9th Mar 2005 07:03
Aviva PLC09 March 2005 PART 4 OF 4 Statistical supplement ----------------------------------------------------------------------------------------------------------------------Page 54 Segmental analysis of the components of life EEV operating return Full year 2004 £m Other UK France Ireland Italy Netherlands Poland Spain Europe International Total 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 expenses(1) 31 (2) (1) 2 (9) 5 - 1 1 28 Exceptional expenses(2) (153) - - - (12) - (1) (3) (1) (170) Mortality/Morbidity(3) 49 21 7 - 17 8 1 2 5 110 Lapses(4) (50) 5 (1) (5) (2) 5 2 (4) 6 (44) Other(5) 42 (2) - 3 18 - 2 - (2) 61 -------------------------------------------------------------------------------------- (81) 22 5 - 12 18 4 (4) 9 (15) - operating assumption changes: Maintenance expenses(6) 77 - (6) (3) - 14 3 1 4 90 Exceptional expenses(7) (34) (2) - - (72) - - - - (108) Mortality/Morbidity 2 - (2) 7 5 (2) - 1 (1) 10 Lapses(8) (110) - (16) (3) 9 - 1 1 (1) (119) Other(9) 7 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 one business service 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. ----------------------------------------------------------------------------------------------------------------------Page 55 Full year 2003 £m Other UK France Ireland Italy Netherlands Poland Spain Europe International Total New business contribution (after the effect of required capital) 212 39 26 27 29 3 122 (6) 22 474 Profit from existing business - expected return 335 104 29 27 146 51 32 17 20 761 - experience variances: Maintenance expenses (8) 1 (3) (1) (1) 4 1 (3) - (10) Exceptional expenses(1) (63) (12) - (1) (35) - (4) 1 (2) (116) Mortality/Morbidity(2) 22 14 3 3 (3) 7 2 2 4 54 Lapses(3) (29) (1) (22) (2) (11) 5 (3) 2 3 (58) Other(4) 37 54 11 8 (10) 4 4 (9) - 99 ------------------------------------------------------------------------------------- (41) 56 (11) 7 (60) 20 - (7) 5 (31) - operating assumption changes: Maintenance expenses(5) 7 (21) 2 - 1 51 (9) 4 1 36 Exceptional expenses (7) (2) - - - - - - - (9) Mortality/Morbidity(6) 22 - 10 - 2 (20) 13 1 (1) 27 Lapses(7) (46) - (10) (4) (2) (3) 1 - (3) (67) Other(8) 25 (4) - 1 27 (13) (1) - (3) 32 ------------------------------------------------------------------------------------- 1 (27) 2 (3) 28 15 4 5 (6) 19 Expected return on shareholders' net worth 90 56 11 12 55 10 7 9 23 273--------------------------------------------------------------------------------------------------------------------- Life EEV operating return before tax 597 228 57 70 198 99 165 18 64 1,496===================================================================================================================== (1) Exceptional expenses in the UK reflect one-off project costs including those associated with the pace of regulatory change. In the Netherlands, they relate to project costs in Delta Lloyd Life and development costs in Belgium.(2) Mortality experience has typically been better than anticipated in many of the group businesses.(3) Lapse experience has been adverse in a number of businesses including on certain savings contracts in the UK.(4) In the UK, other experience profits include exceptional profits arising from better than assumed default experience on corporate bonds. In France, profits relate to the benefit of lower tax charges on dividends from subsidiaries and to a lesser extent, one-off benefits following the utilisation of tax losses.(5) In France, there is a £21 million charge, mainly resulting from updated expense assumptions, following the revisions to the agreement between Aviva and the AFER association. Expense assumptions have been changed in Poland reflecting improvements in efficiency.(6) Changes in the UK reflect expected beneficial mortality experience for protection business.(7) In the UK, lapse assumption changes reflect experience in savings contracts mainly on with-profits and endowment business.(8) Changes in the Netherlands primarily relate to increased annual management fees on unit linked contracts. ----------------------------------------------------------------------------------------------------------------------Page 56 Supplementary analyses (a) Life new business premiums Under the EEV principles, new business margins are required to be disclosed as a percentage of the present value of new business premiums (PVNBP). The present value of new business premiums is derived from the single premiums and regular premiums of the products sold during the financial period and is expressed at the point of sale. The PVNBP calculation is equal to total single premium sales received in the year plus the discounted value of regular premiums expected to be received over the term of the new contracts. The premium volumes and projection assumptionsused to calculate the present value of regular premiums for each product are the same as those used to calculate new business contribution, so the components of the new business margin are on a consistent basis. The discounted value of regular premiums is also expressed as annualised regular premiums multiplied by a Weighted Average Capitalisation Factor (WACF). The WACF will vary over time depending on the mix of new products sold, the average outstanding term of the new contracts and the projection assumptions. The table below sets out the factors required to derive the present value of regular premiums by business units, and combined with single premium sales derives the present value of future new business premiums. 