Aviva 2005 Annual Report Download - page 214

Financial statements continued
Alternative method of reporting long-term business continued
Segmental analysis of the components of life EEV operating return
UK France Ireland Italy Netherlands Poland Spain Other Europe International Total
Year ended 31 December 2004 £m £m £m £m £m £m £m £m £m £m
New business contribution
(after the effect of
required capital) 215 54 16 34 43 9 121 – 24 516
Profit from existing
business
– expected return 367 112 30 29 141 45 40 24 31 819
– experience variances:
Maintenance
expenses131 (2) (1) 2 (9) 5 – 1 1 28
Exceptional
expenses2(153) – – – (12) – (1) (3) (1) (170)
Mortality/Morbidity349217–178125110
Lapses4(50) 5 (1) (5) (2) 5 2 (4) 6 (44)
Other542 (2) – 3 18 – 2 – (2) 61
(81) 22 5 – 12 18 4 (4) 9 (15)
– operating assumption
changes:
Maintenance
expenses677 – (6) (3) – 14 3 1 4 90
Exceptional
expenses7(34) (2) – – (72) ––––(108)
Mortality/Morbidity 2 – (2) 7 5 (2) – 1 (1) 10
Lapses8(110) – (16) (3) 9 – 1 1 (1) (119)
Other97 37 – 1 79 2 3 (6) (3) 120
(58) 35 (24) 2 21 14 7 (3) (1) (7)
Expected return on
shareholders’
net worth 108 63 13 14 60 7 8 5 20 298
Life EEV operating
return before tax 551 286 40 79 277 93 180 22 83 1,611
1. Maintenance expenses in the UK reflect the benefit of cost saving initiatives undertaken.
2. Exceptional expenses in the UK reflect costs of £65 million for the restructuring of the business services division and one-off project costs of £88 million associated with
the pace of regulatory change.
3. Mortality experience across our major businesses continues to be better than our assumptions for protection and annuity business in the UK and protection business in
continental Europe.
4. Lapse experience in the UK has been adverse and mainly relates to bonds, protection schemes and pension products.
5. In the UK, other experience profits include £29 million of profits arising from better than assumed default experience on corporate bonds and commercial mortgages.
6. Maintenance expense assumption changes in the UK reflect the benefit of cost saving initiatives coming through.
7. The UK and the Netherlands include capitalised additional future project expenses.
8. Adverse lapse assumption changes in the UK relates to unitised with-profit bonds and unit-linked bonds. In Ireland, lapse assumption changes have been made on
unit-linked pensions business following recent experience.
9. Other operating assumptions in the Netherlands relates to positive changes in asset mix and tax reflecting, in part, the fact that the embedded value of Delta Lloyd was
previously assessed using a blended average tax rate of 25%, which is below the local corporation tax rate. The calculation has been refined to tax all future profits at the
full corporation tax rate at the beginning of the year of 34.5% and to allow explicitly for the tax benefit arising from investing in the “5% holdings” (investments in Dutch
companies where at least 5% of the share capital is owned), on which all investment income is tax free. This change results in a £53 million one-off benefit. France includes
the benefit of tax assumption changes. France has historically recorded favourable tax operating experience as a result of better than assumed tax on dividend income.
Previously the tax assumptions had been set at full corporation tax for all future profits, whereas in fact dividend income from subsidiaries is tax exempt. In 2004, the
calculation has been refined such that the future tax benefit arising from dividend from subsidiaries has now been recognised. This change results in a £39 million benefit.
Aviva plc 2005 Financial statements
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