Review of the Year
Financial Review
Shareholder cash generation and long-term debt
Shareholder cash generation
| 2007 £m |
2006 £m |
|
|---|---|---|
| UK Life & Pensions: | ||
| New business strain | (211) | (295) |
| In-force surplus | 186 | 233 |
| Taxation | 49 | 35 |
| Other | (4) | - |
| UK Life & Pensions net cash operating surplus | 20 | (27) |
| International Life & Pensions: | ||
| New business strain | (110) | (65) |
| In-force surplus | 86 | 99 |
| Taxation | 6 | (1) |
| Other | 1 | - |
| International Life & Pensions net cash operating surplus | (17) | 33 |
| Life & Pensions net cash operating surplus | 3 | 6 |
| One-off items | 87 | 274 |
| Investment return and other | 64 | 32 |
| F&C dividend received | 23 | 28 |
| Cash generated by the business before finance items | 177 | 340 |
| Dividends paid | (168) | (164) |
| Securitisation | (22) | (86) |
| Financial reinsurance | 12 | (69) |
| IFA acquisitions – intangible assets | (55) | - |
| Convertible bond | 276 | - |
| Other finance items (mainly issue of shares) | - | (76) |
| Total movement | 220 | (55) |
Life & Pensions
One-off items
One-off items of £87m comprise the cash impact of principal reserving items and one-off items of £143m (2006: £274m) as described here, together with tax on these items of £(37)m and the impact of increasing the FPIL tax rate to 28% of £(19)m.
Investment return and other
Investment return and other mainly comprises:
- The positive impact of £164m of marking to market our long-term debt
- The negative impact of £(90)m of widening of bond spreads on our life book
- Positive equity returns, before we reduced our shareholder equity exposure in August 2007, offset by the impact of increasing yields on fixed interest security values.
Securitisation
The amount to be repaid on our securitisation notes is £22m and is lower than expected because widening corporate bond spreads have reduced the surplus generated by the defined book.
IFA acquisitions
The acquisitions of Sesame and Pantheon Financial have reduced shareholder cash resources by the cash outgo net of tangible net assets acquired. No credit is taken for intangible assets and goodwill.
Convertible bond
The £290m convertible bond matured in December 2007. This was redeemed by the issue of shares with a value of £276m and £14m cash. Total shareholder cash resources have increased by £276m as a result, being the extinguishing of the £290m liability less the £14m cash paid.
Shareholder cash resources
As a result of the total increase in cash of £220m, Shareholder cash resources stand at £1,477m, as follows:
| 2007 £m |
2006 £m |
Movement £m |
|
|---|---|---|---|
| Shareholder invested net assets | 1,449 | 1,164 | 285 |
| Securitisation | 71 | 93 | (22) |
| Financial reinsurance | 12 | - | 12 |
| IFA subsidiaries – intangible assets | (55) | - | (55) |
| Shareholder cash resources | 1,477 | 1,257 | 220 |
Long-term borrowings
Long-term borrowings have reduced to £0.4bn due to the conversion of the £290m convertible bonds in December 2007 and the repayment of £144m securitisation notes. £27m loan notes were issued in part settlement of the final Lombard earnout payment. £6m of Lombard subordinated loans were repaid in December 2007. Financial reinsurance was used by FPI to help finance new business strain.
| Coupon % | 2007 £m |
2006 £m |
|
|---|---|---|---|
| Subordinated liabilities: | |||
| F&C subordinated debt | Various | 258 | 258 |
| Lombard undated subordinated loans | Various | 4 | 10 |
| Debenture loans: | |||
| Box Hill Life Finance plc securitisation notes – class A-1 due 2016 | 3m Libor + 0.20 |
54 | 198 |
| Box Hill Life Finance plc securitisation notes – class A-2 due 2019 | 3m Libor + 0.23 | 100 | 100 |
| F&C Commercial Property Trust (a policyholder investment) secured bonds due 2017 | 5.23 | 229 | 229 |
| Friends Provident plc loan notes due 2011 | 3m Libor – 0.75 | 18 | 18 |
| Friends Provident plc loan notes due 2012 | 3m Libor – 0.75 | 26 | - |
| Financial reinsurance: | |||
| FPI financial reinsurance | 3m Euribor + 1.75 | 11 | - |
| Lombard financial reinsurance | 3m Euribor + 2.12 | 17 | 24 |
| Convertible bonds: | |||
| £290m Friends Provident plc convertible bonds due 2007 | 5.25 | - | 283 |
| Long-term borrowings | 717 | 1,120 |
STICS
Step-up Tier one Insurance Capital Securities (STICS) of £810m is treated as equity under IFRS, but as long-term debt under EEV.