31 December 2004 --------------------------------------------------------------- Weighted Present Present value average value of of new Regular capitalisation regular Single business premiums factor premiums premiums(1) premiums £m £m £m £mUnited KingdomIndividual pensions 265 5.2 1,373 1,742 3,115Group pensions 88 5.0 440 540 980Annuities - - - 1,278 1,278Bonds - - - 2,260 2,260Protection 163 5.3 857 682 1,539---------------------------------------------------------------------------------------------------------------------Total life and pensions 516 5.2 2,670 6,502 9,172 FranceEurosavings 15 5.0 75 1,745 1,820Unit-linked savings 30 5.0 150 668 818Protection business 17 6.1 103 41 144---------------------------------------------------------------------------------------------------------------------Total life and pensions 62 5.3 328 2,454 2,782 IrelandLife and savings 18 6.3 114 54 168Pensions 48 5.1 244 149 393---------------------------------------------------------------------------------------------------------------------Total life and pensions 66 5.4 358 203 561 ItalyLife and savings 45 6.0 270 1,529 1,799--------------------------------------------------------------------------------------------------------------------- 45 6.0 270 1,529 1,799Netherlands (including Belgium and Luxembourg)Life 96 6.8 651 467 1,118Pensions 52 7.4 386 664 1,050---------------------------------------------------------------------------------------------------------------------Total life and pensions 148 7.0 1,037 1,131 2,168 PolandLife and savings 15 4.4 66 40 106Pensions 16 7.2 115 20 135---------------------------------------------------------------------------------------------------------------------Total life and pensions 31 5.8 181 60 241 SpainLife and savings 52 5.7 297 1,061 1,358Pensions 39 6.3 247 505 752---------------------------------------------------------------------------------------------------------------------Total life and pensions 91 6.0 544 1,566 2,110 Other EuropeLife and pensions 90 5.2 468 336 804 InternationalLife and pensions 105 3.7 390 660 1,050---------------------------------------------------------------------------------------------------------------------Total 1,154 5.4 6,246 14,441 20,687===================================================================================================================== (1) United Kingdom includes single premiums of £478 million in respect of NUER included in Protection business. ----------------------------------------------------------------------------------------------------------------------Page 57 Supplementary analyses (continued) (b) Analysis of service companies and fund management businesses within embedded value The EEV methodology incorporates the impact of profits and losses arising from subsidiary undertakings providing administration, investment management and other services where these arise in relation to covered business. The principal subsidiaries of the Aviva group providing such services are NU Life Services Ltd (UK), Morley Fund Management (UK) and Aviva Gestion d'Actifs (France). The following table provides an analysis of the elements within the life and other related business embedded value: Full year Full year 2004 2003 ------------------------------------- ---------- Fund Management Non-Insurance Total Total £m £m £m £m United Kingdom 54 (397) (343) (388)France 45 (13) 32 27Other Europe and International 6 (21) (15) (21)-------------------------------------------------------------------------------------------------------------------- 105 (431) (326) (382)==================================================================================================================== The "look-through" value attributable to fund management is based on the level of after-tax profits expected to be earned in the future over the outstanding term of the covered business in respect of services provided to the Group's life operations. The EEV basis profit and loss account excludes the actual statutory basis profits arising from the provision of fund management services to the Group's life businesses. The EEV profit and loss account records the