RNS Number:9841R
Irish Life & Permanent PLC
28 February 2007
IRISH LIFE & PERMANENT PLC
Preliminary Announcement
Year ended 31 December 2006
PRESENTATION OF INFORMATION
Statutory Basis (EU IFRS)
EU law requires that the consolidated financial statements of the group be
prepared in accordance with International Financial Reporting Standards ("IFRS")
as adopted by the EU.
The statutory basis applies IFRS to all operations including the application of
IFRS 4 'Insurance Contracts' to the group's life assurance operations. IFRS 4
allows insurance contracts to continue to be accounted for under previous GAAP
as adjusted for any changes which result in more relevant and reliable
information. As a consequence of this the results for the group's insurance
contracts continue to be prepared under the embedded value methodology as
described below.
The statutory basis accounts are included on pages 31 to 40.
Embedded Value basis (EV)
The EV basis shows the results of the group's life assurance operations
(including both insurance and investment contracts) prepared in accordance with
the European Embedded Value (EEV) Principles issued in May 2004 by the European
Chief Financial Officers' Forum. In October 2005 the CFO Forum published
Additional Guidance on EEV Disclosure applicable for financial reporting in the
year ending 2006 which will be reflected in the Annual Report & Financial
Statements.
The results of all other operations are prepared in accordance with IFRS.
The group has focused on the EV basis, as it believes that EV is a more
realistic measure of the performance of life businesses than the statutory IFRS
basis. The EV basis is used throughout the group to assess performance, and it
is also the measure used by life insurance companies generally and by the
investment community to assess the performance of life businesses.
The EV basis results are included on pages 3 to 28.
Financial Highlights
Year ended 31 December 2006
2006 2005 Growth
EV Basis %
Profit after tax Euro561m Euro475m 18
Total EPS 205 cent 176 cent 16
Operating profit before tax Euro529m Euro420m 26
Operating EPS 178 cent 135 cent 32
Statutory Basis (EU IFRS)
Profit after tax Euro358m Euro353m 1
EPS on continuing activities 135 cent 134 cent -
New loans issued Euro12.9bln Euro9.8bln 32
Lending book Euro33.8bln Euro26.2bln 29
Mortgage loan book (Ireland) Euro23.1bln Euro17.8bln 30
Sales/New Business
Life new business
- APE Euro516m Euro388m 33
- PVNBP Euro3,482m Euro2,571m 35
Life and investment new business
- APE Euro706m Euro520m 36
- PVNBP Euro5,383m Euro3,890m 38
Dividends
Final Dividend per share 47.9 cent 42.8 cent 11.9
Total Dividend per share 68.0 cent 60.5 cent 12.4
Commenting on the results David Went, Group Chief Executive said:
These represent an exceptionally strong set of results characterised by strong
volumes, robust margins and improving market share figures in our key markets.
The year ahead promises opportunities in the form of maturing SSIAs and
continued strong economic growth and challenges in the slightly distorted and
increasingly competitive housing market but these figures position us strongly
to compete successfully.
Embedded Value Basis
Commentary on Results EV basis
Consolidated Income Statement - EV Basis
For the year ended 31 December 2006
2006 2005
Eurom Eurom
Operating profit on continuing operations
Insurance and investment business 274 222
Banking 202 148
Other (2) (4)
474 366
Share of associate / joint venture 55 54
Operating profit before tax on continuing operations 529 420
Short-term investment fluctuations 101 94
Effect of economic assumption changes (38) 13
Other credits - 4
Profit before tax 592 531
Taxation (28) (16)
Government levy - (12)
Profit after tax on continuing operations 564 503
(Loss) after tax on discontinued operations - (26)
Profit after tax 564 477
Minority interest (3) (2)
Profit after tax attributable to equityholders 561 475
Overview
Total profit after tax attributable to equityholders for the year was Euro561m
compared to Euro475m in 2005, an 18% uplift. The outcome principally reflects
strong growth in operating profit, which was up 26% to Euro529m (2005: Euro420m).
This was partially offset by the impact of rising interest rates on the embedded
value of the group's life business, which was a negative Euro38m compared to a
positive Euro13m in 2005.
At the operating level, profits from the group's core banking and life assurance
business grew 29% to Euro474m from Euro366m principally reflecting a 36% growth in new
business contribution to Euro128m (2005: Euro94m) in the life business; and growth of
36% in the group's banking profits which increased to Euro202m from Euro148m in 2005.
The 2006 outcome in the bank includes trading profits of Euro12m which compares to
trading losses of Euro4m in 2005. Excluding this trading profit turnaround the
underlying level of profit growth in the bank of 26% was driven by strong growth
in risk assets, particularly mortgage assets, reflecting very strong new
business volumes.
The post tax return from the group's interest in Allianz (Ireland), a general
insurance business, was Euro56m compared to Euro54m in 2005. Growth in underwriting
profits, which included prior year reserve releases, was offset by a reduction
in the investment returns on the company's bond portfolio, which arose as a
consequence of weak bond markets during the year.
The short term investment fluctuations reflect the impact of actual against
assumed investment returns on the embedded value of the group's life operations.
The 2006 outcome was a positive Euro101m compared to Euro94m in 2005, with both
outcomes reflecting the strength of investment markets in these years.
The 2006 outturn includes a negative Euro38m arising from changes in the economic
assumptions used to calculate the life assurance embedded value. This primarily
relates to the impact of an increase in the risk discount rate used to compute
the embedded value from 6.5% to 7.4% principally arising from increases in
medium term euro bond rates. In 2005, changes in the economic assumptions had a
positive effect of Euro13m reflecting a reduction in the risk discount rate from
6.7% to 6.5%.
The Euro28m tax charge is comprised of two components, a Euro42m (2005: Euro42m) charge
on operating profit offset by a net credit of Euro14m (2005: Euro26m) attributable to
investment fluctuations and economic assumption changes in the life business
embedded value. The 2% reduction in the effective tax rate on operating profit
in 2006 is principally due to the release of deferred tax provisions on property
capital allowances (which came though in the first half of the year) together
with the effect of the changes in life operating assumptions.
The bank levy of Euro12m per annum which was a feature of the group's tax charge
for the past three years has ended and consequently does not feature in 2006.
The 2005 outcome included an after tax loss of Euro26m incurred in the disposal of
City of Westminster Assurance, a closed book of life business in the UK. No
similar disposals occurred in 2006.
Banking Business
The pre-tax results of the group's banking business for the year ended 31
December 2006 are set out below:
2006 2005
Eurom Eurom
Net interest income 429 377
Other income 45 40
Trading income 12 (4)
486 413
Administrative expenses (273) (255)
Impairment provisions (14) (12)
Operating profit before tax 199 146
Investment gains 3 13
Restructuring costs - (11)
Share of joint venture (1) -
Profit before tax 201 148
Overall pre-tax profits in the group's banking business increased 36% to Euro201m
(2005: Euro148m).
As noted previously 2006 included trading income of Euro12m compared to a loss of
Euro4m in 2005 arising from the impact of IFRS transition. Adjusting for this
turnaround the underlying level of profit growth in the banking operations was
26%.
Net interest income increased 14% to Euro429m (2005: Euro377m) due to strong growth in
new lending volumes and current account balances, which offset the impact of
wholesale funding and mortgage back book pricing on the net interest margin.
