Wrap Text
OML - Old Mutual Plc - Interim Results for the six months ended 30 June 2011
Group Market Consistent Embedded Value statement of earnings
For the six months ended 30 June 2011
GBPm
6 months 6 months Year ended
ended 30 June ended 30 June 31 December
2011 2010 2010
Notes
Long Term Savings
Covered business 436 369 705
Asset management and
other business 84 64 127
Banking 8 8 16
Nedbank 528 441 848
Banking 359 266 601
Mutual & Federal
General insurance 47 33 103
US Asset Management
Asset management 47 40 87
Other operating segments
Finance costs* (74) (86) (183)
Other shareholders` expenses** (24) (5) (57)
Adjusted operating
Group MCEV earnings
before tax from core
operations 883 689 1,399
Adjusted operating
Group MCEV earnings
before tax from
Bermuda non-core
operations 11 30 (28)
Adjusted operating
Group MCEV earnings
before tax from
continuing
operations*** 894 719 1,371
Adjusting items from
continuing
operations C3 (98) (105) 499
Total Group MCEV
earnings before tax
from continuing
operations 796 614 1,870
Income tax
attributable to
shareholders (196) (161) (410)
Total Group MCEV
earnings after tax
from continuing
operations 600 453 1,460
Total Group MCEV
earnings after tax
from US Life
discontinued
operations**** A4 - (35) 227
Total Group MCEV
earnings after tax
for the financial period 600 418 1,687
Total Group MCEV
earnings for the
financial period
attributable to:
Equity holders of
the parent 457 303 1,429
Non-controlling
interests
Ordinary shares 112 84 196
Preferred securities 31 31 62
Total Group MCEV
earnings after tax
for the financial period 600 418 1,687
Basic total Group
MCEV earnings per
ordinary share (pence) 9.0 6.0 28.2
Weighted average
number of shares - millions 5,098 5,057 5,064
* This includes interest payable from Old Mutual plc to non-core operations of
GBP13 million for the six months ended 30 June 2011 (six months ended 30 June
2010: GBP18 million; year ended 31 December 2010: GBP55 million).
** Other shareholder expenses in MCEV GBP(24) million differ from IFRS GBP(31)
million as a result of the allocation of central costs of GBP(7) million
allocated to the covered business and provisioned in the VIF (IFRS: GBP(11)
million at 30 June 2010 and GBP(71) million at 31 December 2010; allocation of
central costs: GBP(6) million at 30 June 2010 and GBP(14) million at 31 December
2010).
*** For long-term business and general insurance businesses, adjusted operating
Group MCEV earnings are based on long-term and short-term investment returns
respectively, include investment returns on life fund investments in Group
equity and debt instruments, and are stated net of income tax attributable to
policyholder returns. For the US Asset Management business it includes
compensation costs in respect of certain long-term incentive schemes defined as
non-controlling interests in accordance with IFRS. For all businesses, adjusted
operating MCEV earnings excl ude goodwill impairment, the impact of acquisition
accounting, put revaluations related to long-term incentive schemes, the impact
of closure of unclaimed shares trusts, profit/(loss) on disposal of
subsidiaries, associated undertakings and strategic investments, dividends
declared to holders of perpetual preferred callable securities, and fair value
(profits)/losses on certain Group debt movements.
**** This is composed of earnings before tax of GBP48 million, adjusting items
of GBP180 million and tax of GBP(1) million for the year ended 31 December 2010
(earnings before tax of GBP129 million, adjusting items of GBP(286) million and
tax of GBP122 million for the six months ended 30 June 2010). Further detail
relating to adjusting items can be found in section C3.
Adjusted operating Group MCEV earnings per share
For the six months ended 30 June 2011
GBPm
Six months ended 30 June 2011
Core Non-core
continuing continuing Discontinued
operations operations operations Total
Notes
Adjusted
operating Group
MCEV earnings
before tax 883 11 - 894
Tax on adjusted
operating Group
MCEV earnings B2 (212) (2) (214)
Adjusted
operating Group
MCEV earnings after tax 671 9 - 680
Non-controlling
interests
Ordinary shares (120) - - (120)
Preferred securities (31) - - (31)
Adjusted
operating MCEV
earnings after tax
attributable to
equity holders 520 9 - 529
Adjusted operating
Group MCEV earnings
per share* 9.6 0.2 9.8
Adjusted weighted
average number
of shares - millions 5,397
GBPm
Six months ended 30 June 2010
Core Non-core
continuing continuing Discontinued
operations operations operations Total
Notes
Adjusted operating
Group
MCEV earnings
before tax 689 30 129 848
Tax on adjusted
operating Group
MCEV earnings B2 (153) - (2) (155)
Adjusted operating
Group
MCEV earnings
after tax 536 30 127 693
Non-controlling
interests
Ordinary shares (95) - - (95)
Preferred securities (31) - - (31)
Adjusted operating MCEV
earnings after tax
attributable to equity
holders 410 30 127 567
Adjusted operating Group
MCEV earnings
per share* 7.7 0.5 2.4 10.6
Adjusted weighted
average number
of shares - millions 5,343
GBPm
Year ended 31 December 2010
Core Non-core
continuing continuing Discontinued
operations operations operations Total
Notes
Adjusted operating
Group
MCEV earnings
before tax 1,399 (28) 48 1,419
Tax on adjusted
operating Group
MCEV earnings B2 (313) 4 (1) (310)
Adjusted
operating Group
MCEV earnings
after tax 1,086 (24) 47 1,109
Non-controlling
interests
Ordinary shares (217) - - (217)
Preferred
securities (62) - - (62)
Adjusted
operating MCEV
earnings after tax
attributable to equity 807 (24) 47 830
holders
Adjusted operating
Group MCEV earnings
per share* 15.0 (0.4) 0.9 15.5
Adjusted weighted
average number
of shares - millions 5,359
* Adjusted operating Group MCEV earnings per share is calculated on the same
basis as adjusted operating Group MCEV earnings, but is stated after tax and
non-
controlling interests. It excludes income attributable to Black Economic
Empowerment trusts of listed subsidiaries. The calculation of the adjusted
weighted average number of shares includes own shares held in policyholders`
funds and Black Economic Empowerment trusts.
Components of Group MCEV and adjusted Group MCEV
For the six months ended 30 June 2011
GBPm
Components of Group MCEV
At At At
30 June 30 June 31 December
2011 2010 2010
Notes
Adjusted net worth attributable
to ordinary equity holders of
the parent 5,431 4,845 5,737
Equity 9,031 9,047 8,951
Adjustment to include long-term
business on a statutory solvency
basis*:
Long Term Savings C5 (2,167) (2,147) (2,053)
Bermuda C5 (34) (13) (29)
US Life C5 - (619) 260
Adjustment for market value of
life funds` investments in Group
equity and debt
instruments held in life funds 314 244 306
Adjustment to remove perpetual
preferred callable securities
and accrued dividends (688) (688) (688)
Adjustment to exclude
acquisition goodwill from the
covered business:
Long Term Savings C5 (1,025) (979) (1,010)
Value of in-force business 4,850 3,208 4,164
Present value of future profits 5,602 4,269 5,256
Additional time value of
financial options and guarantees (163) (456) (433)
Frictional costs (268) (235) (276)
Cost of residual non-hedgeable risks (321) (370) (383)
Group MCEV 10,281 8,053 9,901
Group MCEV value per share (pence) 186.0 148.0 181.5
Return on Group MCEV (ROEV) per
annum from core operations 10.7% 10.7% 10.6%
Return on Group MCEV (ROEV) per
annum from continuing non-core operations 0.3% 0.5% (0.3)%
Return on Group MCEV (ROEV) per
annum from discontinued operations 0.0% 3.5% 0.6%
Return on Group MCEV (ROEV**) per annum 11.0% 14.7% 10.9%
Number of shares in issue at the
end of the financial period less treasury
shares - millions 5,529 5,442 5,456
* The adjustments to include long-term business on a statutory solvency basis
reflect the difference between the net worth of each business on the statutory
basis (as required by the local regulator) and their portion of the Group`s
consolidated equity shareholder funds. In South Africa, these values exclude
items that are eliminated or shown separately on consolidation (such as Nedbank
and inter-company loans). For some European countries the value reflected in the
adjustment to include long-term business on a statutory solvency basis includes
the value of the deferred acquisition cost asset, which is part of the equity.
** The ROEV is calculated as the adjusted operating Group MCEV earnings after
tax and non-controlling interests of GBP529 million (six months ended 30 June
2010: GBP567 million; year ended 31 December 2010: GBP830 million) divided by
the opening Group MCEV. The operating assumption changes of GBP(4) million (six
months ended 30 June 2010: GBP0 million) and other operating variances of
GBP(30) million (six months ended 30 June 2010: GBP12 million) are not
annualised.
Components of Group MCEV and adjusted Group MCEV
For the six months ended 30 June 2011
GBPm
Components of adjusted Group MCEV
At At At
30 June 30 June 31 December
2011 2010 2010
Notes
Group MCEV 10,281 8,053 9,901
Pro forma adjustments to bring
Group investments to market value
Adjustment to bring listed
subsidiary (Nedbank) to market value 969 495 715
Adjustment for value of own
shares in ESOP schemes* 113 73 85
Adjustment for present value of
Black Economic Empowerment
scheme deferred consideration** 299 241 266
Adjustment to bring external
debt to market value (57) 206 63
Adjusted Group MCEV B1 11,605 9,068 11,030
Adjusted Group MCEV per share (pence) 209.9 166.6 202.2
Number of shares in issue at the
end of the financial period less treasury
shares - millions 5,529 5,442 5,456
* Includes adjustment for value of excess own shares in employee share scheme
trusts. The movement in value between 31 December 2010 and 30 June 2011 is the
net effect of the increase in the Old Mutual plc share price, the reduction in
excess own shares following employee share grants in March 2011 and the
reduction in overall shares held due to exercises of rights to take delivery of,
or net settle, share grants durin g the financial period. The affect of the
acquisitionof the minority interest in Mutual & Federal during 2010 has been
included in this adjustment for the first time at 30 June 2011.
** The affect of the acquisition of the minority interest in Mutual & Federal
during 2010 has been included in this adjustment for the first time at 30 June
2011.
Reconciliation of movements in Group MCEV (after tax)
GBPm
6 months ended 30 June 2011
Covered Non-covered
business business Total Group
MCEV IFRS MCEV
Notes
Opening Group MCEV 7,515 2,386 9,901
Adjusted operating MCEV
earnings 354 175 529
Non-operating MCEV earnings (27) (44) (71)
Total Group MCEV earnings 327 131 458
Other movements in IFRS net
equity C4 37 (115) (78)
Closing Group MCEV 7,879 2,402 10,281
GBPm
6 months ended 30 June 2010
Covered Non-covered
business business Total Group
MCEV IFRS MCEV
Opening Group MCEV 6,027 1,602 7,629
Adjusted operating MCEV earnings 452 115 567
Non-operating MCEV earnings (164) (101) (265)
Total Group MCEV earnings 288 14 302
Other movements in IFRS net equity C4 (141) 263 122
Closing Group MCEV 6,174 1,879 8,053
GBPm
Year ended 31 December 2010
Covered Non-covered
business business Total Group
MCEV IFRS MCEV
Notes
Opening Group MCEV 6,027 1,602 7,629
Adjusted operating MCEV
earnings 590 240 830
Non-operating MCEV earnings 786 (187) 599
Total Group MCEV earnings 1,376 53 1,429
Other movements in IFRS net
equity C4 112 731 843
Closing Group MCEV 7,515 2,386 9,901
Notes to the MCEV basis supplementary information
For the six months ended 30 June 2011
A MCEV policies
A1 Basis of preparation
The Market Consistent Embedded Value methodology (referred to herein and in the
supplementary statements on pages 84 to 125 as `MCEV`) adopts the Market
Consistent Embedded Value Principles (Copyright Copyright Stichting CFO Forum
Foundation 2008) issued in June 2008 and updated in October 2009 by the CFO
Forum (`the Principles`) as the basis for the methodology used in preparing the
supplementary information.