experience profit or loss compared to the assumed profitability, the return on the in-force value arising from the unwind at the relevant risk discount rate and the effect on the in-force value of changes to economic assumptions. NU Life Services Ltd (NULS) is the main provider of administration services to the UK Life business. NULS incurs substantially all of the UK Life business' operating expenditure, comprising acquisition, maintenance and project costs. Costs are recharged to the UK Life companies (the product companies) on the basis of pre-determined Management Services Agreement (MSA) which was negotiated in 1998 and will be reviewed in 2008. The EEV principles "look-through" the contractual terms of the MSA to the underlying expenses of NULS. Accordingly the actual maintenance expenses and a "normal" annual level of project expense allowances have been applied to the product companies. Under EEV, any further one-off project expenditure is reported as experience losses when incurred. (c) Treatment of pension scheme deficit in embedded value The adoption of the EEV principles and the inclusion of NULS in the calculations have resulted in the recognition within EEV of the future funding obligations to the UK pension scheme in relation to both future service costs and pension deficits. The table below shows the component parts of the impact of adopting the EEV principles on the UK life valuation. 31 December 31 December 2004 2003 £m £mImpact of:Increasing maintenance and normal project allowances (124) (182)Increase in future service pension scheme contribution rate from 11% to 25% (126) (117)------------------------------------------------------------------------------------------------------------------- (250) (299)Pension scheme deficit funding (147) (137)------------------------------------------------------------------------------------------------------------------- (397) (436)=================================================================================================================== Under the Modified Statutory basis, pension costs are accounted in NULS in accordance with SSAP24. This results in a pension cost charge to the statutory result of NULS of 11% of pensionable salaries for 2004 (2003: 11%). The fundingrate for the annual pension cost was increased to 25% of pensionable salaries with effect from 1 January 2003. In accordance with SSAP24, only 11% of pensionable salaries are charged to the profit and loss account with the remaining 14% treated as prepayment. Under the EEV methodology, allowance has been made for the entire contribution reducing the embedded value of UK Life and related business at 2004 by £126 million (31 December 2003: £117 million). In addition, pension deficit funding equivalent in 2004 to a further 13% of pensionable salaries commenced on 1 January 2004. The NULS share of the total UK pension scheme deficit is approximately 42% and this liability is fully provided for in the UK embedded value. In effect, under the EEV methodology the element of the pension fund deficit which relates to the UK life and other related businesses is now incorporated within shareholders' funds at an amountequivalent to the post-tax contributions discounted using the UK Life business risk discount rate. This is equal to £147 million at 31 December 2004 (2003: £137 million), which differs from the FRS17 basis of evaluating pensiondeficits. ----------------------------------------------------------------------------------------------------------------------Page 58 In quantifying the impact on the embedded value for the UK covered business, the shareholders have been assumed to incur all of the additional contributions except for an amount equivalent to approximately 2% of pensionable salarieswhich has been attributed to the with-profits funds. This reflects the contractual nature of the current MSA which prevents shareholders from recharging both the increase in future service costs from 11% to 25% of pensionable salariesand the cost of funding the deficit to the UK with-profit funds. Under the MSA, NULS can renegotiate the terms relating to the recharging of the costs to the UK with-profit funds in 2008, subject to regulatory approval. In evaluating the impact on EEV, Aviva has not sought to pre-empt the outcome ofthis renegotiation. Any changes to the recharges in respect of the pension costs and the pension deficit to the with-profits funds will be reported as profits or losses in the period agreement is obtained. The Group continues to account for its pension scheme costs in accordance with SSAP24. The following table sets out the impact of adjusting the pension scheme on a FRS17 basis for the adoption of calculating the deficit under the EEVprinciples. Full year Full year 2004 2003 £m £m FRS17 pension scheme deficit post tax (619) (583)Element relating