The net interest margin in 2006 was 1.19% compared to 1.29% reported for the
full year 2005. In addition to the ongoing impact of increasing wholesale
funding levels, which has been a feature of the business over the past number of
years, the margin was negatively impacted by basis risk in the Irish mortgage
portfolio as interest rates increased. The group pre-funded this basis risk.
Under IFRS, the benefits of this pre-funding activity are accounted for partly
in the trading income line rather than net interest income. The outcome of this
pre-funding activity accounts for the bulk of the positive Euro12m in income
reported as trading income. Margins were further dampened by the decision in
the first half of 2006 to reduce the Irish back book margin in order to position
the book more competitively in a rising interest rate environment although this
impact was partially offset by widening liability spreads as euro interest rates
increased.
Total loans and advances to customers at 31 December 2006 were Euro33.7bln, an
increase of 28% on balances outstanding at end 2005 (Euro26.3bln).
The growth in the balances over principal business lines was as follows:-
31 Dec 31 Dec Growth
2006 2005
Eurobln Eurobln %
Mortgage lending ROI * 23.1 17.8 30
Consumer finance 2.0 1.7 19
Commercial lending 1.9 1.4 31
27.0 20.9 29
Mortgage lending - UK (#Stg) * 4.6 3.7 25
Total lending - Eurom 33.7 26.3 28
The residential mortgage market in Ireland was extremely strong in 2006 with
Euro8.7bln in total gross new mortgages issued by the group, a 37% increase on the
Euro6.3bln issued in 2005. Irish residential mortgage balances outstanding
increased 30% to Euro23.1bln from Euro17.8bln outstanding at the end of 2005.
In the UK, while the buy to let sector in which the Group's centralised mortgage
lender, Capital Home Loans, principally operates, was extremely competitive, new
mortgages issued were up 11% to Stg#1.5bln compared to Stg#1.4bln in 2005. The
group's UK mortgage portfolio increased 25% to Stg#4.6bln compared to Stg#3.7bln
at 31 December 2005.
New consumer finance loans issued increased 21% over 2005 from Euro1.0bln to
Euro1.2bln with this portfolio growing 19% to Euro2.0bln compared to Euro1.7bln at 31
December 2005.
The group increased the level of focus in the commercial lending area in 2006
resulting in new business issues of Euro753m, an increase of 97% on 2005 levels of
Euro383m and the book growing 31% to Euro1.9bln from Euro1.4bln at the end of 2005.
Customer account balances at 31 December 2006 totalled Euro13.6bln (2005: Euro12.8bln
an increase of 7%). Throughout 2006 the bank maintained its focus on the
acquisition of current accounts and the strategy in this area was extremely
successful with 84,500 new accounts opened during the year, following on from
the 67,000 new accounts opened in the year ended 2005. Current account balances
increased 18% to Euro2.6bln compared to Euro2.2bln at the end of 2005.
Other income of Euro45m was 13% ahead of 2005, principally driven by increased loan
fee income, Bureau de Change earnings and visa commissions.
Other income excludes any contribution from Bancassurance sales generated
through the bank are included in the pre-tax profit reported in the group's life
assurance activities. Sales of life and pensions products through the bank in
2006 were Euro88m, up from Euro65m in 2005, a 35% increase. The pre-tax profit
achieved on the Bancassurance book of life business was Euro56m in 2006 a 22%
increase on the 2005 outturn of Euro46m.
Trading income in 2006 was a positive Euro12m compared to a negative Euro4m which
arose in 2005. The 2006 result principally arose due to the group pre-funding
against basis risk in its mortgage portfolio. Under IFRS, the outcome of this
pre-funding activity is reflected in trading income rather than net interest
income.
The 2005 outcome arose due to certain positions taken in financial instruments,
which fell to be accounted on a mark to market basis. These positions were
closed out in the first half of that year. The losses arising could not be
offset against gains of Euro12m, which arose in the closing of certain interest
rate positions as part of the transition of the balance sheet to meet the
pre-funding requirements of IAS 39, as these gains fell to be amortised to net
interest income over 2005 and the following 3 years under IAS 39.
Administration expenses increased 7% to Euro273m from Euro255m reflecting growth in
the business. Cost management continues to be a major focus for the bank.
Impairment provisions of Euro14m in 2006 compare to Euro12m for the prior year and
reflect the underlying growth and the excellent credit quality which prevails
within all of the group's loan portfolios. Provisions held continue to be
adequate with reserves of Euro57m compared to arrears of Euro43m.
The investment return of Euro3m in 2006 represents a gain on the disposal of
investment properties while the prior year outcome of Euro13m represented an uplift
in the value of investment properties held by the bank.
Restructuring costs of Euro11m in 2005 reflected the cost of a development plan
undertaken throughout 2005 and 2006. The objective of the plan, which is now
completed, was to improve the cost efficiency and sales capability of the bank.
There was no similar charge in 2006.
Insurance and Investment Business
The results of the group's insurance and investment business presented on an EV
basis for the year ended 31 December 2006 are set out below:
2006 2005
Eurom Eurom
New business contribution 128 94
Contribution from in-force business
Expected return
In-force 89 74
Net worth 26 20
Experience variances 14 15
Assumption changes (net of development expenditure) 17 19
146 128
Operating profit before tax 274 222
The operating profit before tax on the group's life business for the year ended
2006 was Euro274m, a 23% uplift on the 2005 outcome of Euro222m. This principally
reflects a 36% uplift in the new business contribution which increased from Euro94m
to Euro128m.
The expected return on the in-force book business increased 20% to Euro89m (2005:
Euro74m) reflecting strong growth in the portfolio.
The expected return on the net worth, which relates to earnings on shareholder
assets calculated by reference to the assumed long-term rate of return on
property and equities and the actual return on short-term cash, increased to
Euro26m from Euro20m in 2005 reflecting a higher yield on cash assets as euro interest
rates increased.
Experience variances continue to be positive at Euro14m in 2006 compared to Euro15m in
2005, with strong risk experience achieved in both mortality and morbidity.
Assumption changes, largely reflecting the group's continued risk experience,
were a positive Euro17m compared to Euro19m in 2005. Overall, the assumptions
underlying the embedded value continue to be prudent.
New Business
The new business contribution increased 36% to Euro128m from Euro94m in 2005. This
outcome was driven by a 33% increase in life new business sales (excluding ILIM)
to Euro516m on an APE basis in 2006 (35% on a PVNBP basis), combined with continued
strong new business margins.
Overall, new business margins, excluding ILIM were 20.6%, slightly ahead of the
20.4% reported in 2005. Including ILIM, new business margins were 18.1%, which
was in line with 2005 and was made up as follows:-
2006 2005
% %
Life 20.6 20.4
Investment (ILIM) 11.4 11.4
18.1 18.1
The continued strength in life margins (20.6%) in 2006 reflects the high volume
of new business sales combined with a favourable product and distribution mix.
APE1 sales in the group's principal life businesses are summarised below:
2006 2005 Growth
Eurom Eurom %
Retail Life 317 238 33
Corporate Life 165 130 27
Irish Life International 34 20 70
516 388 33
Investment (ILIM) 190 132 44
706 520 36
When calculated on the basis of present value of new business premiums
("PVNBP"), new business margins including ILIM were 2.4% in 2006 (2005: 2.4%).
