3)%

Return on Group MCEV (ROEV) per annum from discontinued operations

 

0.0%

3.5%

0.6%

Return on Group MCEV (ROEV**) per annum

 

11.0%

14.7%

10.9%

Number of shares in issue at the end of the financial period less treasury shares - millions

 

5,529

5,442

5,456

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

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

Components of Group MCEV and adjusted Group MCEV

For the six months ended 30 June 2011

 

Components of adjusted Group MCEV

£m

 

Notes

At

30 June
2011

At

30 June
2010

At

31 December
2010

Group MCEV

 

10,281

8,053

9,901

Pro forma adjustments to bring Group investments to market value

 

 

 

 

Adjustment to bring listed subsidiary (Nedbank) to market value

 

969

495

715

Adjustment for value of own shares in ESOP schemes*

 

113

73

85

Adjustment for present value of Black Economic Empowerment scheme deferred consideration**

 

299

241

266

Adjustment to bring external debt to market value

 

(57)

206

63

Adjusted Group MCEV

B1

11,605

9,068

11,030

Adjusted Group MCEV per share (pence)

 

209.9

166.6

202.2

Number of shares in issue at the end of the financial period less treasury shares - millions

 

5,529

5,442

5,456

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

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

 

Reconciliation of movements in Group MCEV (after tax)

£m

 


6 months ended 30 June 2011

6 months ended 30 June 2010

 

Notes

Covered business MCEV

Non-covered business IFRS

Total Group MCEV

Covered business MCEV

Non-covered business IFRS

Total Group MCEV

Opening Group MCEV

 

7,515

2,386

9,901

6,027

1,602

7,629

Adjusted operating MCEV earnings

 

354

175

529

452

115

567

Non-operating MCEV earnings

 

(27)

(44)

(71)

(164)

(101)

(265)

Total Group MCEV earnings

 

327

131

458

288

14

302

Other movements in IFRS net equity

C4

37

(115)

(78)

(141)

263

122

Closing Group MCEV

 

7,879

2,402

10,281

6,174

1,879

8,053

 

 


£m

 


Year ended 31 December 2010

 

Notes

Covered business MCEV

Non-covered business IFRS

Total Group MCEV

Opening Group MCEV

 

6,027

1,602

7,629

Adjusted operating MCEV earnings

 

590

240

830

Non-operating MCEV earnings

 

786

(187)

599

Total Group MCEV earnings

 

1,376

53

1,429

Other movements in IFRS net equity

C4

112

731

843

Closing Group MCEV

 

7,515

2,386

9,901

Notes to the MCEV basis supplementary information

For the six months ended 30 June 2011

A MCEV policies

A1 Basis of preparation

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

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

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

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

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

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

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

A2 Methodology

Required capital

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

·     Economic capital;

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

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

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

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

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

 

£m

 

At 30 June 2011

At 30 June 2010

At 31 December 2010

 

Required capital (a)

Regulatory capital (b)

Ratio (a/b)

Required capital (a)

Regulatory capital (b)

Ratio (a/b)

Required capital (a)

Regulatory capital (b)

Ratio (a/b)

Emerging Markets

1,456

1,118

1.3

1,318

1,011

1.3

1,498

1,153

1.3

Nordic

141

140

1.0

109

95

1.1

135

135

1.0

Retail Europe*

65

88

0.7

38

52

0.7

62

85

0.7

Wealth Management**

271

164

1.7

246

142

1.7

278

162

1.7

US Life

n/a

n/a

n/a

491

204

2.4

468

196

2.4

Bermuda***

407

-

n/a

341

-

n/a

403

-

n/a

Total

2,340

1,510

1.5

2,543

1,504

1.7

2,844

1,731

1.6

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

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

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

Notes to the MCEV basis supplementary information

For the six months ended 30 June 2011

 

Cost of residual non-hedgeable risks

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

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

Capital held in respect of non-hedgeable risks

£m

 

At
30 June
2011

At
30 June
2010

At
31 December 2010

Emerging Markets

765

643

751

Nordic

325

315

362

Retail Europe

174

128

115

Wealth Management

654

553

622

US Life

n/a

703

678

Bermuda

331

285

274

Total

2,249

2,627

2,802

 

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

Taxation

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

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

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

 

Notes to the MCEV basis supplementary information

For the six months ended 30 June 2011 continued

A3 Assumptions

Non-economic assumptions

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

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

Group holding Company expenses attributable to long-term business

%

 

At
30 June
2011

At
30 June
2010

At
31 December 2010

Emerging Markets

17

16

17

Nordic

4

4

4

Retail Europe

3

2

3

Wealth Management

5

8

6

US Life

-

-

2

Total

29

30

32

 

Economic assumptions

Risk free reference rates and inflation

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

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

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

 

 

 

 

Risk free reference spot yields (excluding any applicable liquidity adjustments)

 

 

%

 

GBP*

EUR

USD*

ZAR

SEK

At 30 June 2011

 

 

 

 

 

1 year

0.9

2.0

0.4

6.2

2.8

5 years

2.4

2.8

2.1

8.0

3.3

10 years

3.5

3.4

3.5

8.6

3.6

20 years

4.0

3.9

4.3

8.2

3.8

 

 

 

 

 

 

At 30 June 2010

 

 

 

 

 

1 year

0.9

1.2

0.7

6.7

1.3

5 years

2.3

2.1

2.1

8.0

2.3

10 years

3.3

2.9

3.2

8.6

3.1

20 years

3.8

3.4

3.9

8.2

3.6

 

 

 

 

 

 

At 31 December 2010

 

 

 

 

 

1 year

0.9

1.3

0.4

5.6

2.3

5 years

2.7

2.5

2.2

7.4

3.3

10 years

3.6

3.3

3.5

8.2

3.7

20 years

4.0

3.7

4.3

8.1

4.0

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

 

Expense inflation

 

 

 

 

%

 

GBP

EUR

USD

ZAR

SEK

At 30 June 2011

 

 

 

 

 

1 year

3.0

2.5

3.0

5.7

2.3

5 years

3.9

2.5

3.0

7.0

2.9

10 years

4.3

2.5

3.0

7.5

3.2

20 years

4.8

2.5

3.0

7.1

3.1

 

 

 

 

 

 

At 30 June 2010

 

 

 

 

 

1 year

3.3

2.5

3.0

6.2

1.5

5 years

3.5

2.5

3.0

6.3

2.3

10 years

4.0

2.5

3.0

6.7

2.6

20 years

4.5

2.5

3.0

6.4

2.9

 

 

 

 

 

 

At 31 December 2010

 

 

 

 

 

1 year

3.0

2.5

3.0

5.0

2.2

5 years

4.3

2.5

3.0

6.4

3.0

10 years

5.3

2.5

3.0

7.2

3.2

20 years

5.1

2.5

3.0

7.0

3.3

Notes to the MCEV basis supplementary information

For the six months ended 30 June 2011 continued

Volatilities

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

ZAR volatilities*

 

 

 

 

 

%

Option term

1 year swap

5 year swap

10 year swap

20 year swap

Equity
(total return index)

Property
(total return index)

At 30 June 2011

 

 

 

 

 

 

1 year

18.3

16.8

15.9

15.5

23.0

16.0

5 years

16.7

16.0

15.6

15.2

26.0

16.0

10 years

16.2

15.8

15.4

14.7

27.4

16.0

20 years

14.5

14.1

13.5

12.5

28.3

15.6

 

 

 

 

 

 

 

At 30 June 2010

 

 

 

 

 

 