to UK life covered business 216 211--------------------------------------------------------------------------------------------------------------------Element relating to non-life business (403) (372)Deduct: SSAP24 prepayment (279) (251)--------------------------------------------------------------------------------------------------------------------Deduction required from restated shareholders' fundsto incorporate pension deficit in full as a liability (682) (623)Total shareholders' funds on an EEV basis 14,119 11,705--------------------------------------------------------------------------------------------------------------------Total shareholders' funds on an EEV basis includingpension liability on FRS17 basis 13,437 11,082==================================================================================================================== The element of the FRS17 pension scheme deficit relating to covered business in Ireland and the Netherlands has not been adjusted for in the table above, as the funding arrangements in these territories have not changed. (d) Pension schemes - MSSB basis The group continues to account for its pension costs in accordance with SSAP24. The effect on the group's MSSB net assets of substituting the FRS17 figures for the corresponding SSAP24 balance sheet entries would be as follows: Net assets ---------------- 2004 2003 £m £m Total included on the MSSB balance sheet 9,244 7,365Less: pension net asset on SSAP24 basis (279) (251)--------------------------------------------------------------------------------------------------------------------Total excluding pension asset 8,965 7,114Less: pension liability net of deferred tax on FRS17 basis (619) (583)--------------------------------------------------------------------------------------------------------------------Total net assets on an MSSB basis including pension liability on FRS17 basis 8,346 6,531==================================================================================================================== The pension net asset shown above is after deducting £56 million held within technical reserves in respect of futurefunding. ----------------------------------------------------------------------------------------------------------------------Page 59 General insurance - geographical ratio analysis Combined Claims ratio Expense ratio operating ratio ------------- ------------- -------------- 2004 2003 2004 2003 2004 2003 % % % % % %United Kingdom 64.7% 66.4% 10.0% 10.5% 97% 99%France 72.2% 70.6% 12.2% 13.6% 101% 102%Ireland 66.6% 78.5% 10.8% 8.9% 87% 97%Netherlands 59.9% 60.5% 13.9% 17.4% 95% 101%Canada 66.6% 78.4% 12.0% 11.7% 97% 108%------------------------------------------------------------------------------------------------------------------- 65.2% 69.3% 10.9% 11.3% 97% 100%=================================================================================================================== Ratios are measured in local currency.The total Group ratios are based on average exchange rates applying to the respective periods. Definitions: Claims ratio - Incurred claims expressed as a percentage of net earned premiums.Expense ratio - Written expenses excluding commissions expressed as a percentage of net written premiums.Commission ratio - Written commissions expressed as a percentage of net written premiums.Combined operating ratio - Aggregate of claims ratio, expense ratio and commission ratio. ----------------------------------------------------------------------------------------------------------------------Page 60 General insurance - class of business analyses (a) United Kingdom Combined Net written premiums Underwriting result operating ratio -------------------- ------------------- --------------- 2004 2003 2004 2003 2004 2003 £m £m £m £m % %PersonalMotor 1,380 1,345 (14) (34) 102% 102%Homeowner 1,041 970 29 5 97% 99%Creditor 644 588 (2) 5 101% 102%Other 93 84 13 - 90% 101%------------------------------------------------------------------------------------------------------------------- 3,158 2,987 26 (24) 100% 101%------------------------------------------------------------------------------------------------------------------- CommercialMotor 755 767 23 31 97% 97%Property 924 859 104 62 88% 91%Liability 457 409 (22) (32) 105% 108%Other 140 113 27 13 80% 89%------------------------------------------------------------------------------------------------------------------- 2,276 2,148 132 74 94% 96%-------------------------------------------------------------------------------------------------------------------£m 5,434 5,135 158 50 97% 99%=================================================================================================================== During the year to 31 December 2004, annualised rating increases were as follows: commercial liability: 7%; commercial property: 