The consolidated internal rate of return achieved on new business sales was
13.2% which compares to 12.5% achieved in 2005.
The PVNBP margin is calculated as follows:
2006 2005
% %
Life 3.1 3.1
Investment (ILIM) 1.1 1.1
2.4 2.4
PVNBP2 sales in each of the group's principal life businesses are set out below:
2006 2005
Eurom Eurom %
Retail Life 2,145 1,602 34
Corporate Life 998 772 29
Irish Life International 339 197 72
3,482 2,571 35
Investment (ILIM) 1,901 1,319 44
5,383 3,890 38
Retail Life
Demand in the retail life insurance market in Ireland was very strong in 2006
with retail life sales ahead 33%, on an APE basis, to Euro317m from Euro238m in 2005.
On a PVNBP basis, sales were ahead 34% to Euro2.1bln. This sales performance
reflects the general buoyancy of the life assurance market in Ireland and the
fact that the retail business once again gained market share in 2006.
Sales were strongly ahead across all distribution channels and product lines
with investments (up 67%), savings (up 33%), and protection (up 25%) being
particularly strong.
Corporate Life
The continued strength of the Irish labour market, with high levels of
employment growth coupled with growth in salary and wage levels, provided very
favourable market conditions for the group's Corporate Life business in 2006.
New business sales were ahead 27% to Euro165m (2005: Euro130m), on an APE basis (29%
on a PVNBP basis), led in particular by growth in defined contribution
increments with sales of single premium pension products also strong.
Investment Management
ILIM generated new fund inflows of Euro1.9bln in 2006, an increase of 44% on 2005
(Euro1.3bln). This performance came on foot of continued excellent fund management
performance. As a result of these strong inflows group funds under management
increased 20% to Euro31.8bln from Euro26.4bln at 31 December 2006.
Capital and Liquidity
The group's capital and liquidity ratios remained strong at 31 December 2006.
In the bank, the Tier 1 and total capital ratios were 10.4% (31 December 2005:
12.6%) compared to a required ratio of 9.5% while the liquidity ratio within the
group's banking business was 26% (31 December 2005: 26%). The solvency margin
in Irish Life Assurance plc, the group's principal life assurance business, was
covered 1.8 times by available assets (31 December 2005 1.7 times).
Dividend
The directors have declared a final dividend of 47.9 cent per share. Subject to
shareholder approval the dividend will be paid on 23 May 2007 to shareholders on
the register as at 27 April 2007. The ex-dividend date is 25 April 2007. The
final dividend will bring the total dividend for the year to 68.0 cent, an
increase of 12.4% on the 2005 total dividend of 60.5 cent. The dividend is
covered 3 times by total profit (2.6 times at the operating level) and
represents an approximate yield of 3% on the basis of the share price at the end
of February 2007.
For further information contact:
Name Telephone No. Mobile No. Email address
Barry Walsh 353 1 7042678 087 681 8157 barry.walsh@irishlife.ie
David McCarthy 353 1 8563050 087 256 7292 david.mccarthy@irishlife.ie
Media:
Ray Gordon 353 1 6788099 087 241 7373 ray@mrpakinman.ie
Basis of Preparation - EV Basis financial information
Earnings generated by the group's life assurance operations are prepared in
accordance with the European Embedded Value (EEV) Principles issued in May 2004
by the European Chief Financial Officers' Forum. For businesses other than life
assurance, the results have been prepared based on the requirements of the IFRS
issued by the IASB and adopted by the EU.
IFRS 4 brings into force phase 1 of the International Accounting Standard
Board's ("IASB") insurance accounting project. In view of the phased
implementation of IFRS for insurance business, the group believes that
shareholders will continue to place considerable reliance on embedded value
information relating to the life assurance business as a whole. The statutory
financial information includes insurance contracts written in the life assurance
business, based on embedded value earnings, calculated using the EEV principles
developed by the European CFO forum. The methodology produces an Embedded Value
(EV) as a measure of the consolidated value of shareholders' interests in the
business covered by the EEV Principles. The EV basis financial information
extends these principles to investment contracts written in the life assurance
business.
For all business other than "covered business", the EV financial information
incorporates the same values and earnings included in the statutory financial
information, determined using the IFRS bases. The EV financial information also
reclassifies and summarises the information included in the statutory financial
information and restates policyholders liabilities in respect of own shares
consistent with the recognition of the asset.
The EEV Principles are applied to value "covered business" as defined by the
Principles. This includes individual and group life assurance and investment
contracts, pensions and annuity business written in Irish Life Assurance plc,
Irish Life International Limited and City of Westminster Assurance Company
Limited up to the date of its disposal, and the investment management business
written in Irish Life Investment Managers Limited.
In the EV financial information, the same valuation approach is applied to both
insurance and investment contracts within the covered business.
The Directors acknowledge their responsibility for the preparation of the
supplementary EV basis information.
Embedded Value
Embedded Value (EV) is the present value of shareholders' interests in the
earnings distributable from assets allocated to the covered business after
sufficient allowance is made according to the EEV Principles for the aggregate
risks in the covered business. The EV consists of the following components:
- free surplus allocated to the covered business
- required capital, less the cost of holding required capital
- present value of future shareholder cash flows from in-force
covered business (PVIF), including an appropriate deduction for the
time value of financial options and guarantees.
The value of future new business is excluded from the EV.
The cost of holding required capital is defined as the difference between the
amount of the required capital and the present value of future releases,
allowing for future investment returns, of that capital.
Free Surplus and Required Capital
Free surplus is defined as the market value of assets in the covered business
less supervisory liabilities less required capital. It is the market value of
any capital and surplus allocated to, but not required to support, the in-force
covered business at the valuation date.
The level of required capital reflects the amount of assets attributed to the
covered business in excess of that required to back regulatory liabilities whose
distribution to shareholders is restricted. The EEV Principles require this
level to be at least the level of solvency capital at which the local
supervisory authority is empowered to take action and any further amount that
may be encumbered by local supervisory restrictions. In light of this the
Directors have set the level of required capital to be 150% of the regulatory
minimum solvency margin requirement at the valuation date, including the
additional margin required under the Solvency 1 rules. The Directors consider
this to be a conservative level of capital to manage the covered business,
allowing for the supervisory basis for calculating liabilities, the insurance
and operational risks inherent in the underlying products and the methods used
to value financial options and guarantees included in those products.
New Business
New business premiums reflect income arising from the sale of new contracts
during the reporting period. Increases to premiums that are generated by
policyholders at their discretion are included in new business as they occur.
Increases to renewal premiums on group pension contracts are treated as new
business premiums.
The new business contribution is the present value of future shareholder
cashflows arising from the new business premiums written in the period less a
deduction if relevant for the time value of financial options and guarantees.
The contribution makes full allowance for the associated amount of required
capital and includes the value of expected renewals on new contracts.
The EEV Principles require a measure of the present value of future new business
premiums (PVNBP) to be calculated and expressed at the point of sale. The PVNBP
is equivalent to the total single premiums plus the discounted value of regular
premiums expected to be received over the term of the contracts using the same
economic and operating assumptions used for calculating the new business
contribution. The new business margin reported under EEV is defined as the
ratio of the new business contribution to PVNBP.
Projection Assumptions
Projections of future shareholder cash flows expected to emerge from covered
business are determined using realistic assumptions for each component of cash
flow and for each policy group. Future economic and investment return
assumptions are based on period end conditions. The assumed discount and
inflation rates are consistent with the investment return assumptions.