1 year

15.6

13.9

12.9

12.4

28.4

16.9

5 years

14.5

13.7

13.2

12.8

26.3

14.8

10 years

13.6

13.2

12.8

12.3

26.6

14.3

20 years

12.8

12.2

11.7

10.9

26.9

14.2

 

 

 

 

 

 

 

At 31 December 2010

 

 

 

 

 

 

1 year

18.7

16.9

15.8

15.1

23.4

16.0

5 years

16.4

15.5

14.9

14.4

25.5

15.7

10 years

15.6

15.0

14.5

13.9

27.0

15.9

20 years

13.8

13.3

12.8

11.9

27.8

15.4

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

 

USD volatilities*

 

 

 

%

Option term

1 year swap

5 year swap

10 year swap

20 year swap

At 30 June 2011

 

 

 

 

1 year

72.3

43.3

33.8

26.4

5 years

25.0

23.4

21.4

18.0

10 years

20.1

20.3

18.7

15.5

20 years

17.2

17.8

16.1

14.1

 

 

 

 

 

At 30 June 2010

 

 

 

 

1 year

37.5

34.6

32.3

29.0

5 years

28.5

27.3

25.7

23.4

10 years

22.4

21.3

20.2

18.5

20 years

18.8

17.8

16.8

15.3

 

 

 

 

 

At 31 December 2010

 

 

 

 

1 year

37.8

34.3

31.2

27.7

5 years

26.2

24.7

23.0

20.9

10 years

20.0

18.8

17.7

16.1

20 years

16.8

15.7

14.7

13.1

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

 

 

 

 

 

International equity volatilities (applicable to Old Mutual Bermuda)*

%

Option term

SPX

RTY

EWZ

TPX

HSCEI

TWY

KOSP12

NIFTY

SX5E

UKX

At 30 June 2011

 

 

 

 

 

 

 

 

 

 

1 year

20.8

n/a

27.6

25.8

24.8

20.3

21.4

21.1

23.01

20.6

5 years

23.4

n/a

28.0

26.7

27.2

23.2

22.7

25.1

23.7

23.2

10 years

23.4

n/a

28.0

26.7

27.2

23.2

22.7

25.1

23.7

23.2


 

 

 

 

 

 

 

 

 

 

At 30 June 2010

 

 

 

 

 

 

 

 

 

 

1 year

29.0

37.2

n/a

29.1

31.0

24.3

23.1

21.9

29.7

27.3

5 years

28.0

39.0

n/a

29.3

31.8

27.3

23.7

23.5

27.9

26.9

10 years

28.0

39.0

n/a

29.3

31.8

27.3

23.7

23.5

27.9

26.9


 

 

 

 

 

 

 

 

 

 

At 31 December 2010

 

 

 

 

 

 

 

 

 

 

1 year

21.5

28.1

n/a

26.7

27.8

21.5

21.4

22.0

24.3

21.5

5 years

23.6

32.6

n/a

28.3

32.3

25.5

24.0

26.6

25.2

24.2

10 years

23.6

32.6

n/a

28.3

32.3

25.5

24.0

26.6

25.2

24.2

 

International equity volatilities (applicable to Old Mutual Bermuda)*

%

Option term

EEM

USAgg

EUAgg

APAgg

At 30 June 2011

 

 

 

 

1 year

26.4

5.4

12.9

12.5

5 years

28.0

5.4

12.9

12.5

10 years

28.0

5.4

12.9

12.5

 

 

 

 

 

At 30 June 2010

 

 

 

 

1 year

35.2

5.5

13.0

12.6

5 years

32.4

5.5

13.0

12.6

10 years

32.4

5.5

13.0

12.6

 

 

 

 

 

At 31 December 2010

 

 

 

 

1 year

27.4

5.5

13.0

12.6

5 years

27.7

5.5

13.0

12.6

10 years

27.7

5.5

13.0

12.6

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

 

Notes to the MCEV basis supplementary information

For the six months ended 30 June 2011 continued

Expected asset returns in excess of the risk free reference rates

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

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

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

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

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

Tax

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

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

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

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

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

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

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

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

A4 Disposal of US Life

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

Adjusted Group MCEV uplift from sale of US Life

£m

Headline purchase price

215

Advisor fees and costs

(17)

US Life sale proceeds

198

Retention of OM Re

71

Total proceeds from US Life disposal*

269

Removal of US Life MCEV**

182

Adjusted Group MCEV uplift

451

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

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

 

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

 

 

B Segment information

B1 Adjusted Group MCEV presented per business line

 

 

£m


At

30 June 2011

At

30 June 2010

At
31 December 2010

MCEV of the core covered business

7,579

6,393

7,417

Adjusted net worth*

2,622

2,031

2,414

Value of in-force business

4,957

4,362

5,003

MCEV of the Bermuda non-core covered business

300

168

287

Adjusted net worth

407

341

403

Value of in-force business

(107)

(173)

(116)

MCEV of the US Life discontinued covered business

-

(387)

(189)

Adjusted net worth

-

594

534

Value of in-force business

-

(981)

(723)

 

 

 

 

Adjusted net worth of asset management and other businesses

1,983

1,968

1,950

Emerging Markets

333

250

289

Nordic**

(36)

32

4

Retail Europe

15

13

14

Wealth Management

178

157

171

US Asset Management

1,493

1,516

1,472

 

 

 

 

Value of the banking business

3,831

2,998

3,603

Nordic (adjusted net worth)

347

292

328

Nedbank (market value)

3,484

2,706

3,275

Value of the general insurance business

 

 

 

Mutual & Federal

322

321

409

 

 

 

 

Net other business

373

(88)

31

Adjustment for present value of Black Economic Empowerment scheme deferred consideration

299

241

266

Adjustment for value of own shares in ESOP schemes***

113

73

85

 

 

 

 

Perpetual preferred securities (US$ denominated)

(464)

(435)

(449)

Perpetual preferred callable securities

(690)

(487)

(598)

GBP denominated

(299)

(236)

(270)

Euro denominated

(391)

(251)

(328)

Debt

(2,041)

(1,697)

(1,782)

Rand denominated

(277)

(309)

(304)

USD denominated

(376)

(323)

(337)

GBP denominated

(886)

(790)

(842)

SEK denominated

(500)

(273)

(297)

Euro denominated

(2)

(2)

(2)

Adjusted Group MCEV

11,605

9,068

11,030

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

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

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

Notes to the MCEV basis supplementary information

For the six months ended 30 June 2011 continued

B2 Adjusted operating MCEV earnings for the covered business

 

 

£m


6 months ended 30 June 2011

6 months ended 30 June 2010

Year ended

31 December

2010

Adjusted operating MCEV earnings before tax for the covered business

 

 

 

Long Term Savings

436

369

705

Emerging Markets

241

182

443

Nordic

78

79

65

Retail Europe

-

31

68

Wealth Management

117

77

129

US Life

-

129

48

Bermuda

11

30

(28)

 

447

528

725

 

 

 

 

Tax on adjusted operating MCEV earnings for the covered business

 

 

 

Long Term Savings

(91)

(74)

(138)

Emerging Markets

(53)

(38)

(99)

Nordic

(15)

(16)

(20)

Retail Europe

(6)

(7)

(2)

Wealth Management

(17)

(13)

(17)

US Life

-

(2)

(1)

Bermuda

(2)

-

4

 

(93)

(76)

(135)

 

 

 

 

Adjusted operating MCEV earnings after tax for the covered business

 

 

 

Long Term Savings

345

295

567

Emerging Markets

188

144

344

Nordic

63

63

45

Retail Europe

(6)