The CFO Forum announced changes to the MCEV Principles in October 2009 to
reflect inter alia the inclusion of a liquidity premium. These changes affirm
that the risk free reference rate to be applied under MCEV should include both
the swap yield curve appropriate to the currency of the cash flows and a
liquidity premium where appropriate. The CFO Forum is undertaking further work
to develop more detailed application guidance.
The Principles have been fully complied with for all businesses as at 30 June
2011. Any changes in the methodology and assumptions made in presenting this
supplementary information compared to those disclosed in the annual report and
accounts 2010 are set out in notes A2 and A3.
Throughout the supplementary information the following terminology is used to
distinguish between the terms `MCEV`, `Group MCEV` and `adjusted Group MCEV`:
- MCEV is a measure of the consolidated value of shareholders` interests in the
covered business and consists of the sum of the shareholders` adjusted net worth
in respect of the covered business and the value of the in-force covered
business.
- Group MCEV is a measure of the consolidated value of shareholders` interests
in covered and non-covered business. Non-covered business is valued at the IFRS
net asset value detailed in the primary financial statements adjusted to
eliminate inter-company loans.
- The adjusted Group MCEV, a measure used by management to assess the
shareholders` interest in the value of the Group, includes the impact of marking
all debt to market value, the market value of the Group`s listed banking
subsidiary, marking the value of deferred consideration due in respect of Black
Economic Empowerment arrangements in South Africa (`the BEE schemes`) to market,
as well as including the market value of excess own shares held in ESOP schemes
and the US Life sale proceeds.
A2 Methodology
Required capital
Required capital is the market value of assets that is attributed to support the
covered business, over and above that required to back statutory liabilities for
covered business, whose distribution to shareholders is restricted. The
following capital measures are considered in determining the required capital
held for covered business so that it reflects the level of capital considered by
the directors to be appropriate to manage the business:
- Economic capital;
- Regulatory capital (ie the level of solvency capital which the local
regulators require);
- Capital required by rating agencies in order to maintain the desired credit
rating; and
- Any other required capital definition to meet internal management objectives.
Economic capital for the covered business is based upon Old Mutual`s own
internal assessment of risks inherent in the underlying business. It measures
capital requirements on an economic statement of financial position, with MCEV
as the available capital, consistent wi th a 99.93% confidence level over a one-
year time horizon.
The table below shows the level of required capital expressed as a percentage of
the minimum local regulatory capital requirements.
GBPm
At 30 June 2011
Required Regulatory Ratio
capital (a) capital (b) (a/b)
Emerging Markets 1,456 1,118 1.3
Nordic 141 140 1.0
Retail Europe* 65 88 0.7
Wealth Management** 271 164 1.7
US Life n/a n/a n/a
Bermuda*** 407 - n/a
Total 2,340 1,510 1.5
At 30 June 2010
Required Regulatory Ratio
capital (a) capital (b) (a/b)
Emerging Markets 1,318 1,011 1.3
Nordic 109 95 1.1
Retail Europe* 38 52 0.7
Wealth Management** 246 142 1.7
US Life 491 204 2.4
Bermuda*** 341 - n/a
Total 2,543 1,504 1.7
GBPm
At 31 December 2010
Required Regulatory Ratio
capital (a) capital (b) (a/b)
Emerging Markets 1,498 1,153 1.3
Nordic 135 135 1.0
Retail Europe* 62 85 0.7
Wealth Management** 278 162 1.7
US Life 468 196 2.4
Bermuda*** 403 - n/a
Total 2,844 1,731 1.6
* Local regulators within many of the Retail Europe countries allow intangible
assets to be included as admissible regulatory capital. In such cases the
required capital reported for MCEV is net of these items, although each of the
countries continues to be sufficiently capitalised on the local solvency basis.
Skandia Leben in Germany is permitted under local regulations to include the
unallocated policyholder profit sharing liability as admissible capital.
** The required capital for Wealth Management has been restated at 30 June 2010
to reflect a modelling refinement.
*** The Bermudan regulator allows intangible assets to be included as admissible
regulatory capital.
Notes to the MCEV basis supplementary information
For the six months ended 30 June 2011
Cost of residual non-hedgeable risks
The cost of residual non-hedgeable risks (`CNHR`) is calculated using a cost of
capital approach, ie it is determined as the present value of capital charges
for all future non-hedgeable risk capital requirements until the liabilities
have run off. The capital charge in each year is the product of the projected
expected non-hedgeable risk capital held after allowance for some
diversification benefits and the cost of capital charge.
The table below shows the amounts of diversified economic capital held in
respect of residual non-hedgeable risks.
GBPm
Capital held in respect of non-hedgeable risks
At At At
30 June 30 June 31 December
2011 2010 2010
Emerging Markets 765 643 751
Nordic 325 315 362
Retail Europe 174 128 115
Wealth Management 654 553 622
US Life n/a 703 678
Bermuda 331 285 274
Total 2,249 2,627 2,802
A weighted average cost of capital rate of 2.0% has been applied to residual
symmetric and asymmetric non-hedgeable capital at a business unit level over the
life of the contracts. This translates into an equivalent cost of capital rate
of approximately 2.6% being applied to the Group diversified capital required in
respect of such non-hedgeable risks.
Taxation
There was previously uncertainty around both the basis and effective date for
possible taxation of fee income earned from fund managers by Swedish insurance
companies and the expenses that can be relieved against such income. On 10 June
2011 the Supreme Administrative Court in Sweden delivered the final verdict
stating that fund rebates are not taxable for corporate income tax purposes. We
will therefore continue to treat fee income from our Swedish unit-linked
business as being exempt from corporation tax within our MCEV.
The Emergency Budget of 22 June 2010 announced a reduction in the UK corporation
tax rate by 1% per year for four years from the financial year beginning April
2011, ultimately bringing the corporation tax rate down to 24%. The first
reduction to 27% was included within the 31 December 2010 MCEV results. The
Budget of 23 March 2011 announced an additional 1% reduction to be enacted
during 2011, bringing the ultimate tax rate down to 23%. The 30 June 2011 MCEV
results therefore reflect this 1% reduction and have been calculated using an
ongoing UK corporation tax rate of 26%. The estimated positive impact on the VIF
in respect of Wealth Management at 30 June 2011, assuming that all the annual
reductions in the tax rate will be enacted, is GBP24 million, of which the
impact of the remaining reduction from 26% down to 23% is estimated to be an
MCEV profit of GBP14m. However, only GBP6 million is allowed for at 30 June 2011
as an assumption change relating to the tax rate reduction from 27% to 26% (GBP4
million was allowed for at 31 December 2010 as an assumption change relating to
the first tax reduction to 27%). Further allowance will be made once future
annual reductions are enacted.
A new dividend withholding tax system (replacing the current Secondary Tax on
Companies (STC) system) will be introduced in Sou th Africa effective from 1
April 2012. For 30 June 2011, we continued to use the current STC basis within
the MCEV. The current view is that no allowance will be made in future for the
impact of the new withholding tax in the MCEV, as the actual level of taxation
will depend on the legal nature of each shareholder. It is estimated that the
Emerging Markets MCEV will increase by approximately R1.5 billion (GBP138
million) while the value of new business for the six months to June 2011 will
increase by approximately R40 million (GBP4 million). The impact on the Group
MCEV is still to be determined, as withholding tax may reduce this benefit at
Group level.
A3 Assumptions
Non-economic assumptions
The management expenses attributable to life assurance business have been
allocated to expenses relating to the acquisition of new business, maintenance
of in-force business (including investment management expenses) and development
projects.
Unallocated Group holding company expenses have been included to the extent that
they relate to the covered business. The table below shows the future expenses
attributable to the long-term business. The allocation of these expenses aligns
to the proportion that the management expenses incurred by the covered
businesses to the total management expenses incurred in the Group.
Group holding Company expenses
attributable to long-term business %
At At At
30 June 30 June 31 December
2011 2010 2010
Emerging Markets 17 16 17
Nordic 4 4 4
Retail Europe 3 2 3
Wealth Management 5 8 6
US Life - - 2
Total 29 30 32
Economic assumptions
Risk free reference rates and inflation
At 30 June 2011, no adjustments are made to swap yields to allow for liquidity
premiums or credit risk premiums, apart from a liquidity premium adjustment to
OMLAC(SA)`s Immediate Annuity business and Fixed Bond business. A liquidity
premium adjustment has been applied to OMLAC(SA)`s Fixed Bond business at 30
June 2011 because OMLAC(SA) holds a portfolio of non-government bonds which have
a market yield in excess of the risk free rate and the duration of the asset
portfolio and the liability duration are a good match (meaning the asset
portfolio is held to maturity). Cash flows on this product are also predictable
and the company has adequate liquidity to withstand a substantial increase in
lapses at all durations without having to sell bonds which further strengthens
the case for applying a liquidity premium.
It is the directors` view that a proportion of non-government bond spreads at 30
June 2011 is attributable to a liquidity premium rather than only to credit and
default allowances and that returns in excess of swap rates can be achieved,
rather than entire spreads being lost to worsening default experience. For
OMLAC(SA)`s Immediate Annuity business the currency, credit quality and duration
of the actual bond portfolios were considered and adjusted risk free reference
rates were derived at 30 June 2011 by adding 55bps of liquidity premium for this
business (30 June 2010: 50bps; 31 December 2010: 45bps) to the swap rates used
for setting investment return and discounting assumptions. For OMLAC(SA)`s Fixed
Bond products 60 bps of liquidity premium was added to the swap rates. These
adjustments reflect the liquidity premium component in non-government bond
spreads over swap rates that is expected to be earned on the portfolios. In
deriving the liquidity premia at 30 June 2011, we have reviewed emerging
Solvency II matching premium guidance and a comparison of the yields of similar
durations on South African government bonds and bonds issues by state-owned
enterprises. At those durations where swap yields are not available, e.g. due to
lack of a sufficiently liquid or deep swap market, the swap curve is extended
using appropriate interpolation or extrapolation techniques.
The risk free reference spot yields (excluding any applicable liquidity
adjustments) and expense inflation rates at various terms for each of the
significant regions are provided in the table below. The risk free reference
spot yield curve has been derived from mid swap rates at the reporting date.
Risk free reference spot yields (excluding any applicable liquidity adjustments)
%
GBP* EUR USD* ZAR SEK
At 30 June 2011
1 year 0.9 2.0 0.4 6.2 2.8
5 years 2.4 2.8 2.1 8.0 3.3
10 years 3.5 3.4 3.5 8.6 3.6
10 years 4.0 3.9 4.3 8.2 3.8
At 30 June 2010
1 year 0.9 1.2 0.7 6.7 1.3
5 years 2.3 2.1 2.1 8.0 2.3
10 years 3.3 2.9 3.2 8.6 3.1
20 years 3.8 3.4 3.9 8.2 3.6
At 31 December 2010
1 year 0.9 1.3 0.4 5.6 2.3
5 years 2.7 2.5 2.2 7.4 3.3
10 years 3.6 3.3 3.5 8.2 3.7
20 years 4.0 3.7 4.3 8.1 4.0
* For prior reporting periods, the risk free spot yields disclosed for GBP were
on a 1-year forward basis, and the risk free spot yields disclosed for USD were
on a semi-annual par basis. The assumptions at 30 June 2011, as well as the
comparatives for prior periods, are now shown as annualised spot yields,
consistent with other regions.