The assumptions for demographic elements, including mortality, morbidity,
persistency and expense experiences, reflect recent operating experiences and
are reviewed annually. Allowance is made for future improvements in annuitant
mortality based on experience and externally published data. Favourable changes
in operating experience are not anticipated until the improvement in experience
has been observed.
All costs relating to the covered business are allocated to that business. The
expense assumptions used for the projections therefore include the full cost of
servicing the business. The costs include future depreciation charges in
respect of certain property and equipment included in the free surplus. Certain
group costs allocated to the life company are not included within the cash flow
projections and are accounted for on an annual basis in the other group results.
Risk Discount Rate
The risk discount rate is a combination of a base risk-free rate and a risk
margin, which reflects the residual risks inherent in the covered business,
after taking account of prudential margins in the supervisory liabilities, the
required capital and the specific allowance for financial options and
guarantees.
The Group has adopted a bottom-up approach to the determination of the risk
discount rate. Each element of risk is assessed in turn and a cost is reflected
as an addition to the base risk-free discount rate. The risk discount rate
derived in this way reflects the risk of volatility associated with the cash
flows in the embedded value model.
The key assumptions are set out in note 15.
The market risk margin neutralises the effect of assuming future investment
returns in excess of the base risk-free rate.
The non-market risk margin is based on an estimate of the impact of each of the
following risks - mismatch risk, credit risk, demographic risks including
mortality, morbidity, persistency and expense risks, operational risk and
liquidity risk.
An allowance is made for the diversification effect in that each of the risks is
not expected to occur simultaneously. Financial options and guarantees are
explicitly valued using a market-consistent approach and no further risk
allowance is included for these in the risk discount rate. The non-market risk
margin was determined by the Directors following a review of the estimates
emerging from the above exercise.
Financial Options and Guarantees
Under the EEV Principles an allowance for the time value of financial options
and guarantees ("FOG") is required where a financial option exists which is
exercisable at the discretion of the policyholder. The time value of an option
reflects the additional value inherent in the option due to the potential for
the option to increase in value prior to its expiry date, usually due to
movements in the market value of assets. The value of an option based on market
conditions at the date of the valuation is referred to as the intrinsic value.
Allowance is made for the intrinsic value of FOGs in the supervisory liabilities
and the cost is reflected in the PVIF. An explicit deduction is made to the
PVIF to allow for the impact of future variability of investment returns on the
cost of FOGs (time value). The time value of FOGs is calculated using
stochastic models calibrated on a market consistent basis.
The main financial options and guarantees and the assumptions used to value them
are described in note 15.
Service Companies
All services relating to the covered business are charged on a cost recovery
basis.
Tax
The projections include on a discounted basis all tax that is expected to be
paid under covered business under current legislation, including tax that would
arise if surplus assets within the covered business were eventually to be
distributed.
Analysis of Profit
The profit from the covered business is analysed into three main components:
* New business contribution
The contribution from new business written in the period is calculated as at the
point of sale using assumptions applicable at the start of the period. This is
then rolled forward to the end of the financial period using the risk discount
rate applicable at the start of the reporting period.
* Profit from existing in-force business
The profit from existing business is calculated using opening assumptions and
comprises:
- Interest at the risk discount rate on the value of in-force business
allowing for the timing of cash-flows ("expected return");
- Experience variances: when calculating embedded values it is necessary to
make assumptions regarding future experiences including persistency (how long
policies will stay in force), risk (mortality and morbidity), future expenses
and taxation. Actual experience may differ from these assumptions. The impact
of the difference between actual and assumed experience for the period is
reported as experience variances;
- Operating assumption changes: the assumptions on which embedded values
are calculated are reviewed regularly. Where it is considered appropriate in
the light of current or expected experience to change any assumptions regarding
expected future experience, the impact on total value of in-force business of
any such change is reported as an "operating assumption change".
* Expected investment return
The expected investment earnings on the net assets attributable to shareholders
are calculated using the future investment return assumed at the start of the
period.
Two further items make up the total profit arising from the covered
business:
* Short term investment fluctuations
This is the impact on the EV of differences between the actual investment return
and the expected investment return assumptions assumed at the start of the
period.
* Effect of economic assumption changes
This is the impact on the EV of changes in external economic conditions
including the effect changes in interest rates have on risk discount rates and
future investment return assumptions.
Consolidated Income Statement
- Embedded Value Basis
Year ended 31 December 2006
Notes 2006 2005
Eurom Eurom
Operating profit on
continuing operations
Insurance & investment 274 222
business
Banking 202 148
Other (2) (4)
474 366
Share of associate / joint 55 54
venture
Operating profit before tax 1 529 420
on continuing operations
Short-term investment 101 94
fluctuations
Effect of economic assumption (38) 13
changes
Other credits 2 - 4
Profit before tax 592 531
Taxation 5 (28) (28)
Profit for the year on 564 503
continuing operations
(Loss)/profit after tax on 3 - (26)
discontinued operations
Profit for the year 564 477
Attributable to
Equityholders 561 475
Minority interest 3 2
564 477
Earnings per share including
own shares held for the
benefit of
life assurance policyholders 13 204.9 175.7
(cent)
Operating earnings per share 13 177.9 135.4
including own shares held for
the
benefit of life assurance
policyholders (cent)
Consolidated Balance Sheet - Embedded Value Basis
As at 31 December 2006
2006 2005
Notes Eurom Eurom
Assets
Cash and other receivables 380 299
Investments 29,192 24,104
Loans and receivables to banks 8,429 6,421
Loans and receivables to customers 11 33,732 26,340
Interest in associated undertaking/joint 174 167
venture
Reinsurance assets 1,991 2,023
Shareholder value of in-force business 1,354 1,103
Net post retirement benefit asset 73 71
Goodwill and intangible assets 261 258
Property and equipment 486 404
Other debtors and prepayments 543 426
Total assets 76,615 61,616
Liabilities
Customer accounts 13,643 12,808
Deposits by banks 5,526 2,281
Debt securities in issue 18,432 15,226
Non-recourse funding 3,813 2,232
Derivative liabilities 610 359
Insurance contract liabilities 4,073 4,082
Investment contract liabilities 24,728 19,806
Outstanding insurance and investment 124 110
claims
Net post retirement benefit liability 159 158
Deferred taxation 50 25
Other liabilities and accruals 851 404
Subordinated liabilities 1,391 1,385
Total liabilities 73,400 58,876
Equity
Share capital 88 87
Share premium 116 74
Retained earnings 2,799 2,440
Capital reserves 274 203
Own shares held for the benefit of life assurance (78) (76)
policyholders
Shareholders' equity 7 3,199 2,728
Minority interest 16 12
Total equity 3,215 2,740
Total liabilities and equity 76,615 61,616
Consolidated Statement of Recognised Income and Expense - Embedded Value Basis
Year ended 31 December 2006
2006 2005
Eurom Eurom
Revaluation of property and equipment 44 71
Share of associate revaluation reserve 7
Change in value of available for sale financial assets 2 -
Deferred tax (8) (12)
Net amount recognised directly in equity 45 59
Profit for the year 564 477
Total recognised income and expense for the year 609 536
Attributable to
Equityholders 605 534
Minority interest 4 2
609 536
Consolidated Reconciliation of Shareholders' Equity - Embedded Value Basis
Year ended 31 December 2006
2006 2005
Eurom Eurom
Shareholders' equity at 1 January 2,728 2,329
Income and expense attributable to equityholders 605 534
Movement in cost of own shares held for the benefit of life (2) (12)
assurance policyholders
Dividends paid (173) (152)
Issue of share capital 43 23
Change in share based payment reserves 2 6
Purchase of treasury shares (4) -
Shareholders' equity at 31 December 3,199 2,728
Notes to the 2006 EV basis financial information
Year ended 31 December 2006
1. Operating Profit before tax
2006 2005
Eurom Eurom
Insurance & investment business
New business contribution 128 94
Profit from existing business
- Expected return 89 74
- Experience variances 14 15
- Operating assumption changes 17 27
Development expenditure - (8)
Expected investment return 26 20
Operating profit before tax 274 222
Banking
Net interest income 429 377
Non-interest income 45 40
Trading Income/(expense) 12 (4)
486 413
Administrative expenses including depreciation (273) (255)
Impairment losses on loans and receivables (14) (12)
199 146
Investment return 3 13
Restructuring costs - (11)
Operating profit before tax 202 148
Other activities
Non-interest income 56 46
Administrative expenses including depreciation (58) (50)
Operating loss before tax (2) (4)
Share of associate / joint venture 55 54
Total operating profit 529 420
2. Other Credits
Disposal of property and equipment
In 2005 the group disposed of a number of properties occupied by the group and realised a
profit before tax of Euro4m.