24

66

Wealth Management

100

64

112

US Life

-

127

47

Bermuda

9

30

(24)

 

354

452

590

 

 

 

 

Tax on adjusted operating MCEV earnings comprises

 

 

 

Tax on adjusted operating MCEV earnings for the covered business

(93)

(76)

(135)

Tax on adjusted operating MCEV earnings for other business

(121)

(79)

(175)

Tax on adjusted operating MCEV earnings

(214)

(155)

(310)

 

 

B3 Components of MCEV of the covered business

 

 

£m


At
30 June
2011

At
30 June 2010

At
31 December
2010

MCEV of the covered business

7,879

6,174

7,515

Adjusted net worth

3,029

2,966

3,351

Value of in-force business

4,850

3,208

4,164

 

 

 

 

Long Term Savings

 

 

 

Adjusted net worth

2,622

2,031

2,414

Free surplus

689

351

441

Required capital

1,933

1,680

1,973

Value of in-force business

4,957

4,362

5,003

Present value of future profits

5,523

4,840

5,557

Additional time value of financial options and guarantees

(8)

(11)

(12)

Frictional costs

(266)

(223)

(267)

Cost of residual non-hedgeable risks

(292)

(244)

(275)

 

 

 

 

Consisting of:

 

 

 

Emerging Markets

 

 

 

Adjusted net worth*

1,926

1,415

1,804

Free surplus

470

97

306

Required capital

1,456

1,318

1,498

Value of in-force business

1,440

1,231

1,509

Present value of future profits

1,778

1,525

1,849

Additional time value of financial options and guarantees

-

-

-

Frictional costs

(238)

(204)

(240)

Cost of residual non-hedgeable risks

(100)

(90)

(100)

Nordic

 

 

 

Adjusted net worth

200

143

186

Free surplus

59

34

51

Required capital

141

109

135

Value of in-force business

1,301

1,154

1,318

Present value of future profits

1,377

1,210

1,397

Additional time value of financial options and guarantees

-

-

-

Frictional costs

(6)

(5)

(6)

Cost of residual non-hedgeable risks

(70)

(51)

(73)

Retail Europe

 

 

 

Adjusted net worth

119

84

103

Free surplus

54

46

41

Required capital

65

38

62

Value of in-force business

530

451

520

Present value of future profits

595

504

573

Additional time value of financial options and guarantees

(6)

(10)

(10)

Frictional costs

(12)

(6)

(11)

Cost of residual non-hedgeable risks

(47)

(37)

(32)

Notes to the MCEV basis supplementary information

For the six months ended 30 June 2011 continued

B3 Components of MCEV of the covered business continued

 

 

£m


At
30 June
2011

At
30 June 2010

At
31 December
2010

Wealth Management

 

 

 

Adjusted net worth

377

389

321

Free surplus

106

174

43

Required capital

271

215

278

Value of in-force business

1,686

1,526

1,656

Present value of future profits

1,773

1,601

1,738

Additional time value of financial options and guarantees

(2)

(1)

(2)

Frictional costs

(10)

(8)

(10)

Cost of residual non-hedgeable risks

(75)

(66)

(70)

 

 

 

 

US Life (Discontinued and non-core)

 

 

 

Adjusted net worth

-

594

534

Free surplus

-

103

66

Required capital

-

491

468

Value of in-force business

-

(981)

(723)

Present value of future profits

-

(648)

(446)

Additional time value of financial options and guarantees

-

(228)

(186)

Frictional costs

-

(9)

(7)

Cost of residual non-hedgeable risks

-

(96)

(84)

Bermuda (Non-core)

 

 

 

Adjusted net worth

407

341

403

Free surplus

-

-

-

Required capital

407

341

403

Value of in-force business

(107)

(173)

(116)

Present value of future profits

79

77

145

Additional time value of financial options and guarantees

(155)

(217)

(235)

Frictional costs

(2)

(3)

(2)

Cost of residual non-hedgeable risks

(29)

(30)

(24)

 

 

 

 

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

 

 

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

£m

Long Term Savings (LTS)

6 months ended 30 June 2011

 

Free
surplus

Required

capital

Adjusted

net worth

Value of

in-force

MCEV

Opening MCEV

441

1,973

2,414

5,003

7,417

New business value

(231)

82

(149)

257

108

Expected existing business contribution (reference rate)

7

35

42

89

131

Expected existing business contribution (in excess of reference rate)

3

6

9

36

45

Transfers from VIF and required capital to free surplus

462

(91)

371

(371)

-

Experience variances

18

13

31

57

88

Assumption changes

1

-

1

(3)

(2)

Other operating variance

11

(8)

3

(28)

(25)

Operating MCEV earnings

271

37

308

37

345

Economic variances

42

(8)

34

(81)

(47)

Other non-operating variance

-

-

-

6

6

Total MCEV earnings

313

29

342

(38)

304

Closing adjustments

(65)

(69)

(134)

(8)

(142)

Capital and dividend flows

(56)

-

(56)

-

(56)

Foreign exchange variance

(9)

(69)

(78)

(8)

(86)

Closing MCEV

689

1,933

2,622

4,957

7,579

Return on MCEV (ROEV) % per annum

 

 

 

 

9.7%

 

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


£m

Long Term Savings (LTS)*

Year ended 31 December 2011

 

Free
surplus

Required

capital

Adjusted

net worth

Value of

 in-force

MCEV

Expected existing business contribution (reference rate)

16

65

81

173

254

Expected existing business contribution (in excess of reference rate)

8

11

19

72

91

 

 

 

 

 

 

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

Notes to the MCEV basis supplementary information

For the six months ended 30 June 2011 continued

 

 

£m

6 months ended 30 June 2010

Year ended 31 December 2010

Free
surplus

Required

capital

Adjusted

net worth

Value of

in-force

MCEV

Free
surplus

Required

capital

Adjusted

net worth

Value of

in-force

MCEV

380

1,574

1,954

4,193

6,147

380

1,574

1,954

4,193

6,147

(227)

76

(151)

247

96

(419)

160

(259)

459

200

8

38

46

83

129

8

77

85

168

253

-

(2)

(2)

29

27

7

(3)

4

59

63

435

(106)

329

(329)

-

802

(184)

618

(618)

-

(18)

31

13

23

36

(16)

28

12

43

55

-

2

2

(6)

(4)

23

2

25

(25)

-

(43)

5

(38)

49

11

(93)

37

(56)

52

(4)

155

44

199

96

295

312

117

429

138

567

(20)

20

-

73

73

100

41

141

342

483

(1)

-

(1)

1

-

(7)

25

18

-

18

134

64

198

170

368

405

183

588

480

1,068

(163)

42

(121)

(1)

(122)

(344)

216

(128)

330

202

(157)

(6)

(163)

(1)

(164)

(383)

-

(383)

-

(383)

(6)

48

42

-

42

39

216

255

330

585

351

1,680

2,031

4,362

6,393

441

1,973

2,414

5,003

7,417

 

 

 

 

9.5%

 

 

 

 

9.2%

 

 

 

 

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

 

£m

Emerging Markets*

6 months ended 30 June 2011

 

Free surplus

Required

capital

Adjusted

net worth

Value of

in-force

MCEV

Opening MCEV

306

1,498

1,804

1,509

3,313

New business value

(93)

66

(27)

65

38

Expected existing business contribution (reference rate)

6

31

37

54

91

Expected existing business contribution (in excess of reference rate)

1

6

7

9

16

Transfers from VIF and required capital to free surplus

193

(75)

118

(118)