Expense inflation %
GBP EUR USD ZAR SEK
At 30 June 2011
1 year 3.0 2.5 3.0 5.7 2.3
5 years 3.9 2.5 3.0 7.0 2.9
10 years 4.3 2.5 3.0 7.5 3.2
20 years 4.8 2.5 3.0 7.1 3.1
At 30 June 2010
1 year 3.3 2.5 3.0 6.2 1.5
5 years 3.5 2.5 3.0 6.3 2.3
10 years 4.0 2.5 3.0 6.7 2.6
20 years 4.5 2.5 3.0 6.4 2.9
At 31 December 2010
1 year 3.0 2.5 3.0 5.0 2.2
5 years 4.3 2.5 3.0 6.4 3.0
10 years 5.3 2.5 3.0 7.2 3.2
20 years 5.1 2.5 3.0 7.0 3.3
Volatilities
The at-the-money annualised asset volatility assumptions of the asset classes
incorporated in the stochastic models are detailed below.
ZAR volatilities*
%
Option term 1 year swap 5 year swap 10 year swap 20 year swap
At 30 June 2011
1 year 18.3 16.8 15.9 15.5
5 years 16.7 16.0 15.6 15.2
10 years 16.2 15.8 15.4 14.7
20 years 14.5 14.1 13.5 12.5
At 30 June 2010
1 year 15.6 13.9 12.9 12.4
5 years 14.5 13.7 13.2 12.8
10 years 13.6 13.2 12.8 12.3
20 years 12.8 12.2 11.7 10.9
At 31 December
2010
1 year 18.7 16.9 15.8 15.1
5 years 16.4 15.5 14.9 14.4
10 years 15.6 15.0 14.5 13.9
20 years 13.8 13.3 12.8 11.9
%
Equity Property
Option term (total return index) (total return index)
At 30 June 2011
1 year 23.0 16.0
5 years 26.0 16.0
10 years 27.4 16.0
20 years 28.3 15.6
At 30 June 2010
1 year 28.4 16.9
5 years 26.3 14.8
10 years 26.6 14.3
20 years 26.9 14.2
At 31 December 2010
1 year 23.4 16.0
5 years 25.5 15.7
10 years 27.0 15.9
20 years 27.8 15.4
* Due to limited liquidity in the ZAR swaption and equity option market, the
market consistent asset model has been calibrated by extrapolating swaption and
equity option implied volatility data beyond terms of 2 years and 3 years
respectively.
%
USD volatilities*
Option term 1 year swap 5 year swap 10 year swap 20 year swap
At 30 June 2011
1 year 72.3 43.3 33.8 26.4
5 years 25.0 23.4 21.4 18.0
10 years 20.1 20.3 18.7 15.5
20 years 17.2 17.8 16.1 14.1
At 30 June 2010
1 year 37.5 34.6 32.3 29.0
5 years 28.5 27.3 25.7 23.4
10 years 22.4 21.3 20.2 18.5
20 years 18.8 17.8 16.8 15.3
At 31 December
2010
1 year 37.8 34.3 31.2 27.7
5 years 26.2 24.7 23.0 20.9
10 years 20.0 18.8 17.7 16.1
20 years 16.8 15.7 14.7 13.1
* In prior reporting periods USD volatilities were based on market quoted
information. The assumptions at 30 June 2011, as well as the comparatives for
prior periods, are now shown as modelled volatilities, consistent with the
disclosure of interest rate volatilities in South Africa.
International equity volatilities (applicable to Old Mutual Bermuda)*
%
Option term SPX RTY EWZ TPX HSCEI
At 30 June 2011
1 year 20.8 n/a 27.6 25.8 24.8
5 years 23.4 n/a 28.0 26.7 27.2
10 years 23.4 n/a 28.0 26.7 27.2
At 30 June 2010
1 year 29.0 37.2 n/a 29.1 31.0
5 years 28.0 39.0 n/a 29.3 31.8
10 years 28.0 39.0 n/a 29.3 31.8
At 31 December 2010
1 year 21.5 28.1 n/a 26.7 27.8
5 years 23.6 32.6 n/a 28.3 32.3
10 years 23.6 32.6 n/a 28.3 32.3
%
Option term TWY KOSP12 NIFTY SX5E UKX
At 30 June 2011
1 year 20.3 21.4 21.1 23.01 20.6
5 years 23.2 22.7 25.1 23.7 23.2
10 years 23.2 22.7 25.1 23.7 23.2
At 30 June 2010
1 year 24.3 23.1 21.9 29.7 27.3
5 years 27.3 23.7 23.5 27.9 26.9
10 years 27.3 23.7 23.5 27.9 26.9
At 31 December 2010
1 year 21.5 21.4 22.0 24.3 21.5
5 years 25.5 24.0 26.6 25.2 24.2
10 years 25.5 24.0 26.6 25.2 24.2
International equity volatilities (applicable to Old Mutual Bermuda)*
%
Option term EEM USAgg EUAgg APAgg
At 30 June 2011
1 year 26.4 5.4 12.9 12.5
5 years 28.0 5.4 12.9 12.5
10 years 28.0 5.4 12.9 12.5
At 30 June 2010
1 year 35.2 5.5 13.0 12.6
5 years 32.4 5.5 13.0 12.6
10 years 32.4 5.5 13.0 12.6
At 31 December 2010
1 year 27.4 5.5 13.0 12.6
5 years 27.7 5.5 13.0 12.6
10 years 27.7 5.5 13.0 12.6
* Long-term option implied volatility has been calibrated assuming a flat
volatility term structure beyond 5 years due to limited data availability for
some indices. The assumptions at 30 June 2011, as well as the comparatives for
prior periods, are shown as the annualised volatilities applicable over the
entire option term specified, consistent with the disclosure of volatilities for
other regions. These volatilities, as represented by their Bloomberg codes,
refer to the price indices. Due to ongoing enhancements in the fund mapping
process, the indices referenced may vary from period to period. In the first
half of 2011, a decision was made to remove the Russell 2000 Index (RTY) and add
the MSCI Brazil Index (EWZ) which provides exposure to Latin America.
Expected asset returns in excess of the risk free reference rates
Equity and property risk premiums incorporate both historical relationships and
the directors` view of future projected returns in each region over the analysis
period. Pre-tax real-world economic assumptions are determined as follows:
- The equity risk premium is 3.5% for Africa and 3% for Europe.
- The cash return equals the one year risk free reference rate for all regions.
- The corporate bond return is based on actual corporate bond spreads on the
reporting date less an allowance for defaults.
- The property risk premium is 1.5% in Africa and 2% in Europe.
Tax
The weighted average effective tax rates that apply to the cash flow projections
at 30 June 2011 are set out below:
- OMLAC(SA) - 33% (30 June 2010: 34%; 31 December 2010: 33%)
- Namibia - 0% (30 June 2010: 0%; 31 December 2010: 0%)
- Nordic - 4% (30 June 2010: 0%; 31 December 2010: 4%)
- Retail Europe - 27% (30 June 2010: 27%; 31 December 2010: 27%)
- Wealth Management* - 11% (30 June 2010: 11%; 31 December 2010: 11%)
- Bermuda - 0% (30 June 2010: 0%; 31 December 2010: 0%)
* The weighted average effective tax rate for Wealth Management at 30 June 2010
has been restated from 13% to 11% to reflect a calculation correction.
A4 Disposal of US Life
On 6 August 2010, the Company announced that it had entered into an agreement to
sell the assets and liabilities of its US Life insurance business to Harbinger
Capital Partners for the sum of GBP215 million ($350 million) subject to
regulatory approval. The sale was completed, following regulatory approval, on 7
April 2011. This transaction has resulted in an uplift of GBP451 million to the
adjusted Group MCEV, as analysed below.
Adjusted Group MCEV uplift from sale of US Life GBPm
Headline purchase price 215
Advisor fees and costs (17)
198
US Life sale proceeds
Retention of OM Re 71
269
Total proceeds from US Life disposal*
Removal of US Life MCEV** 182
Adjusted Group MCEV uplift 451
* The total proceeds from the sale of US Life are included within the adjusted
net worth attributable to the ordinary equity holders of the parent
** The MCEV results for US Life include allowance for Old Mutual Reassurance
(Ireland) Limited (OMRe)
The total earnings over the period are equal to the MCEV uplift, however we have
not attributed these earnings to specific line items in the analysis of MCEV
earnings.
B Segment information
B1 Adjusted Group MCEV presented per business line
GBPm
At At At
30 June 30 June 31 December
2011 2010 2010
MCEV of the core covered business 7,579 6,393 7,417
Adjusted net worth* 2,622 2,031 2,414
Value of in-force business 4,957 4,362 5,003
MCEV of the Bermuda non-core covered
business 300 168 287
Adjusted net worth 407 341 403
Value of in-force business (107) (173) (116)
MCEV of the US Life discontinued covered
business - (387) (189)
Adjusted net worth - 594 534
Value of in-force business - (981) (723)
Adjusted net worth of asset management and
other businesses 1,983 1,968 1,950
Emerging Markets 333 250 289
Nordic** (36) 32 4
Retail Europe 15 13 14
Wealth Management 178 157 171
US Asset Management 1,493 1,516 1,472
Value of the banking business 3,831 2,998 3,603
Nordic (adjusted net worth) 347 292 328
Nedbank (market value) 3,484 2,706 3,275
Value of the general insurance business
Mutual & Federal 322 321 409
Net other business 373 (88) 31
Adjustment for present value of Black
Economic Empowerment scheme deferred
consideration 299 241 266
Adjustment for value of own shares in ESOP
schemes*** 113 73 85
Perpetual preferred securities (USD
denominated) (464) (435) (449)
Perpetual preferred callable securities (690) (487) (598)
GBP denominated (299) (236) (270)
EUR denominated (391) (251) (328)
Debt (2,041) (1,697) (1,782)
ZAR denominated (277) (309) (304)
USD denominated (376) (323) (337)
GBP denominated (886) (790) (842)
SEK denominated (500) (273) (297)
EUR denominated (2) (2) (2)
Adjusted Group MCEV 11,605 9,068 11,030
* Adjusted net worth is after the elimination of inter-company loans.
** Includes the adjusted net worth of Nordic holding companies that are
classified as non-covered business, net of the holding companies` investment in
Group subsidiaries.
*** Includes adjustment for value of excess own shares in employee share scheme
trusts. The movement in value between 31 December 2010 and 30 June 2011 is the
net effect of the decrease in the Old Mutual plc share price, the reduction in
excess own shares following employee share grants in March 2010 and the
reduction in overall shares held due to exercises of rights to take delivery of,
or net settle, share grants durin g the financial period. The affect of the
acquisition of the minority interest in Mutual & Federal during 2010 has been
included in this adjustment for the first time at 30 June 2011.