3. Discontinued Operations
On 2 June 2005 the group disposed of its UK life assurance subsidiary City of Westminster
Assurance Company Limited. The net proceeds were Euro63m, this compares to a carrying value at
date of disposal of Euro91m. The results for the period to disposal (profit of Euro2m) together with
the loss on disposal are shown in the income statement as discontinued operations.
Notes to the 2006 EV basis financial information
Year ended 31 December 2006
4. Life and investment new business
Life business (continuing operations)
2006 2005
Eurom Eurom
Present value of new business premiums (PVNBP)
Single premium 2,034 1,313
Regular premium 312 255
Regular premium capitalisation factor 4.6 4.9
PVNBP 3,482 2,571
Annual Premium Equivalent (APE) 516 388
New business contribution 106 79
New business margin
PVNBP 3.1% 3.1%
APE 20.6% 20.4%
ILIM
Present value of new business premiums (PVNBP) 1,901 1,319
Annual Premium Equivalent (APE) 190 132
New business contribution 22 15
New business margin
PVNBP 1.1% 1.1%
APE 11.4% 11.4%
Total new business
Present value of new business premiums (PVNBP) 5,383 3,890
Annual Premium Equivalent (APE) 706 520
New business contribution 128 94
New business margin
PVNBP 2.4% 2.4%
APE 18.1% 18.1%
Notes to the 2006 EV basis financial information
Year ended 31 December 2006
5. Taxation
2006 2005
Eurom Eurom
Life operations
Operating profit (13) (16)
Short term investment fluctuations 15 31
Effect of economic assumptions changes (1) (5)
1 10
Banking operating profit (30) (26)
Other operations 1 -
(28) (16)
Government levy on financial institutions - (12)
(28) (28)
6. Analysis of profit after tax on continuing activities
Year to 31 December 2006
Gross Tax Net
Eurom Eurom Eurom
Operating profit
Insurance and investment business 274 (13) 261
Banking 202 (30) 172
Other (2) 1 (1)
Share of associate / joint venture 55 - 55
529 (42) 487
Short term investment fluctuations 101 15 116
Effect of economic assumption changes (38) (1) (39)
592 (28) 564
Notes to the 2006 EV basis financial information
Year ended 31 December 2006
7. Shareholders' Equity
2006 2005
Eurom Eurom
Insurance and investment business 2,101 1,853
Banking 775 561
Other activities 36 37
Associate undertaking / joint venture 174 167
Goodwill 207 198
3,293 2,816
Minority interest (16) (12)
Deduction in respect of own shares held for the (78) (76)
benefit
of life assurance policyholders
Shareholders' equity 3,199 2,728
Investment and insurance assets are analysed as follows
2006 2005
Eurom Eurom
Property 163 80
Equities 13 10
Debt securities 29 4
Deposits 566 613
Other assets and liabilities (24) 43
747 750
Shareholders' value of in-force business 1,354 1,103
2,101 1,853
Analysis of movement in shareholders' equity attributable to insurance and investment business
Year ended 31 December 2006
Net Worth VIF Total
Eurom Eurom Eurom
Shareholders' equity as at 1 January 2006 750 1,103 1,853
Operating profit after tax on continuing operations 40 221 261
Short term investment fluctuations 53 63 116
Effect of economic assumption changes (6) (33) (39)
Capital movements (90) - (90)
Shareholders' equity as at 31 December 2006 747 1,354 2,101
The shareholders' equity as at 31 December 2006 (2005) includes
required capital of Euro560m (Euro535m) within the net worth. The
shareholders' value of in-force is net of a deduction of Euro120m
(Euro123m) in respect of the cost of maintaining the required capital
and net of a deduction of Euro28m (Euro31m)in respect of the time
value of financial option and guarantee costs.