-

Experience variances

35

6

41

33

74

Assumption changes

-

-

-

-

-

Other operating variance

(21)

(2)

(23)

(8)

(31)

Operating MCEV earnings

121

32

153

35

188

Economic variances

29

4

33

(25)

8

Other non-operating variance

4

-

4

-

4

Total MCEV earnings

154

36

190

10

200

Closing adjustments

10

(78)

(68)

(79)

(147)

Capital and dividend flows

25

-

25

-

25

Foreign exchange variance

(15)

(78)

(93)

(79)

(172)

Closing MCEV

470

1,456

1,926

1,440

3,366

Return on MCEV (ROEV) % per annum

 

 

 

 

13.3%

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

 


£m

Emerging Markets**

Year ended 31 December 2011

 

Free
surplus

Required

capital

Adjusted

net worth

Value of

 in-force

MCEV

Expected existing business contribution (reference rate)

12

60

72

106

178

Expected existing business contribution (in excess of reference rate)

2

11

13

18

31

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

 

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

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

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

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

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

Notes to the MCEV basis supplementary information

For the six months ended 30 June 2011 continued

 

 

£m

6 months ended 30 June 2010

Year ended 31 December 2010

Free
surplus

Required

capital

Adjusted

net worth

Value of

in-force

MCEV

Free
surplus

Required

capital

Adjusted

net worth

Value of

in-force

MCEV

80

1,225

1,305

1,158

2,463

80

1,225

1,305

1,158

2,463

(74)

59

(15)

53

38

(159)

134

(25)

111

86

4

35

39

59

98

6

73

79

124

203

-

(2)

(2)

8

6

-

(3)

(3)

16

13

183

(83)

100

(100)

-

356

(166)

190

(190)

-

4

13

17

2

19

11

14

25

10

35

-

-

-

-

-

19

-

19

18

37

1

-

1

(18)

(17)

(6)

(2)

(8)

(22)

(30)

118

22

140

4

144

227

50

277

67

344

(45)

22

(23)

22

(1)

57

21

78

84

162

-

-

-

-

-

4

-

4

1

5

73

44

117

26

143

288

71

359

152

511

(56)

49

(7)

47

40

(62)

202

140

199

339

(61)

-

(61)

-

(61)

(93)

-

(93)

-

(93)

5

49

54

47

101

31

202

233

199

432

97

1,318

1,415

1,231

2,646

306

1,498

1,804

1,509

3,313

 

 

 

 

11.9%

 

 

 

 

13.2%

 

 

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

 

£m

Nordic

6 months ended 30 June 2011

 

Free surplus

Required

capital

Adjusted

net worth

Value of

in-force

MCEV

Opening MCEV

51

135

186

1,318

1,504

New business value

(29)

4

(25)

53

28

Expected existing business contribution (reference rate)

2

1

3

18

21

Expected existing business contribution (in excess of reference rate)

-

-

-

16

16

Transfers from VIF and required capital to free surplus

65

-

65

(65)

-

Experience variances

1

3

4

(4)

-

Assumption changes

-

-

-

-

-

Other operating variance

-

-

-

(2)

(2)

Operating MCEV earnings

39

8

47

16

63

Economic variances

3

(6)

(3)

(68)

(71)

Other non-operating variance

(4)

-

(4)

-

(4)

Total MCEV earnings

38

2

40

(52)

(12)

Closing adjustments

(30)

4

(26)

35

9

Capital and dividend flows

(31)

-

(31)

-

(31)

Foreign exchange variance

1

4

5

35

40

Closing MCEV

59

141

200

1,301

1,501

Return on MCEV (ROEV) % per annum

 

 

 

 

8.4%

 


£m

Nordic*

Year ended 31 December 2011

 

Free
surplus

Required

capital

Adjusted

net worth

Value of

 in-force

MCEV

Expected existing business contribution (reference rate)

3

2

5

34

39

Expected existing business contribution (in excess of reference rate)

-

-

-

30

30

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

 

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

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

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

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

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

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

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

Notes to the MCEV basis supplementary information

For the six months ended 30 June 2011 continued

 

 

£m

6 months ended 30 June 2010

Year ended 31 December 2010

Free
surplus

Required

capital

Adjusted

net worth

Value of

in-force

MCEV

Free
surplus

Required

capital

Adjusted

net worth

Value of

in-force

MCEV

91

104

195

1,114

1,309

91

104

195

1,114

1,309

(24)

3

(21)

46

25

(49)

6

(43)

84

41

1

-

1

8

9

-

1

1

14

15

-

-

-

13

13

-

-

-

26

26

55

(4)

51

(51)

-

103

-

103

(103)

-

10

6

16

1

17

30

(5)

25

(1)

24

-

-

-

(4)

(4)

-

-

-

(55)

(55)

(39)

-

(39)

42

3

(44)

4

(40)

34

(6)

3

5

8

55

63

40

6

46

(1)

45

5

-

5

(2)

3

(4)

12

8

86

94

-

-

-

-

-

17

-

17

-

17

8

5

13

53

66

53

18

71

85

156

(65)

-

(65)

(13)

(78)

(93)

13

(80)

119

39

(59)

-

(59)

-

(59)

(100)

-

(100)

-

(100)

(6)

-

(6)

(13)

(19)

7

13

20

119

139

34

109

143

1,154

1,297

51

135

186

1,318

1,504

 

 

 

 

9.5%

 

 

 

 

3.3%

 

 

 

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

 

£m

Retail Europe

6 months ended 30 June 2011

 

Free
surplus

Required

capital

Adjusted

net worth

Value of

in-force

MCEV

Opening MCEV

41

62

103

520

623

New business value

(38)

-

(38)

41

3

Expected existing business contribution (reference rate)

-

-

-

5

5

Expected existing business contribution (in excess of reference rate)

-

-

-

2

2

Transfers from VIF and required capital to free surplus

46

1

47

(47)

-

Experience variances

(1)

2

1

(2)

(1)

Assumption changes

-

-

-

(2)

(2)

Other operating variance

-

-

-

(13)

(13)

Operating MCEV earnings

7

3

10

(16)

(6)

Economic variances

2

(2)

-

(3)

(3)

Other non-operating variance

-

-

-

-

-

Total MCEV earnings

9

1

10

(19)

(9)

Closing adjustments

4

2

6

29

35

Capital and dividend flows

-

-

-

-

-

Foreign exchange variance

4

2

6

29

35

Closing MCEV

54

65

119

530

649

Return on MCEV (ROEV) % per annum

 

 

 

 

0.6%

 


£m

Retail Europe*

Year ended 31 December 2011

 

Free
surplus

Required

capital

Adjusted

net worth

Value of

 in-force

MCEV

Expected existing business contribution (reference rate)

-

1

1

9

10

Expected existing business contribution (in excess of reference rate)

-

-

-

5

5

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

 

There were no material experience variances or operating assumption changes.