B2 Adjusted operating MCEV earnings for the covered business
GBPm
6 months 6 months Year ended
ended 30 ended 30 June 31 December
June 2011 2010 2010
Adjusted operating MCEV earnings
before tax for the covered
business
Long Term Savings 436 369 705
Emerging Markets 241 182 443
Nordic 78 79 65
Retail Europe - 31 68
Wealth Management 117 77 129
US Life - 129 48
Bermuda 11 30 (28)
Tax on adjusted operating MCEV
earnings for the covered business 447 528 725
Long Term Savings (91) (74) (138)
Emerging Markets (53) (38) (99)
Nordic (15) (16) (20)
Retail Europe (6) (7) (2)
Wealth Management (17) (13) (17)
US Life - (2) (1)
Bermuda (2) - 4
(93) (76) (135)
Adjusted operating MCEV earnings
after tax for the covered business
Long Term Savings 345 295 567
Emerging Markets 188 144 344
Nordic 63 63 45
Retail Europe (6) 24 66
Wealth Management 100 64 112
US Life - 127 47
Bermuda 9 30 (24)
354 452 590
Tax on adjusted operating MCEV
earnings comprises
Tax on adjusted operating MCEV
earnings for the covered business (93) (76) (135)
Tax on adjusted operating MCEV
earnings for other business (121) (79) (175)
Tax on adjusted operating MCEV
earnings (214) (155) (310)
B3 Components of MCEV of the covered business
GBPm
At At At
30 June 30 June 31 December
2011 2010 2010
MCEV of the covered business 7,879 6,174 7,515
Adjusted net worth 3,029 2,966 3,351
Value of in-force business 4,850 3,208 4,164
Long Term Savings
Adjusted net worth 2,622 2,031 2,414
Free surplus 689 351 441
Required capital 1,933 1,680 1,973
Value of in-force business 4,957 4,362 5,003
Present value of future profits 5,523 4,840 5,557
Additional time value of financial options
and guarantees (8) (11) (12)
Frictional costs (266) (223) (267)
Cost of residual non-hedgeable risks (292) (244) (275)
Consisting of:
Emerging Markets
Adjusted net worth* 1,926 1,415 1,804
Free surplus 470 97 306
Required capital 1,456 1,318 1,498
Value of in-force business 1,440 1,231 1,509
Present value of future profits 1,778 1,525 1,849
Additional time value of financial options
and guarantees - - -
Frictional costs (238) (204) (240)
Cost of residual non-hedgeable risks (100) (90) (100)
Nordic
Adjusted net worth 200 143 186
Free surplus 59 34 51
Required capital 141 109 135
Value of in-force business 1,301 1,154 1,318
Present value of future profits 1,377 1,210 1,397
Additional time value of financial options
and guarantees - - -
Frictional costs (6) (5) (6)
Cost of residual non-hedgeable risks (70) (51) (73)
Retail Europe
Adjusted net worth 119 84 103
Free surplus 54 46 41
Required capital 65 38 62
Value of in-force business 530 451 520
Present value of future profits 595 504 573
Additional time value of financial options
and guarantees (6) (10) (10)
Frictional costs (12) (6) (11)
Cost of residual non-hedgeable risks (47) (37) (32)
GBPm
At At At
30 June 30 June 31 December
2011 2010 2010
Wealth Management
Adjusted net worth 377 389 321
Free surplus 106 174 43
Required capital 271 215 278
Value of in-force business 1,686 1,526 1,656
Present value of future profits 1,773 1,601 1,738
Additional time value of financial options
and guarantees (2) (1) (2)
Frictional costs (10) (8) (10)
Cost of residual non-hedgeable risks (75) (66) (70)
US Life (Discontinued and non-core)
Adjusted net worth - 594 534
Free surplus - 103 66
Required capital - 491 468
Value of in-force business - (981) (723)
Present value of future profits - (648) (446)
Additional time value of financial options
and guarantees - (228) (186)
Frictional costs - (9) (7)
Cost of residual non-hedgeable risks - (96) (84)
Bermuda (Non-core)
Adjusted net worth 407 341 403
Free surplus - - -
Required capital 407 341 403
Value of in-force business (107) (173) (116)
Present value of future profits 79 77 145
Additional time value of financial options
and guarantees (155) (217) (235)
Frictional costs (2) (3) (2)
Cost of residual non-hedgeable risks (29) (30) (24)
* The required capital in respect of OMSA is partially covered by the market
value of the Group`s investments in banking and general insurance in South
Africa. On consolidation these investments are shown separately.
B4 Analysis of covered business MCEV earnings (after tax) continued
GBPm
6 months ended 30 June 2011
Long Term Savings (LTS)
Free Required Adjusted
surplus capital net worth
Opening MCEV 441 1,973 2,414
New business value (231) 82 (149)
Expected existing business contribution
(reference rate) 7 35 42
Expected existing business contribution (in
excess of reference rate) 3 6 9
Transfers from VIF and required capital to
free surplus 462 (91) 371
Experience variances 18 13 31
Assumption changes 1 - 1
Other operating variance 11 (8) 3
Operating MCEV earnings 271 37 308
Economic variances 42 (8) 34
Other non-operating variance - - -
Total MCEV earnings 313 29 342
Closing adjustments (65) (69) (134)
Capital and dividend flows (56) - (56)
Foreign exchange variance (9) (69) (78)
Closing MCEV 689 1,933 2,622
Return on MCEV (ROEV) % per annum
GBPm
Long Term Savings (LTS)
Value of
in-force MCEV
Opening MCEV 5,003 7,417
New business value 257 108
Expected existing business contribution (reference rate) 89 131
Expected existing business contribution (in excess of
reference rate) 36 45
Transfers from VIF and required capital to free surplus (371) -
Experience variances 57 88
Assumption changes (3) (2)
Other operating variance (28) (25)
Operating MCEV earnings 37 345
Economic variances (81) (47)
Other non-operating variance 6 6
Total MCEV earnings (38) 304
Closing adjustments (8) (142)
Capital and dividend flows - (56)
Foreign exchange variance (8) (86)
Closing MCEV 4,957 7,579
Return on MCEV (ROEV) % per annum 9.7%
Return on MCEV is calculated as the operating MCEV earnings after tax divided by
opening MCEV in sterling. The operating assumption changes and other operating
variances are not annualised.
Long Term Savings (LTS)* Year ended 31 December 2011
Free Required Adjusted
surplus capital net worth
Expected existing business contribution
(reference rate) 16 65 81
Expected existing business contribution (in
excess of reference rate) 8 11 19
GBPm
Long Term Savings (LTS)*
Value of
in-force MCEV
Expected existing business contribution (reference rate) 173 254
Expected existing business contribution (in excess of
reference rate) 72 91
* The expected return for the year ended 31 December 2011 has been restated to
reflect the change in the expected real world ca sh return to equal the risk
free rate over the analysis period (as opposed to the risk free reference rate
less a deduction).
6 months ended 30 June 2010
GBPm
Free Required Adjusted Value of
surplus capital net worth in-force MCEV
380 1,574 1,954 4,193 6,147
(227) 76 (151) 247 96
8 38 46 83 129
- (2) (2) 29 27
435 (106) 329 (329) -
(18) 31 13 23 36
- 2 2 (6) (4)
(43) 5 (38) 49 11
155 44 199 96 295
(20) 20 - 73 73
(1) - (1) 1 -
134 64 198 170 368
(163) 42 (121) (1) (122)
(157) (6) (163) (1) (164)
(6) 48 42 - 42
351 1,680 2,031 4,362 6,393
9.5%
Return on MCEV is calculated as the operating MCEV earnings after tax divided by
opening MCEV in sterling. The operating assumption changes and other operating
variances are not annualised.
GBPm
Year ended 31 December 2010
Free Required Adjusted Value of
surplus capital net worth in-force MCEV
380 1,574 1,954 4,193 6,147
(419) 160 (259) 459 200
8 77 85 168 253
7 (3) 4 59 63
802 (184) 618 (618) -
(16) 28 12 43 55
23 2 25 (25) -
(93) 37 (56) 52 (4)
312 117 429 138 567
100 41 141 342 483
(7) 25 18 - 18
405 183 588 480 1,068
(344) 216 (128) 330 202
(383) - (383) - (383)
39 216 255 330 585
441 1,973 2,414 5,003 7,417
9.2%
Return on MCEV is calculated as the operating MCEV earnings after tax divided by
opening MCEV in sterling. The operating assumption changes and other operating
variances are not annualised.
B4 Analysis of covered business MCEV earnings (after tax) continued
GBPm
6 months ended 30 June 2011
Emerging Markets*
Free Required Adjusted
surplus capital net worth
Opening MCEV 306 1,498 1,804
New business value (93) 66 (27)
Expected existing business contribution
(reference rate) 6 31 37
Expected existing business contribution (in
excess of reference rate) 1 6 7
Transfers from VIF and required capital to
free surplus 193 (75) 118
Experience variances 35 6 41
Assumption changes - - -
Other operating variance (21) (2) (23)
Operating MCEV earnings 121 32 153
Economic variances 29 4 33
Other non-operating variance 4 - 4
Total MCEV earnings 154 36 190
Closing adjustments 10 (78) (68)
Capital and dividend flows 25 - 25
Foreign exchange variance (15) (78) (93)
Closing MCEV 470 1,456 1,926
Return on MCEV (ROEV) % per annum
GBPm
Emerging Markets*
Value of
in-force MCEV
Opening MCEV 1,509 3,313
New business value 65 38
Expected existing business contribution (reference rate) 54 91
Expected existing business contribution (in excess of
reference rate) 9 16
Transfers from VIF and required capital to free surplus (118) -
Experience variances 33 74
Assumption changes - -
Other operating variance (8) (31)
Operating MCEV earnings 35 188
Economic variances (25) 8
Other non-operating variance - 4
Total MCEV earnings 10 200
Closing adjustments (79) (147)
Capital and dividend flows - 25
Foreign exchange variance (79) (172)
Closing MCEV 1,440 3,366
Return on MCEV (ROEV) % per annum 13.3%
* The MCEV for Emerging Markets is presented after the adjustment for market
value of life fund investments in Group equity and debt instruments.
Emerging Markets** Year ended 31 December 2011
Free Required Adjusted
surplus capital net worth
Expected existing business contribution
(reference rate) 12 60 72
Expected existing business contribution (in
excess of reference rate) 2 11 13
GBPm
Emerging Markets**
Value of
in-force MCEV
Expected existing business contribution (reference rate) 106 178
Expected existing business contribution (in excess of
reference rate) 18 31
** The expected return for the year ended 31 December 2011 has been restated to
reflect the change in the expected real world cash return to equal the risk free
rate over the analysis period (as opposed to the risk free reference rate less a
2% deduction).
The positive experience variances are attributable to favourable mortality,
expense and persistency experience. These are at unusually high levels and are
therefore not expected to continue at the same rate and may even reduce.
The negative other operating variance mainly consists of a management decision
to strengthen the investment guarantee reserve to allow for dynamic policyholder
behaviour in the Corporate Segment.
The small positive impact of economic assumption changes is made up of a number
of largely offsetting items. The positive adjusted net worth amount is due to
favourable investment variances on immediate annuity portfolios and a higher
than assumed after tax investment return on shareholder funds. The negative
amount within value of in-force is mainly due to lower than assumed investment
returns earned on policyholder funds (due predominantly to flat equity markets)
and to the impact of a small increase in swap yields for terms up to 20 years.
The capital and dividend flows mainly consist of dividends paid more than offset
by inter-company dividends received.
Return on MCEV is the operating MCEV earnings after tax divided by opening MCEV
in rand (including conversion of results for Mexico to rand). The operating
assumption changes and other operating variances are not annualised.
