8th Aug 2006 07:02
Friends Provident PLC08 August 2006 Part 2 Notes to the EEV results 1. Methodology 1.1 Basis of preparation The EEV results presented in this document have been prepared in accordance withthe European Insurers' Chief Financial Officers Forum's EEV Principles issued inMay 2004 and the Additional Guidance issued in 2005. The directors areresponsible for the preparation of the EEV results in accordance with the EEVPrinciples. The EEV basis of reporting is designed to recognise profit as it is earned overthe term of the policy. The total profit recognised over the lifetime of thepolicy is the same as that recognised under the IFRS basis of reporting, but thetiming of recognition is different. The reported embedded value provides an estimate of the value of shareholders'interest in the covered business, excluding any value that may be generated fromfuture new business. The covered business incorporates the Life & Pensionsbusiness (defined as long term business by the UK and overseas regulators) butexcludes the Asset Management business. This value comprises the sum of theshareholders' net worth, the provision for future corporate costs and the valueof existing business. The shareholders' net worth is the net assets attributableto shareholders, and is represented by the sum of required capital and freesurplus. The value of existing business is the present value of the projectedstream of future distributable profits available to shareholders from theexisting business at the valuation date, on a best estimate basis allowing forrisk, adjusted for the cost of holding required capital. The Group's Report & Accounts for the year ended 31 December 2005 containfurther information on the methodologies applied in preparing the EEV results.There have been no significant changes to the methodologies used to preparethese interim results from those used to prepare the Group's Report & Accountsfor the year ended 31 December 2005. The EEV Principles have been followed in respect of non-covered business. Inother respects the IFRS basis of reporting has been applied unless the EEVPrinciples permit otherwise. In particular the Principles have been applied toreflect STICS as debt rather than as equity. In addition, a pro forma embedded value is reported showing ordinaryshareholders' funds on an EEV basis adjusted to include the F&C listedsubsidiary at market value. Shareholders' net assets on an EEV basis for the Group consist of the following: • Life & Pensions net assets; • the Group's share of its investment in the Asset Management business (including the net pension liability) on an IFRS basis; • corporate net liabilities; • the net pension liability of FPPS on an IAS 19 basis but including holdings in non-transferable securities issued by the Group (both net of deferred tax); • a provision for future corporate costs; and • the present value of future profits attributable to shareholders from existing policies of the Life & Pensions business. No provision is made for the cost of future earn-out payments in respect of theLombard acquisition. The shareholders' net worth includes the corporate debt of the Group. This debtis valued at market value, consistent with the EEV guidance. EEV and other balance sheet items denominated in foreign currencies have beentranslated to sterling using the appropriate closing exchange rate. The newbusiness contribution and other income statement items have been translatedusing an average exchange rate for the relevant period. The EEV results were approved by the Board of Directors on 7 August 2006. 1.2 New business New business within the covered business includes: • premiums from the sale of new contracts; • payments on recurring single premium contracts, including Department of Work and Pensions rebate premiums, except existing stakeholder-style pensions business where, if a regular pattern in the receipt of premiums for individuals has been established, the regular payment is treated as a renewal of an existing contract and not new business; • non-contractual increments on existing policies; and • new entrants in group pensions business. 1.3 Allowance for risk The allowance for risk in the shareholders' cash flows is a key feature of theEEV principles. The EEV guidance sets out three main areas to allow for risk inan embedded value: • the risk discount rate; • the allowance for the cost of financial options and guarantees; and • the cost of holding both prudential reserves and any additional required capital. The market-consistent approach has been used to allow for risks in all threeareas. 1.4 Derived risk discount rates A market-consistent embedded value has been calculated for each product line byvaluing the cash flows in line with the prices of similar cash flows traded onthe open market. In principle, each cash flow is valued using the discount rate consistent withthat applied to such a cash flow in the capital markets. The 'certaintyequivalent approach' has been applied whereby for liabilities where the payoutsare either independent or move linearly with market movements, assets areassumed to earn the risk-free rate and all cash flows are discounted using therisk-free rate. For presentational purposes, a set of risk discount rates has been derived thatwould give the same value under a traditional embedded value approach as thatfrom the market-consistent embedded value determined above. 1.5 Other assumptions Allowance has been made for the costs of financial options and guarantees topolicyholders, burn-through costs to the shareholders of assets in the WithProfits Fund being insufficient to meet guarantees, and the costs of non-marketrisks. 1.6 Financial options and guarantees The burn-through cost at 30 June 2006 of £82m (30 June 2005: £75m) is splitbetween £47m (30 June 2005: £43m) market risk and £35m (30 June 2005: £32m)non-market risk. 1.7 Required capital and the cost of capital In aggregate, the economic capital requirements at a product level at 30 June2006 were higher than regulatory requirements by approximately £100m (30 June2005: £100m). Capital requirements under EEV amounted to £549m (30 June 2005: £704m). Thisincludes shareholders' assets required to support the With Profits Fund. 1.8 Non-market risk A provision of £84m (30 June 2005: £73m) has been made for operational risks inthe shareholders' funds. This provision of £84m is equivalent to a 0.4% (30 June 2005: 0.4%) increase inthe derived risk discount rate for UK Life & Pensions business and 0.8% (30 June2005: 0.8%) for International Life & Pensions business, recognising the higheroperational risk in International business. 1.9 Expenses (a) Corporate costs For the half year to 30 June 2006, £4m (30 June 2005: £3m) of corporate costswere regular ongoing corporate costs and £2m (30 June 2005: £3m) weredevelopment or one-off costs. Ongoing costs of £6m per annum have beencapitalised under EEV Principles. The impact is a provision of £47m (31 December2005: £47m). (b) Service costs F&C service fee profits in respect of covered Life & Pensions business, ofapproximately £7m (30 June 2005: £9m), are brought into the consolidated incomestatement on an IFRS basis, and F&C is brought into the pro forma embedded valueat market value. Productivity gains have been assumed within the EEV results in respect ofInternational business. The Lombard EEV has been reduced by £7m (30 June 2005:£9m) for a projected expense overrun for the period to 2009 and a lower rate ofexpense inflation has been assumed for Friends Provident International Limitedbusiness. These make allowance for anticipated future productivity gains asthese businesses grow. 2. Segmental analysis (a) Life & Pensions EEV profit Half year ended 30 June 2006 __________________________________________________________________________________________ Year ended Half year ended Half year ended 31 Dec 30 June 2006 30 June 2005 2005 UK Intn'l Total UK Intn'l Total Total Notes £m £m £m £m £m £m £m__________________________________________________________________________________________ Contribution from new business 2(b),3(a) 53 36 89 35 23 58 144 Profit from existing business: Expected return 94 12 106 79 12 91 196 Experience variances (8) - (8) 19 (3) 16 22 Operating assumption changes - - - 30 - 30 16 Development costs (12) - (12) (10) - (10) (25)Expected return on shareholders' net assets within the Life & Pensions business 27 - 27 43 1 44 81__________________________________________________________________________________________ Life & Pensions EEV underlying profit before tax 154 48 202 196 33 229 434 Non-recurring items 4 1 - 1 (1) (1) (2) (13)Investment return variances 3(e) (374) (17) (391) 281 9 290 641 Effect of economic assumption changes 214 5 219 (131) (3) (134) (236)__________________________________________________________________________________________ Life & Pensions EEV profit before tax (5) 36 31 345 38 383 826 Attributed tax charge 3(f) 1 (8) (7) (104) (7) (111) (232)__________________________________________________________________________________________Life & Pensions EEV profit after tax (4) 28 24 241 31 272 594 __________________________________________________________________________________________ (b) New business margin Half year ended 30 June 2006 ___________________________________________________________________________________________ Year ended Half year ended Half year ended 31 Dec 30 June 2006 30 June 2005 2005 UK Intn'l Total UK Intn'l Total Total___________________________________________________________________________________________Contribution from new business £53m £36m £89m £35m £23m £58m £144m___________________________________________________________________________________________Volume of new business Annualised Premium Equivalent (APE) £327m £121m £448m £226m £80m £306m £727mMargin - APE 16.3% 29.7% 19.9% 15.3% 29.3% 19.0% 19.8%___________________________________________________________________________________________Volume of new business Present Value of New Business Premiums (PVNBP) £2,020m £1,012m £3,032m £1,510m £675m £2,185m £5,397mMargin - PVNBP 2.6% 3.6% 2.9% 2.3% 3.4% 2.7% 2.7%___________________________________________________________________________________________ APE equals 100% of annualised regular premium plus 10% of single premium. PVNBPequals new single premiums plus the expected present value of new regularpremium business. (c) Segmental consolidated balance sheet on an EEV basis Half year ended 30 June 2006 _________________________________________________________________________________________ 30 June 30 June 30 June 30 June 31 Dec 2006 2006 2006 2005 2005 Segmental Intra-group Total Total Total analysis debt (ii) £m £m £m £m £m _________________________________________________________________________________________Life & Pensions - long-term funds 661 (180) 481 543 441 Life & Pensions - shareholders' funds 349 770 1,119 1,094 1,199_________________________________________________________________________________________Life & Pensions net assets 1,010 590 1,600 1,637 1,640 Corporate net assets (58) (795) (853) (841) (781)_________________________________________________________________________________________Shareholders' invested net assets 952 (205) 747 796 859 Attributable net asset value of the Asset Management business net of minority interest (i) 404 205 609 671 628 Net pension liability of Friends Provident Pension Scheme (16) - (16) 3 (13)_________________________________________________________________________________________Shareholders' net worth 1,340 - 1,340 1,470 1,474 Provision for future corporate costs (47) (48) (47) Value of in-force Life & Pensions business 2,083 1,827 2,019 _________________________________________________________________________________________Ordinary shareholders' net assets on an EEV basis 3,376 3,249 3,446 _________________________________________________________________________________________Called-up share capital 214 214 214 Share premium account 2,050 2,035 2,038 EEV reserves 1,112 1,000 1,194 _________________________________________________________________________________________Ordinary shareholders' equity on an EEV basis 3,376 3,249 3,446 _________________________________________________________________________________________ (i) The attributable net asset value of the Asset Management business includesgoodwill of £330m at 30 June 2006 (31 Dec 2005: £333m) and other intangibleassets, net of related tax, of £119m (31 Dec 2005: £154m) (ii) Intra-group long term debt is analysed as follows: _________________________________________________________________________________________ Debt Interest payable Year Half year ended ended 30 June 30 June 31 Dec 30 June 31 Dec 2006 2005 2005 2006 2005 2005 £m £m £m £m £m £m _________________________________________________________________________________________Due from F&C to FPLP 205 205 205 6 6 12 Due from FPLP to Friends Provident plc 795 795 795 23 7 30 _________________________________________________________________________________________ (d) Life & Pensions net assets segmental information by business segment _________________________________________________________________________________________ Year ended Half year ended Half year ended 31 Dec 30 June 2006 30 June 2005 2005 UK Intn'l Total UK Intn'l Total Total £m £m £m £m £m £m £m _________________________________________________________________________________________Life & Pensions net assets 987 23 1,010 1,028 19 1,047 1,050 Value of in-force Life & Pensions business 1,579 504 2,083 1,428 399 1,827 2,019 _________________________________________________________________________________________ 2,566 527 3,093 2,456 418 2,874 3,069 _________________________________________________________________________________________ 3. Life & Pensions EEV profit (a) Contribution from new business The contribution from new business is calculated using economic assumptions atthe beginning of the period. Derived risk discount rates for new business havebeen based on end-of-period economic assumptions. The contribution from new business is quoted after cost of required capital andshare incentives. The table below gives the contribution before cost of capitaland share based payments. _______________________________________________________________________________________ Year Half year ended ended 30 June 31 Dec 2006 2005 2005 £m £m £m _______________________________________________________________________________________Contribution from new business before cost of capital and share based payments 94 62 152 Cost of share based payments (1) (1) (2)Cost of capital (4) (3) (6)_______________________________________________________________________________________Contribution from new business 89 58 144 _______________________________________________________________________________________ The contribution from new business using end-of-period economic assumptions was£87m (30 June 2005: £58m). (b) Profit from existing business - Life & Pensions Profit from existing Life & Pensions business comprises the expected return onthe value of in-force business at the start of the period plus the impact of anychanges in the assumptions regarding future operating experience, changes in thereserving basis (other than economic assumption changes) and profits and lossescaused by differences between the actual experience for the period and theassumptions used to calculate the embedded value at the end of the period. The expected return on the value of in-force business is the difference betweenthe expected return on the assets backing the liabilities and the expectedchange in the market-consistent value of the liabilities. Effectively, thisapproach is similar to applying an unwind in the risk discount rate to the valueof the in-force business at the beginning of the year. However, the riskdiscount rate to be used is a rate appropriate over the period of return only,which is not necessarily equal to the overall in-force risk discount rateaveraged across all future durations above. (c) Development costs - Life & Pensions Development costs represent investments made to improve future EEV profits, forexample by reducing expenses or increasing future new business volumes. Inparticular, the Life & Pensions costs represent investment in developingadvanced electronic trading systems, e-commerce related activities and newbusiness service automation and improvement. (d) Expected return on shareholders' net assets The expected return on shareholders' net assets held within the Life & Pensionsbusiness comprises the return on the shareholders' net assets held by the lifeassurance companies within that business, using the investment returnassumptions used to calculate the embedded value at the beginning of the period. The expected return on corporate net assets is the longer-term investment returnon assets held by Friends Provident plc and its non-life subsidiaries. Itexcludes the expected return on the net pension liability and the result of theF&C business, which are shown separately in the summary consolidated incomestatement. (e) Investment return variance The split of the investment return variance in the Life & Pensions EEV profit isshown in the table below: __________________________________________________________________________________ Half year ended Year ended 30 June 31 Dec 2006 2005 2005 £m £m £m __________________________________________________________________________________In respect of net assets at the start of year (50) 47 84 In respect of covered business (228) 157 373 __________________________________________________________________________________Investment return variance after tax (278) 204 457 __________________________________________________________________________________Investment return variance before tax (391) 290 641 __________________________________________________________________________________ The investment return variance of £(50)m after tax relates to shareholder netassets. The investment return variance in respect of covered business comprises£(170)m after tax, relating to the assets backing actuarial liabilities, and £(58)m after tax, relating to the value of in-force business. Together thesevariances amount to £(278)m after tax and £(391)m before tax. (f) Attributed tax charge EEV profits are calculated net of tax and then grossed up at the effective rateof shareholder tax. The full standard rate of UK corporation tax has been usedto gross up after tax profits on UK business and appropriate tax rates have beenused for the International business. The following table provides the analysis of the attributed tax charge: __________________________________________________________________________________ Half year ended Year ended 30 June 31 Dec 2006 2005 2005 £m £m £m__________________________________________________________________________________Contribution from new business 22 15 35Profit from existing business 28 42 69 Development costs (4) (3) (8)Expected return on shareholders' net assets within the Life & Pensions business 8 13 24 Non-recurring items - - (3)Investment return variances (113) 86 184 Effect of economic assumption changes 66 (42) (69)__________________________________________________________________________________Attributed tax charge 7 111 232 __________________________________________________________________________________ 4. Non-recurring items __________________________________________________________________________________ Half year ended Year ended 30 June 31 Dec 2006 2005 2005 £m £m £m__________________________________________________________________________________Life & Pensions integration costs - 2 6 Provision for past sales (1) - 7 __________________________________________________________________________________Life & Pensions non-recurring items (1) 2 13__________________________________________________________________________________Asset Management integration costs 7 14 24 Asset Management Reinvestment Plan costs 6 13 22 __________________________________________________________________________________Asset Management non-recurring items 13 27 46 __________________________________________________________________________________Total non-recurring items 12 29 59 __________________________________________________________________________________ Explanations of the non-recurring items are set out in note 3 to the IFRSfinancial information. 5. Earnings per share Earnings per share have been calculated based on EEV underlying profitattributable to ordinary shareholders of the parent, and on profit after taxattributable to ordinary shareholders of the parent, as the directors believethe former earnings per share figure gives a better indication of operatingperformance. Basic and underlying earnings per share ________________________________________________________________________________________ Half year ended Half year ended Year ended 30 June 2006 30 June 2005 31 Dec 2005 Per Per Per Earnings share Earnings share Earnings share £m pence £m pence £m pence ________________________________________________________________________________________Profit after tax attributable to ordinary shareholders of the parent 80 3.8 175 8.5 441 21.2 Investment return variances 327 15.5 (207) (10.0) (550) (26.4)Variation in value of option on convertible debt - - 9 0.4 9 0.4 Effect of economic assumption changes (219) (10.4) 134 6.5 238 11.4 Amortisation and impairment of Asset Management acquired intangible assets 67 3.2 28 1.4 168 8.1 Non-recurring items 12 0.6 29 1.4 59 2.8 Tax charge on items excluded from underlying profit (71) (3.4) 27 1.3 46 2.2 Minority interest on items excluded from underlying profit (27) (1.3) (19) (1.0) (72) (3.4)________________________________________________________________________________________Underlying profit after tax attributable to ordinary shareholders of the parent 169 8.0 176 8.5 339 16.3 ________________________________________________________________________________________ ________________________________________________________________________________________ 30 June 30 June 31 Dec 2006 2005 2005 millions millions millions ________________________________________________________________________________________ Weighted average number of ordinary shares 2,107 2,065 2,082 ________________________________________________________________________________________ 6. Equity attributable to equity holders of the parent Ordinary shareholders' equity on an EEV basis reconciles to equity attributableto equity holders of the parent on an IFRS basis as follows: ____________________________________________________________________________________ 30 June 30 June 31 Dec 2006 2005 2005 £m £m £m ____________________________________________________________________________________Ordinary shareholders' equity on an EEV basis 3,376 3,249 3,446 Less items only included on an EEV basis: Value of in-force Life & Pensions business (2,083) (1,827) (2,019)Provision for future corporate costs 47 48 47 Adjustment of long term debt to market value 73 123 134 Add items only included on an IFRS basis: Goodwill (net of provision for future consideration) 257 209 198 Other intangible assets 74 79 76 Acquired PVIF 271 291 282 STICS treated as equity 794 794 810 Deferred acquisition costs 1,087 859 994 Deferred front end fees (85) (51) (85)IFRS reserving and other IFRS adjustments (423) (260) (385)____________________________________________________________________________________Equity attributable to equity holders of the parent on an IFRS basis 3,388 3,514 3,498 ____________________________________________________________________________________ 7. EEV assumptions 7.1 Principal economic assumptions - deterministic Economic assumptions are actively reviewed and are based on the market yields onrisk-free assets at the valuation date. _________________________________________________________________________________Assumptions 30 June 30 June 31 Dec 2006 2005 2005 UK and International (excluding Lombard): % % % _________________________________________________________________________________Risk-free rate (i) 4.7 4.2 4.1 Investment returns before tax: Fixed interest 4.4-5.2 3.7-5.0 3.8-4.7 Equities 7.7 7.2 7.1 Properties 6.7 6.2 6.1 Future expense inflation: UK business 4.1 3.7 3.9 International business 3.4 3.3 3.15 UK corporation tax rate 30.0 30.0 30.0 Risk discount rate (average): In-force (UK business) (ii) 8.1 7.7 7.4 In-force (International business) 6.8 6.3 6.3 Risk discount rate: New business (UK business) 6.7 6.7 6.5 New business (International business) 6.4 6.1 6.0 _________________________________________________________________________________ (i) For UK and FPI business the risk-free rate is set with reference to the giltyield curve at the valuation date. For annuity and with-profits business, a termdependent rate allowing for the shape of the yield curve is used as this cansignificantly impact value. For other business, a rate based on the annualised15-year gilt yield is used. (ii) Breakdown of the average