4%; commercial motor: nil; homeowners: 1%; and personal motor: 2%. (b) France Combined Net written premiums Underwriting result operating ratio -------------------- ------------------- --------------- 2004 2003 2004 2003 2004 2003 •m •m •m •m % % Motor 370 355 (8) 12 103% 97%Property and other 401 391 (4) (25) 100% 107%-------------------------------------------------------------------------------------------------------------------•m 771 746 (12) (13) 101% 102%-------------------------------------------------------------------------------------------------------------------£m 524 515 (8) (9) 101% 102%=================================================================================================================== ----------------------------------------------------------------------------------------------------------------------Page 61 General insurance - class of business analyses (continued) (c) Netherlands Combined Net written premiums Underwriting result operating ratio -------------------- -------------------- --------------- 2004 2003 2004 2003 2004 2003 •m •m •m •m % % Property 347 327 31 18 90% 93%Motor 368 314 30 2 95% 98%Liability 56 55 (10) (12) 119% 160%Other 286 120 (13) (15) 97% 101%-------------------------------------------------------------------------------------------------------------------•m 1,057 816 38 (7) 95% 101%-------------------------------------------------------------------------------------------------------------------£m 719 563 26 (5) 95% 101%=================================================================================================================== (d) Canada Combined Net written premiums Underwriting result operating ratio -------------------- ------------------- --------------- 2004 2003 2004 2003 2004 2003 C$m C$m C$m C$m % % Automobile 1,747 1,736 5 (262) 100% 115%Property 822 760 80 24 90% 96%Liability 249 233 (12) 5 106% 97%Other 43 38 15 8 65% 74%-------------------------------------------------------------------------------------------------------------------C$m 2,861 2,767 88 (225) 97% 108%-------------------------------------------------------------------------------------------------------------------£m 1,202 1,208 37 (98) 97% 108%=================================================================================================================== ---------------------------------------------------------------------------------------------------------------------- Appendix AGroup capital structure ----------------------------------------------------------------------------------------------------------------------Page 62 Group capital structure The Group maintains an efficient capital structure from a combination of equity shareholders' funds, preference capital, subordinated debt and borrowings, consistent with the Group's risk profile and the regulatory and marketrequirements of its business. The European Embedded Value basis provides a more accurate reflection of the performance of the Group's life operations year on year than results under the modified statutory basis. Accordingly, the Group'scapital structure is analysed on this basis. The Group's capital, from all funding sources, has been allocated such that the capital employed by trading operations is greater than the capital provided by its shareholders and its subordinated debtholders. As a result, the Group isable to enhance the returns earned on its equity capital. Capital employed by segment Restated* 2004 2003 £m £m Long-term savings 13,218 11,969General insurance and health 4,633 4,481Other business 735 725Corporate 755 666--------------------------------------------------------------------------------------------------------------------Total capital employed 19,341 17,841====================================================================================================================Financed byEquity shareholders' funds and minority interests 12,929 11,505Direct capital instrument 990 -Preference shares 200 200 Subordinated debt 2,823 2,814 External debt 1,412 1,709Net internal debt 987 1,613-------------------------------------------------------------------------------------------------------------------- 19,341 17,841==================================================================================================================== * Restated for the effect of implementing European Embedded Value principles and for the reclassification of internal debt. As at 31 December 2004 the Group had £19.3 billion (31 December 2003: £17.8 billion) of total capital employed in its trading operations which is financed by a combination of equity shareholders' funds, preference capital, directcapital instruments, subordinated debt and internal and external borrowings. In 2004, the total capital employed in our long-term savings operations increased due to the