For the six months ended 30 June 2011 continued
6 months ended 30 June 2010
Free Required Adjusted Value of
surplus capital net worth in-force MCEV
80 1,225 1,305 1,158 2,463
(74) 59 (15) 53 38
4 35 39 59 98
- (2) (2) 8 6
183 (83) 100 (100) -
4 13 17 2 19
- - - - -
1 - 1 (18) (17)
118 22 140 4 144
(45) 22 (23) 22 (1)
- - - - -
73 44 117 26 143
(56) 49 (7) 47 40
(61) - (61) - (61)
5 49 54 47 101
97 1,318 1,415 1,231 2,646
11.9%
GBPm
Year ended 31 December 2010
Free Required Adjusted Value of
surplus capital net worth in-force MCEV
80 1,225 1,305 1,158 2,463
(159) 134 (25) 111 86
6 73 79 124 203
- (3) (3) 16 13
356 (166) 190 (190) -
11 14 25 10 35
19 - 19 18 37
(6) (2) (8) (22) (30)
227 50 277 67 344
57 21 78 84 162
4 - 4 1 5
288 71 359 152 511
(62) 202 140 199 339
(93) - (93) - (93)
31 202 233 199 432
306 1,498 1,804 1,509 3,313
13.2%
6 months ended 30 June 2011
Nordic
Free Required Adjusted
surplus capital net worth
Opening MCEV 51 135 186
New business value (29) 4 (25)
Expected existing business contribution
(reference rate) 2 1 3
Expected existing business contribution (in
excess of reference rate) - - -
Transfers from VIF and required capital to
free surplus 65 - 65
Experience variances 1 3 4
Assumption changes - - -
Other operating variance - - -
Operating MCEV earnings 39 8 47
Economic variances 3 (6) (3)
Other non-operating variance (4) - (4)
Total MCEV earnings 38 2 40
Closing adjustments (30) 4 (26)
Capital and dividend flows (31) - (31)
Foreign exchange variance 1 4 5
Closing MCEV 59 141 200
Return on MCEV (ROEV) % per annum
GBPm
Nordic
Value of
in-force MCEV
Opening MCEV 1,318 1,504
New business value 53 28
Expected existing business contribution (reference rate) 18 21
Expected existing business contribution (in excess of
reference rate) 16 16
Transfers from VIF and required capital to free surplus (65) -
Experience variances (4) -
Assumption changes - -
Other operating variance (2) (2)
Operating MCEV earnings 16 63
Economic variances (68) (71)
Other non-operating variance - (4)
Total MCEV earnings (52) (12)
Closing adjustments 35 9
Capital and dividend flows - (31)
Foreign exchange variance 35 40
Closing MCEV 1,301 1,501
Return on MCEV (ROEV) % per annum 8.4%
Nordic* Year ended 31 December 2011
Free Required Adjusted
surplus capital net worth
Expected existing business contribution
(reference rate) 3 2 5
Expected existing business contribution (in
excess of reference rate) - - -
GBPm
Nordic*
Value of
in-force MCEV
Expected existing business contribution (reference rate) 34 39
Expected existing business contribution (in excess of
reference rate) 30 30
* The expected return for the year ended 31 December 2011 has been restated to
reflect the change in the expected real world ca sh return to equal the risk
free rate over the analysis period (as opposed to the risk free reference rate
less a deduction).
The experience variances are primarily driven by restructuring costs, and
seasonal persistency losses, offset by positive rebate experience and other
miscellaneous items.
The other operating variance was mainly due to a positive effect from a
reduction in CNHR, offset by a negative impact due to a change in the modelling
treatment of Group holding Company expenses.
The negative other non-operating variance was caused by impairment losses on
shares in the China Guodian business held by Nordic.
The economic variances were mainly due to the negative effect of market
movements on funds under management.
The capital and dividend flows mainly represent dividends, repayment of loans
and capital injections.
The foreign exchange variance is mainly due to favourable exchange rate
movements on translation as a result of the Swedish krona appreciating against
sterling.
Return on MCEV is the operating MCEV earnings after tax divided by opening MCEV
in Swedish krona. The operating assumption changes and other operating variances
are not annualised.
6 months ended 30 June 2010
Free Required Adjusted Value of
surplus capital net worth in-force MCEV
91 104 195 1,114 1,309
(24) 3 (21) 46 25
1 - 1 8 9
- - - 13 13
55 (4) 51 (51) -
10 6 16 1 17
- - - (4) (4)
(39) - (39) 42 3
3 5 8 55 63
5 - 5 (2) 3
- - - - -
8 5 13 53 66
(65) - (65) (13) (78)
(59) - (59) - (59)
(6) - (6) (13) (19)
34 109 143 1,154 1,297
9.5%
GBPm
Year ended 31 December 2010
Free Required Adjusted Value of
surplus capital net worth in-force MCEV
91 104 195 1,114 1,309
(49) 6 (43) 84 41
- 1 1 14 15
- - - 26 26
103 - 103 (103) -
30 (5) 25 (1) 24
- - - (55) (55)
(44) 4 (40) 34 (6)
40 6 46 (1) 45
(4) 12 8 86 94
17 - 17 - 17
53 18 71 85 156
(93) 13 (80) 119 39
(100) - (100) - (100)
7 13 20 119 139
51 135 186 1,318 1,504
3.3%
6 months ended 30 June 2011
Retail Europe
Free Required Adjusted
surplus capital net worth
Opening MCEV 41 62 103
New business value (38) - (38)
Expected existing business contribution
(reference rate) - - -
Expected existing business contribution (in
excess of reference rate) - - -
Transfers from VIF and required capital to
free surplus 46 1 47
Experience variances (1) 2 1
Assumption changes - - -
Other operating variance - - -
Operating MCEV earnings 7 3 10
Economic variances 2 (2) -
Other non-operating variance - - -
Total MCEV earnings 9 1 10
Closing adjustments 4 2 6
Capital and dividend flows - - -
Foreign exchange variance 4 2 6
Closing MCEV 54 65 119
Return on MCEV (ROEV) % per annum
GBPm
Retail Europe
Value of
in-force MCEV
Opening MCEV 520 623
New business value 41 3
Expected existing business contribution (reference rate) 5 5
Expected existing business contribution (in excess of
reference rate) 2 2
Transfers from VIF and required capital to free surplus (47) -
Experience variances (2) (1)
Assumption changes (2) (2)
Other operating variance (13) (13)
Operating MCEV earnings (16) (6)
Economic variances (3) (3)
Other non-operating variance - -
Total MCEV earnings (19) (9)
Closing adjustments 29 35
Capital and dividend flows - -
Foreign exchange variance 29 35
Closing MCEV 530 649
Return on MCEV (ROEV) % per annum 0.6%
Retail Europe* Year ended 31 December 2011
Free Required Adjusted
surplus capital net worth
Expected existing business contribution
(reference rate) - 1 1
Expected existing business contribution (in
excess of reference rate) - - -
GBPm
Retail Europe*
Value of
in-force MCEV
Expected existing business contribution (reference rate) 9 10
Expected existing business contribution (in excess of
reference rate) 5 5
* The expected return for the year ended 31 December 2011 has been restated to
reflect the change in the expected real world ca sh return to equal the risk
free rate over the analysis period (as opposed to the risk free reference rate
less a deduction).
There were no material experience variances or operating assumption changes.
The other operating variance was mainly due to a change in the methodology used
to calculate the capital underlying the cost of non-hedgeable risks.
The economic variances were mainly due to the negative effect of market
movements on funds under management, partly offset by a reduction in the cost of
guarantees in Germany due to higher euro swap rates.
There were no material other non-operating variances or capital and dividend
flows.
The foreign exchange variance is mainly due to favourable exchange rate
movements on translation as a result of the euro appreciating against sterling.
Return on MCEV is the operating MCEV earnings after tax divided by opening MCEV
in euro. The operating assumption changes and other operating variances are not
annualised.
For the six months ended 30 June 2011 continued
6 months ended 30 June 2010
Free Required Adjusted Value of
surplus capital net worth in-force MCEV
46 32 78 453 531
(33) - (33) 35 2
- - - 5 5
- - - 2 2
51 1 52 (52) -
(6) 1 (5) - (5)
2 - 2 (2) -
(5) 5 - 20 20
9 7 16 8 24
1 1 2 11 13
(1) - (1) 1 -
9 8 17 20 37
(9) (2) (11) (22) (33)
(7) - (7) - (7)
(2) (2) (4) (22) (26)
46 38 84 451 535
5.1%
GBPm
Year ended 31 December 2010
Free Required Adjusted Value of
surplus capital net worth in-force MCEV
46 32 78 453 531
(69) 1 (68) 75 7
1 - 1 8 9
- - - 3 3
97 2 99 (99) -
5 (1) 4 1 5
- - - 11 11
(9) - (9) 40 31
25 2 27 39 66
1 2 3 19 22
(26) 25 (1) (5) (6)
- 29 29 53 82
(5) 1 (4) 14 10
(6) - (6) - (6)
1 1 2 14 16
41 62 103 520 623
12.8%
6 months ended 30 June 2011
Wealth Management
Free Required Adjusted
surplus capital net worth
Opening MCEV 43 278 321
New business value (71) 12 (59)
Expected existing business contribution
(reference rate) (1) 3 2
Expected existing business contribution (in
excess of reference rate) 2 - 2
Transfers from VIF and required capital to
free surplus 158 (17) 141
Experience variances (17) 2 (15)
Assumption changes 1 - 1
Other operating variance 32 (6) 26
Operating MCEV earnings 104 (6) 98
Economic variances 8 (4) 4
Other non-operating variance - - -
Total MCEV earnings 112 (10) 102
Closing adjustments (49) 3 (46)
Capital and dividend flows (50) - (50)
Foreign exchange variance 1 3 4
Closing MCEV 106 271 377
Return on MCEV (ROEV) % per annum
GBPm
Wealth Management
Value of
in-force MCEV
Opening MCEV 1,656 1,977
New business value 98 39
Expected existing business contribution (reference rate) 12 14
Expected existing business contribution (in excess of
reference rate) 9 11
Transfers from VIF and required capital to free surplus (141) -
Experience variances 30 15
Assumption changes (1) -
Other operating variance (5) 21
Operating MCEV earnings 2 100
Economic variances 15 19
Other non-operating variance 6 6
Total MCEV earnings 23 125
Closing adjustments 7 (39)
Capital and dividend flows - (50)
Foreign exchange variance 7 11
Closing MCEV 1,686 2,063
Return on MCEV (ROEV) % per annum 9.0%
Wealth Management* Year ended 31 December 2011
Free Required Adjusted
surplus capital net worth
Expected existing business contribution
(reference rate) 1 2 3
Expected existing business contribution (in
excess of reference rate) 6 - 6
GBPm
Wealth Management*
Value of
in-force MCEV
Expected existing business contribution (reference rate) 24 27
Expected existing business contribution (in excess of
reference rate) 17 23
* The expected return for the year ended 31 December 2011 has been restated to
reflect the change in the expected real world ca sh return to equal the risk
free rate over the analysis period (as opposed to the risk free reference rate
less a deduction).
Experience variances were caused by positive persistency experience, where the
anticipated impacts of the Retail Distribution Review have not yet emerged. In
addition there has been higher than expected fee income across all divisions,
partly offset by adverse expense experience.
There were no material operating assumption changes.
The other operating variance was mainly due to the impact of modelling
improvements for the Platform business following a migration of valuation
models.
The economic variances were caused by marginally lower swap yields.
The other non-operating variance is due to the additional 1% reduction in UK
corporation tax enacted in April.
The capital and dividend flows mainly represent dividends, repayments of loans
and capital injections.
The foreign exchange variance is driven by the strengthened euro and swiss franc
against sterling.
Return on MCEV is the operating MCEV earnings after tax divided by opening MCEV
in sterling. The operating assumption changes and other operating variances are
not annualised.
