8 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.

Effect on embedded value as at 31 December 2014

 

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

1.

Includes LGC.

LGAS and LGR1

10,109

855

(724)

628

(488)

175

LGA

727

103

(85)

22

(21)

Total covered business

10,836

958

(809)

650

(509)

175

 

 

 

 

 

 

 

 

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

LGAS and LGR1

10,109

(302)

158

82

(428)

71

LGA

727

12

(2)

n/a

168

Total covered business

10,836

(302)

170

80

(428)

239

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

1.

Includes LGC.

LGAS and LGR1

760

117

(96)

38

(29)

26

LGA

90

14

(11)

5

(5)

Total covered business

850

131

(107)

43

(34)

26

 

 

 

 

 

 

 

 

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

LGAS and LGR1

760

(7)

30

20

(97)

10

LGA

90

1

4

n/a

16

Total covered business

850

(7)

31

24

(97)

26

Opposite sensitivities are broadly symmetrical.

The above sensitivity analyses do not reflect management actions which could be taken to reduce the impacts. 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 £1,281m negative impact on UK embedded value and a £168m negative impact on UK new business contribution for the year.