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

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

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

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

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

 

Notes to the MCEV basis supplementary information

For the six months ended 30 June 2011 continued

 

 

£m

6 months ended 30 June 2010

Year ended 31 December 2010

Free
surplus

Required

capital

Adjusted

net worth

Value of

in-force

MCEV

Free
surplus

Required

capital

Adjusted

net worth

Value of

in-force

MCEV

46

32

78

453

531

46

32

78

453

531

(33)

-

(33)

35

2

(69)

1

(68)

75

7

-

-

-

5

5

1

-

1

8

9

-

-

-

2

2

-

-

-

3

3

51

1

52

(52)

-

97

2

99

(99)

-

(6)

1

(5)

-

(5)

5

(1)

4

1

5

2

-

2

(2)

-

-

-

-

11

11

(5)

5

-

20

20

(9)

-

(9)

40

31

9

7

16

8

24

25

2

27

39

66

1

1

2

11

13

1

2

3

19

22

(1)

-

(1)

1

-

(26)

25

(1)

(5)

(6)

9

8

17

20

37

-

29

29

53

82

(9)

(2)

(11)

(22)

(33)

(5)

1

(4)

14

10

(7)

-

(7)

-

(7)

(6)

-

(6)

-

(6)

(2)

(2)

(4)

(22)

(26)

1

1

2

14

16

46

38

84

451

535

41

62

103

520

623

 

 

 

 

5.1%

 

 

 

 

12.8%

 

 

 

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

 

£m

Wealth Management

6 months ended 30 June 2011

 

 

Free surplus

Required

capital

Adjusted

net worth

Value of

in-force

MCEV

 

Opening MCEV

43

278

321

1,656

1,977

 

New business value

(71)

12

(59)

98

39

 

Expected existing business contribution (reference rate)

(1)

3

2

12

14

 

Expected existing business contribution (in excess of reference rate)

2

-

2

9

11

 

Transfers from VIF and required capital to free surplus

158

(17)

141

(141)

-

 

Experience variances

(17)

2

(15)

30

15

 

Assumption changes

1

-

1

(1)

-

 

Other operating variance

32

(6)

26

(5)

21

 

Operating MCEV earnings

104

(6)

98

2

100

 

Economic variances

8

(4)

4

15

19

 

Other non-operating variance

-

-

-

6

6

 

Total MCEV earnings

112

(10)

102

23

125

 

Closing adjustments

(49)

3

(46)

7

(39)

 

Capital and dividend flows

(50)

-

(50)

-

(50)

 

Foreign exchange variance

1

3

4

7

11

 

Closing MCEV

106

271

377

1,686

2,063

 

Return on MCEV (ROEV) % per annum

 

 

 

 

9.0%

 

 


£m

Wealth Management*

Year ended 31 December 2011

 

Free
surplus

Required

capital

Adjusted

net worth

Value of

 in-force

MCEV

Expected existing business contribution (reference rate)

1

2

3

24

27

Expected existing business contribution (in excess of reference rate)

6

-

6

17

23

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

 

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

There were no material operating assumption changes.

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

The economic variances were caused by marginally lower swap yields.

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

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

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

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

Notes to the MCEV basis supplementary information

For the six months ended 30 June 2011 continued

 

 

£m

6 months ended 30 June 2010

Year ended 31 December 2010

Free
surplus

Required

capital

Adjusted

net worth

Value of

in-force

MCEV

Free
surplus

Required

capital

Adjusted

net worth

Value of

in-force

MCEV

163

213

376

1,468

1,844

163

213

376

1,468

1,844

(96)

14

(82)

113

31

(142)

19

(123)

189

66

3

3

6

11

17

1

3

4

22

26

-

-

-

6

6

7

-

7

14

21

146

(20)

126

(126)

-

246

(20)

226

(226)

-

(26)

11

(15)

20

5

(62)

20

(42)

33

(9)

(2)

2

-

-

-

4

2

6

1

7

-

-

-

5

5

(34)

35

1

-

1

25

10

35

29

64

20

59

79

33

112

19

(3)

16

42

58

46

6

52

153

205

-

-

-

-

-

(2)

-

(2)

4

2

44

7

51

71

122

64

65

129

190

319

(33)

(5)

(38)

(13)

(51)

(184)

-

(184)

(2)

(186)

(30)

(6)

(36)

(1)

(37)

(184)

-

(184)

-

(184)

(3)

1

(2)

(12)

(14)

-

-

-

(2)

(2)

174

215

389

1,526

1,915

43

278

321

1,656

1,977

 

 

 

 

6.7%

 

 

 

 

6.1%

 

 

 

 

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

 

£m

US Life

6 months ended 30 June 2011

 

Free
surplus

Required

capital

Adjusted

net worth

Value of

in-force

MCEV

Opening MCEV

66

468

534

(723)

(189)

New business value

-

-

-

-

-

Expected existing business contribution (reference rate)

-

-

-

-

-

Expected existing business contribution (in excess of reference rate)

-

-

-

-

-

Transfers from VIF and required capital to free surplus

-

-

-

-

-

Experience variances

-

-

-

-

-

Assumption changes

-

-

-

-

-

Other operating variance

-

-

-

-

-

Operating MCEV earnings

-

-

-

-

-

Economic variances

-

-

-

-

-

Other non-operating variance

-

-

-

-

-

Total MCEV earnings

-

-

-

-

-

Closing adjustments

(66)

(468)

(534)

723

189

Capital and dividend flows

-

-

-

-

-

Foreign exchange variance

(2)

(19)

(21)

28

7

MCEV of acquired/sold business

(64)

(449)

(513)

695

182

Closing MCEV

-

-

-

-

-

Return on MCEV (ROEV) % per annum

 

 

 

 

0.0%

 

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

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

 

Notes to the MCEV basis supplementary information

For the six months ended 30 June 2011 continued

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

 

£m

6 months ended 30 June 2010

Year ended 31 December 2010

Free
surplus

Required

capital

Adjusted

net worth

Value of

in-force

MCEV

Free
surplus

Required

capital

Adjusted

net worth

Value of

in-force

MCEV

36

462

498

(816)

(318)

36

462

498

(816)

(318)

(36)

48

12

(16)

(4)

(66)

66

-

(28)

(28)

-

4

4

6

10

1

9

10

15

25

-

-

-

36

36

-

-

-

80

80

41

(23)

18

(18)

-

81

(47)

34

(34)

-

80

 (24)

56

43

99

33

(23)

10

30

40

-

-

-

2

2

(6)

-

(6)

(57)

(63)

-

-

-

(16)

(16)

-

-

-

(7)

(7)

85

5

90

37

127

43

5

48

(1)

47

(15)

(12)

(27)

(135)

(162)

71

(18)

53

127

180

-

-

-

-

-

-

-

-

-

-

70

(7)

63

(98)

(35)

114

(13)

101

126

227

(3)

36

33

(67)

(34)

(84)

19

(65)

(33)

(98)

(8)

-

(8)

-

(8)

(85)

-

(85)

-

(85)

5

36

41

(67)

(26)

1

19

20

(33)

(13)

-

-

-

-

-

-

-

-

-

-

103

491

594

(981)

(387)

66

468

534

(723)

(189)

 

 

 

 

79.7%

 

 

 

 

14.1%

 

 

 

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

 

£m

Bermuda

6 months ended 30 June 2011

 

Free
surplus

Required

capital

Adjusted

net worth

Value of

in-force

MCEV

Opening MCEV

-

403

403

(116)

287

New business value

-

-

-

-

-

Expected existing business contribution (reference rate)

-

1

1

3

4

Expected existing business contribution (in excess of reference rate)

-

12

12

8

20

Transfers from VIF and required capital to free surplus

34

(28)

6

(6)

-

Experience variances

1

-

1

(9)

(8)

Assumption changes

1

-

1

(3)

(2)

Other operating variance

(32)

32

-

(5)

(5)

Operating MCEV earnings

4

17

21

(12)

9

Economic variances

(4)

-

(4)

18

14

Other non-operating variance

-

-

-

-

-

Total MCEV earnings

-

17

17

6

23

Closing adjustments

-

(13)

(13)

3

(10)

Capital and dividend flows

-

-

-

-

-

Foreign exchange variance

-

(13)

(13)

3

(10)

Closing MCEV

-

407

407

(107)

300

Return on MCEV (ROEV) % per annum

 

 

 

 

9.4%

 


£m

Bermuda

Year ended 31 December 2011

 

Free
surplus

Required

capital

Adjusted

net worth

Value of

 in-force

MCEV

Expected existing business contribution (reference rate)

-

2

2

6

8

Expected existing business contribution (in excess of reference rate)

-

24

24

16

40

 

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

There were no material operating assumption changes.  

