Group Finance Director's Report
UK Investment Business
Full EV Information
Underlying profit before tax for our UK Investment Business on the Full EV basis was 21% higher in 2007 at £652m (2006 £539m), due to continued growth in the contribution from new business and a higher return on the growing in-force book of existing business. The table below analyses this result:
| Year ended 31.12.2007 | Year ended 31.12.2006 | |||||||
|
Life & Pensions Insurance Contracts £m |
Life & Pensions Investment Contracts £m |
Mutual Funds Investment Contracts £m |
Total £m |
Life & Pensions Insurance Contracts £m |
Life & Pensions Investment Contracts £m |
Mutual Funds Investment Contracts £m |
Total £m |
|
| Contribution from existing business | ||||||||
| Expected contribution | 162 | 133 | 60 | 355 | 135 | 96 | 50 | 281 |
| Actual vs expected experience | 33 | (25) | (104) | (96) | 16 | (62) | (29) | (75) |
| 195 | 108 | (44) | 259 | 151 | 34 | 21 | 206 | |
| Contribution from new business | 269 | 123 | 113 | 505 | 216 | 121 | 124 | 461 |
| Investment earnings on net assets | 115 | 7 | 122 | 113 | 6 | 4 | 123 | |
| Contribution from Investment Business | 579 | 238 | 69 | 886 | 480 | 161 | 149 | 790 |
| Development expenditure* | (67) | (67) | (67) | (67) | ||||
| Overheads associated with development activity* | (39) | (39) | (56) | (56) | ||||
| Debt Financing cost* | (128) | (128) | (128) | (128) | ||||
| Underlying profit before tax | 345 | 238 | 69 | 652 | 229 | 161 | 149 | 539 |
* Development costs, overheads and financing costs have been attributed to Life & Pensions Insurance Contracts business for presentational purposes only.
The contribution from new business under the Full EV basis increased by 10% in 2007 to £505m (2006 £461m), reflecting further growth in sales.
The contribution from existing business increased by 26% to £259m (2006 £206m). The expected contribution improved by 26% to £355m (2006 £281m) reflecting the growing in-force book of existing business. Our business is at a relatively early stage of development and hence the contribution to profit from in-force business is smaller than that for some of our longer established peers, but it is growing strongly. Negative actual vs expected experience was higher in 2007 at £96m (2006 £75m). This principally represents adverse persistency experience and the strengthening of lapse assumptions. Whilst we have seen further adverse lapse experience this year, our Existing business team have initiated a programme of activity which aims to improve retention performance and optimise returns from our in-force book. Initial progress on these initiatives has been encouraging.