UK risk discount rate is as follows: _________________________________________________________________________________ 30 June 30 June 31 Dec 2006 2005 2005 % % % _________________________________________________________________________________Risk-free rate 4.7 4.2 4.1 Market risks non options 2.4 2.5 2.4 Options - market risks 0.3 0.3 0.3 Options - non-market risks 0.3 0.3 0.2 Other market risks 0.4 0.4 0.4 Risk discount rate 8.1 7.7 7.4 _________________________________________________________________________________ _________________________________________________________________________________ 30 June 30 June 31 Dec 2006 2005 2005 Lombard: % % % _________________________________________________________________________________Risk-free rate 4.4 3.6 3.6 Investment returns before tax 5.7 4.8 4.9 Future expense inflation 3.7 3.3 3.5 Tax rate 25.8 25.8 25.8 Risk discount rate (average) - in-force 7.2 6.2 6.3 Risk discount rate (average) - new business 7.2 6.2 6.3 _________________________________________________________________________________ The key exchange rates used in respect of Lombard business were a closingexchange rate of 1 Euro = £0.6913 (31 Dec 2005: 1 Euro = £0.6871). Margins are added to the risk-free rates to obtain investment return assumptionsfor equity and property. For corporate fixed interest securities the investment return assumptions arederived from an AA-bond yield spread, limited to the actual return on theunderlying assets. As a market-consistent approach has been followed, theseinvestment return assumptions affect only the derived risk discount rates andnot the embedded value result. Maintenance expenses are assumed to increase in the future at a rate of 1% perannum for UK business and 0.25% per annum for International business (excludingLombard) in excess of the assumed long-term rate of retail price inflation. Thisis derived from the difference between the risk-free rate of return and theaverage of the FTSE Actuaries over 5-year index-linked gilt at 5% and 0%inflation. For Lombard the risk-free rate is the average of the 10-15 year and the over 15year yields using the Euro MTS indices. The investment return assumption is theweighted average (based on asset mix) of returns of fixed interest securities,equities and cash. The Lombard investment return assumption is shown gross oftax, but net of fund management charges. Average derived risk discount rates are shown below for the embedded value andthe contribution from new business. The average derived risk discount rate forin-force has reduced over 2005 due mainly to a lower risk-free rate and a lowerrisk margin on annuities. A more detailed split of the derived risk discount rates is given in thefollowing table. Derived risk discount rates by product type30 June 2006 _____________________________________________________________________________________ International UK With-profits UK Annuity Other UK Sterling Euro Embedded Value % % % % % _____________________________________________________________________________________Risk-free rate 4.7 4.7 4.7 4.7 4.4 Market risks (non-options) 2.8 5.4 1.7 1.3 2.0 Options - market risks 5.1 - - - - Options - non-market risks 3.7 - - - - Other non-market risks 0.4 0.4 0.4 0.8 0.8 _____________________________________________________________________________________Risk discount rate 16.7 10.5 6.8 6.8 7.2 _____________________________________________________________________________________ 31 December 2005 _____________________________________________________________________________________ International UK With-profits UK Annuity Other UK Sterling Euro Embedded Value % % % % % _____________________________________________________________________________________Risk-free rate 4.1 4.1 4.1 4.1 3.6 Market risks (non-options) 3.0 6.0 1.7 1.3 1.9 Options - market risks 4.0 - - - - Options - non-market risks 3.3 - - - - Other non-market risks 0.4 0.4 0.4 0.8 0.8 _____________________________________________________________________________________Risk discount rate 14.8 10.5 6.2 6.2 6.3 _____________________________________________________________________________________ 30 June 2006 _____________________________________________________________________________________ International UK Sterling Euro Contribution from new business % % % _____________________________________________________________________________________Risk-free rate 4.7 4.7 4.4 Market risks 1.6 0.9 2.0 Non-market risks 0.4 0.8 0.8 _____________________________________________________________________________________Risk discount rate 6.7 6.4 7.2 _____________________________________________________________________________________ 31 December 2005 _____________________________________________________________________________________ International UK Sterling Euro Contribution from new business % % % _____________________________________________________________________________________Risk-free rate 4.1 4.1 3.6 Market risks 2.0 1.1 1.9 Non-market risks 0.4 0.8 0.8 _____________________________________________________________________________________Risk discount rate 6.5 6.0 6.3 _____________________________________________________________________________________ These tables show that with-profits and annuity business is subject to moreinvestment risk than the remaining business, and so the appropriate riskdiscount rates are higher. 7.2 Principal economic assumptions - stochastic The cost of options and guarantees is determined using The Smith Model economicscenario generator. The model is calibrated to market conditions at thevaluation date and correlations between the asset classes are derived fromhistoric data, consistent with the model used for the Realistic Balance Sheet. Risk-free rates are calibrated to the gilt yield curve. Equity volatility is calibrated to replicate the implied volatility of FTSE 100put options held by the With Profits Fund. Property holdings are modelled as a mix of equity and gilt assets, calibrated toderive a level of running yield and volatility as observed in historical data. Sample implied volatilities by asset class - % ________________________________________________________________________________ Term (years) 30 June 2006 5 15 25 35 ________________________________________________________________________________15-year risk-free zero coupon bonds 7.9 4.9 4.3 4.8 15-year corporate bonds 9.8 8.1 7.7 7.1 Equity 18.9 20.3 20.7 21.5 Property 14.2 16.0 16.5 17.4 ________________________________________________________________________________ ________________________________________________________________________________ Term (years) 31 December 2005 5 15 25 35 ________________________________________________________________________________15-year risk-free zero coupon bonds 8.7 5.0 4.4 5.0 15-year corporate bonds 9.8 7.9 7.7 7.6 Equity 17.7 19.8 21.6 21.7 Property 14.9 17.2 19.2 19.3 ________________________________________________________________________________ The volatility represents the variation of return around the average for theparticular asset class. Bonus rates are set at levels which fully utilise the assets supporting thein-force business over its lifetime and are consistent with the economicassumptions and the Group's bonus policy. 7.3 Other assumptions Other assumptions are regularly reviewed having regard to past, current andexpected future experience, and any other relevant data. These are set so as tobe best estimate assumptions. The assumed rates of mortality, morbidity, lapse, surrender, conversion topaid-up and early retirement, which are reviewed annually, have been derivedfrom analyses of the Group's recent operating experience and industry studies.In particular, improvements in annuitant mortality have been assumed to followthe medium cohort for males and 75% of this for females. Allowance forcommission is based on the Group's recent experience. Consolidated income statement on an IFRS basis For the half year ended 30 June 2006 _________________________________________________________________________________ Year Half year ended ended 30 June 31 Dec 2006 2005* 2005 Notes £m £m £m _________________________________________________________________________________Revenue Gross earned premiums 489 493 977 Premiums ceded to reinsurers (49) (20) (56)_________________________________________________________________________________Net earned premiums 440 473 921 Fee and commission income and income from service activities 258 241 483 Investment income 437 2,420 6,287 _________________________________________________________________________________Total revenue 1,135 3,134 7,691 _________________________________________________________________________________Claims, benefits and expenses Gross claims and benefits paid 816 772 1,569 Amounts receivable from reinsurers (22) (19) (37)_________________________________________________________________________________Net claims and benefits paid 794 753 1,532 _________________________________________________________________________________Insurance contracts liabilities (690) 536 514 Investment contracts liabilities 434 1,036 3,822 Transfer to fund for future appropriations 43 58 187 Movement in net assets attributable to unit holders 12 41 136_________________________________________________________________________________Movement in policyholder liabilities (201) 1,671 4,659 _________________________________________________________________________________Acquisition expenses 126 139 285 Administrative and other expenses 324 335 759 Finance costs 44 30 89 _________________________________________________________________________________Total claims, benefits and expenses 1,087 2,928 7,324 _________________________________________________________________________________Profit before tax from continuing operations 48 206 367 Policyholder tax (5) (97) (218)_________________________________________________________________________________Profit before shareholder tax from continuing operations 43 109 149 _________________________________________________________________________________Total tax credit/(charge) 8 (79) (178)Policyholder tax 5 97 218 _________________________________________________________________________________Shareholder tax 13 18 40 _________________________________________________________________________________Profit after tax from continuing operations 2 56 127 189 Profit after tax from discontinued operations - 8 8 _________________________________________________________________________________Profit for the period 56 135 197 _________________________________________________________________________________Attributable to: Equity holders of the parent: (i) Ordinary shareholders (12) 103 132 Other equity holders 26 10 37 _________________________________________________________________________________ 14 113 169 Minority interest 42 22 28 _________________________________________________________________________________Profit for the period 56 135 197 _________________________________________________________________________________Earnings per share Basic (loss)/earnings per share from continuing operations (pence) 5(a) (0.6) 5.0 6.3 Diluted (loss)/earnings per share from continuing operations (pence) 5(b) (0.6) 5.0 6.3 _________________________________________________________________________________ * Restated - see note 1 (i) All profit attributable to equity holders of the parent is from continuingoperations. Consolidated underlying profit on an IFRS basis For the half year ended 30 June 2006 _________________________________________________________________________________ Year Half year ended ended 30 June 31 Dec 2006 2005* 2005 Notes £m £m £m _________________________________________________________________________________Profit before tax from continuing operations 48 206 367 Policyholder tax (5) (97) (218)Returns on Group-controlled funds attributable to third parties (52) (14) (57)_________________________________________________________________________________(Loss)/profit before tax excluding profit generated within policyholder funds (9) 95 92 Non-recurring items 3 12 29 59 Amortisation of Asset Management acquired intangible assets 22 28 56 Amortisation of acquired present value of in-force business 12 14 28 Amortisation of Life & Pensions acquired intangible assets 4 4 7 Impairment of Asset Management acquired intangible assets 7(c) 45 - 112 Interest payable on Step-up Tier one Insurance Capital Securities (STICS) (26) (10) (37)Short-term fluctuations in investment return 