13 GROUP EMBEDDED VALUE RECONCILIATION.


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Covered business

 

 

For the year ended 31 December 2011

UK free surplus
£m

 

UK required capital
£m

 

UK value of in-force
£m

 

Total UK
£m

Inter- national
£m

Non-
covered
business
£m

    Total
£m

1.

The free surplus reduction of £258m to finance new business includes £94m [IFRS] new business strain and £167m additional required capital. Other items have a net negative impact of £3m.

2.

The increase in free surplus of £745m from the expected transfer from the in-force non profit business includes £560m of IFRS [operational cash generation] and a £185m reduction in required capital.

3.

The capital movement of £262m primarily reflects the capital repayment from LGA in respect of Potomac securities of £271m.

4.

UK intra-group distributions reflect a £500m dividend paid from [Society] to Group and dividends of £20m paid to Society from subsidiaries (primarily Nationwide Life). Dividends of $57m from LGA, €50m from LGN and €2m from LGF were also paid to the Group.

5.

The transfer to non-covered business represents the IFRS profits arising in the period from the provisions of investment management services by Legal & General Investment Management to the UK covered business, which have been included in the operating profit of the covered business on the look through basis.

At 1 January

 

 

 

 

 

 

 

 

 

 

Value of in-force business ([VIF])

 

 

3,886

 

3,886

1,015

4,901

Shareholder net worth (SNW)

1,395

 

1,640

 

 

3,035

748

(954)

2,829

 

1,395

 

1,640

 

3,886

 

6,921

1,763

(954)

7,730

Exchange rate movements

 

 

 

(4)

3

(1)

 

1,395

 

1,640

 

3,886

 

6,921

1,759

(951)

7,729

Operating profit/(loss) for the year:

 

 

 

 

 

 

 

 

 

 

– New business contribution1

(258)

 

167

 

381

 

290

 

 

 

– Expected return on VIF

 

 

298

 

298

 

 

 

– Expected transfer from Non profit VIF to SNW2

745

 

(185)

 

(560)

 

 

 

 

– With-profits transfer

51

 

 

(51)

 

 

 

 

– Expected return on SNW

58

 

67

 

 

125

 

 

 

Generation of embedded value

596

 

49

 

68

 

713

 

 

 

– Experience variances

(52)

 

20

 

108

 

76

 

 

 

– Operating assumption changes

34

 

3

 

41

 

78

 

 

 

– Development costs

(8)

 

 

 

(8)

 

 

 

Variances

(26)

 

23

 

149

 

146

 

 

 

Operating profit after tax for the year

570

 

72

 

217

 

859

164

89

1,112

Non-operating profit/(loss) for the year:

 

 

 

 

 

 

 

 

 

 

– Investment variances

81

 

 

(47)

 

34

 

 

 

– Economic assumption changes

(65)

 

45

 

53

 

33

 

 

 

– Effect of UK Budget tax changes

 

 

155

 

155

 

 

 

Non-operating profit/(loss) for the year:

16

 

45

 

161

 

222

(48)

(55)

119

Profit for the year

586

 

117

 

378

 

1,081

116

34

1,231

Capital movements3

 

 

 

(262)

262

Intra-group distributions4

(437)

 

 

 

(437)

(82)

519

Dividends to equity holders of the Company

 

 

 

(298)

(298)

Net movements in employee share schemes

 

 

 

4

4

Loss attributable to non-controlling interests

 

 

 

3

3

Transfer to non-covered business5

(19)

 

 

 

(19)

19

Other reserve movements including pension deficit

(64)

 

 

(17)

 

(81)

20

(61)

Embedded value

1,461

 

1,757

 

4,247

 

7,465

1,531

(388)

8,608

Represented by:

 

 

 

 

 

 

 

 

 

 

– Non profit

 

 

 

 

3,808

 

 

 

 

 

– With-profits

 

 

 

 

439

 

 

 

 

 

Value of in-force business

 

 

4,247

 

4,247

1,130

5,377

Shareholder net worth

1,461

 

1,757

 

 

3,218

401

(388)

3,231

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Covered business

 

 

For the year ended 31 December 2010

UK free surplus
£m

 

UK required capital
£m

 

UK value of in-force
£m

 

Total UK
£m

Inter- national
£m

Non-
covered
business
£m

    Total
£m

1.

