Setting new standards - Friends Life

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FINANCIAL STATEMENTS IFRS FINANCIAL STATEMENTS EEV SUPPLEMENTARY INFORMATION Notes to the consolidated accounts continued 2. Use of estimates, assumptions and judgements continued This represents a change in accounting estimate from that used up to 30 June 2006, and has accelerated the amortisation of the remaining value of the assets from July 2006. The effect of this change is an increase of £2m in the amortisation charge in 2006, and £3m per annum in future periods until such time as the assets become fully amortised. With effect from 1 January 2007 the estimated useful lives of Institutional (non-fixed term) management contracts were revised to 4 years, following a further review by management. (ii) One-off basis change: FSA Policy Statement PS06/14 Prudential Changes for Insurers (PS06/14) Regulatory reserving rule changes arising from the adoption of the Prudential Requirements for Insurers (Amendment) instrument 2006 (2006/62) have been applied to the valuation of Life Protection Insurance contract liabilities, with the exception of Income Protection business and other protection business reinsured on a risk premium basis. Allowance is made for prudent lapse rate assumptions, reducing overall liabilities (previously such allowance was only made for with-profits business). Individual contracts may contribute a negative value, reducing overall liabilities (previously such contracts were recognised at zero value). Future margins are reduced as a result of the changes, impacting the carrying value of Deferred Acquisition Costs (DAC). The impact of partially adopting PS06/14, on profit before tax is an increase of £33m, arising from a reduction in liabilities to policyholders of £237m, a reduction in reinsurance assets of £126m, and a write-down in DAC of £78m. 3. Segmental information (a) Summary Segment information is presented in respect of the Group’s business and geographical segments. The primary reporting format, based on the Group’s management and internal reporting structure, is business segments. Inter-segment pricing is determined on an arm’s length basis. Segment results, assets, and liabilities, include items directly attributable to a segment, as well as those that can be allocated on a reasonable basis. Segment capital expenditure includes purchases of property and equipment, investment properties and intangible assets. Business segments (primary segment) The Group comprises the following main business segments: • UK Life & Pensions (including corporate items) • International Life & Pensions • Asset Management (including F&C’s Managed Pension Fund business) Geographical segments (secondary segment) In presenting information on the basis of geographical segments, segment revenue is based on the geographical location of customers. Segment assets are based on the geographical location of the assets. The Group has defined two geographical areas: • UK • Rest of the world (iii) One-off basis change: Morbidity Improved management of the PHI claims process has resulted in a considerable improvement in morbidity experience and as a consequence, a change has been made in the morbidity basis, increasing profit before tax, and reducing the liabilities to policyholders, by £123m in 2006. (iv) Actuarial Funding Capital units in respect of investment contract liabilities have previously been provided for based on the current value of units in the fund; this method has been changed to a ‘straight-line’ basis, bringing the treatment of capital units in line with the treatment of other front-end charges for investment contracts. The impact on profit before tax was an increase of £26m in 2006. 84 Friends Provident Annual Report & Accounts 2006
PARENT COMPANY ACCOUNTS ABBREVIATIONS AND DEFINITIONS Notes to the consolidated accounts continued 3. Segmental information continued (b) Business segment information (primary segment information) (i) Revenue and expenses Year ended 31 December 2006 International Elimination of UK Life & Life & Asset inter-segment Pensions Pensions Management amounts Total £m £m £m £m £m Gross earned premiums on insurance and investment contracts 3,709 2,769 199 - 6,677 Less investment contracts premiums (i) (2,741) (2,757) (199) - (5,697) Gross earned premiums 968 12 - - 980 Less premiums ceded to reinsurers (82) (2) - - (84) Net earned premiums 886 10 - - 896 Fee and commission income and income from service activities 148 198 258 (39) 565 Investment income 2,934 640 123 - 3,697 Total revenue 3,968 848 381 (39) 5,158 Net claims and benefits paid 1,542 2 - - 1,544 Movement in insurance and investment contracts liabilities 1,176 579 101 - 1,856 Transfer to fund for future appropriations 19 - - - 19 Movement in net assets attributable to unit holders 131 - - - 131 Acquisition expenses 329 72 11 - 412 Administrative and other expenses 240 130 287 (39) 618 Finance costs 72 15 1 - 88 Total claims, benefits and expenses 3,509 798 400 (39) 4,668 Share of profits of associates and joint venture 1 - - - 1 Profit before tax from continuing operations 460 50 (19) - 491 Policyholder tax (124) - - - (124) Shareholder tax 45 1 8 - 54 Segmental result after tax 381 51 (11) - 421 Inter segment revenue/(expense) (39) - 39 - - (i) Accounted for as deposits under IFRS Friends Provident Annual Report & Accounts 2006 85
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Setting new standards Friends Provi
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ANNUAL REVIEW CORPORATE GOVERNANCE
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Group financial highlights Group
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INTERNATIONAL LIFE & PENSIONS ASSET
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Friends Provident plc Pixham End Do
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