60 (44) (102)Variation in value of option on convertible debt - 9 9 _________________________________________________________________________________Underlying profit before tax 120 125 224 Tax on underlying profit (22) 8 (5)Minority interest in underlying profit (17) (18) (36)_________________________________________________________________________________Underlying profit after tax attributable to ordinary shareholders of the parent 81 115 183 _________________________________________________________________________________Earnings per share Underlying earnings per share (pence) 5(a) 3.8 5.6 8.8 _________________________________________________________________________________ * Restated - see note 1 IFRS underlying profit is a measure of profit which excludes profit generatedwithin policyholder funds that is not allocated to shareholders. Managementconsider that underlying profit better reflects the ongoing performance of theGroup and focus on this measure of profit in its internal monitoring of theGroup's IFRS results. IFRS underlying profit is based on longer-term investment return and excludes:(i) policyholder tax, (ii) returns attributable to minority interests inpolicyholder funds, (iii) non-recurring items, (iv) amortisation and impairmentof acquired intangible assets and present value of acquired in-force business;and is stated after deducting interest payable on STICS. Consolidated balance sheet on an IFRS basis At 30 June 2006 _____________________________________________________________________________________ 30 June 30 June 31 Dec 2006 2005* 2005 Notes £m £m £m _____________________________________________________________________________________Assets Intangible assets 7 1,476 1,709 1,590 Property and equipment 72 71 73 Investment properties 2,172 1,657 1,912 Investments in associates and joint venture 14 5 14 Financial assets 41,816 38,175 42,091 Deferred acquisition costs 1,098 870 994 Reinsurance assets 194 136 183 Current tax assets 3 41 25 Insurance and other receivables 841 682 590 Cash and cash equivalents 2,946 2,357 2,614 _____________________________________________________________________________________Total assets 50,632 45,703 50,086 _____________________________________________________________________________________Liabilities Insurance contracts 13,968 14,789 14,637 Fund for future appropriations 455 156 420 Financial liabilities - Investment contracts 29,068 23,562 27,857 - Interest bearing loans and borrowings 1,108 1,137 1,155 Net asset value attributable to unit holders 682 749 751 Provisions 276 295 364 Deferred tax liabilities 223 255 288 Current tax liabilities 118 178 177 Insurance payables, other payables and deferred income 827 664 497 _____________________________________________________________________________________Total liabilities 46,725 41,785 46,146 _____________________________________________________________________________________Equity attributable to equity holders of the parent Attributable to ordinary shareholders: Share capital 9 214 214 214 Share premium 9 2,050 2,035 2,038 Other reserves 9 330 471 436 _____________________________________________________________________________________ 2,594 2,720 2,688 Attributable to other equity holders 9 794 794 810 _____________________________________________________________________________________ 3,388 3,514 3,498 Minority interest 9 519 404 442 _____________________________________________________________________________________Total equity 9 3,907 3,918 3,940 _____________________________________________________________________________________Total equity and liabilities 50,632 45,703 50,086 _____________________________________________________________________________________ * Restated - see note 1 Consolidated statement of recognised income and expense on an IFRS basis For the half year ended 30 June 2006 _________________________________________________________________________________________ Equity holders Equity Total of the parent holders of equity (ordinary the parent holders of Minority shares) (STICS) the parent interest Total £m £m £m £m £m _________________________________________________________________________________________Actuarial gains/(losses) on defined benefit schemes net of tax 1 - 1 4 5 Foreign exchange adjustments 8 - 8 - 8 _________________________________________________________________________________________Net income recognised directly in equity 9 - 9 4 13 _________________________________________________________________________________________(Loss)/profit for the period (12) 26 14 42 56 _________________________________________________________________________________________Total recognised income and expense for the period (3) 26 23 46 69 _________________________________________________________________________________________ For the half year ended 30 June 2005 _________________________________________________________________________________________ Equity holders Equity Total of the parent holders of equity (ordinary the parent holders of Minority shares) (STICS) the parent interest Total £m £m £m £m £m _________________________________________________________________________________________Actuarial gains/(losses) on defined benefit schemes net of tax 5 - 5 (2) 3 Foreign exchange adjustments (15) - (15) (6) (21)_________________________________________________________________________________________Net expense recognised directly in equity (10) - (10) (8) (18)_________________________________________________________________________________________Profit for the period 103 10 113 22 135 _________________________________________________________________________________________Total recognised income and expense for the period 93 10 103 14 117 _________________________________________________________________________________________ For the year ended 31 December 2005 _________________________________________________________________________________________ Equity holders Equity Total of the parent holders of equity (ordinary the parent holders of Minority shares) (STICS) the parent interest Total £m £m £m £m £m _________________________________________________________________________________________Actuarial (losses)/gains on defined benefit schemes net of tax (18) - (18) (10) (28)Foreign exchange adjustments (7) - (7) (1) (8)_________________________________________________________________________________________Net expense recognised directly in equity (25) - (25) (11) (36)_________________________________________________________________________________________Profit for the period 132 37 169 28 197 _________________________________________________________________________________________Total recognised income and expense for the period 107 37 144 17 161 _________________________________________________________________________________________ Summary consolidated cash flow statement on an IFRS basis For the half year ended 30 June 2006 _____________________________________________________________________________________ Year Half year ended ended 30 June 31 Dec 2006 2005* 2005 £m £m £m _____________________________________________________________________________________Operating activities Profit for the period 56 135 197 _____________________________________________________________________________________Net increase/(decrease) in operational assets and liabilities 602 (1,151) (835)_____________________________________________________________________________________Pre-tax cash inflow/(outflow) from operating activities 658 (1,016) (638)Tax paid (65) (39) (61)_____________________________________________________________________________________Net cash inflow/(outflow) from operating activities 593 (1,055) (699)_____________________________________________________________________________________Investing activities Acquisition of subsidiaries, net of cash acquired (41) 608 603 Reduction in participation in subsidiaries, net of cash disposed 50 2 44 Compensation from mandate loss 27 - - Additions to internally generated intangible assets (6) (6) (13)Purchase of property and equipment (6) (7) (10)_____________________________________________________________________________________Net cash inflow from investing activities 24 597 624 _____________________________________________________________________________________Financing activities Finance costs (42) (26) (82)STICS interest (42) (10) (21)Proceeds from issue of long term debt, net of expenses - 229 229 Repayment of long term debt (83) - - Issue of STICS, net of expenses - 495 495 Net movement in other borrowings, net of expenses 17 (3) 5 Dividends paid to equity holders of the parent (108) (103) (157)Dividends paid to minority interest (27) (16) (29)_____________________________________________________________________________________Net cash (outflow)/inflow from financing activities (285) 566 440 _____________________________________________________________________________________Increase in cash and cash equivalents 332 108 365 _____________________________________________________________________________________Balance at beginning of period 2,614 2,249 2,249 _____________________________________________________________________________________Balance at end of period 2,946 2,357 2,614 _____________________________________________________________________________________ * Restated - see note 1 Included within cash and cash equivalents are deposits maturing in less thanthree months amounting to £2,107m (31 Dec 2005: £1,799m). Notes to the IFRS results 1. Basis of preparation Friends Provident plc (the 'Company') is a company domiciled in England andWales. The consolidated interim financial statements of the Company as at andfor the six months ended 30 June 2006 comprise the Company and its subsidiaries(together referred to as the 'Group') and the Group's interests in associatesand jointly controlled entities. The comparative figures for the financial year ended 31 December 2005 are notthe Company's Report & Accounts for that financial year, but they are derivedtherefrom. Those accounts have been reported on by the Company's auditors anddelivered to the Registrar of Companies. The report of the auditors was (i)unqualified, (ii) did not include a reference to any matters to which theauditors drew attention by way of emphasis without qualifying their report, and(iii) did not contain a statement under section 237(2) or (3) of the CompaniesAct 1985. The Report & Accounts of the Group for the year ended 31 December 2005is available upon request from the Company's registered office at Pixham End,Dorking, RH4 1QA, or at http://www.friendsprovident.co.uk/investor/ The accounting policies applied by the Group in these consolidated interimfinancial statements are the same as those applied by the Group in itsconsolidated financial statements as at and for the year ended 31 December 2005. The preparation of interim financial statements requires management to makejudgements, estimates and assumptions that affect the application of accountingpolicies and the reported amounts of assets and liabilities, income and expense.Actual results may differ from these estimates. The Group's June 2005 comparatives have been restated to reflect thereclassification of £794m STICS from debt to equity as set out in the 2005year-end Report & Accounts. In addition, a number of other reclassificationshave been made to align previous disclosures with those adopted at the 2005year-end. The only adjustment that has impacted profit relates to the STICSreclassification where profit increased by £10m for the 6 months ended 30 June2005 as STICS interest is now treated as an appropriation of profit rather thanan expense. The IFRS results were approved by the Board of Directors on 7 August 2006. 