positive impact of retained earnings and the upward trend in equity markets partially offset by dividends paid to holding companies. Thetotal capital employed in our general insurance businesses also increased due to retained profits partially offset by dividends paid to holding companies. In addition to its external funding sources, the Group has a number of internal debt arrangements in place. These have allowed assets supporting technical liabilities to be invested into the pool of central assets for use across theGroup. They have also enabled the shareholders to deploy cash from some parts of the business to others in order to fund growth. Although intra-group loans in nature these internal debt arrangements are treated as part of the capital base for the purpose of capital management. All internal loans satisfy arms length criteria and all interest payments have been made when due. In order to better reflect the underlying level of internal leverage we have revised the presentation of internal debt. The revised presentation depicts a net debt position which represents the upstream of internal loans from business operations to corporate and holding entities net of tangible assets held by these entities. The reduction in the net internal debt reflects, in part, the repayment by the corporate and holding entities of upstream loans and anincrease in the tangible assets held by corporate entities arising from a combination of capital raising activity and dividends received from business operations. External debt has fallen during the year as £300 million of the direct capital instrument proceeds have been used to repay commercial paper. As indicated at the time of issuing the direct capital instrument, a further £650 million ofsenior debt will be repaid in 2005, thereby reducing the level of external borrowings further. This repayment will be made from tangible assets held by corporate entities and, accordingly, the net internal debt will increase by acorresponding amount. This leaves the overall external and net internal leverage position unchanged. ----------------------------------------------------------------------------------------------------------------------Page 63 Group capital structure (continued) The ratio of the Group's external debt to shareholders' funds and subordinated debt was 8% (31 December 2003: 12%). Fixed charge cover, which measures the extent to which external interest costs, including the subordinated debtinterest and preference share dividends, are covered by EEV operating profit, was 9 times (31 December 2003: 9 times). At 31 December 2004 the market value of the Group's external debt, subordinated debt, preference shares and direct capital instrument was £5,953 million (31 December 2003: £5,455 million), with a weighted average cost of 3.9% (31December 2003: 3.9%). The group WACC is 7.4% and has been calculated by reference to the cost of equity and cost of debt at the relevant date. It is based on an equity market premium of 3% and a market beta of 1.4. Deployment of equity shareholders' funds Restated* 2004 2003 ------------------------------------------------------ --------- Fixed income Other Other net Equities securities investments assets Total Total £m £m £m £m £m £mAssetsLong-term savings 685 4,347 1,718 938 7,688 6,923General insurance, health, and other business 3,149 970 722 147 4,988 4,767--------------------------------------------------------------------------------------------------------------------- 3,834 5,317 2,440 1,085 12,676 11,690Goodwill 1,339 1,323Additional value of in-force long-term business 5,326 4,828---------------------------------------------------------------------------------------------------------------------Assets backing total capital employed in continuing operations 19,341 17,841External debt (1,412) (1,709)Net internal debt (987) (1,613)Subordinated debt (2,823) (2,814)--------------------------------------------------------------------------------------------------------------------- 14,119 11,705Minority interests (1,182) (953)Direct capital instrument (990) -Preference capital (200) (200)---------------------------------------------------------------------------------------------------------------------Equity shareholders' funds 11,747 10,552===================================================================================================================== * Restated for the effect of implementing European Embedded Value principles and for the reclassification of internal debt. Our exposure to equities has increased from £3.6 billion at 31 December 2003 to £3.8 billion at 31 December 2004 which represents 20% of our capital employed. Return on capital employed Restated* 2004 2003 ------------------------------------------------------ --------- Restated* Normalised opening Return on Return on after-tax