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

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

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

Notes to the MCEV basis supplementary information

For the six months ended 30 June 2011 continued

 

 

£m

6 months ended 30 June 2010

Year ended 31 December 2010

Free
surplus

Required

Capital

Adjusted

net worth

Value of

in-force

MCEV

Free
surplus

Required

capital

Adjusted

net worth

Value of

in-force

MCEV

-

363

363

(165)

198

-

363

363

(165)

198

-

-

-

-

-

-

-

-

-

-

-

1

1

5

6

-

3

3

9

12

-

16

16

16

32

-

30

30

35

65

6

(22)

(16)

16

-

16

(45)

(29)

29

-

(8)

-

(8)

(19)

(27)

(18)

1

(17)

(2)

(19)

2

-

2

-

2

(19)

-

(19)

(16)

(35)

70

(44)

26

(9)

17

(32)

37

5

(52)

(47)

70

(49)

21

9

30

(53)

26

(27)

3

(24)

(70)

-

(70)

(5)

(75)

53

-

53

52

105

-

-

-

-

-

-

-

-

-

-

-

(49)

(49)

4

(45)

-

26

26

55

81

-

27

27

(12)

15

-

14

14

(6)

8

-

-

-

-

-

-

-

-

-

-

-

27

27

(12)

15

-

14

14

(6)

8

-

341

341

(173)

168

-

403

403

(116)

287

 

 

 

 

19.5%

 

 

 

 

(11.4)%

 

 

 

B4 Analysis of covered business MCEV earnings (after tax)

 

Total covered business

£m

 

6 months ended 30 June 2011

 

 

Free surplus

Required

capital

Adjusted

net worth

Value of

in-force

MCEV

 

Opening MCEV

507

2,844

3,351

4,164

7,515

 

New business value

(231)

82

(149)

257

108

 

Expected existing business contribution (reference rate)

7

36

43

92

135

 

Expected existing business contribution (in excess of reference rate)

3

18

21

44

65

 

Transfers from VIF and required capital to free surplus

496

(119)

377

(377)

-

 

Experience variances

19

13

32

48

80

 

Assumption changes

2

-

2

(6)

(4)

 

Other operating variance

(21)

24

3

(33)

(30)

 

Operating MCEV earnings

275

54

329

25

354

 

Economic variances

38

(8)

30

(63)

(33)

 

Other non-operating variance

-

-

-

6

6

 

Total MCEV earnings

313

46

359

(32)

327

 

Closing adjustments

(131)

(550)

(681)

718

37

 

Capital and dividend flows

(56)

-

(56)

-

(56)

 

Foreign exchange variance

(11)

(101)

(112)

23

(89)

 

MCEV of acquired/sold business

(64)

(449)

(513)

695

182

 

Closing MCEV

689

2,340

3,029

4,850

7,879

 

Return on MCEV (ROEV) % per annum

 

 

 

 

9.9%

 

 

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


£m

Total covered business*

Year ended 31 December 2011

 

Free
surplus

Required

capital

Adjusted

net worth

Value of

 in-force

MCEV

Expected existing business contribution (reference rate)

16

67

83

179

262

Expected existing business contribution (in excess of reference rate)

8

35

43

88

131

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

 

Notes to the MCEV basis supplementary information

For the six months ended 30 June 2011 continued

 

 

 

£m

6 months ended 30 June 2010

Year ended 31 December 2010

Free
surplus

Required

capital

Adjusted

net worth

Value of

in-force

MCEV

Free
surplus

Required

capital

Adjusted

net worth

Value of

in-force

MCEV

416

2,399

2,815

3,212

6,027

416

2,399

2,815

3,212

6,027

(263)

124

(139)

231

92

(485)

226

(259)

431

172

8

43

51

94

145

9

89

98

192

290

-

14

14

81

95

7

27

34

174

208

482

(151)

331

(331)

-

899

(276)

623

(623)

-

54

7

61

47

108

(1)

6

5

71

76

2

2

4

(4)

-

(2)

2

-

(98)

(98)

27

(39)

(12)

24

12

(125)

74

(51)

(7)

(58)

310

-

310

142

452

302

148

450

140

590

(105)

8

(97)

(67)

(164)

224

23

247

521

768

(1)

-

(1)

1

-

(7)

25

18

-

18

204

8

212

76

288

519

196

715

661

1,376

(166)

105

(61)

(80)

(141)

(428)

249

(179)

291

112

(165)

(6)

(171)

(1)

(172)

(468)

-

(468)

-

(468)

(1)

111

110

(79)

31

40

249

289

291

580

-

-

-

-

-

-

-

-

-

-

454

2,512

2,966

3,208

6,174

507

2,844

3,351

4,164

7,515

 

 

 

 

14.8%

 

 

 

 

9.8%

 

 

 

C Other key performance information

C1 Value of new business (after tax)

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

 

 

 

£m

 

6 months ended 30 June 2011

6 months ended 30 June 2010

Year ended

31 December

2010

Annualised recurring premiums

 

 

 

Long Term Savings

375

339

698

Emerging Markets

176

143

325

Nordic

83

74

144

Retail Europe

33

29

63

Wealth Management

83

93

166

US Life

-

5

10

 

375

344

708

Single premiums

 

 

 

Long Term Savings

3,875

4,296

7,932

Emerging Markets

797

803

1,611

Nordic

420

284

573

Retail Europe

34

34

63

Wealth Management

2,624

3,175

5,685

US Life

-

400

824

 

3,875

4,696

8,756

PVNBP

 

 

 

Long Term Savings

5,645

5,968

11,266

Emerging Markets

1,656

1,561

3,269

Nordic

736

553

1,104

Retail Europe

276

243

513

Wealth Management

2,977

3,611

6,380

US Life

-

432

889

 

5,645

6,400

12,155

PVNBP capitalisation factors*

 

 

 

Long Term Savings

4.7

4.9

4.8

Emerging Markets

4.9

5.3

5.1

Nordic

3.8

3.6

3.7

Retail Europe

7.4

7.2

7.2

Wealth Management

4.2

4.6

4.2

US Life

-

6.6

6.6

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

 

 

Notes to the MCEV basis supplementary information

For the six months ended 30 June 2011 continued

C1 Value of new business (after tax) continued

 

 

 

 

£m

 

6 months ended 30 June 2011

6 months ended 30 June 2010

Year ended

31 December

2010

APE

 

 

 

Long Term Savings

763

769

1,491

Emerging Markets

255

223

487

Nordic

126

102

201

Retail Europe

36

32

69

Wealth Management

346

412

734

US Life

n/a

45

92

 

763

814

1,583

VNB

 

 

 

Long Term Savings

108

96

200

Emerging Markets

38

38

86

Nordic

28

25

41

Retail Europe

3

2

7

Wealth Management

39

31

66

US Life*

n/a

(4)

(28)

 

108

92

172

PVNBP margin

 

 

 

