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Business review
Summary basis of preparation
Our business review has been prepared in line with section 234 ZZB of the Companies Act 1985, which reflects the European Union Accounts Modernisation Directive. To give our shareholders clear and helpful information, we have also considered the voluntary best practice principles of the Reporting statement: Operating and Financial Review (OFR) issued by the Accounting Standards Board (ASB).The Group’s financial statements have been prepared in accordance with International Financial Reporting Standards (IFRS). However, our Board believes that non-GAAP measures, which we have used in the business review, together with other measures that are calculated in accordance with IFRS, are useful for both management and investors and make it easier to understand our Group’s performance.
The most important non-GAAP measures in the business review include European Embedded Value (EEV) information and IFRS underlying profit.
All non-GAAP measures should be read together with the Group’s IFRS statutory income statement, balance sheet and cash flow statement which are presented in the Group’s IFRS consolidated financial statements.
Where figures are described as pro forma, this means that they have been prepared for periods before demutualisation and indicate the profits that would have occurred if the post demutualisation structure had applied.
Further details can be found in the basis of preparation section of the business review.
Key differences between the EEV and IFRS bases
| EEV | IFRS |
|---|---|
| For new business, all profits
expected to arise on the contract
are recognised at the point of sale.
Future profits are discounted to a
present value using an appropriate
discount rate over the lifetime of
the contract. Profit on in-force business is recognised with the unwind of the risk discount rate as future cash flows move one year nearer to realisation. Adjustments are also made to profit in order to reflect variances from assumptions and current best estimate assumptions. | For new business, profits expected
to arise on the contract in future
years are not recognised. Not all
acquisition costs are deferred and
therefore the IFRS results recognise
the initial cost or strain associated
with writing long-term business. Profit on in-force business is the statutory surplus for the year adjusted for the amortisation of deferred acquisition costs. |