Notes to the 2006 EV basis financial information
Year ended 31 December 2006
7. Shareholders' Equity (continued)
Analysis of insurance and investment operating profit after tax
Year ended 31 December 2006
Net Worth VIF Total
Eurom Eurom Eurom
New business contribution (164) 271 107
Profit from existing business
- Expected return 185 (98) 87
- Experience variances (3) 18 15
- Operating assumption changes (1) 30 29
- Expected investment return 23 - 23
Operating profit after tax 40 221 261
8. Interest receivable and similar income
2006 2005
Eurom Eurom
Loans and receivables to customers 875 771
Loans and receivables to banks 482 113
Debt securities and other fixed income securities 184 89
Lease and instalment finance 81 67
1,622 1,040
Inter-group charges eliminated on consolidation (17) (8)
1,605 1,032
9. Management expenses
2006 2005
Eurom Eurom
Administrative expenses 497 470
Depreciation 28 25
Software amortisation 15 15
540 510
Analysed as follows
Banking operations
Operational 273 255
Restructuring costs - 11
Life and investment operations
Administrative 209 186
Development expenditure - 8
Other operations (includes corporate costs) 58 50
540 510
Notes to the 2006 EV basis financial information
Year ended 31 December 2006
10. Provision for impairment of loans and receivables
2006 2005
Eurom Eurom
At 1 January 52 46
Charged against income statement 14 12
Amounts written off (9) (6)
At 31 December 57 52
At 31 December
Specific 36 32
Collective 21 20
57 52
11. Loans and receivables to customers
2006 2005
Eurom Eurom
Residential mortgage loans 29,986 23,194
Commercial mortgage loans 1,862 1,420
Finance lease, instalment finance and term loans 1,977 1,658
33,825 26,272
Money market funds 161 150
Deferred fees, discounts and fair value adjustments 171 155
34,157 26,577
Provision for impairment of loans and receivables (57) (52)
Inter-group loans and receivables (368) (185)
33,732 26,340
12. Funds under management
2006 2005
Eurom Eurom
Funds managed on behalf of unit-linked policyholders 25,269 20,084
Funds managed on behalf of non-linked policyholders 2,384 2,559
27,653 22,643
Off-balance sheet funds 4,182 3,791
31,835 26,434
Notes to the 2006 EV basis financial information
Year ended 31 December 2006
13. Earnings per share
As permitted under Irish Legislation the group's life assurance subsidiary holds shares in
Irish Life & Permanent plc for the benefit of policyholders. Under accounting standards
these are required to be deducted from the total number of shares in issue when
calculating EPS. In view of the fact that Irish Life & Permanent plc does not hold the
shares for its own benefit, EPS based on a weighted average number of shares in issue is
disclosed. The calculation is set out below
2006 2005
Weighted average ordinary shares in issue and ranking 266,144,143 262,813,871
for dividend excluding own shares held for the
benefit of life assurance policyholders
Weighted average ordinary shares held for the benefit 7,677,528 7,524,588
of life assurance policyholders
Weighted average ordinary shares in issue and ranking
for dividend including own shares held for the 273,821,671 270,338,459
benefit of life assurance policyholders
Profit for the year attributable to equityholders Euro561m Euro475m
EPS including own shares held for the benefit of life
assurance policyholders 204.9 cent 175.7 cent
Operating profit after tax for the year attributable to Euro487m Euro366m
equityholders
Operating EPS including own shares held for the
benefit of life assurance policyholders 177.9 cent 135.4 cent
Notes to the 2006 EV basis financial information
Year ended 31 December 2006
14 Reconciliation of shareholders' equity on Statutory basis to EV basis
As at 31 December 2006 Net worth VIF Total
Eurom Eurom Eurom
Statutory shareholders' equity excluding minority interest 1,722 663 2,385
as at 31 December 2006
Change insurance shareholder value of in-force to post tax 118 (118) -
Shareholder value of in-force on investment contracts - 808 808
Changes in presentation of cost of FOGs 20 (20) -
Deferred front end fees on investment contracts 142 - 142
Deferred acquisition costs on investment contracts (203) - (203)
Restatement of investment liabilities to regulatory basis (39) - (39)
Unwind own shares statutory adjustment 81 18 81
Change in the basis of deferred tax provisioning 5 23
Deferred tax on above adjustments 2 - 2
EV basis shareholders' equity excluding minority interest 1,848 1,351 3,199
as at 31 December 2006
As at 31 December 2005 Net worth VIF Total
Eurom Eurom Eurom
Statutory shareholders' equity excluding minority interest 1,529 546 2,075
as at 31 December 2005
Change insurance shareholder value of in-force to post tax 89 (89) 0
Shareholder value of in-force on investment contracts - 681 681
Changes in presentation of cost of FOGs 24 (24) 0
Deferred front end fees on investment contracts 153 - 153
Deferred acquisition costs on investment contracts (176) - (176)
Restatement of investment liabilities to regulatory (72) - (72)
basis
Unwind own shares statutory adjustment 62 - 62
Change in the basis of deferred tax provisioning 7 (14) (7)
Deferred tax on above adjustments 12 - 12
EV basis shareholders' equity excluding minority interest 1,628 1,100 2,728
as at 31 December 2005
Notes to the 2006 EV basis financial information
Year ended 31 December 2006
15. EV Assumptions
Principal economic assumptions
The assumed future pre-tax returns on fixed interest securities are set by reference to gross
redemption yields available in the market at the end of the reporting period. The corresponding
return on equities and property is equal to the fixed interest gilt assumption plus the
appropriate risk premium. An asset mix based on the assets held at the valuation date within
policyholder funds has been assumed within the projections.
31 December 31 December 31 December
2006 2005 2004
Equity risk premium 3.0% 3.0% 3.0%
Property risk premium 2.0% 2.0% 2.0%
Risk free rate 3.9% 3.2% 3.5%
Investment return
- Fixed interest 3.5% - 4.6% 2.5% - 3.6% 2.5% - 4.2%
- Equities 6.9% 6.2% 6.5%
- Property 5.9% 5.2% 5.5%
Risk margin 3.5% 3.3% 3.2%
Risk discount rate 7.4% 6.5% 6.7%
Expense inflation 4.1% 3.6% 3.6%
Other assumptions
The assumed future mortality, morbidity and persistency assumptions are based on published tables
of rates, adjusted by analyses of recent operating experience.
The management expenses attributable to life assurance business have been analysed between
expenses relating to the acquisition of new business and the maintenance of business in-force. No
allowance has been made for future productivity improvements in the expense assumptions.
Projected tax has been determined assuming current tax legislation and rates.
EEV results are computed on a before and after tax basis.
Treatment of financial options and guarantees (FOGs)
The main options and guarantees for which FOG costs have been determined are:
(a) Investment guarantees on certain unit-linked funds, where the unit returns to policyholders
are smoothed subject to a minimum guaranteed return (in the majority of cases the minimum
guaranteed change in unit price is 0%, usually representing a minimum return of the
original premium). An additional management charge is levied on policyholders investing in
these funds, compared to similar unit-linked funds without this investment guarantee. This
extra charge is allowed for in calculating the FOG cost;
(b) Guaranteed Annuity Rates on a small number of products;
(c) Return of Premium death guarantees on certain unit-linked single premium products;
(d) Guaranteed benefits for policies in the closed with-profit fund.
The main asset classes relating to products with options and guarantees are European and
International equities, Property, and government bonds of various durations.
The Deloitte's TSM Streamline Market Consistent model is used to derive the cost of FOGs. The
model is calibrated to the yield curve and to the market prices of equity options. Ten years of
historical weekly data are used to derive the correlation between the returns of different asset
classes.
The model uses the difference between two inverse Gaussian distributions to model the returns on
each asset class. This allows the model to produce fat-tailed distributions, and provides a good
fit to historical asset return distributions.
The statistics relating to the model used as at 31st December 2006 are set out in the following
table:
10-Year Return 20-Year Return
Mean1 StDev2 Mean StDev
European Assets (euro)
Bonds 4.0% 1.8% 4.13% 4.0%
Equities, Property 4.0% 18.7% 4.13% 19.1%
UK Assets (Sterling)
Bonds 4.75% 2.2% 4.35% 4.7%
Equities 4.75% 17.5% 4.35% 18.7%
1. The Market Consistent nature of the model means that that all asset classes earn the risk free
rate. No value is added by investing in riskier assets with a higher expected rate of return.
The Means quoted above reflect this.
2. Standard Deviations are calculated by accumulating a unit investment for n years in each
simulation, taking the natural logarithm of the result, calculating the variance of this
statistic, dividing by n and taking the square root. The results are comparable to implied
volatilities quoted in investment markets.
16. Sensitivity calculations
A number of sensitivities have been produced on alternative assumption sets to
reflect the sensitivity of the continuing operations embedded value and the
continuing operations new business contribution to changes in key assumptions.
The details of each sensitivity are set out below:
- 1% variation in discount rate - a one percentage point increase/
decrease in the risk margin has been assumed in each case (meaning a 1% increase
in the risk margin at end 2006 would result in a 4.5% risk margin and an 8.4%
risk discount rate).
- 1% increase in equity/property yields - a one percentage point
increase in the equity/property assumed investment returns, excluding any
related changes to risk discount rates or valuation bases, has been assumed
(meaning a 1% increase in equity returns would increase assumed total equity
returns from 6.9% to 7.9%).
