17 SENSITIVITIES.


In accordance with the guidance issued by the European Insurance CFO Forum in October 2005 the table below shows the effect of alternative assumptions on the long term embedded value and new business contribution.

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Effect on embedded value as at 31 December 2011

As published
£m

1% lower risk discount rate
£m

1% higher risk discount rate
£m

1% lower interest rate
£m

1% higher interest rate
£m

1% higher equity/ property yields
£m

UK

7,465

515

(444)

204

(202)

121

International

1,531

147

(119)

37

(39)

5

Total covered business

8,996

662

(563)

241

(241)

126

 

 

 

 

 

 

 

 

As published
£m

10% lower equity/ property values
£m

10% lower maintenance expenses
£m

10% lower lapse rates
£m

5% lower mortality (UK annuities)
£m

5% lower mortality (other business)
£m

UK

7,465

(233)

83

87

(220)

50

International

1,531

(8)

21

10

n/a

150

Total covered business

8,996

(241)

104

97

(220)

200

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Effect on new business contribution for the year

As published
£m

1% lower risk discount rate
£m

1% higher risk discount rate
£m

1% lower interest rate
£m

1% higher interest rate
£m

1% higher equity/ property yields
£m

UK

376

54

(46)

21

(13)

11

International

65

15

(12)

3

(3)

Total covered business

441

69

(58)

24

(16)

11

 

 

 

 

 

 

 

 

As published
£m

10% lower equity/ property values
£m

10% lower maintenance expenses
£m

10% lower lapse rates
£m

5% lower mortality (UK annuities)
£m

5% lower mortality (other business)
£m

UK

376

(2)

11

9

(11)

4

International

65

2

1

n/a

18

Total covered business

441

(2)

13

10

(11)

22

Opposite sensitivities are broadly symmetrical.

Sensitivity to changes in assumptions may not be linear, and as such, they should not be extrapolated to changes of a much larger order. A 2% higher risk discount rate would result in a £824m negative impact on embedded value and a £90m negative impact on new business contribution for the year.

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