Long Term Savings

1.9%

1.6%

1.8%

Emerging Markets

2.3%

2.5%

2.6%

Nordic

3.9%

4.6%

3.7%

Retail Europe

1.0%

0.7%

1.4%

Wealth Management

1.3%

0.9%

1.0%

US Life

n/a

(0.9)%

(3.2)%

 

1.9%

1.4%

1.4%

APE margin

 

 

 

Long Term Savings

14%

13%

13%

Emerging Markets

15%

17%

18%

Nordic

23%

25%

21%

Retail Europe

8%

6%

11%

Wealth Management

11%

8%

9%

US Life

n/a

(9)%

(31)%

 

14%

11%

11%

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

 

 

 

C1 Value of new business (after tax) continued

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

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

 



£m

Gross premium excluded from value of new business

6 months ended 30 June 2011

6 months ended 30 June 2010

Year ended

31 December

2010

Emerging Markets

465

386

723

Wealth Management

229

75

304

 

 

 

Notes to the MCEV basis supplementary information

For the six months ended 30 June 2011 continued

C2 Product analysis of new covered business premiums

 

£m

 

6 months ended 30 June 2011

 

6 months ended 30 June 2010

 

Year ended 31 December 2010

Emerging Markets

Recurring

Single

 

Recurring

Single

 

Recurring

Single

Total business

176

797

 

143

803


325

1,611

Individual business

157

440

 

120

486


284

889

Savings

35

 

29

387


69

713

Protection

33

 

31

-


70

-

Annuity

-

 

-

98


-

176

Mass Foundation Cluster*

89

1

 

60

1


145

-

Group business

19

357

 

23

317


41

722

Savings

11

 

9

257


20

585

Protection

8

 

14

-


21

1

Annuity

-

107

 

-

60


-

136

*     Previously described as Retail Mass Market.

 

£m

 

6 months ended 30 June 2011

 

6 months ended 30 June 2010

 

Year ended 31 December 2010

Nordic

Recurring

Single

 

Recurring

Single

 

Recurring

Single

Unit-linked and life assurance

83

420

 

74

284

 

144

573

 

£m

 

6 months ended 30 June 2011

 

6 months ended 30 June 2010

 

Year ended 31 December 2010

Retail Europe

Recurring

Single

 

Recurring

Single

 

Recurring

Single

Unit-linked and life assurance

33

34

 

29

34

 

63

63

 

£m

 

6 months ended 30 June 2011

 

6 months ended 30 June 2010

 

Year ended 31 December 2010

Wealth Management

Recurring

Single

 

Recurring

Single

 

Recurring

Single

Unit-linked and life assurance

83

2,624

 

93

3,175

 

166

5,685

 

£m

 

6 months ended 30 June 2011

 

6 months ended 30 June 2010

 

Year ended 31 December 2010

US Life

Recurring

Single

 

Recurring

Single

 

Recurring

Single

Total business

-

-

 

5

400

 

10

824

Fixed deferred annuity

-

 

-

79

 

-

163

Fixed indexed annuity

-

 

-

234

 

-

502

Variable annuity

-

 

-

-

 

-

-

Life

-

 

5

1

 

10

1

Immediate annuity

-

-

 

-

86

 

-

158

 

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

 

 

C3 Adjustments applied in determining total Group MCEV earnings before tax

 

 

£m

 

6 months ended 30 June 2011

6 months ended 30 June 2010

Analysis of adjusting items

Covered business MCEV

Non-covered business IFRS

Total Group MCEV

Covered business MCEV

Non-covered business IFRS

Total Group MCEV

Income/(expense)

 

 

 

 

 

 

Goodwill impairment and amortisation of non-covered business acquired intangible assets and impact of acquisition accounting

-

(11)

(11)

-

(7)

(7)

Economic variances

(49)

(11)

(60)

(277)

(20)

(297)

Other non-operating variances

1

-

1

2

-

2

Acquired/divested business

-

-

-

-

(22)

(22)

Closure of unclaimed share trust

-

-

-

-

-

-

Dividends declared to holders of perpetual preferred callable securities

-

22

22

-

21

21

Adjusting items relating to US Asset Management equity plans and non-controlling interests

-

-

-

-

2

2

Fair value gains on Group debt instruments

-

(50)

(50)

-

(90)

(90)

Adjusting items

(48)

(50)

(98)

(275)

(116)

(391)

 

Adjusting items from continuing operations

(48)

(50)

(98)

11

(116)

(105)

Adjusting items from discontinued operations

-

-

-

(286)

-

(286)

Total MCEV adjusting items

(48)

(50)

(98)

(275)

(116)

(391)

 

 

£m

 

Year ended 31 December 2010

Analysis of adjusting items

Covered business

MCEV

Non-covered business IFRS

Total Group

MCEV

Income/(expense)

 

 

 

Goodwill impairment and amortisation of non-covered business acquired intangible assets and impact of acquisition accounting

-

(20)

(20)

Economic variances

864

(7)

857

Other non-operating variances

17

-

17

Acquired/divested business

-

(22)

(22)

Closure of unclaimed share trust

-

-

-

Dividends declared to holders of perpetual preferred callable securities

-

44

44

Adjusting items relating to US Asset Management equity plans and non-controlling interests

-

6

6

Fair value gains on Group debt instruments

-

(203)

(203)

Adjusting items

881

(202)

679

 

Adjusting items from continuing operations

701

(202)

499

Adjusting items from discontinued operations

180

-

180

Total MCEV adjusting items

881

(202)

679

 

Notes to the MCEV basis supplementary information

For the six months ended 30 June 2011 continued

C4 Other movements in IFRS net equity impacting Group MCEV

 

 

£m

 

6 months ended 30 June 2011

6 months ended 30 June 2010

 

Covered business MCEV

Non-covered business IFRS

Total Group MCEV

Covered business MCEV

Non-covered business IFRS

Total Group MCEV

Fair value gains/(losses)

-

1

1

-

(5)

(5)

Net investment hedge

-

(25)

(25)

-

(34)

(34)

Currency translation differences/exchange differences on translating foreign operations

(89)

(194)

(283)

31

200

231

Aggregate tax effects of items taken directly to or transferred from equity

-

6

6

-

6

6

Other movements*

182

18

200

-

(28)

(28)

Net income recognised directly into equity

93

(194)

(101)

31

139

170

Capital and dividend flows for the year

(56)

(19)

(75)

(172)

73

(99)

Net sale of treasury shares

 -

(18)

(18)

-

(20)

(20)

Net issues of ordinary share capital by the Company

-

91

91

-

160

160

Acquisition of non-controlling interest in Mutual & Federal

-

-

-

-

(93)

(93)

Exercise of share options

-

4

4

-

3

3

Change in share based payment reserve

-

21

21

-

1

1

Other movements in net equity

37

(115)

78

(141)

263

122

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

 

 

£m

 

 

Year ended 31 December 2010

 

Covered business MCEV

Non-covered business IFRS

Total Group MCEV

Fair value gains/(losses)

-

8

8

Net investment hedge

-

(86)

(86)

Currency translation differences/exchange differences on translating foreign operations

580

448

1,028

Aggregate tax effects of items taken directly to or transferred from equity

-

14

14

Other movements

-

(24)

(24)

Net income recognised directly into equity

580

360

940

Capital and dividend flows for the year

(468)

322

(146)

Net sales of treasury shares

-

(28)

(28)

Net issues of ordinary share capital by the Company

-

162

162

Acquisition of non-controlling interest in Mutual & Federal

-

(93)

(93)

Exercise of share options

-

4

4

Change in share based payment reserve

-

4

4

Other movements in net equity

112

731

843

 

 

 

