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Group EEV capital and cash generation
| 2007 |
Pro forma 2006 |
|||||
|---|---|---|---|---|---|---|
| Free surplus movement £m |
Required capital movement £m |
Net worth movement £m |
Free surplus movement £m |
Required capital movement £m |
Adjusted net worth movement £m |
|
| New business strain | (272) | 47 | (225) | (335) | 32 | (303) |
| Capital and cash generation from existing business | 561 | (12) | 549 | 451 | (15) | 436 |
| Operating capital and cash generation from new business and expected return |
289 | 35 | 324 | 116 | 17 | 133 |
| Capital and cash generation from variances, development costs and assumption changes |
294 | (1) | 293 | 63 | 48 | 111 |
| Total covered business capital and cash movements | 583 | 34 | 617 | 179 | 65 | 244 |
| Total non-covered business cash movements | (17) | 18 | ||||
| Total covered and non-covered business capital and cash movements |
600 | 262 |
All figures are net of tax. Net (expenses)/income directly recognised in the EEV balance sheet, including exchange differences and distributions to and injections from shareholders are not included as these are not trading related cash flows.
The Group's IFRS cash flow statement included in the Group IFRS consolidated financial statements, shows that our net cash inflows from operating activities were £2,828m (2006: outflow £730m). However, this statement combines cash flows relating to both policyholders and equity holders whereas the practical management of cash within the Group maintains a distinction between the two, as well as taking into account regulatory and other restrictions on availability and transferability of capital.
Within the Group we therefore analyse cash flow on a number of additional bases and we take the view that an analysis of the movement in the European Embedded Value (EEV) shareholders' net worth is more representative of underlying shareholder capital and cash flow than the IFRS cash flow statement. Furthermore, under existing EEV principles we are required to identify required capital for all covered business. Increases/ (decreases) in required capital will not reduce the shareholders' net worth as no external cash flows are made but will act to decrease/(increase) the free surplus. For definition of terms please refer to the glossary.
The analysis in the table above highlights the most significant
influences on free surplus and shareholders' net
worth, including investment of shareholder capital
in new business (new business strain) and the
amount of capital and cash emerging from
existing business. Our
operating capital and
cash flows from new
business and expected
return have increased to
£324m (2006: £133m)
reflecting strong capital
and cash flows from
in-force business and
improvements in new
business strain (NBS).
Despite the increase
in new business we
achieved a reduction in
NBS. This means that
we are more efficient
at using the capital and
cash generated by the
business, which allows
for further investment in the business and
payment of dividends to our shareholders. In
overall terms, our covered and non-covered capital
and cash movements have increased from £262m
to £600m in 2007.
We also analyse capital and cash generated in the three components which reflect the focus of our business effort - core, efficiency and back book management.
This analysis shows that there was positive capital and cash generation from all of our key areas of focus as well as from the non-operating items. Core and back book management were the main contributors to our impressive capital and cash generation in 2007. The core capital and cash flows of £334m reflect the lower NBS compared to the expected in-force capital and cash flows, whilst the back book management capital and cash flows of £209m include the one off impact of significant reserve releases from both the UK deferred annuities review and our adoption of PS06/14.
