Segmental analysis of EEV operating profit before tax

The following table provides an analysis of the EEV operating profit before tax for the year ended 31 December 2007 and also pro forma comparative results for 2006.

¹ Heritage With Profits Fund TVOG.
² Excluding the profits made on life and pensions business.
³ The investment management result for both periods includes the profits of other general insurance operations managed by our investment management business. In previous periods all general insurance was included in Healthcare and general insurance.

Operating profit before tax increased by 43% to £881m (2006: £614m). Our covered business accounts for £224m of this increase.

UK covered business operating profit rose by £234m to £606m. The core elements produced operating profit of £583m compared to £410m in 2006, an increase of 42%. This was mainly attributable to a £115m increase in NBC, a £54m increase in expected return and a £4m reduction in development costs. Efficiency gains contributed £77m compared to £28m in 2006. Back book management operating losses were £54m compared to £66m in 2006. In 2007 the back book management losses were largely attributed to the negative impact of lapses of £277m and mortality and morbidity charges of £47m partially offset by the positive impact of deferred annuities of £191m. Further comments on the components of UK operating profit, including the current trends in lapses, are provided in the business segment performance section.

Operating profit in Canada increased by £15m to £178m in 2007. The core elements accounted for £126m compared to £118m in 2006, an increase of 7%. This increase was driven by a £9m increase in NBC, a £1m increase in expected return offset by a £2m increase in development expenses. Efficiency gains were £25m compared to £53m in 2006. Back book management operating profit was £27m compared to a loss of £8m in 2006. The positive return in 2007 is largely attributable to tax variances and positive lapse assumptions partially offset by higher mortality and morbidity charges.

In Europe, operating profit fell by £19m to £26m (2006: £45m), despite an increase in the core profit of £11m to £43m, which was mainly attributable to a £16m increase in NBC. Efficiency gains were £7m compared to £14m in 2006 and the back book management operating loss was £24m, mainly arising from lapse assumption changes in Ireland, compared to a loss of £1m in 2006.

Losses in relation to 'Other' were in respect of the rapid expansion of the Asia Pacific business.

There was £42m (2006: £44m) of HWPF TVOG back book management operating profit in 2007 due to interest rate hedging for HWPF annuities, refinements to the interaction of dynamic management actions across UK and German business, and the modelling of the distribution of the HWPF residual estate to with profits policyholders.

The operating profits from our non-life and pensions entities were £41m (2006: loss £2m). This increase in profits was mainly attributable to the reduction in Group Corporate Centre (GCC) costs which fell from £89m to £57m, a full year's investment income on assets held in the Group's holding company, Standard Life plc, compared to half a year's income in 2006, partially offset by £10m in respect of a provision for a guarantee, and increased profits from our investment management and healthcare businesses. These increases were partially offset by higher losses in Standard Life Savings Limited, our mutual funds and Wrap business which rose from £20m to £25m, after 2007 losses being reduced by the transfer out of £25m of certain mutual funds losses to UK covered business.

Further comments on the operating profits of each of the businesses noted above are provided in the business segment performance section.

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