6 Profit/(loss) for the year.

6 Profit/(loss) for the year.
(XLS:) European Embedded Value basis – Profit/(loss) for the year 2013

For the year ended 31 December 2013

Note

LGAS and LGR
£m

LGIM
£m

LGC and group expenses
£m

LGA
£m

Total
£m

1.

The expected return on in-force is based on the unwind of the risk discount rate on the opening, adjusted base value of in-force (VIF). The opening base VIF of the UK LGAS and LGR business was £4,402m in 2013 (2012: £4,247m). This is adjusted for the effects of opening model changes of £27m (2012: £86m) to give an adjusted opening base VIF of £4,429m (2012: £4,333m). This is then multiplied by the opening risk discount rate of 6.0% (2012: 6.2%) and the result grossed up at the notional attributed tax rate of 20% (2012: 21%) to give a return of £331m (2012: £340m). The same approach has been applied for the LGAS overseas businesses.

2.

LGAS and LGR variance primarily reflects UK cost of capital unwind, bulk purchase annuity data loading, fewer retail protection lapses and better longevity experience. LGA experience variance primarily relates to adverse persistency experience and mortality experience within term assurance and universal life products respectively.

3.

LGAS and LGR assumption changes primarily reflects mortality assumption changes in LGR. LGA assumption changes primarily relate to improved modelling of term business in the period after the end of the guaranteed level premium period.

4.

LGAS and LGR non-covered business primarily reflects GI operating profit and other of £47m (2012: £10m).

5.

LGIM operating profit includes Retail Investments and excludes £34m (2012: £27m) of profits arising from the provision of investment management services at market referenced rates to the covered business on a look through basis and as a consequence are included in the LGAS and LGR covered business on an EEV basis.

6.

LGC and group expenses non-covered business primarily reflects the shareholder interest expense and Investment projects (predominantly Economic Capital Programme and other strategic investments).

7.

The LGAS and LGR positive variance has resulted from a number of factors including equity market outperformance, favourable default experience, actions to improve the yield on annuity assets and a lower risk margin offset by a higher risk free rate. The higher risk free rate has contributed to a negative variance in LGA.

8.

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

Business reported on an EEV basis:

 

 

 

 

 

 

Contribution from new business after cost of capital

7

544

 

 

107

651

Contribution from in-force business:

 

 

 

 

 

 

– expected return1

 

358

 

 

68

426

– experience variances2

 

52

 

 

(23)

29

– operating assumption changes3

 

(9)

 

 

(52)

(61)

Development costs

 

(40)

 

 

(40)

Contribution from shareholder net worth

 

5

 

113

7

125

Operating profit on covered business

 

910

113

107

1,130

Business reported on an IFRS basis4,5,6

 

47

270

(106)

211

Total operating profit

 

957

270

7

107

1,341

Economic variances7

 

250

(6)

8

(37)

215

Gains on non-controlling interests

 

3

3

Profit before tax

 

1,207

264

18

70

1,559

Tax (expense)/credit on profit from ordinary activities

 

(251)

(57)

21

(24)

(311)

Effect of tax rate changes and other taxation impacts8

 

41

41

Profit for the year

 

997

207

39

46

1,289

 

 

 

 

 

 

 

Operating profit attributable to:

 

 

 

 

 

 

LGAS

 

360

 

 

 

 

LGR

 

597

 

 

 

 

 

 

 

 

 

 

 

 

p

Earnings per share

 

Based on profit attributable to equity holders of the Company

21.91

Diluted earnings per share

 

Based on profit attributable to equity holders of the Company

21.61

(XLS:) European Embedded Value basis – Profit/(loss) for the year 2012

For the year ended 31 December 20121

Note

LGAS and LGR
£m

LGIM
£m

LGC and group expenses
£m

LGA
£m

Total
£m

1.

The Profit for the period has been restated to reflect an amendment to IAS 19 ‘Employee Benefits’. Details of this restatement are outlined in Note 1.

2.

The expected return on in-force is based on the unwind of the risk discount rate on the opening, adjusted base value of in-force (VIF). The opening base VIF of the UK LGAS and LGR business was £4,247m. This is adjusted for the effects of opening model changes of £86m to give an adjusted opening base VIF of £4,333m. This is then multiplied by the opening risk discount rate of 6.2% and the result grossed up at the notional attributed tax rate of 21% to give a return of £340m. The same approach has been applied for the LGAS overseas businesses.

3.

LGAS and LGR primarily reflects UK cost of capital unwind and bulk purchase annuity data loading, partially offset by model changes and negative persistency experience as a result of higher than expected lapses in unit linked bonds. LGA modelling and other experience variances mostly relate to additional reserving associated with the introduction of AG38 regulatory requirements.

4.

Operating assumption changes in LGAS and LGR have been driven by negative mortality and demographic assumption changes in the annuity business and higher investment expense assumptions, largely offset by positive impacts reflecting changes in UK tax legislation. LGA operating assumption changes mostly relate to higher mortality assumptions on unit linked secondary guarantee business.

5.

LGAS and LGR non-covered business primarily reflects GI operating profit and other of £10m.

6.

LGIM operating profit excludes £27m of profits arising from the provision of investment management services at market referenced rates to the covered business. These are reported on a look through basis and as a consequence are included in the LGAS, LGR and L&G Capital and group expenses covered business on an EEV basis.

7.

LGA non-covered business includes business unit costs of £4m allocated to the LGA segment.

8.

LGC and group expenses non-covered business primarily reflects the shareholder interest expense and Investment projects (predominantly Economic Capital Programme and other strategic investments).

9.

LGAS and LGR primarily reflect the impact of changes in reinvestment and disinvestment rates, higher costs of capital on increasing reserves mainly due to narrowing credit spreads, and other consequential impacts within lower yielding environments, partially offset by a lower risk discount rate.

10.

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

Business reported on an EEV basis:

 

 

 

 

 

 

Contribution from new business after cost of capital

7

377

 

 

98

475

Contribution from in-force business:

 

 

 

 

 

 

– expected return2

 

372

 

 

76

448

– experience variances3

 

12

 

 

(59)

(47)

– operating assumption changes4

 

(11)

 

 

(18)

(29)

Development costs

 

(37)

 

 

(37)

Contribution from shareholder net worth

 

6

 

134

5

145

Operating profit on covered business

 

719

134

102

955

Business reported on an IFRS basis5,6,7,8

 

10

245

(165)

(4)

86

Total operating profit/(loss)

 

729

245

(31)

98

1,041

Economic variances9

 

(157)

(5)

(41)

8

(195)

Losses attributable to non-controlling interests

 

(12)

(12)

Profit/(loss) before tax

 

572

240

(84)

106

834

Tax (expense)/credit on profit from ordinary activities

 

(121)

(46)

27

(28)

(168)

Effect of tax rate changes and other taxation impacts10

 

89

(22)

67

Profit/(loss) for the year

 

540

194

(57)

56

733

 

 

 

 

 

 

 

Operating profit attributable to:

 

 

 

 

 

 

LGAS

 

291

 

 

 

 

LGR

 

438

 

 

 

 

 

 

 

 

 

 

 

 

p1

Earnings per share

 

Based on profit attributable to equity holders of the Company

12.73

Diluted earnings per share

 

Based on profit attributable to equity holders of the Company

12.52

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