2. Segmental information (a) Summary The Group's management and internal reporting structure is based on thefollowing business segments: • UK Life & Pensions • International Life & Pensions • Asset Management These segments comprise the Group's primary reporting format for segmentalinformation. (b) Business segment analysis Half year ended 30 June 2006 _________________________________________________________________________________________ Elimination International of inter UK Life & Life Asset segment Pensions & Pensions Management amounts Total £m £m £m £m £m _________________________________________________________________________________________Gross earned premiums 486 3 - - 489 Less premiums ceded to reinsurers (49) - - - (49)_________________________________________________________________________________________Net earned premiums 437 3 - - 440 Fee and commission income and income from service activities 79 67 129 (17) 258 Investment income 339 83 15 - 437 _________________________________________________________________________________________Total revenue 855 153 144 (17) 1,135 _________________________________________________________________________________________Net claims and benefits paid 794 - - - 794 Movement in insurance and investment contracts liabilities (390) 130 4 - (256)Transfer to fund for future appropriations 43 - - - 43 Movement in net assets attributable to unit holders 12 - - - 12 Acquisition expenses 111 10 5 - 126 Administrative and other expenses 154 30 157 (17) 324 _________________________________________________________________________________________Total allocated claims, benefits and expenses 724 170 166 (17) 1,043_________________________________________________________________________________________Segmental results 131 (17) (22) - 92 Inter segment revenue/(expense) (17) - 17 - - _________________________________________________________________________________________Finance costs (44)Policyholder tax (5)Shareholder tax 13 _________________________________________________________________________________________Profit after tax from continuing operations 56 _________________________________________________________________________________________ Half year ended 30 June 2005 ________________________________________________________________________________________ Elimination International of inter UK Life & Life Asset segment Pensions & Pensions Management amounts Total £m £m £m £m £m ________________________________________________________________________________________Gross earned premiums 489 4 - - 493 Less premiums ceded to reinsurers (20) - - - (20)________________________________________________________________________________________Net earned premiums 469 4 - - 473 Fee and commission income and income from service activities 77 52 130 (18) 241Investment income 2,126 260 34 - 2,420________________________________________________________________________________________Total revenue 2,672 316 164 (18) 3,134________________________________________________________________________________________Net claims and benefits paid 751 2 - - 753 Movement in insurance and investment contracts liabilities 1,303 240 29 - 1,572 Transfer to fund for future appropriations 58 - - - 58 Movement in net assets attributable to unit holders 41 - - - 41 Acquisition expenses 114 21 4 - 139 Administrative and other expenses 181 44 128 (18) 335 ________________________________________________________________________________________Total allocated claims, benefits and expenses 2,448 307 161 (18) 2,898 ________________________________________________________________________________________Segmental results 224 9 3 - 236 Inter segment revenue/(expense) (18) - 18 - - ________________________________________________________________________________________Finance costs (30)Policyholder tax (97)Shareholder tax 18 ________________________________________________________________________________________Profit after tax from continuing operations 127 ________________________________________________________________________________________ Year ended 31 December 2005 ________________________________________________________________________________________ Elimination International of inter UK Life & Life Asset segment Pensions & Pensions Management amounts Total £m £m £m £m £m ________________________________________________________________________________________Gross earned premiums 969 8 - - 977 Less premiums ceded to reinsurers (56) - - - (56)________________________________________________________________________________________Net earned premiums 913 8 - - 921 Fee and commission income and income from service activities 116 124 276 (33) 483 Investment income 5,191 921 175 - 6,287 ________________________________________________________________________________________Total revenue 6,220 1,053 451 (33) 7,691 ________________________________________________________________________________________Net claims and benefits paid 1,528 4 - - 1,532 Movement in insurance and investment contracts liabilities 3,291 888 157 - 4,336 Transfer to fund for future appropriations 187 - - - 187 Movement in net assets attributable to unit holders 136 - - - 136 Acquisition expenses 207 67 11 - 285 Administrative and other expenses 326 96 370 (33) 759 ________________________________________________________________________________________Total allocated claims, benefits and expenses 5,675 1,055 538 (33) 7,235 ________________________________________________________________________________________Segmental results 545 (2) (87) - 456 ________________________________________________________________________________________Inter segment revenue/(expense) (33) - 33 - - ________________________________________________________________________________________Finance costs (89)Policyholder tax (218)Shareholder tax 40 ________________________________________________________________________________________Profit after tax from continuing operations 189 ________________________________________________________________________________________ 3. Non-recurring items Non-recurring items borne by shareholders __________________________________________________________________________________ Half year ended Year ended 30 June 31 Dec 2006 2005 2005 £m £m £m __________________________________________________________________________________Life & Pensions integration costs (i) - 2 6 Provision for past sales (ii) (1) - 7 __________________________________________________________________________________Life & Pensions non-recurring items (1) 2 13 __________________________________________________________________________________Asset Management integration costs (iii) 7 14 24 Asset Management Reinvestment Plan costs (iv) 6 13 22 __________________________________________________________________________________Asset Management non-recurring items 13 27 46 __________________________________________________________________________________Total non-recurring items 12 29 59 __________________________________________________________________________________ (i) Costs of £nil (2005 half year: £2m) have been incurred relating tointegration activity following the acquisition of Friends ProvidentInternational Limited (FPI) in August 2002. (ii) A total of £1m (2005 half year: £nil) has been credited in respect of theshareholders share of mortgage endowment complaints. (iii) Asset Management integration costs include £7m (2005 half year: £14m)which were incurred integrating, rationalising and reorganising the AssetManagement business following the acquisition of F&C Group (Holdings) Limited. (iv) The charge of £6m (2005 half year: £13m) represents the cost of issuingshares to employees under the 2004 Reinvestment Plan. 4. Appropriations of profit (a) Dividends paid and proposed on ordinary shares Dividends paid during the period and recognised in reserves __________________________________________________________________________________ Half year ended Year ended 30 June 31 Dec 2006 2005 2005 £m £m £m __________________________________________________________________________________Final dividend in respect of prior year 108 103 103 Interim dividend in respect of current year - - 54 __________________________________________________________________________________Total dividends paid 108 103 157 __________________________________________________________________________________ After the balance sheet date the dividends set out below were proposed by thedirectors. In accordance with IAS 10 Events After the Balance Sheet Date, thesehave not been provided as a liability at the balance sheet date. __________________________________________________________________________________ 30 June 30 June 31 Dec 2006 2005 2005 £m £m £m __________________________________________________________________________________ Final dividend in respect of current year - - 108 Interim dividend in respect of current year 56 54 - __________________________________________________________________________________ The 2006 interim dividend is based on 2,115m shares in issue (excluding treasuryshares). The 2005 final dividend was based on 2,099m shares. (b) STICS interest STICS interest paid during the period and recognised in reserves _______________________________________________________________________________________ Half year ended Year ended 30 June 31 Dec 2006 2005* 2005 £m £m £m _______________________________________________________________________________________Interest on 2003 STICS at 6.875% (paid half-yearly) 10 10 21 Interest on 2005 STICS at 6.292% (paid annually) 32 - - _______________________________________________________________________________________Total interest paid 42 10 21 _______________________________________________________________________________________ * Restated - see note 1 5. Earnings per share (a) Basic and underlying earnings per share from continuing operations Earnings per share have been calculated based on the profit after tax and on theunderlying profit after tax, attributable to ordinary shareholders of theparent. The directors believe that the underlying earnings per share figuregives a better indication of operating performance. _______________________________________________________________________________________ Half year ended Half year ended Year ended 30 June 2006 30 June 2005 31 Dec 2005 Per Per Per Earnings share Earnings share Earnings share £m pence £m pence £m pence _______________________________________________________________________________________(Loss)/profit after tax attributable to ordinary shareholders of the parent (12) (0.6) 103 5.0 132 6.3 Short-term fluctuations in investment return 60 2.8 (44) (2.1) (102) (4.9) Variation in value of option on convertible debt - - 9 0.4 9 0.4 Non-recurring items 12 0.6 29 1.4 59 2.8 Amortisation and impairment of acquired intangible assets 83 3.9 46 2.2 203 9.8 Minority interest on items excluded from underlying profit (27) (1.2) (19) (0.9) (72) (3.4) Tax credit on items excluded from underlying profit (35) (1.7) (9) (0.4) (46) (2.2) _______________________________________________________________________________________Underlying profit after tax attributable to ordinary shareholders of the parent 81 3.8 115 5.6 183 8.8 _______________________________________________________________________________________ _______________________________________________________________________________________ 30 June 30 June 31 Dec 2006 2005 2005 millions millions millions _______________________________________________________________________________________Weighted average number of ordinary shares 2,107 2,065 2,082 _______________________________________________________________________________________ (b) Diluted earnings per share from continuing operations _______________________________________________________________________________________ Half year ended Half year ended Year ended 30 June 2006 30 June 2005 31 Dec 2005 Per Per Per Earnings share Earnings share Earnings share £m pence £m pence £m pence_______________________________________________________________________________________(Loss)/profit after tax attributable to ordinary shareholders of the parent (12) (0.6) 103 5.0 132 6.3 Dilutive earnings per share - - - - - - _______________________________________________________________________________________Diluted (loss)/earnings per share (12) (0.6) 103 5.0 132 6.3 _______________________________________________________________________________________ _____________________________________________________________________________________ Half year ended Year ended 30 June 31 Dec 2006 2005 2005 millions millions millions_____________________________________________________________________________________Weighted average number of shares Basic 2,107 2,065 2,082 Dilutive effect of options 6 14 15 _____________________________________________________________________________________Diluted 2,113 2,079 2,097 _____________________________________________________________________________________ Options over 31,410,688 (31 Dec 2005: 47,707,385) shares are outstanding underthe Group's option schemes as at 30 June 2006. Of these, 25,135,820 (31 Dec2005: 