- 10% decrease in equity/property values - a ten percentage point
decrease in the market value of equity/property assets, including any related
changes to valuation reserves and life shareholder net assets. Therefore this
sensitivity includes the effect on the life net worth.
- 10% decrease in maintenance expenses, excluding any related
changes to valuation expense bases and to potentially reviewable policy fees
(meaning a 10% reduction on a base assumption of Euro10 per annum would result in a
Euro9 per annum expense assumption).
- 10% improvement in assumed persistency rates, incorporating a 10%
reduction in lapse, surrender and premium cessation assumptions (meaning a 10%
reduction on a base assumption of 7% would result in a 6.3% lapse assumption).
- 5% decrease in both mortality and morbidity rates, excluding any
related changes to valuation bases or potentially reviewable risk charging bases
(meaning if base experienced mortality is 90% of a standard mortality table then
for this sensitivity the assumption is set to 85.5% of the standard table).
The sensitivities allow for any material impact on the cost of financial options
and guarantees caused by the changed assumption.
(a) Economic Assumptions
As issued 1% higher risk 1% lower risk
EV discount rate discount rate
Eurom Eurom Eurom
Effect on embedded value at 31 December 2006 2,101 (114) 128
Effect on 2006 new business contribution 128 (23) 27
(b) Market Sensitivities - equity/property yields
As issued 1% higher equity/
EV property yields
Eurom Eurom
Effect on embedded value at 31 December 2,101 56
2006
Effect on 2006 new business contribution 128 9
(c) Market Sensitivities - equity/property values
As issued 10% decrease in
equity/ property
EV values
Eurom Eurom
Effect on embedded value at 31 December 2006 2,101 (95)
(d) Operational Assumptions
10% 5%
10% decrease decrease
decrease in in assumed in mortality
As issued maintenance persistency & morbidity
EV expenses rates rates
Eurom Eurom Eurom Eurom
Effect on embedded value at 31 December 2006 2,101 49 64 15
Effect on 2006 new business contribution 128 10 16 2
Statutory Basis
Commentary on Statutory Results
Statutory profits after tax, attributable to equityholders, on continuing
activities for 2006 are Euro358m, an increase of Euro5m (1%) on 2005.
The EV information set out on pages 16 to 28 employs the embedded value
methodology for all of the group's insurance and investment business. The
statutory results use embedded value for insurance contracts only, with
investment contracts being accounted under IFRS. Banking and other businesses
are accounted for under the same basis in both statutory and EV results.
The statutory basis profits include the effects of economic variances on the
insurance business. These were negative Euro19m in 2006 compared to a positive
return of Euro11m in 2005, a negative change of Euro30m.
The 2006 outcome includes a charge of Euro28m (2005: Euro28m) in respect of the uplift
in the value of Irish Life & Permanent shares held for the benefit of
policyholders and also includes a charge of Euro10m (2005: Euro2m) in respect of the
uplift in the value of owner occupied buildings held for the benefit of
policyholders. These uplifts increase policyholder liabilities but under IFRS
the corresponding increase in the asset is not recognised in the income
statement.
The after tax profit on continuing operations reflects strong new business
growth in both the banking and life businesses combined with tight cost control.
In the banking business total loan balances outstanding increased 28% to
Euro33.7bln (Dec 2005: Euro26.3bln) with total new loans issued of Euro12.9bln (2005:
Euro9.8bln).
In the life business new business written (including fund flows into ILIM) on an
APE basis increased by 36% to Euro706m (2005: Euro520m). Gross inflows into ILIM were
Euro1.9bln compared to Euro1.3bln in 2005. The group enjoyed significant growth in
new business on both insurance and investment contracts which is reflected in
the 21% growth in premiums on insurance contracts from Euro484m in 2005 to Euro584m in
2006. However the growth in new business experienced on the investment contracts
resulted in a negative new business contribution of Euro6m in the reported 2006
statutory profits, compared to Euro2m profit in 2005.
The change in insurance contract liabilities shows a reduction of Euro10m compared
to an increase of Euro419m in 2005. This is mainly due to an increase in medium to
long-term Euro interest rates and is compensated by a corresponding reduction in
the investment return. The change in investment contract liabilities has
decreased 15% to Euro2,672m (2005: Euro3,134m) due to lower market growth in 2006
compared to 2005. Both of these effects are reflected in the reduction in the
investment return which was Euro2,813m in 2006 compared to Euro3,527m in 2005.
Administrative expenses increased 6% to Euro497m from Euro470m in 2005. This
principally reflects the increase in costs associated with the buoyant new
business issued.
The post-tax profits achieved in Allianz, a general insurance business in which
the group has a 30% interest, were Euro56m, compared to Euro54m in 2005 with growth in
underwriting profits, which included prior year reserve releases, offsetting a
reduction in the investment returns on the company's bond portfolio as a
consequence of weak bond markets during the year.
Under IFRS the effective tax rate is distorted by the inclusion of additional
tax paid by policyholders. The tax charge in 2006 was Euro80m compared to Euro69m in
2005.
The 2005 outcome includes an after tax gain of Euro1m incurred in the disposal of
City of Westminster Assurance, a closed book of life business in the UK. No
similar disposals occurred in 2006.
Statutory Financial Information
Basis of Preparation
The 2006 statutory results financial information on pages 34 to 40 has been
prepared using the accounting policies adopted by the group in its last set of
consolidated financial statements. These statutory results are prepared in
accordance with International Financial Reporting Standards issued by the
International Accounting Standards Board (IASB) and adopted by the EU which
apply at 31 December 2006.
IFRS 4 brings into force phase 1 of the International Accounting Standard
Board's insurance accounting project. In view of the phased implementation of
IFRS for insurance business, the group believes that shareholders will continue
to place considerable reliance on embedded value information relating to the
life assurance business. The statutory financial information includes insurance
contracts written in the life assurance business based on embedded value
earnings calculated using the EEV principles developed by the European CFO
forum. The EV basis financial information on pages 16 to 28 extends these
principles to investment contracts written in the life assurance business.
The 2006 statutory results financial information has been prepared on a
consistent basis with 31 December 2005 financial statements.
Estimates and assumptions
Certain amounts recorded include estimates and assumptions made by management
about insurance liability reserves, investment valuations, interest rates,
demographic and other factors. Actual results may differ from the estimates
made.