return capital capital capital £m £m % % Long-term savings 1,121 11,969 9.4% 10.4%General insurance and health 899 4,481 20.1% 16.4%Other business (6) 725 (0.8)% (0.7)%Corporate (77) 666 (11.6)% (14.5)%-------------------------------------------------------------------------------------------------------------------- 1,937 17,841 10.9% 10.2%Borrowings (244) (6,136) 4.0% 4.7%-------------------------------------------------------------------------------------------------------------------- 1,693 11,705 14.5% 13.4%Minority interests (154) (953) 16.2% 17.9%Direct capital instrument (6) - - -Preference capital (17) (200) 8.5% 8.5%--------------------------------------------------------------------------------------------------------------------Equity shareholders' funds 1,516 10,552 14.4% 13.1%==================================================================================================================== * Restated for the effect of implementing European Embedded Value principles, and for the reclassification of internal debt. The return on capital is calculated as the after-tax return on opening equity capital, based on operating profit, including life EEV operating return, before amortisation of goodwill and exceptional items. ----------------------------------------------------------------------------------------------------------------------Page 64 Group capital structure (continued) Shareholders' funds, including minority interests Restated* 2003 2004 Closing shareholders' Closing shareholders' funds funds ----------------------------------------- -------------------------------- MSSB net Internally MSSB net Internally assets generated Embedded assets generated Embedded (note 1) AVIF value (note 1) AVIF value Note £m £m £m £m £m £mLife assuranceUnited Kingdom 3,263 2,351 5,614 2,844 2,356 5,200France 1,088 731 1,819 1,068 491 1,559Ireland 369 246 615 338 239 577Italy 466 72 538 386 49 435Netherlands (including Belgium and Luxembourg) 1,724 753 2,477 1,621 733 2,354Poland 189 368 557 146 308 454Spain 289 295 584 266 180 446Other Europe 150 63 213 174 10 184International 6 601 (4) 597 568 (26) 542-------------------------------------------------------------------------------------------------------------------- 8,139 4,875 13,014 7,411 4,340 11,751Participating interests 2 204 - 204 218 - 218-------------------------------------------------------------------------------------------------------------------- 8,343 4,875 13,218 7,629 4,340 11,969--------------------------------------------------------------------------------------------------------------------General insurance and health 3United Kingdom 2,240 2,240 2,448 2,448France 412 412 414 414Ireland 358 358 333 333Netherlands 467 467 250 250Other Europe 160 160 112 112Canada 702 702 631 631Other 294 294 293 293-------------------------------------------------------------------------------------------------------------------- 4,633 - 4,633 4,481 - 4,481--------------------------------------------------------------------------------------------------------------------Other business 735 735 725 725Corporate 755 755 666 666External debt 4 (1,412) (1,412) (1,709) (1,709)Net Internal debt (987) (987) (1,613) (1,613)Subordinated debt (2,823) (2,823) (2,814) (2,814)-------------------------------------------------------------------------------------------------------------------- (3,732) - (3,732) (4,745) - (4,745)--------------------------------------------------------------------------------------------------------------------Shareholders' funds, including minority interests 9,244 4,875 14,119 7,365 4,340 11,705====================================================================================================================ComprisingEquities 3,834 3,834 3,571 3,571Debt and fixed income securities 5,317 5,317 5,736 5,736Property 595 595 584 584Deposits and other investments 1,845 1,845 1,036 1,036Intangible assets 5 1,790 4,875 6,665 1,811 4,340 6,151Other net assets 1,085 1,085 763 763Borrowings (5,222) (5,222) (6,136) (6,136)-------------------------------------------------------------------------------------------------------------------- 9,244 4,875 14,119 7,365 4,340 11,705==================================================================================================================== * Restated for the effect of implementing European Embedded Value principles, and for the reclassification of internal debt. ----------------------------------------------------------------------------------------------------------------------Page 65 Group capital structure (continued) Shareholders' funds, including minority interests (continued) Notes 1. Includes acquired additional value of in-force long-term business of £451 million (31 December 2003: £488 million).Related Shares:
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