The free surplus reduction of £258m to finance new business includes £80m IFRS new business strain and £178m additional required capital.

2.

The increase in free surplus of £688m from the expected transfer from the in-force non profit business includes £522m of IFRS operational cash generation and a £166m reduction in required capital.

3.

The capital movement of £184m reflects the capital contribution made to LGA to enable the repurchase of Potomac securities.

4.

UK intra-group distributions reflect a £300m dividend paid from Society to Group and dividends of £93m paid to Society from subsidiaries (primarily Nationwide Life). Dividends of $53m from LGA, €10m from LGN and €2m from LGF were also paid to the Group.

5.

The transfer to non-covered business represents the [IFRS] profits arising in the period from the provisions of investment management services by Legal & General Investment Management to the UK covered business, which have been included in the operating profit of the covered business on the look through basis.

6.

Other reserve movements primarily comprise the transfer from the covered business of Nationwide Life following the Part VII transfer of the majority of the insurance business in 2009.

At 1 January

 

 

 

 

 

 

 

 

 

 

Value of in-force business (VIF)

 

 

3,679

 

3,679

928

4,607

Shareholder net worth (SNW)

1,067

 

1,521

 

 

2,588

518

(1,018)

2,088

 

1,067

 

1,521

 

3,679

 

6,267

1,446

(1,018)

6,695

Exchange rate movements

 

 

 

7

(12)

(5)

 

1,067

 

1,521

 

3,679

 

6,267

1,453

(1,030)

6,690

Operating profit/(loss) for the year:

 

 

 

 

 

 

 

 

 

 

– New business contribution1

(258)

 

178

 

323

 

243

 

 

 

– Expected return on VIF

 

 

297

 

297

 

 

 

– Expected transfer from Non profit [VIF] to SNW2

688

 

(166)

 

(522)

 

 

 

 

– With-profits transfer

46

 

 

(46)

 

 

 

 

– Expected return on SNW

45

 

72

 

 

117

 

 

 

Generation of embedded value

521

 

84

 

52

 

657

 

 

 

– Experience variances

121

 

11

 

(7)

 

125

 

 

 

– Operating assumption changes

(14)

 

1

 

(28)

 

(41)

 

 

 

– Development costs

(11)

 

 

 

(11)

 

 

 

Variances

96

 

12

 

(35)

 

73

 

 

 

Operating profit after tax for the year

617

 

96

 

17

 

730

117

57

904

Non-operating profit/(loss) for the year:

 

 

 

 

 

 

 

 

 

 

– Investment variances

95

 

49

 

(6)

 

138

 

 

 

– Economic assumption changes

 

 

184

 

184

 

 

 

– Effect of UK Budget tax changes

 

 

33

 

33

 

 

 

Non-operating profit/(loss) for the year:

95

 

49

 

211

 

355

53

(48)

360

Profit for the year

712

 

145

 

228

 

1,085

170

9

1,264

Capital movements3

 

 

 

184

(184)

Intra-group distributions4

(207)

 

 

 

(207)

(44)

251

Dividends to equity holders of the Company

 

 

 

(238)

(238)

Net movements in employee share schemes

 

 

 

17

17

Transfer to non-covered business5

(19)

 

 

 

(19)

19

Other reserve movements including pension deficit6

(158)

 

(26)

 

(21)

 

(205)

202

(3)

Embedded value

1,395

 

1,640

 

3,886

 

6,921

1,763

(954)

7,730

Represented by:

 

 

 

 

 

 

 

 

 

 

– Non profit

 

 

 

 

3,372

 

 

 

 

 

– With-profits

 

 

 

 

514

 

 

 

 

 

Value of in-force business

 

 

3,886

 

3,886

1,015

4,901

Shareholder net worth

1,395

 

1,640

 

 

3,035

748

(954)

2,829

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