Consolidated Income Statement - Statutory Basis
Year ended 31 December 2006
2006 2005
Notes Eurom Eurom
Interest receivable 1,605 1,032
Interest payable (1,193) (666)
412 366
Fees and commission income 75 63
Fees and commission expenses (97) (73)
Net trading income / (expense) 12 (4)
Premiums on insurance contracts 584 484
Reinsurers' share of premiums on insurance contracts (204) (159)
Investment return 2,813 3,527
Fees from investment contracts and fund management 247 218
Change in shareholders' value of in-force business 117 76
Profit on the sale of property and equipment - 4
Operating income 3,959 4,502
Claims on insurance contracts (410) (383)
Reinsurers' share of claims on insurance contracts 117 108
Change in insurance contract liabilities 10 (419)
Change in reinsurer's share of insurance contracts (36) 231
liabilities
Change in investment contract liabilities (2,672) (3,134)
Administrative expenses (497) (470)
Depreciation and amortisation
Property and equipment (28) (25)
Intangible assets - software (15) (15)
Investment expenses (28) (16)
Impairment losses on loans and advances (14) (12)
Operating expenses (3,573) (4,135)
Operating profit 386 367
Share of profits of associated undertaking / joint 55 54
venture
Profit before taxation on continuing activities 441 421
Taxation (80) (69)
Profit for the year on continuing activities 361 352
Profit from discontinued activities - 1
Profit for the year 361 353
Attributable to
Equityholders 358 353
Minority interest 3 -
361 353
Earnings per share (basic) Cent Cent
Continuing activities 134.5 133.9
Discontinued activities - 0.4
2 134.5 134.3
Earnings per share (diluted)
Continuing activities 132.9 132.9
Discontinued activities - 0.4
2 132.9 133.3
Consolidated Balance Sheet - Statutory Basis
As at 31 December 2006
2006 2005
Notes Eurom Eurom
Assets
Cash and balances with central banks 228 162
Items in course of collection 152 137
Financial assets
- Debt securities 9,051 8,530
- Equity shares and units in unit trusts 15,985 12,782
- Derivative assets 816 493
- Loans and receivables to customers 33,732 26,340
Loans and receivables to banks 8,429 6,421
Investment properties 3,340 2,300
Reinsurance assets 1,991 2,023
Prepayments and accrued income 358 341
Interest in associated undertaking/joint venture 174 167
Property and equipment 486 404
Shareholder value of -inforce business 663 546
Goodwill and intangible assets 261 258
Deferred acquisition costs 212 182
Net post retirement benefit asset 73 71
Other assets 185 85
Total assets 76,136 61,242
Liabilities
Financial liabilities
- Deposits by banks 5,526 2,281
- Customer accounts 13,643 12,808
- Debt securities in issue 18,432 15,226
- Non-recourse funding 3,813 2,232
- Derivative liabilities 610 359
- Investment contract liabilities 24,797 19,798
Insurance contract liabilities 4,073 4,082
Outstanding insurance and investment claims 124 110
Accruals and deferred income 379 167
Other liabilities 435 203
Current tax liabilities 37 34
Deferred tax liabilities 172 157
Net post retirement benefit liability 159 158
Deferred front end fees 148 159
Subordinated liabilities 1,391 1,385
73,739 59,159
Equity
Share capital 88 87
Share premium 116 74
Retained earnings 1,908 1,711
Other reserves 273 203
Equity excluding minority interest 3 2,385 2,075
Minority interest 12 8
Equity including minority interest 2,397 2,083
Total liabilities and equity 76,136 61,242
Consolidated Statement of Recognised Income and Expense - Statutory Basis
Year ended 31 December 2006
Notes 2006 2005
Eurom Eurom
Revaluation of property and equipment 82 86
Share of associate revaluation reserve 7
Change in value of available for sale financial assets 2 -
Deferred tax (12) (12)
Net amount recognised directly in equity 79 74
Profit for the year 361 353
Total recognised income and expense for the year 440 427
Transition adjustment at 1 January 2005 arising from IAS 1 - (356)
32, IAS 39 and IFRS 4
Total recognised income and expense for the year 440 71
including transition adjustment
Attributable to :
Equityholders 436 74
Minority interest 4 (3)
Total recognised income and expense for the year 440 71
including transition adjustment
Consolidated Condensed Statutory Cashflow Statement
Year ended 31 December 2006
2006 2005
Eurom Eurom
Net cashflow inflow / (outflow) from operating activities 930 (397)
Investing activities
Purchase of property and equipment (34) (35)
Sale of property and equipment 6 15
Purchase of intangible assets (8) (23)
Sale of City of Westminster Assurance Company Limited - 63
Acquisition of subsidiary (4) -
Investment in joint venture (1) -
Dividends received from associated undertaking 56 23
Net cashflow from investing activities 15 43
Financing activities
Issue of ordinary share capital 43 23
Purchase of treasury shares (4) -
Issue of new subordinated liabilities 51 392
Interest paid on subordinated liabilities (63) (48)
Equity dividends paid (173) (152)
Net cashflow from financing activities (146) 215
Increase / (decrease) in cash 799 (139)
Analysis of changes in cash and cash equivalents
Cash and cash equivalents at 1 January 556 694
Net cashflow before the effect of exchange translation 799 (139)
adjustments
Effect of exchange translation adjustments - 1
Cash and cash equivalents at 31 December 1,355 556
Notes to the 2006 Statutory Basis Financial Information
Year ended 31 December 2006
1. Reconciliation of Opening Shareholders Equity
The group adopted IAS 32, IAS 39, and IFRS 4 with effect from 1 January 2005.
The impact on the opening shareholders equity of these changes is as follows
Eurom
Shareholders' equity at 31 December 2004 2,136
IAS 39
Impairment provisions 50
Effective yield 77
Available for sale 3
130
IFRS 4
Deferred acquisition costs 182
Deferred front end fees (203)
Shareholders' value of in-force business on investment (619)
contracts
Other reserve changes 67
Deferred Tax 87
(486)
Minority share of IFRS adjustments 3
Shareholders' equity at 1 January 2005 1,783
Notes to the 2006 Statutory Basis Financial Information
Year ended 31 December 2006
2. Earnings per share
2006 2005
(a) Basic EPS
Weighted average ordinary shares in issue and 266,144,143 262,813,871
ranking for dividend
Profit for the year attributable to equityholders
Continuing operations Euro358m Euro352m
Discontinued operations - Euro1m
Total Euro358m Euro353m
EPS (cent)
Continuing operations 134.5 133.9
Discontinued operations - 0.4
Total 134.5 134.3
(b) Fully diluted EPS
Weighted average of potential dilutive ordinary 3,175,396 2,071,187
shares
arising from the group's share option schemes
Weighted average number of ordinary shares used in 269,319,539 264,885,058
the calculation of fully diluted EPS
Fully diluted EPS (cent)
Continuing operations 132.9 132.9
Discontinued operations - 0.4
Total 132.9 133.3
Notes to the 2006 Statutory Basis Financial Information
Year ended 31 December 2006
3. Reconciliation of movement in capital and reserves
Share Share Re-valuation Available Other Revenue Total Minority Total
capital premium reserve for sale capital reserves excluding interest including
reserve reserves minority minority
interest interest
As start of year 87 74 189 (1) 15 1,711 2,075 8 2,083
Issue of share capital 1 42 - - - - 43 - 43
Profit for the year - - - - - 358 358 3 361
Revaluation gains - - 71 - - 5 76 1 77
(incl tax)
Change in value of - - - 2 - - 2 - 2
available for sale
financial assets
Transfer between - - - - (1) 1 - - -
reserves
Change in cost of own - - - - - 6 6 - 6
shares at cost
Purchase of treasury - - - - (4) - (4) - (4)
shares
Equity settled - - - - 2 - 2 - 2
transactions
Dividends paid - - - - - (173) (173) - (173)
As at end of year 88 116 260 1 12 1,908 2,385 12 2,397
28 February 2007
--------------------------
* including securitised mortgages
1 APE sales are calculated as the value of annual regular premiums plus 10% of
the value of single premiums.
2 PVNBP sales are calculated as total single premiums plus the discounted value
of regular premiums expected to be received over the term of the contracts.
This information is provided by RNS
The company news service from the London Stock Exchange
END
FR SEIFWWSWSEEE
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