6 months ended 30 June 2010
Free Required Adjusted Value of
surplus capital net worth in-force MCEV
163 213 376 1,468 1,844
(96) 14 (82) 113 31
3 3 6 11 17
- - - 6 6
146 (20) 126 (126) -
(26) 11 (15) 20 5
(2) 2 - - -
- - - 5 5
25 10 35 29 64
19 (3) 16 42 58
- - - - -
44 7 51 71 122
(33) (5) (38) (13) (51)
(30) (6) (36) (1) (37)
(3) 1 (2) (12) (14)
174 215 389 1,526 1,915
6.7%
GBPm
Year ended 31 December 2010
Free Required Adjusted Value of
surplus capital net worth in-force MCEV
163 213 376 1,468 1,844
(142) 19 (123) 189 66
1 3 4 22 26
7 - 7 14 21
246 (20) 226 (226) -
(62) 20 (42) 33 (9)
4 2 6 1 7
(34) 35 1 - 1
20 59 79 33 112
46 6 52 153 205
(2) - (2) 4 2
64 65 129 190 319
(184) - (184) (2) (186)
(184) - (184) - (184)
- - - (2) (2)
43 278 321 1,656 1,977
6.1%
B4 Analysis of covered business MCEV earnings (after tax) continued
6 months ended 30 June 2011
US Life
Free Required Adjusted
surplus capital net worth
Opening MCEV 66 468 534
New business value - - -
Expected existing business contribution
(reference rate) - - -
Expected existing business contribution (in
excess of reference rate) - - -
Transfers from VIF and required capital to
free surplus - - -
Experience variances - - -
Assumption changes - - -
Other operating variance - - -
Operating MCEV earnings - - -
Economic variances - - -
Other non-operating variance - - -
Total MCEV earnings - - -
Closing adjustments (66) (468) (534)
Capital and dividend flows - - -
Foreign exchange variance (2) (19) (21)
MCEV of acquired/sold business (64) (449) (513)
Closing MCEV - - -
Return on MCEV (ROEV) % per annum
GBPm
US Life
Value of
in-force MCEV
Opening MCEV (723) (189)
New business value - -
Expected existing business contribution (reference rate) - -
Expected existing business contribution (in excess of
reference rate) - -
Transfers from VIF and required capital to free surplus - -
Experience variances - -
Assumption changes - -
Other operating variance - -
Operating MCEV earnings - -
Economic variances - -
Other non-operating variance - -
Total MCEV earnings - -
Closing adjustments 723 189
Capital and dividend flows - -
Foreign exchange variance 28 7
MCEV of acquired/sold business 695 182
Closing MCEV - -
Return on MCEV (ROEV) % per annum 0.0%
For 30 June 2011 reporting period, Old Mutual Reassurance (Ireland) Limited
(OMRe), which provides reinsurance to the United States Life Companies, is
included within the OM plc results. For all comparative periods, the results for
US Life include allowance for OMRe.
The sale of the US Life insurance business to Harbinger Capital Partners was
completed, following regulatory approval, on 7 April 2011. This transaction has
resulted in an uplift of GBP451 million to the adjusted Group MCEV, based on the
31 December 2010 value for US Life. Further details relating to the MCEV impact
of this transaction are noted in A4.
6 months ended 30 June 2010
Free Required Adjusted Value of
surplus capital net worth in-force MCEV
36 462 498 (816) (318)
(36) 48 12 (16) (4)
- 4 4 6 10
- - - 36 36
41 (23) 18 (18) -
80 (24) 56 43 99
- - - 2 2
- - - (16) (16)
85 5 90 37 127
(15) (12) (27) (135) (162)
- - - - -
70 (7) 63 (98) (35)
(3) 36 33 (67) (34)
(8) - (8) - (8)
5 36 41 (67) (26)
- - - - -
103 491 594 (981) (387)
79.7%
GBPm
Year ended 31 December 2010
Free Required Adjusted Value of
surplus capital net worth in-force MCEV
36 462 498 (816) (318)
(66) 66 - (28) (28)
1 9 10 15 25
- - - 80 80
81 (47) 34 (34) -
33 (23) 10 30 40
(6) - (6) (57) (63)
- - - (7) (7)
43 5 48 (1) 47
71 (18) 53 127 180
- - - - -
114 (13) 101 126 227
(84) 19 (65) (33) (98)
(85) - (85) - (85)
1 19 20 (33) (13)
- - - - -
66 468 534 (723) (189)
14.1%
6 months ended 30 June 2011
Bermuda
Free Required Adjusted
surplus capital net worth
Opening MCEV - 403 403
New business value - - -
Expected existing business contribution
(reference rate) - 1 1
Expected existing business contribution (in
excess of reference rate) - 12 12
Transfers from VIF and required capital to
free surplus 34 (28) 6
Experience variances 1 - 1
Assumption changes 1 - 1
Other operating variance (32) 32 -
Operating MCEV earnings 4 17 21
Economic variances (4) - (4)
Other non-operating variance - - -
Total MCEV earnings - 17 17
Closing adjustments - (13) (13)
Capital and dividend flows - - -
Foreign exchange variance - (13) (13)
Closing MCEV - 407 407
Return on MCEV (ROEV) % per annum
GBPm
Bermuda
Value of
in-force MCEV
Opening MCEV (116) 287
New business value - -
Expected existing business contribution (reference rate) 3 4
Expected existing business contribution (in excess of
reference rate) 8 20
Transfers from VIF and required capital to free surplus (6) -
Experience variances (9) (8)
Assumption changes (3) (2)
Other operating variance (5) (5)
Operating MCEV earnings (12) 9
Economic variances 18 14
Other non-operating variance - -
Total MCEV earnings 6 23
Closing adjustments 3 (10)
Capital and dividend flows - -
Foreign exchange variance 3 (10)
Closing MCEV (107) 300
Return on MCEV (ROEV) % per annum 9.4%
Bermuda Year ended 31 December 2011
Free Required Adjusted
surplus capital net worth
Expected existing business contribution
(reference rate) - 2 2
Expected existing business contribution (in
excess of reference rate) - 24 24
GBPm
Bermuda
Value of
in-force MCEV
Expected existing business contribution (reference rate) 6 8
Expected existing business contribution (in excess of
reference rate) 16 40
The experience variances include a high number of Variable Annuity UGO contract
surrenders as a result of a surrender fee waiver offer given to clients, where
GMAB reserve releases (ANW impact) were mostly offset by lost future fee income
(VIF impact). ANW experience variances also consist of an expense overrun and
Branch Level Interest Tax for 2010 and 2011.
There were no material operating assumption changes.
The other operating variance was mainly due to bond portfolio and fixed annuity
modelling changes, as well changes to capital requirements used in the
calculation of CNHR.
The economic variances were largely due to favourable portfolio movements during
the reporting period producing a positive Variable Annuity economic result and
gains on the corporate bond portfolio.
Return on MCEV was calculated as the operating MCEV earnings after tax divided
by the opening MCEV in US dollars. The operating assumption changes and other
operating variances are not annualised.
For the six months ended 30 June 2011 continued
6 months ended 30 June 2010
Free Required Adjusted Value of
surplus Capital net worth in-force MCEV
- 363 363 (165) 198
- - - - -
- 1 1 5 6
- 16 16 16 32
6 (22) (16) 16 -
(8) - (8) (19) (27)
2 - 2 - 2
70 (44) 26 (9) 17
70 (49) 21 9 30
(70) - (70) (5) (75)
- - - - -
- (49) (49) 4 (45)
- 27 27 (12) 15
- - - - -
- 27 27 (12) 15
- 341 341 (173) 168
19.5%
GBPm
Year ended 31 December 2010
Free Required Adjusted Value of
surplus capital net worth in-force MCEV
- 363 363 (165) 198
- - - - -
- 3 3 9 12
- 30 30 35 65
16 (45) (29) 29 -
(18) 1 (17) (2) (19)
(19) - (19) (16) (35)
(32) 37 5 (52) (47)
(53) 26 (27) 3 (24)
53 - 53 52 105
- - - - -
- 26 26 55 81
- 14 14 (6) 8
- - - - -
- 14 14 (6) 8
- 403 403 (116) 287
(11.4)%
B4 Analysis of covered business MCEV earnings (after tax)
Total covered business
6 months ended 30 June 2011
Free Required Adjusted
surplus capital net worth
Opening MCEV 507 2,844 3,351
New business value (231) 82 (149)
Expected existing business contribution
(reference rate) 7 36 43
Expected existing business contribution (in
excess of reference rate) 3 18 21
Transfers from VIF and required capital to
free surplus 496 (119) 377
Experience variances 19 13 32
Assumption changes 2 - 2
Other operating variance (21) 24 3
Operating MCEV earnings 275 54 329
Economic variances 38 (8) 30
Other non-operating variance - - -
Total MCEV earnings 313 46 359
Closing adjustments (131) (550) (681)
Capital and dividend flows (56) - (56)
Foreign exchange variance (11) (101) (112)
MCEV of acquired/sold business (64) (449) (513)
Closing MCEV 689 2,340 3,029
Return on MCEV (ROEV) % per annum
GBPm
Total covered business
Value of
in-force MCEV
Opening MCEV 4,164 7,515
New business value 257 108
Expected existing business contribution (reference rate) 92 135
Expected existing business contribution (in excess of
reference rate) 44 65
Transfers from VIF and required capital to free surplus (377) -
Experience variances 48 80
Assumption changes (6) (4)
Other operating variance (33) (30)
Operating MCEV earnings 25 354
Economic variances (63) (33)
Other non-operating variance 6 6
Total MCEV earnings (32) 327
Closing adjustments 718 37
Capital and dividend flows - (56)
Foreign exchange variance 23 (89)
MCEV of acquired/sold business 695 182
Closing MCEV 4,850 7,879
Return on MCEV (ROEV) % per annum 9.9%
Return on MCEV for total covered business is calculated as the operating MCEV
earnings after tax divided by opening MCEV in sterling. The operating assumption
changes and other operating variances are not annualised.
Total covered business* Year ended 31 December 2011
Free Required Adjusted
surplus capital net worth
Expected existing business contribution
(reference rate) 16 67 83
Expected existing business contribution (in
excess of reference rate) 8 35 43
GBPm
Total covered business*
Value of
in-force MCEV
Expected existing business contribution (reference rate) 179 262
Expected existing business contribution (in excess of
reference rate) 88 131
* The expected return for the year ended 31 December 2011 has been restated to
reflect the change in the expected real world ca sh return to equal the risk
free rate over the analysis period (as opposed to the risk free reference rate
less a deduction), and to exclude any contribution from US Life.
For the six months ended 30 June 2011 continued
6 months ended 30 June 2010
Free Required Adjusted Value of
surplus capital net worth in-force MCEV
416 2,399 2,815 3,212 6,027
(263) 124 (139) 231 92
8 43 51 94 145
- 14 14 81 95
482 (151) 331 (331) -
54 7 61 47 108
2 2 4 (4) -
27 (39) (12) 24 12
310 - 310 142 452
(105) 8 (97) (67) (164)
(1) - (1) 1 -
204 8 212 76 288
(166) 105 (61) (80) (141)
(165) (6) (171) (1) (172)
(1) 111 110 (79) 31
- - - - -
454 2,512 2,966 3,208 6,174
GBPm
Year ended 31 December 2010
Free Required Adjusted Value of
surplus capital net worth in-force MCEV
416 2,399 2,815 3,212 6,027
(485) 226 (259) 431 172
9 89 98 192 290
7 27 34 174 208
899 (276) 623 (623) -
(1) 6 5 71 76
(2) 2 - (98) (98)
(125) 74 (51) (7) (58)
302 148 450 140 590
224 23 247 521 768
(7) 25 18 - 18
519 196 715 661 1,376
(428) 249 (179) 291 112
(468) - (468) - (468)
40 249 289 291 580
- - - - -
507 2,844 3,351 4,164 7,515
9.8%
C1 Value of new business (after tax)
The tables below set out the regional analysis of the value of new business
(`VNB`) after tax. New business profitability is measured by both the ratio of
the VNB to the present value of new business premiums (`PVNBP`) as well as to
the annual premium equivalent (`APE`), and shown under PVNBP margin and APE
margin below. APE is calculated as recurring premiums plus 10% of single
premiums. Bermuda is excluded from the tables below as it is closed to new
business.