32,319,827) options were not dilutive for the period shown because themarket price of the Company's share was below the option price or theperformance criteria were not met. At 30 June 2006 there were £279m (31 Dec2005: £276m) bonds in issue convertible to ordinary shares. If these bondsconverted at 30 June 2006, 162,237,762 new ordinary shares would have beenissued. These are not dilutive as interest on these bonds is charged to theincome statement. (c) Earnings per share from discontinued operations Discontinued operations have no impact on profit after tax attributable toequity holders of the parent. Earnings per share from discontinued operations istherefore £nil. 6. Staff pension schemes (a) Introduction The Group operates several defined benefit schemes: the Friends ProvidentPension Scheme (FPPS), to which the majority of the Group's UK Life & Pensionsemployees belong, and various schemes operated by F&C. In addition, the Groupoperates two defined contribution schemes: the scheme operated by F&C and thescheme operated by FPI. Lombard does not operate a pension scheme. The F&C UK defined benefit schemes closed to new entrants in 1995 and 2002. On 3July 2006, FP announced proposals to close the FPPS scheme to new entrants fromJuly 2007 and to introduce a defined contribution plan for new employees. (b) Total schemes Under IAS 19 Employee Benefits, the net pension liability is recognised inprovisions in the balance sheet and has been grossed-up for deferred tax. Themarket value of the schemes' assets exclude units held in the internal linkedfunds (classified as non-transferable assets). This presentation has no impacton shareholders' equity as the internal investment contract liability is alsoexcluded. However, non-transferable assets are taken into account in determiningthe pension liability in the actuarial valuation. A reconciliation of the Grouppension liability included in the consolidated balance sheet and the net pensionliability as determined by actuarial valuations is set out below. __________________________________________________________________________________ Half year ended Year ended 30 June 31 Dec 2006 2005 2005 £m £m £m__________________________________________________________________________________Deficit in the FP scheme (67) (33) (59)Deficit in the F&C schemes (35) (25) (48)__________________________________________________________________________________Group pension liability included in provisions (102) (58) (107)Non-transferable assets 44 37 40 Deferred tax 17 7 20 __________________________________________________________________________________Net pension liability (41) (14) (47)__________________________________________________________________________________Analysis of net pension liability FP scheme (16) 3 (13)F&C schemes (25) (17) (34)__________________________________________________________________________________Net pension liability (41) (14) (47)__________________________________________________________________________________ Amounts recognised in the income statement FP scheme (7) (9) (17)F&C schemes (2) (1) (4)__________________________________________________________________________________ (9) (10) (21)__________________________________________________________________________________ Amounts recognised in the statement of recognised income and expense FP scheme (5) 12 (9)F&C schemes 12 (7) (31)Deferred tax (2) (2) 12 __________________________________________________________________________________ 5 3 (28)__________________________________________________________________________________ (c) Friends Provident Pension Scheme The FPPS is a UK defined benefit scheme to which the majority of the Group's UKLife & Pensions employees belong. The scheme's assets are administered by F&C. (i) Major assumptions used by the Scheme Actuary __________________________________________________________________________________ Half year ended Year ended 30 June 31 Dec 2006 2005 2005 % % % __________________________________________________________________________________Inflation assumption 3.05 2.70 2.85 Rate of increase in salaries* 3.50 3.30 3.50 Rate of increase in pensions in payment 2.90 2.70 2.70 Discount rate 5.25 5.10 4.75 __________________________________________________________________________________ * Plus allowance for salary scale increases (ii) Mortality assumptions To recognise the increasing longevity of pensioners, the mortality assumptionbasis was changed to the medium cohort basis at 31 December 2005. 'Medium'relates to three scenario tables produced by the Continuous MortalityInvestigation Bureau of the Institute of Actuaries to reflect the uncertainty offuture longevity experience of annuitants; 'short', 'medium', and 'long', whichvary based on how long the improvements in mortality are projected to last.'Cohort' refers to the idea suggested by some surveys that mortality varies byyear of birth. With respect to FPPS the mortality assumptions are projectedforward, to take account of future improvements in mortality, according to eachindividual's year of birth. Previously, the PM/FA92 tables were used for mortality assumptions. The tables,published in 1999, are based on investigations carried out between 1991 and1994. With respect to FPPS these are projected forward, to take account offuture improvements in mortality, to 2040 for all future pensioners and 2010 forall current pensioners. For future pensioners the projections are rated down oneyear. The mortality assumptions provide the following life expectancies of membersretiring at the age of 60: ___________________________________________________________________________________ 30 June 30 June 31 Dec 2006 2005 2005___________________________________________________________________________________Life expectancy Basis - future pensioners PM/FA92BMC* PM/FA92C2040-1 PM/FA92BMC* Basis - current pensioners PM/FA92BMC* PM/FA92C2010 PM/FA92BMC* Expected age at death of future male pensioner 88 87 88 Expected age at death of future female pensioner 90 90 90 Expected age at death of current male pensioner 87 84 87 Expected age at death of current female pensioner 90 87 90 ___________________________________________________________________________________ * projected according to individual's year of birth (d) F&C Asset Management plc pension schemes The assumptions used for the F&C Pension schemes are broadly consistent withthose used for FPPS. Similar to FPPS, the mortality assumption basis for the F&Cschemes was strengthened in 2005 to the medium cohort basis. The total deficiton these schemes was £35m at 30 June 2006 (31 Dec 2005: £48m). 7. Intangible assets ___________________________________________________________________________________ Investment Acquired management Goodwill PVIF contracts Other Total £m £m £m £m £m ___________________________________________________________________________________Cost At 1 January 2006 677 484 620 195 1,976 Other additions 1 - - 6 7 Disposals (4) - (43) - (47)Foreign exchange adjustments 1 2 - - 3 ___________________________________________________________________________________At 30 June 2006 675 486 577 201 1,939 ___________________________________________________________________________________Amortisation and impairment At 1 January 2006 - 115 204 67 386 Amortisation charge for period - 12 22 14 48 Impairment charge - - 45 - 45 Disposal - - (16) - (16)___________________________________________________________________________________At 30 June 2006 - 127 255 81 463 ___________________________________________________________________________________ Carrying amounts At 30 June 2005 646 382 552 129 1,709 At 31 December 2005 677 369 416 128 1,590 At 30 June 2006 675 359 322 120 1,476 ___________________________________________________________________________________ (a) Goodwill Goodwill is the only intangible asset which has an indefinite useful life. Thegoodwill allocated to each business segment is as follows: ___________________________________________________________________________________ 30 June 30 June 31 Dec 2006 2005 2005 £m £m £m ___________________________________________________________________________________UK Life & Pensions 192 203 192 International Life & Pensions 153 128 152 Asset Management 330 315 333 ___________________________________________________________________________________Total goodwill 675 646 677 ___________________________________________________________________________________ At 30 June 2006, there is no indication that goodwill has been impaired.However, in accordance with IAS 36 Impairment of Assets, goodwill is assessedfor possible impairment each year. This assessment takes place in December ofeach year and compares the carrying value of goodwill for each segment with itsrecoverable amount. There has been no goodwill impairment charge in 2006 (2005 half year: £nil). (b) Acquired PVIF Acquired PVIF is amortised over the lifetime of the in-force policies. The netbook value is analysed as follows: ___________________________________________________________________________________ 30 June 30 June 31 Dec 2006 2005 2005 £m £m £m ___________________________________________________________________________________UK Life & Pensions 89 101 96 International Life & Pensions 270 281 273 ___________________________________________________________________________________Total acquired PVIF 359 382 369 ___________________________________________________________________________________ Management has assessed acquired PVIF for possible impairment and there is noindication that it has been impaired. (c) Investment management contracts As indicated in 2005, Resolution plc withdrew the majority of its assets in thefirst quarter 2006. The agreed compensation of £27m received from Resolutionduring the period has been recognised as proceeds in respect of the deemeddisposal of intangible assets. The cost, with respect to the original valuation,of the assets disposed of was £43m and the related cumulative amortisationamounted to £16m. Therefore the carrying value of the disposed asset equalledthe proceeds received giving rise to neither a gain nor a loss. During the first half of 2006, the business experienced a level of fund outflowswhich was higher than anticipated. This level of lost business will have asignificant impact on revenues and was enough to be considered an indicator ofpotential impairment of certain intangible assets, namely the related investmentmanagement contracts. In accordance with IAS 36 Impairment of Assets, a full impairment review ofthese assets was undertaken. The review resulted in impairment losses beingrecognised in respect of investment management contracts as follows: __________________________________________________________________________________ Year Half year ended ended 30 June 31 Dec 2006 2005 2005 £m £m £m __________________________________________________________________________________F&C Investment Trust contracts 22 - 56 F&C Institutional contracts 23 - 56__________________________________________________________________________________ Total impairment recognised in the Consolidated Income Statement 45 - 112 __________________________________________________________________________________ The cumulative impairment of investment management contracts at 30 June 2006amounts to £157m (31 Dec 2005: £112m). The net book value of investmentmanagement contracts at 30 June 2006 amounted to £322m (31 Dec 2005: £416m). The recoverable amounts of the assets have been determined based on value in usecalculations using cash flow projections based on the latest annual financialbudget approved by the F&C Board. Details are set out below (comparativeinformation relates to 31 December 2005). The discount rate applied to the cash flow projections is 10.1% (2005: 9.4%) forinvestment trust contracts, 10.1% (2005: 9.4%) for institutional contracts withno fixed term, and 9.1% (2005: 8.4%) for fixed term institutional contracts.These rates reflect the varying risks and uncertainties inherent in the revenuesfrom the underlying assets, using F&C's weighted average cost of capital of9.6%, calculated as at 30 June 2006, (2005: 8.9%), as a benchmark. The revenue projections assume growth of 6% (2005: 6%) per annum, in line with F&C's long-term view of market growth, and consistent with that experienced overthe last 15 years across the markets in which the managed assets are invested.The projections are derived using the estimated useful lives of the underlyingcontracts and assume a constant loss