2 LGAS and LGR embedded value reconciliation.

2 LGAS and LGR embedded value reconciliation.
(XLS:) European Embedded Value basis – LGAS and LGR embedded value reconciliation 2013

 

Shareholder net worth

 

 

For the year ended 31 December 2013

Free surplus
£m

Required capital
£m

Total
£m

Value of
in-force
£m

Total embed­ded value
£m

1.

Opening balances at 1 January 2013 include LGF and LGN.

2.

The UK free surplus reduction of £324m to finance new business includes £40m new business strain and £284m additional required capital.

3.

The increase in UK free surplus of £815m from the expected transfer from the in-force non profit business includes £634m of operational cash generation and a £181m reduction in required capital.

4.

Reflects the implementation of the UK planned future reductions in corporation tax to 20% on 1 April 2015.

5.

UK intra-group dividends reflect a £625m dividend paid from Society to Group and dividends of £10m paid to Society from subsidiaries (primarily Nationwide Life). Dividends of €16m from LGN are also paid to Society.

6.

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

7.

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 20131

1,259

 

2,215

 

3,474

 

4,548

 

8,022

Exchange movement

3

 

3

 

6

 

3

 

9

Operating profit/(loss) after tax – UK business:

 

 

 

 

 

 

 

 

 

– New business contribution2

(324)

 

284

 

(40)

 

484

 

444

– Expected return on VIF

 

 

 

266

 

266

– Expected transfer from non profit VIF to SNW3

815

 

(181)

 

634

 

(634)

 

– With-profits transfer

54

 

 

54

 

(54)

 

– Expected return on SNW

40

 

76

 

116

 

 

116

Generation of embedded value

585

 

179

 

764

 

62

 

826

– Experience variances

5

 

(9)

 

(4)

 

14

 

10

– Operating assumption changes

(24)

 

2

 

(22)

 

21

 

(1)

– Development costs

(31)

 

 

(31)

 

 

(31)

Variances

(50)

 

(7)

 

(57)

 

35

 

(22)

Operating profit after tax – LGAS overseas

7

 

1

 

8

 

8

 

16

Operating profit after tax

542

 

173

 

715

 

105

 

820

Non-operating profit/(loss) after tax – UK business:

 

 

 

 

 

 

 

 

 

– Economic variances

109

 

(8)

 

101

 

80

 

181

– Effect of tax rate changes and other taxation impacts4

 

 

 

41

 

41

Non-operating profit after tax – LGAS overseas

20

 

 

20

 

40

 

60

Non-operating profit/(loss) after tax for the year

129

 

(8)

 

121

 

161

 

282

Profit for the year

671

 

165

 

836

 

266

 

1,102

Intra-group distributions5

(617)

 

 

(617)

 

 

(617)

Transfer to non-covered business6

(27)

 

 

(27)

 

 

(27)

Other reserve movements including pension deficit7

(115)

 

7

 

(108)

 

73

 

(35)

Embedded value at 31 December 2013

1,174

 

2,390

 

3,564

 

4,890

 

8,454

The value of in-force business of £4,890m is comprised of £4,454m of non profit business and £436m of with-profits business.

(XLS:) European Embedded Value basis – LGAS and LGR embedded value reconciliation 2012

 

Shareholder net worth

 

 

For the year ended 31 December 2012

Free surplus
£m

Required capital
£m

Total
£m

Value of
in-force
£m

Total embedded value
£m

1.

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

2.

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

3.

Reflects the implementation of the UK planned future reductions in corporation tax to 21% on 1 April 2014.

4.

UK intra-group dividends 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.

5.

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

6.

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 2012

1,492

 

1,978

 

3,470

 

4,464

 

7,934

Exchange movement

(3)

 

(3)

 

(6)

 

(6)

 

(12)

Operating profit/(loss) after tax – UK business:

 

 

 

 

 

 

 

 

 

– 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 – LGAS overseas

11

 

10

 

21

 

(2)

 

19

Operating profit after tax

561

 

103

 

664

 

8

 

672

Non-operating profit/(loss) after tax – UK business:

 

 

 

 

 

 

 

 

 

– Economic variances

(182)

 

107

 

(75)

 

(37)

 

(112)

– Effect of tax rate changes and other taxation impacts3

 

 

 

89

 

89

Non-operating profit after tax – LGAS overseas

24

 

19

 

43

 

(63)

 

(20)

Non-operating (loss)/profit after tax for the year

(158)

 

126

 

(32)

 

(11)

 

(43)

Profit for the year

403

 

229

 

632

 

(3)

 

629

Intra-group distributions4

(487)

 

 

(487)

 

 

(487)

Transfer to non-covered business5

(22)

 

 

(22)

 

 

(22)

Other reserve movements including pension deficit6

(124)

 

11

 

(113)

 

93

 

(20)

Embedded value at 31 December 2012

1,259

 

2,215

 

3,474

 

4,548

 

8,022

The value of in-force business of £4,548m is comprised of £4,154m of non profit business and £394m of with-profits business.

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