12 UK embedded value reconciliation.

(XLS:) Notes to the Supplementary Financial Statements – UK embedded value reconciliation 2012

For the year ended 31 December 2012

Free surplus
£m

Required capital
£m

Share­holder net worth
£m

Value of
in-force
£m

Total
£m

1.

The free surplus reduction of £275m to finance new business includes £93m IFRS new business strain and £182m additional required capital.

2.

The increase in free surplus of £762m from the expected transfer from the in-force non profit business includes £591m of IFRS operational cash generation and a £171m reduction in required capital.

3.

UK intra-group distributions reflect a £525m dividend paid from Society to Group and dividends of £40m paid to Society from subsidiaries (primarily Nationwide Life). Dividends of €15m from LGN were also paid to Society.

4.

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.

5.

The other reserve movements reflects the pension deficit movement, the movement of investment project costs from covered to non-covered business and the effect of reinsurance arrangement transactions between UK and US covered business.

At 1 January

 

 

 

 

 

 

 

 

 

Value of in-force business (VIF)

 

 

 

4,247

 

4,247

Shareholder net worth (SNW)

1,461

 

1,757

 

3,218

 

 

3,218

 

1,461

 

1,757

 

3,218

 

4,247

 

7,465

Operating profit/(loss) for the year:

 

 

 

 

 

 

 

 

 

– New business contribution1

(275)

 

182

 

(93)

 

386

 

293

– Expected return on VIF

 

 

 

270

 

270

– Expected transfer from non profit VIF to SNW2

762

 

(171)

 

591

 

(591)

 

– With-profits transfer

52

 

 

52

 

(52)

 

– Expected return on SNW

53

 

63

 

116

 

 

116

Generation of embedded value

592

 

74

 

666

 

13

 

679

– Experience variances

(26)

 

18

 

(8)

 

20

 

12

– Operating assumption changes

13

 

1

 

14

 

(23)

 

(9)

– Development costs

(29)

 

 

(29)

 

 

(29)

Variances

(42)

 

19

 

(23)

 

(3)

 

(26)

Operating profit after tax for the year

550

 

93

 

643

 

10

 

653

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

 

 

 

 

 

 

 

 

 

– Investment variances

(72)

 

11

 

(61)

 

3

 

(58)

– Economic assumption changes

(110)

 

96

 

(14)

 

(40)

 

(54)

– Effect of tax rate changes and other taxation impacts

 

 

 

89

 

89

Non-operating (loss)/profit for the year

(182)

 

107

 

(75)

 

52

 

(23)

Profit for the year

368

 

200

 

568

 

62

 

630

Intra-group distributions3

(473)

 

 

(473)

 

 

(473)

Transfer to non-covered business4

(22)

 

 

(22)

 

 

(22)

Other reserve movements including pension deficit5

(124)

 

11

 

(113)

 

93

 

(20)

Embedded value

1,210

 

1,968

 

3,178

 

4,402

 

7,580

Represented by:

 

 

 

 

 

 

 

 

 

– Non profit

 

 

 

 

 

 

4,008

 

 

– With-profits

 

 

 

 

 

 

394

 

 

Value of in-force business

 

 

 

4,402

 

4,402

Shareholder net worth

1,210

 

1,968

 

3,178

 

 

3,178

(XLS:) Notes to the Supplementary Financial Statements – UK embedded value reconciliation 2011

For the year ended 31 December 2011

Free surplus
£m

Required capital
£m

Share­holder net worth
£m

Value of
in-force
£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.

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 €50m from LGN were also paid to Society.

4.

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.

5.

The other reserve movements reflects the pension deficit movement, the movement of investment project costs from covered to non-covered business and the effect of reinsurance arrangement transactions between UK and US covered business.

At 1 January

 

 

 

 

 

 

 

 

 

Value of in-force business (VIF)

 

 

 

3,886

 

3,886

Shareholder net worth (SNW)

1,395

 

1,640

 

3,035

 

 

3,035

 

1,395

 

1,640

 

3,035

 

3,886

 

6,921

Operating profit/(loss) for the year:

 

 

 

 

 

 

 

 

 

– New business contribution1

(258)

 

167

 

(91)

 

381

 

290

– Expected return on VIF

 

 

 

298

 

298

– Expected transfer from non profit VIF to SNW2

745

 

(185)

 

560

 

(560)

 

– With-profits transfer

51

 

 

51

 

(51)

 

– Expected return on SNW

58

 

67

 

125

 

 

125

Generation of embedded value

596

 

49

 

645

 

68

 

713

– Experience variances

(52)

 

20

 

(32)

 

108

 

76

– Operating assumption changes

34

 

3

 

37

 

41

 

78

– Development costs

(8)

 

 

(8)

 

 

(8)

Variances

(26)

 

23

 

(3)

 

149

 

146

Operating profit after tax for the year

570

 

72

 

642

 

217

 

859

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

 

 

 

 

 

 

 

 

 

– Investment variances

81

 

 

81

 

(47)

 

34

– Economic assumption changes

(65)

 

45

 

(20)

 

53

 

33

– Effect of tax rate changes and other taxation impacts

 

 

 

155

 

155

Non-operating profit/(loss) for the year

16

 

45

 

61

 

161

 

222

Profit for the year

586

 

117

 

703

 

378

 

1,081

Intra-group distributions3

(437)

 

 

(437)

 

 

(437)

Transfer to non-covered business4

(19)

 

 

(19)

 

 

(19)

Other reserve movements including pension deficit5

(64)

 

 

(64)

 

(17)

 

(81)

Embedded value

1,461

 

1,757

 

3,218

 

4,247

 

7,465

Represented by:

 

 

 

 

 

 

 

 

 

– Non profit

 

 

 

 

 

 

3,808

 

 

– With-profits

 

 

 

 

 

 

439

 

 

Value of in-force business

 

 

 

4,247

 

4,247

Shareholder net worth

1,461

 

1,757

 

3,218

 

 

3,218