of revenues over the projection periods. Operating costs for the first year of the projections are driven by the budgetedF&C profit margin for 2006. Thereafter, costs have been grown at a minimum rateof 3.5% (2005: 3.5%) per annum, to accord with estimated future inflation andsalary increases, with the margin capped at 45% (2005: 45%). Impairment has been determined by comparing the results of the value in usecalculations in respect of the remaining contracts at the period-end to thecarrying value (cost less aggregate amortisation and prior impairment) of theassets at 30 June 2006, with any deficits arising constituting impairment to berecognised for the period. Having continued to lose investment management contracts at a rate which is nowhigher than originally anticipated, F&C has reconsidered the average expectedlives of the related assets. Following this reappraisal the directors of F&Chave revised their estimate of the remaining useful lives of the affectedinvestment management contracts which, with effect from 1 July 2006, areconsistent with the loss rates used for impairment and are now assessed asfollows: Investment trusts - 10 years Institutional (non-fixed term) - 6 years The original estimate of their useful lives on acquisition of the assets inOctober 2004 was 20 years for investment trusts and 10 years for non-fixed terminstitutional contracts. The estimated useful lives of all other categories ofinvestment management contracts are unchanged. This represents a change in accounting estimate from that used up to 30 June2006, and will accelerate the amortisation of the remaining value of the assetsfrom July 2006. The effect of this change will result in an increase of £2m inthe amortisation charge in the second half of 2006, and £3m per annum in futureperiods until such time as the assets become fully amortised. The impairment (and amortisation) charges recognised in the period and thefuture effect of the change in accounting estimate have no impact on underlyingearnings. (d) Other intangible assets Other intangible assets mainly consist of distribution channel relationships andsoftware development which are amortised over their anticipated useful lives ofbetween 3 and 15 years. The analysis of the net book value for each segment isas follows: __________________________________________________________________________________ 30 June 30 June 31 Dec 2006 2005 2005 £m £m £m __________________________________________________________________________________UK Life & Pensions 17 24 23 International Life & Pensions 102 105 103 Asset Management 1 - 2 __________________________________________________________________________________Total other intangible assets 120 129 128 __________________________________________________________________________________ Management has assessed other intangible assets for possible impairment andthere is no indication that they have been impaired. 8. Realistic balance sheet (RBS) The Group has two UK with-profits funds. The main UK with-profits fund is inFriends Provident Life and Pensions Limited (FPLP) and the capital position ofthis fund has been determined in accordance with the RBS regulations prescribedby the FSA. There is also a small UK with-profits fund in Friends Provident LifeAssurance Limited; the capital position of this fund has been calculated on theexisting regulatory basis as this fund is closed, and is significantly below the£500m level that the FSA has determined should be applied for calculatingliabilities under the realistic methodology. The RBS for FPLP's with-profits business can be summarised as follows: ___________________________________________________________________________________ 30 June 30 June 31 Dec 2006 2005 2005 £m £m £m ___________________________________________________________________________________Total net assets 16,461 17,018 17,366 Less non-profit liabilities including share of resilience capital reserve and required minimum margin (2,593) (2,613) (2,774)___________________________________________________________________________________Total regulatory assets 13,868 14,405 14,592 Additional assets arising on realistic basis 247 195 253 ___________________________________________________________________________________Total assets 14,115 14,600 14,845 ___________________________________________________________________________________Policyholder liabilities: asset shares 11,749 12,047 12,342 financial guarantees (net of charges) 104 220 149 options (guaranteed annuities) 707 774 796 Other liabilities 1,309 1,377 1,322 ___________________________________________________________________________________Total liabilities 13,869 14,418 14,609 ___________________________________________________________________________________Excess of assets over liabilities 246 182 236 ___________________________________________________________________________________ The amount of realistic assets for FPLP's With-Profits Fund at 30 June 2006amounted to £14,115m (31 Dec 2005: £14,845m) and the amount of realisticliabilities (including options and guarantees) amounted to £13,869m (31 Dec2005: £14,609m). This results in an excess of realistic assets over realisticliabilities of £246m (31 Dec 2005: £236m). Adding back the shareholders' shareof future bonuses totalling £100m (31 Dec 2005: £85m) and deducting adjustmentsto eliminate double counting of acquired PVIF of £19m (31 Dec 2005: £20m), theexcess in accordance with FRS 27 amounted to £327m (31 Dec 2005: £301m). The main element of the realistic liabilities is the asset shares ofwith-profits business. This represents the premiums received to date togetherwith the investment return earned less expenses and charges. This is mainlycalculated on an individual policy basis using historic information and in linewith the company's Principles and Practices of Financial Management. Assetshares move in line with the value of the underlying assets. Options andguarantees are valued using a market consistent stochastic model. 9. Movement in capital and reserves Half year ended 30 June 2006 __________________________________________________________________________________________ Equity attributable to equity holders of the parent Share Share Other Minority capital premium reserves STICS Total interest Total £m £m £m £m £m £m £m __________________________________________________________________________________________At 1 January 2006 214 2,038 436 810 3,498 442 3,940 Total recognised income and expense for the period - - (3) 26 23 46 69 __________________________________________________________________________________________Dividends on equity shares - - (108) - (108) (27) (135)Interest paid on STICS - - - (42) (42) - (42)__________________________________________________________________________________________Appropriations of profit - - (108) (42) (150) (27) (177)Share based payments - 12 5 - 17 4 21 Change in participation in subsidiary - - - - - 54 54 __________________________________________________________________________________________At 30 June 2006 214 2,050 330 794 3,388 519 3,907 __________________________________________________________________________________________ Half year ended 30 June 2005 __________________________________________________________________________________________ Equity attributable to equity holders of the parent Share Share Other Minority capital premium reserves STICS Total interest Total £m £m £m £m £m £m £m __________________________________________________________________________________________At 1 January 2005 199 1,799 421 299 2,718 80 2,798 Total recognised income and expense for the period - - 93 10 103 14 117 __________________________________________________________________________________________Dividends on equity shares - - (103) - (103) (16) (119)Interest paid on STICS - - - (10) (10) - (10)__________________________________________________________________________________________Appropriations of profit - - (103) (10) (113) (16) (129)Issue of STICS - - - 495 495 - 495 Share based payments - 2 9 - 11 6 17 Disposal of subsidiary - - - - - 54 54 Allotment on acquisition of Lombard 15 234 - - 249 - 249 Conversion option - - 51 - 51 - 51 Property transfer into trust - - - - - 266 266 __________________________________________________________________________________________At 30 June 2005 214 2,035 471 794 3,514 404 3,918 __________________________________________________________________________________________ Year ended 31 December 2005 __________________________________________________________________________________________ Equity attributable to equity holders of the parent Share Share Other Minority capital premium reserves STICS Total interest Total £m £m £m £m £m £m £m __________________________________________________________________________________________At 1 January 2005 199 1,799 421 299 2,718 80 2,798 Total recognised income and expense for the year - - 107 37 144 17 161 __________________________________________________________________________________________Dividends on equity shares - - (157) - (157) (29) (186)Interest paid on STICS - - - (21) (21) - (21)__________________________________________________________________________________________Appropriations of profit - - (157) (21) (178) (29) (207)Issue of STICS - - - 495 495 - 495 Share based payments - 5 14 - 19 12 31 Disposal of subsidiary - - - - - 54 54 Change in participation in subsidiary - - - - - 42 42 Allotment on acquisition of Lombard 15 234 - - 249 - 249 Conversion option - - 51 - 51 - 51 Property transfer into trust - - - - - 266 266 __________________________________________________________________________________________At 31 December 2005 214 2,038 436 810 3,498 442 3,940 __________________________________________________________________________________________ 10. Contingent liabilities, assets and commitments (a) Past sales The Group has made provision for the estimated cost of settling complaints inrespect of past sales. Although the provisions are regularly reviewed, the finaloutcome could be different from the provisions established as these costs cannotbe calculated with certainty and are influenced by external factors beyond thecontrol of management. Such uncertainties include future regulatory actions,media attention and investment performance. The majority of the uncertaintyrelates to endowment mortgages although a number of other products are beingreviewed as an ongoing process. It is expected that the majority of endowmentcases requiring compensation will be settled in the next two years. (b) VAT on investment trust management fees In a current European Court case, a UK investment trust is seeking to establishthat management services to UK investment trusts should be a VAT exempt supply,rather than a taxable supply in accordance with current UK VAT law. If this casewere successful, a number of Group companies, in common with other relevant fundmanagers in the UK, would face claims from those investment trusts to which theyhave supplied services for repayment of the VAT they have charged to them. TheAssociation of Investment Trust Companies (a party to the above litigation) hasindicated that it believes claims dating back as far as 1990 may be lodged withfund managers by investment trusts. Companies in the F&C group can submitrepayment claims to HM Revenue & Customs (HMRC), but only dating back as far as2001, being the maximum time period permitted. The Group has begun to receiveprotective claims from a number of its investment trust clients and has lodgedprotective claims with HMRC. At present, the directors of F&C are not able tojudge the likelihood that the VAT court case will be successful, nor are theyable to quantify the claims that may be received or the extent to which suchclaims could be mitigated and therefore, are not able to quantify the potentialliability. (c) VAT on management services to authorised unit trusts and OEICs Following a recent European Court case (The Abbey National case), it has beenruled that certain services provided for the management of authorised unittrusts and OEICs should be exempt from VAT, whereas previously they were subjectto VAT. As a result of this decision, the Group anticipates that certainservices from suppliers will become exempt and the Group may be able to recoverVAT in respect of previous periods which has been treated as irrecoverable. HMRChave currently set 1 October 2006 as the date from which changes arising fromthe case should be implemented. At this stage it is too