GBPm
6 months 6 months Year ended
ended 30 June ended 30 June 31 December
2011 2010 2010
Annualised recurring premiums
Long Term Savings 375 339 698
Emerging Markets 176 143 325
Nordic 83 74 144
Retail Europe 33 29 63
Wealth Management 83 93 166
US Life - 5 10
Single premiums 375 344 708
Long Term Savings 3,875 4,296 7,932
Emerging Markets 797 803 1,611
Nordic 420 284 573
Retail Europe 34 34 63
Wealth Management 2,624 3,175 5,685
US Life - 400 824
PVNBP 3,875 4,696 8,756
Long Term Savings 5,645 5,968 11,266
Emerging Markets 1,656 1,561 3,269
Nordic 736 553 1,104
Retail Europe 276 243 513
Wealth Management 2,977 3,611 6,380
US Life - 432 889
PVNBP capitalisation factors* 5,645 6,400 12,155
Long Term Savings 4.7 4.9 4.8
Emerging Markets 4.9 5.3 5.1
Nordic 3.8 3.6 3.7
Retail Europe 7.4 7.2 7.2
Wealth Management 4.2 4.6 4.2
US Life - 6.6 6.6
* The PVNBP capitalisation factors are calculated as follows: (PVNBP - single
premiums)/annualised recurring premiums.
Notes to the MCEV basis supplementary information
For the six months ended 30 June 2011 continued
C1 Value of new business (after tax) continued
GBPm
6 months 6 months Year ended
ended 30 June ended 30 June 31 December
2011 2010 2010
APE
Long Term Savings 763 769 1,491
Emerging Markets 255 223 487
Nordic 126 102 201
Retail Europe 36 32 69
Wealth Management 346 412 734
US Life n/a 45 92
VNB 763 814 1,583
Long Term Savings 108 96 200
Emerging Markets 38 38 86
Nordic 28 25 41
Retail Europe 3 2 7
Wealth Management 39 31 66
US Life* n/a (4) (28)
PVNBP margin 108 92 172
Long Term Savings 1.9% 1.6% 1.8%
Emerging Markets 2.3% 2.5% 2.6%
Nordic 3.9% 4.6% 3.7%
Retail Europe 1.0% 0.7% 1.4%
Wealth Management 1.3% 0.9% 1.0%
US Life n/a (0.9)% (3.2)%
APE margin 1.9% 1.4% 1.4%
Long Term Savings 14% 13% 13%
Emerging Markets 15% 17% 18%
Nordic 23% 25% 21%
Retail Europe 8% 6% 11%
Wealth Management 11% 8% 9%
US Life n/a (9)% (31)%
14% 11% 11%
* The US Life VNB is negative when calculated on an MCEV basis, due to the
reliance on spread in the pricing basis, and the low risk free swap curve.
The value of new individual unit trust linked retirement annuities and pension
fund asset management business written by the Emerging Markets long-term
business is excluded as the profits on this business arise in the asset
management business. The value of new business also excludes premium increases
arising from indexation arrangements in respect of existing business, as these
are already included in the value of in-force business.
The value of new institutional investment platform pensions business written in
Wealth Management is excluded as this is more appropriately classified as unit
trust business.
GBPm
6 months 6 months Year ended
ended 30 June ended 30 June 31 December
Gross premium excluded from
value of new business 2011 2010 2010
Emerging Markets 465 386 723
Wealth Management 229 75 304
Notes to the MCEV basis supplementary information
For the six months ended 30 June 2011 continued
C2 Product analysis of new covered business premiums
GBPm
6 months ended 30 June 2011
Emerging Markets Recurring Single
Total business 176 797
Individual business 157 440
Savings 35 352
Protection 33 -
Annuity - 87
Mass Foundation Cluster* 89 1
Group business 19 357
Savings 11 250
Protection 8 -
Annuity - 107
6 months ended 30 June 2010
Emerging Markets Recurring Single
Total business 143 803
Individual business 120 486
Savings 29 387
Protection 31 -
Annuity - 98
Mass Foundation Cluster* 60 1
Group business 23 317
Savings 9 257
Protection 14 -
Annuity - 60
Year ended 31 December 2010
Emerging Markets Recurring Single
Total business 325 1,611
Individual business 284 889
Savings 69 713
Protection 70 -
Annuity - 176
Mass Foundation Cluster* 145 -
Group business 41 722
Savings 20 585
Protection 21 1
Annuity - 136
* Previously described as Retail Mass Market.
GBPm
6 months ended 30 June 2011
Nordic Recurring Single
Unit-linked and life
assurance 83 420
6 months ended 30 June 2010
Nordic Recurring Single
Unit-linked and life
assurance 74 284
Year ended 31 December 2010
Nordic Recurring Single
Unit-linked and life
assurance 144 573
GBPm
6 months ended 30 June 2011
Retail Europe Recurring Single
Unit-linked and life
assurance 33 34
6 months ended 30 June 2010
Retail Europe Recurring Single
Unit-linked and life
assurance 29 34
Year ended 31 December 2010
Retail Europe Recurring Single
Unit-linked and life
assurance 63 63
GBPm
6 months ended 30 June 2011
Wealth Management Recurring Single
Unit-linked and life
assurance 83 2,624
6 months ended 30 June 2010
Wealth Management Recurring Single
Unit-linked and life
assurance 93 3,175
Year ended 31 December 2010
Wealth Management Recurring Single
Unit-linked and life
assurance 166 5,685
GBPm
6 months ended 30 June 2011
US Life Recurring Single
Total business - -
Fixed deferred annuity - -
Fixed indexed annuity - -
Variable annuity - -
Life - -
Immediate annuity - -
6 months ended 30 June 2010
US Life Recurring Single
Total business 5 400
Fixed deferred annuity - 79
Fixed indexed annuity - 234
Variable annuity - -
Life 5 1
Immediate annuity - 86
Year ended 31 December 2010
US Life Recurring Single
Total business 10 824
Fixed deferred annuity - 163
Fixed indexed annuity - 502
Variable annuity - -
Life 10 1
Immediate annuity - 158
The table above does not include the contribution from the mutual fund business.
This is detailed in the Business Review section.
C3 Adjustments applied in determining total Group MCEV earnings before tax
GBPm
6 months ended 30 June 2011
Covered Non-covered
business business Total Group
Analysis of adjusting items MCEV IFRS MCEV
Income/(expense)
Goodwill impairment and amortisation
of non- covered business acquired
intangible assets
and impact of acquisition accounting - (11) (11)
Economic variances (49) (11) (60)
Other non-operating variances 1 - 1
Acquired/divested business - - -
Closure of unclaimed share trust - - -
Dividends declared to holders of
perpetual preferred callable
securities - 22 22
Adjusting items relating to US Asset
Management equity plans and non-
controlling interests - - -
Fair value gains on Group debt
instruments - (50) (50)
Adjusting items (48) (50) (98)
Adjusting items from continuing
operations (48) (50) (98)
Adjusting items from discontinued
operations - - -
Total MCEV adjusting items (48) (50) (98)
6 months ended 30 June 2010
Covered Non-covered
business business Total Group
Analysis of adjusting items MCEV IFRS MCEV
Income/(expense)
Goodwill impairment and amortisation
of non- covered business acquired
intangible assets
and impact of acquisition accounting - (7) (7)
Economic variances (277) (20) (297)
Other non-operating variances 2 - 2
Acquired/divested business - (22) (22)
Closure of unclaimed share trust - - -
Dividends declared to holders of
perpetual preferred callable
securities - 21 21
Adjusting items relating to US Asset
Management equity plans and non-
controlling interests - 2 2
Fair value gains on Group debt
instruments - (90) (90)
Adjusting items (275) (116) (391)
Adjusting items from continuing
operations 11 (116) (105)
Adjusting items from discontinued
operations (286) - (286)
Total MCEV adjusting items (275) (116) (391)
GBPm
Year ended 31 December 2010
Covered
business Non-covered Total Group
Analysis of adjusting items MCEV business IFRS MCEV
Income/(expense)
Goodwill impairment and
amortisation of non- covered
business acquired intangible
assets and impact of acquisition
accounting - (20) (20)
Economic variances 864 (7) 857
Other non-operating variances 17 - 17
Acquired/divested business - (22) (22)
Closure of unclaimed share trust - - -
Dividends declared to holders of
perpetual preferred callable
securities - 44 44
Adjusting items relating to US Asset
Management equity plans and non-
controlling interests - 6 6
Fair value gains on Group debt
instruments - (203) (203)
Adjusting items 881 (202) 679
Adjusting items from continuing
operations 701 (202) 499
Adjusting items from discontinued
operations 180 - 180
Total MCEV adjusting items 881 (202) 679
Notes to the MCEV basis supplementary information
For the six months ended 30 June 2011 continued
C4 Other movements in IFRS net equity impacting Group MCEV
GBPm
6 months ended 30 June 2011
Covered Non-covered
business business Total Group
MCEV IFRS MCEV
Fair value gains/(losses) - 1 1
Net investment hedge - (25) (25)
Currency translation
differences/exchange
differences on translating foreign
operations (89) (194) (283)
Aggregate tax effects of items taken
directly to or transferred
from equity - 6 6
Other movements* 182 18 200
Net income recognised directly into
equity 93 (194) (101)
Capital and dividend flows for the
year (56) (19) (75)
Net sale of treasury shares - (18) (18)
Net issues of ordinary share capital
by the Company - 91 91
Acquisition of non-controlling
interest in Mutual & Federal - - -
Exercise of share options - 4 4
Change in share based payment reserve - 21 21
Other movements in net equity 37 (115) 78
6 months ended 30 June 2010
Covered
business Non-covered Total Group
MCEV business IFRS MCEV
Fair value gains/(losses) - (5) (5)
Net investment hedge - (34) (34)
Currency translation
differences/exchange
differences on translating foreign
operations 31 200 231
Aggregate tax effects of items
taken directly to or transferred
from equity - 6 6
Other movements* - (28) (28)
Net income recognised directly into
equity 31 139 170
Capital and dividend flows for the
year (172) 73 (99)
Net sale of treasury shares - (20) (20)
Net issues of ordinary share
capital by the Company - 160 160
Acquisition of non-controlling
interest in Mutual & Federal - (93) (93)
Exercise of share options - 3 3
Change in share based payment
reserve - 1 1
Other movements in net equity (141) 263 122
* This relates to the reversal of the US Life MCEV on the covered business.
GBPm
Year ended 31 December 2010
Covered Non-covered
business business Total Group
MCEV IFRS MCEV
Fair value gains/(losses) - 8 8
Net investment hedge - (86) (86)
Currency translation
differences/exchange
differences on translating foreign
operations 580 448 1,028
Aggregate tax effects of items taken
directly to or transferred
from equity - 14 14
Other movements - (24) (24)
Net income recognised directly into
equity 580 360 940
Capital and dividend flows for the
year (468) 322 (146)
Net sales of treasury shares - (28) (28)
Net issues of ordinary share capital
by the Company - 162 162
Acquisition of non-controlling
interest in Mutual & Federal - (93) (93)
Exercise of share options - 4 4
Change in share based payment reserve - 4 4
Other movements in net equity 112 731 843
C5 Reconciliation of MCEV adjusted net worth to IFRS net asset value for the
covered business
The table below provides a reconciliation of the MCEV adjusted net worth (`ANW`)
to the IFRS net asset value (`NAV`) for the covered business.