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

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

£m

At 30 June 2011

Total

Long Term Savings

Emerging Markets

Nordic

Retail
Europe

Wealth Management

 

US Life

Bermuda

IFRS net asset value*

5,859

5,418

1,339

1,423

664

1,992

-

441

Adjustment to include long-term business on a statutory solvency basis

(2,201)

(2,167)

199

(1,012)

(338)

(1,016)

-

(34)

Inclusion of Group equity and debt instruments held in life funds

396

396

396

-

-

-

-

-

Goodwill

(1,025)

(1,025)

(8)

(211)

(207)

(599)

-

-

Adjusted net worth attributable to ordinary equity holders of the parent

3,029

2,622

1,926

200

119

377

-

407

 

£m

At 30 June 2010

Total

Long Term Savings

Emerging Markets

Nordic

Retail
Europe

Wealth Management

 

US Life

Bermuda

IFRS net asset value*

6,394

4,827

932

1,147

586

2,162

1,213

354

Adjustment to include long-term business on a statutory solvency basis

(2,779)

(2,147)

161

(818)

(314)

(1,176)

(619)

(13)

Inclusion of Group equity and debt instruments held in life funds

330

330

330

-

-

-

-

-

Goodwill

(979)

(979)

(8)

(186)

(188)

(597)

-

-

Adjusted net worth attributable to ordinary equity holders of the parent

2,966

2,031

1,415

143

84

389

594

341

 

£m

At 31 December 2010

Total

Long Term Savings

Emerging Markets

Nordic

Retail
Europe

Wealth Management

 

US Life

Bermuda

IFRS net asset value*

5,794

5,088

1,216

1,243

632

1,997

274

432

Adjustment to include long-term business on a statutory solvency basis

(1,822)

(2,053)

207

(851)

(331)

(1,078)

260

(29)

Inclusion of Group equity and debt instruments held in life funds

389

389

389

-

-

-

-

-

Goodwill

(1,010)

(1,010)

(8)

(206)

(198)

(598)

-

-

Adjusted net worth attributable to ordinary equity holders of the parent

3,351

2,414

1,804

186

103

321

534

403

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

 

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

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

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

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

Notes to the MCEV basis supplementary information

For the six months ended 30 June 2011 continued

D Other income statement notes

D1 Drivers of new business value for covered business

PVNBP Margin

 

%

Long Term Savings (excludes US Life)*

12 months ended

30 June

2011

12 months ended 31 December

2010

Margin at the end of comparative period

1.6

1.6

Change in volume

0.2

(0.1)

Change in product mix

-

0.2

Change in country mix

-

-

Change in operating assumptions

-

0.1

Change in economic assumptions

0.2

(0.1)

Change in tax/regulation

(0.1)

-

Exchange rate movements

-

0.1

Margin at the end of the period

1.9

1.8

Emerging Markets**

 

 

Margin at the end of comparative period

2.5

2.3

Change in volume

0.2

0.1

Change in product mix

(0.2)

0.4

Change in country mix

-

-

Change in operating assumptions

(0.1)

(0.1)

Change in economic assumptions

0.4

(0.1)

Change in tax/regulation

(0.5)

-

Margin at the end of the period

2.3

2.6

Nordic***

 

 

Margin at the end of comparative period

4.6

3.8

Change in volume

(0.1)

(0.1)

Change in product mix

(0.1)

0.6

Change in country mix

-

-

Change in operating assumptions

(0.5)

(0.4)

Change in economic assumptions

-

(0.2)

Margin at the end of the period

3.9

3.7

Retail Europe****

 

 

Margin at the end of comparative period

0.7

(1.0)

Change in volume

-

1.6

Change in product mix

0.5

(0.2)

Change in country mix

(0.1)

-

Change in operating assumptions

(0.1)

0.9

Change in economic assumptions

-

0.1

Margin at the end of the period

1.0

1.4

Wealth Management*

 

 

Margin at the end of comparative period

0.9

1.0

Change in volume

-

(0.1)

Change in product mix

0.2

(0.1)

Change in country mix

-

-

Change in operating assumptions

0.1

0.2

Change in economic assumptions

0.1

-

Margin at the end of the period

1.3

1.0

 

 

 

 

 

D1 Drivers of new business value for covered business continued


 

%

US Life*****

12 months ended

30 June

2011

12 months ended 31 December

2010

Margin at the end of comparative period

-

2.2

Change in volume

-

(0.1)

Change in product mix

-

(0.9)

Change in country mix

-

-

Change in operating assumptions

-

(0.6)

Change in economic assumptions

-

(3.8)

Margin at the end of the period

-

(3.2)


 

 

Total covered business*

 

 

Margin at the end of comparative period

1.6

1.6

Change in volume

0.2

(0.1)

Change in product mix

-

0.1

Change in country mix

-

-

Change in operating assumptions

-

0.1

Change in economic assumptions

0.2

(0.4)

Change in tax/regulation

(0.1)

-

Exchange rate movements

-

0.1

Margin at the end of the period

1.9

1.4

*        The PVNBP margin changes are calculated in sterling.

**       The PVNBP margin changes are calculated in rand.

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

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

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

 

 

Notes to the MCEV basis supplementary information

For the six months ended 30 June 2011 continued

E1 Sensitivity tests

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

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

 

At 30 June 2011

£m

Long Term Savings

MCEV

Value of in-force business

Value of new business

Central assumptions

7,579

4,957

108

Effect of:

 

 

 

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

7,418

4,810

98

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

7,752

5,112

118

Recognising the present value of an additional 10bps of liquidity spreads assumed on corporate bonds over the lifetime of the liabilities, with credited rates and discount rates changing commensurately

7,889

4,860

109

 

 

At 30 June 2011

£m

Emerging Markets

MCEV

Value of in-force business

Value of new business

Central assumptions

3,366

1,440

38

Effect of:

 

 

 

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

3,308

1,381

34

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

3,426

1,501

41

Recognising the present value of an additional 10bps of liquidity spreads assumed on corporate bonds over the lifetime of the liabilities, with credited rates and discount rates changing commensurately

3,376

1,450

39

 

 

At 30 June 2011

£m

Nordic

MCEV

Value of in-force business

Value of new business

Central assumptions

1,501

1,301

28

Effect of:

 

 

 

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

1,474

1,274

28

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

1,532

1,332

29

 

 

At 30 June 2011

£m

Retail Europe

MCEV

Value of in-force business

Value of new business

Central assumptions

649

530

3

Effect of:

 

 

 

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

630

512

1

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

664

544

4

 

 

 

E1 Sensitivity tests continued

 

At 30 June 2011

£m

Wealth Management

MCEV

Value of in-force business

Value of new business

Central assumptions

2,063

1,686

39

Effect of:

 

 

 

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

2,006

1,643

35

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

2,130

1,735

44

 

 

At 30 June 2011

£m

Bermuda

MCEV

Value of in-force business

Value of new business

Central assumptions

300

(107)

-

Effect of:

 

 

 

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

351

(111)

-

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

257

(98)

-

 

 

At 30 June 2011

£m

Total covered business

MCEV

Value of in-force business

Value of new business

Central assumptions

7,879

4,850

108

Effect of:




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

7,769

4,699

98

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

8,009

5,014

118

Recognising the present value of an additional 10bps of liquidity spreads assumed on corporate bonds over the lifetime of the liabilities, with credited rates and discount rates changing commensurately

7,889

4,860

109

 

Shareholder information

Listings and shares in issue

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

 

 

Websites

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

 


This information is provided by RNS
The company news service from the London Stock Exchange
 
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