early to establish thepotential quantum of VAT which may be recovered. (d) F&C acquisition In December 2000, when Eureko BV acquired F&C Group (Holdings) Limited,approximately 73% of the ordinary issued shares of F&C Group Management Limited,a subsidiary company, were held in the form of two bearer share warrants whichcould not be located prior to the completion of the sale. Eureko BV wasindemnified by F&C Group (Holdings) Limited against any losses suffered as aresult of the loss of the old share warrants or the issue of replacement sharewarrants. Since a bearer share warrant issued by a company entitles the bearerto the shares specified in the share warrant, there is a risk that the thirdparty holding the old share warrants may claim that it is entitled to thespecified shares in F&C Group Management Limited. If a third party weresuccessful in establishing a claim in relation to the old share warrants, F&CGroup (Holdings) Limited could be liable to indemnify F&C Group ManagementLimited under the original indemnity arrangements, which could have a materialadverse effect on F&C's business, results of operations and/or financialcondition. Although there is a possibility that a third party may seek to establish that itis entitled to the shares specified in the old share warrants, the directors ofF&C have been informed that Eureko BV has been advised that the prospect of athird party succeeding in such a claim is remote. Under the terms of the 2004merger between ISIS and F&C, Eureko Holdings has given a specific indemnity(guaranteed by Eureko BV) to F&C in respect of losses arising in relation to thelost share warrants to bearer in F&C Group Management Limited (including inrespect of the indemnity granted by F&C Group (Holdings) Limited to F&C GroupManagement Limited) which is capped at approximately £432m. (e) F&C loan F&C currently has a loan from Friends Provident of £180m with interest payableat a fixed rate of 5.9125% pa wholly repayable on 1 November 2006. F&C intendsto refinance this loan with external debt. In order to maintain maximumimplementation flexibility Friends Provident has given an undertaking to the F&CBoard to roll over the current loan on a month-by-month basis until therefinancing is in place. Appendix: New business results Analysis of Life and Pensions New Business 6 months to 30 June 2006 vs 6 months to 30 June 2005 ___________________________________________________________________________________________ H1 2006 H1 2005 % Change Regular Single Regular Single Regular Single Prems Prems PVNBP Prems Prems PVNBP Prems Prems PVNBPUK Operations £m £m £m £m £m £m % % %___________________________________________________________________________________________Life Protection 34.3 - 199 34.2 0.1 207 - - (4)Investment 0.9 358.2 364 1.1 295.0 301 (18) 21 21 ___________________________________________________________________________________________ 35.2 358.2 563 35.3 295.1 508 - 21 11 ___________________________________________________________________________________________ Pensions Individual Pensions 6.5 106.9 137 6.0 59.5 88 8 80 56 DWP Rebates - 34.4 34 - 7.1 7 - 385 386 Group Pensions 191.6 317.4 1,167 114.7 201.2 766 67 58 52 Annuities - 119.0 119 - 140.7 141 - (15) (16)___________________________________________________________________________________________ 198.1 577.7 1,457 120.7 408.5 1,002 64 41 45 ___________________________________________________________________________________________ ___________________________________________________________________________________________UK Life and Pensions 233.3 935.9 2,020 156.0 703.6 1,510 50 33 34___________________________________________________________________________________________ International Operations Lombard - 546.0 546 - 350.1 350 - 56 56Friends Provident International 38.9 276.4 466 26.6 184.5 325 46 50 43 ___________________________________________________________________________________________Total International Life and Pensions 38.9 822.4 1,012 26.6 534.6 675 46 54 50___________________________________________________________________________________________ ___________________________________________________________________________________________Total Group Life and Pensions 272.2 1,758.3 3,032 182.6 1,238.2 2,185 49 42 39___________________________________________________________________________________________ Analysis of Life and Pensions New Business 3 months to 30 June 2006 vs 3 months to 30 June 2005 ___________________________________________________________________________________________ Q2 2006 Q2 2005 % Change Regular Single Regular Single Regular Single Prems Prems PVNBP Prems Prems PVNBP Prems Prems PVNBP UK Operations £m £m £m £m £m £m % % % ___________________________________________________________________________________________Life Protection 18.3 - 106 17.2 0.1 103 6 - 3 Investment 0.5 179.9 183 1.1 161.0 165 (55) 12 11 ___________________________________________________________________________________________ 18.8 179.9 289 18.3 161.1 268 3 12 8 ___________________________________________________________________________________________ Pensions Individual 4.4 59.9 80 3.0 31.5 47 47 90 70 Pensions DWP Rebates - 21.8 21 - 1.1 1 - 1,882 2,000 Group Pensions 123.8 181.4 707 67.0 88.2 418 85 106 69 Annuities - 66.7 67 - 77.7 78 - (14) (14)___________________________________________________________________________________________ 128.2 329.8 875 70.0 198.5 544 83 66 61 ___________________________________________________________________________________________ ___________________________________________________________________________________________UK Life and Pensions 147.0 509.7 1,164 88.3 359.6 812 66 42 43 ___________________________________________________________________________________________ International Operations Lombard - 311.8 312 - 157.1 157 - 98 99 Friends Provident International 20.4 126.4 225 14.7 85.5 162 39 48 39 ___________________________________________________________________________________________Total International Life and Pensions 20.4 438.2 537 14.7 242.6 319 39 81 68 ___________________________________________________________________________________________ ___________________________________________________________________________________________Total Group Life and Pensions 167.4 947.9 1,701 103.0 602.2 1,131 63 57 50 ___________________________________________________________________________________________ PVNBP by Channel 6 months to 30 June 2006 vs 6 months to 30 June 2005 ____________________________________________________________________________________ H1 2006 H1 2005 £m % £m %____________________________________________________________________________________UK - IFA 1,837 60.6 1,374 62.9UK - Tied 183 6.0 136 6.2International 1,012 33.4 675 30.9____________________________________________________________________________________Total 3,032 100.0 2,185 100.0____________________________________________________________________________________ PVNBP by Channel 3 months to 30 June 2006 vs 3 months to 30 June 2005 ___________________________________________________________________________________ Q2 2006 Q2 2005 £m % £m %___________________________________________________________________________________UK - IFA 1,051 61.8 742 65.6UK - Tied 113 6.6 70 6.2International 537 31.6 319 28.2___________________________________________________________________________________Total 1,701 100.0 1,131 100.0___________________________________________________________________________________ PVNBP equals new single premiums plus the expected present value of new regularpremiums. Premium values are calculated on a consistent basis with the EEV contribution toprofits from new business. Start of period assumptions are used for the economicbasis and end of period assumptions are used for the operating basis. A riskfree rate is used to discount expected premiums in future years. The impact ofoperating assumption changes across a whole reporting period will normally bereflected in the PVNBP figures for the final quarter of the period that thebasis changes relate to. No change in operating assumptions will be reflected inthe PVNBP for the first and third quarters, when the contribution to profitsfrom new business is not published. All amounts in currency other than sterlingare translated into sterling at a monthly average exchange rate. In classifying new business premiums the following basis of recognition isadopted: • Single new business premiums consist of those contracts under which there is no expectation of continuing premiums being paid at regular intervals; • Regular new business premiums consist of those contracts under which there is an expectation of continuing premiums being paid at regular intervals, including repeated or recurrent single premiums where the level of premiums is defined, or where a regular pattern in the receipt of premiums has been established; • Non-contractual increments under existing group pensions schemes are classified as new business premiums; • Transfers between products where open market options are available are included as new business; and • Regular new business premiums are included on an annualised basis. Analysis of APE 6 months to 30 June 2006 vs 6 months to 30 June 2005 ___________________________________________________________________________________ H1 APE APE % 2006 2005 change UK Operations £m £m % ___________________________________________________________________________________Life Protection 34.3 34.2 - Investment 36.7 30.6 20 ___________________________________________________________________________________ 71.0 64.8 10___________________________________________________________________________________ Pensions Individual Pensions 17.2 12.0 44 DWP Rebates 3.4 0.7 385 Group Pensions 223.4 134.8 66 Annuities 11.9 14.1 (15)___________________________________________________________________________________ 255.9 161.6 58 ___________________________________________________________________________________ ___________________________________________________________________________________UK Life and Pensions 326.9 226.4 44 ___________________________________________________________________________________ International Operations Lombard 54.6 35.0 56 Friends Provident International 66.5 45.0 48 ___________________________________________________________________________________Total International Life and Pensions 121.1 80.0 52 ___________________________________________________________________________________ ___________________________________________________________________________________Total Group Life and Pensions 448.0 306.4 46 ___________________________________________________________________________________ Analysis of APE 3 months to 30 June 2006 vs 3 months to 30 June 2005 ___________________________________________________________________________________ Q2 APE APE % 2006 2005 change UK Operations £m £m % ___________________________________________________________________________________Life Protection 18.3 17.2 6 Investment 18.5 17.2 8 ___________________________________________________________________________________ 36.8 34.4 7 ___________________________________________________________________________________ Pensions Individual Pensions 10.4 6.2 69 DWP Rebates 2.2 0.1 1,882 Group Pensions 141.9 75.8 87 Annuities 6.7 7.8 (14)___________________________________________________________________________________ 161.2 89.9 79 ___________________________________________________________________________________ ___________________________________________________________________________________UK Life and Pensions 198.0 124.3 59 ___________________________________________________________________________________ International Operations Lombard 31.2 15.7 98 Friends Provident International 33.0 23.3 42 ___________________________________________________________________________________Total International Life and Pensions 64.2 39.0 65 ___________________________________________________________________________________ ___________________________________________________________________________________Total Group Life and Pensions 262.2 163.3 61 ___________________________________________________________________________________ Annualised Premium Equivalent (APE) represents annualised new regular premiumsplus 10% of single premiums. This information is provided by RNS The company news service from the London Stock ExchangeRelated Shares:
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