GBPm
Long Term
At 30 June 2011 Total Savings
IFRS net asset value* 5,859 5,418
Adjustment to include long-term
business on a statutory solvency
basis (2,201) (2,167)
Inclusion of Group equity and debt
instruments held in life funds 396 396
Goodwill (1,025) (1,025)
Adjusted net worth attributable
to ordinary equity holders of
the parent 3,029 2,622
Emerging Retail Wealth
At 30 June 2011 Markets Nordic Europe Management
IFRS net asset value* 1,339 1,423 664 1,992
Adjustment to include long-term
business on a statutory solvency
basis 199 (1,012) (338) (1,016)
Inclusion of Group equity and
debt instruments held in life funds 396 - - -
Goodwill (8) (211) (207) (599)
Adjusted net worth attributable
to ordinary equity holders of
the parent 1,926 200 119 377
At 30 June 2011 US Life Bermuda
IFRS net asset value* - 441
Adjustment to include long-term
business on a statutory solvency
basis - (34)
Inclusion of Group equity and debt
instruments held in life funds - -
Goodwill - -
Adjusted net worth attributable
to ordinary equity holders of
the parent - 407
GBPm
Long Term
At 30 June 2010 Total Savings
IFRS net asset value* 6,394 4,827
Adjustment to include long-term
business on a statutory solvency
basis (2,779) (2,147)
Inclusion of Group equity and debt
instruments held in life funds 330 330
Goodwill (979) (979)
Adjusted net worth attributable
to ordinary equity holders of
the parent 2,966 2,031
Emerging Retail Wealth
At 30 June 2010 Markets Nordic Europe Management
IFRS net asset value* 932 1,147 586 2,162
Adjustment to include long-term
business on a statutory solvency
basis 161 (818) (314) (1,176)
Inclusion of Group equity and
debt instruments held in life funds 330 - - -
Goodwill (8) (186) (188) (597)
Adjusted net worth attributable
to ordinary equity holders of
the parent 1,415 143 84 389
At 30 June 2010 US Life Bermuda
IFRS net asset value* 1,213 354
Adjustment to include long-term
business on a statutory solvency
basis (619) (13)
Inclusion of Group equity and debt
instruments held in life funds - -
Goodwill - -
Adjusted net worth attributable
to ordinary equity holders of
the parent 594 341
GBPm
Long Term
At 31 December 2010 Total Savings
IFRS net asset value* 5,794 5,088
Adjustment to include long-term
business on a statutory solvency
basis (1,822) (2,053)
Inclusion of Group equity and debt
instruments held in life funds 389 389
Goodwill (1,010) (1,010)
Adjusted net worth attributable
to ordinary equity holders of
the parent 3,351 2,414
Emerging Retail Wealth
At 31 December 2010 Markets Nordic Europe Management
IFRS net asset value* 1,216 1,243 632 1,997
Adjustment to include long-term
business on a statutory solvency
basis 207 (851) (331) (1,078)
Inclusion of Group equity and
debt instruments held in life funds 389 - - -
Goodwill (8) (206) (198) (598)
Adjusted net worth attributable
to ordinary equity holders of
the parent 1,804 186 103 321
At 31 December 2010 US Life Bermuda
IFRS net asset value* 274 432
Adjustment to include long-term
business on a statutory solvency
basis 260 (29)
Inclusion of Group equity and debt
instruments held in life funds - -
Goodwill - -
Adjusted net worth attributable
to ordinary equity holders of
the parent 534 403
* IFRS net asset value is after elimination of inter-company loans.
The adjustment to include long-term business on a statutory solvency basis
includes the following:
- The excess of the IFRS amount of the deferred acquisition cost (`DAC`) and
value of business acquired (`VOBA`) assets over the statutory levels included in
the VIF.
- When projecting future profits on a statutory basis, the VIF includes the
shareholders` value of unrealised capital gains. To the extent that assets in
IFRS are valued at market and the market value is higher than the statutory book
value, these profits have already been taken into account in the IFRS equity.
- For the US Life business, the reversal of the IFRS impairment for discontinued
operations which is included in the IFRS net asset value, as this is not
recognised on a statutory solvency basis.
D Other income statement notes
D1 Drivers of new business value for covered business
%
PVNBP Margin
12 months ended 12 months ended
30 June 31 December
Long Term Savings (excludes US Life)* 2011 2010
Margin at the end of comparative period 1.6 1.6
Change in volume 0.2 (0.1)
Change in product mix - 0.2
Change in country mix - -
Change in operating assumptions - 0.1
Change in economic assumptions 0.2 (0.1)
Change in tax/regulation (0.1) -
Exchange rate movements - 0.1
Margin at the end of the period 1.9 1.8
Emerging Markets**
Margin at the end of comparative period 2.5 2.3
Change in volume 0.2 0.1
Change in product mix (0.2) 0.4
Change in country mix - -
Change in operating assumptions (0.1) (0.1)
Change in economic assumptions 0.4 (0.1)
Change in tax/regulation (0.5) -
Margin at the end of the period 2.3 2.6
Nordic***
Margin at the end of comparative period 4.6 3.8
Change in volume (0.1) (0.1)
Change in product mix (0.1) 0.6
Change in country mix - -
Change in operating assumptions (0.5) (0.4)
Change in economic assumptions - (0.2)
Margin at the end of the period 3.9 3.7
Retail Europe****
Margin at the end of comparative period 0.7 (1.0)
Change in volume - 1.6
Change in product mix 0.5 (0.2)
Change in country mix (0.1) -
Change in operating assumptions (0.1) 0.9
Change in economic assumptions - 0.1
Margin at the end of the period 1.0 1.4
Wealth Management*
Margin at the end of comparative period 0.9 1.0
Change in volume - (0.1)
Change in product mix 0.2 (0.1)
Change in country mix - -
Change in operating assumptions 0.1 0.2
Change in economic assumptions 0.1 -
Margin at the end of the period 1.3 1.0
%
12 months ended 12 months ended
30 June 31 December
US Life***** 2011 2010
Margin at the end of comparative period - 2.2
Change in volume - (0.1)
Change in product mix - (0.9)
Change in country mix - -
Change in operating assumptions - (0.6)
Change in economic assumptions - (3.8)
Margin at the end of the period - (3.2)
Total covered business*
Margin at the end of comparative period 1.6 1.6
Change in volume 0.2 (0.1)
Change in product mix - 0.1
Change in country mix - -
Change in operating assumptions - 0.1
Change in economic assumptions 0.2 (0.4)
Change in tax/regulation (0.1) -
Exchange rate movements - 0.1
Margin at the end of the period 1.9 1.4
* The PVNBP margin changes are calculated in sterling.
** The PVNBP margin changes are calculated in rand.
*** The PVNBP margin changes are calculated in krona.
**** The PVNBP margin changes are calculated in euro.
***** The PVNBP margin changes are calculated in dollars.
Notes to the MCEV basis supplementary information
For the six months ended 30 June 2011 continued
E1 Sensitivity tests
The tables below show the sensitivity of the MCEV and value of in-force business
at 30 June 2011 and the value of new business for the six months ended 30 June
2011 to changes in key assumptions.
For each sensitivity illustrated all other assumptions have been left unchanged
except where they are directly affected by the revised conditions. Sensitivity
scenarios therefore include consistent changes in cash flows directly affected
by the changed assumption(s), for example future bonus participation in changed
economic scenarios.
At 30 June 2011 GBPm
Value of in- Value of new
Long Term Savings MCEV force business business
Central assumptions 7,579 4,957 108
Effect of:
Increasing all pre-tax investment
and economic assumptions by 1%,
with credited
rates and discount rates changing
commensurately 7,418 4,810 98
Decreasing all pre-tax investment
and economic assumptions by 1%,
with credited
rates and discount rates changing
commensurately 7,752 5,112 118
Recognising the present value of an
additional 10bps of liquidity
spreads assumed
on corporate bonds over the
lifetime of the liabilities, with
credited rates and
discount rates changing
commensurately 7,889 4,860 109
At 30 June 2011 GBPm
Value of in- Value of new
Emerging Markets MCEV force business business
Central assumptions 3,366 1,440 38
Effect of:
Increasing all pre-tax investment
and economic assumptions by 1%,
with credited
rates and discount rates changing
commensurately 3,308 1,381 34
Decreasing all pre-tax investment
and economic assumptions by 1%,
with credited
rates and discount rates changing
commensurately 3,426 1,501 41
Recognising the present value of an
additional 10bps of liquidity
spreads assumed
on corporate bonds over the
lifetime of the liabilities, with
credited rates and
discount rates changing
commensurately 3,376 1,450 39
At 30 June 2011 GBPm
Value of in- Value of new
Nordic MCEV force business business
Central assumptions 1,501 1,301 28
Effect of:
Increasing all pre-tax investment
and economic assumptions by 1%,
with credited
rates and discount rates changing
commensurately 1,474 1,274 28
Decreasing all pre-tax investment
and economic assumptions by 1%,
with credited
rates and discount rates changing
commensurately 1,532 1,332 29
At 30 June 2011 GBPm
Value of in- Value of new
Retail Europe MCEV force business business
Central assumptions 649 530 3
Effect of:
Increasing all pre-tax investment
and economic assumptions by 1%, with
credited
rates and discount rates changing
commensurately 630 512 1
Decreasing all pre-tax investment
and economic assumptions by 1%, with
credited
rates and discount rates changing
commensurately 664 544 4
At 30 June 2011 GBPm
Value of in- Value of new
Wealth Management MCEV force business business
Central assumptions 2,063 1,686 39
Effect of:
Increasing all pre-tax investment
and economic assumptions by 1%,
with credited
rates and discount rates changing
commensurately 2,006 1,643 35
Decreasing all pre-tax investment
and economic assumptions by 1%,
with credited
rates and discount rates changing
commensurately 2,130 1,735 44
At 30 June 2011 GBPm
Value of in- Value of new
Bermuda MCEV force business business
Central assumptions 300 (107) -
Effect of:
Increasing all pre-tax investment
and economic assumptions by 1%, with
credited
rates and discount rates changing
commensurately 351 (111) -
Decreasing all pre-tax investment
and economic assumptions by 1%, with
credited
rates and discount rates changing
commensurately 257 (98) -
At 30 June 2011 GBPm
Value of in- Value of new
Total covered business MCEV force business business
Central assumptions 7,879 4,850 108
Effect of:
Increasing all pre-tax investment
and economic assumptions by 1%,
with credited
rates and discount rates changing
commensurately 7,769 4,699 98
Decreasing all pre-tax investment
and economic assumptions by 1%,
with credited
rates and discount rates changing
commensurately 8,009 5,014 118
Recognising the present value of an
additional 10bps of liquidity
spreads assumed
on corporate bonds over the
lifetime of the liabilities, with
credited rates and
discount rates changing
commensurately 7,889 4,860 109
Shareholder information
Listings and shares in issue
The Company`s shares are listed on the London, Malawi, Namibian and Zimbabwe
Stock Exchanges and on the JSE Limited (JSE). The primary listing is on the
London Stock Exchange and the other listings are all secondary listings. The
ISIN number of the Company`s shares is GB0007389926.
Websites
Further information on the Company can be found on the following websites:
www.oldmutual.com
www.oldmutual.co.za
Sponsor:
Merrill Lynch South Africa (Pty) Limited
Date: 05/08/2011 08:03:52 Supplied by www.sharenet.co.za
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