RBS 2006 Annual Report Download - page 188
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RBS Group • Annual Report and Accounts 2006 187
Financial statements
Life business
The Group’s three regulated life companies, National
Westminster Life Assurance Limited, Royal Scottish Assurance
plc (“RSA”) and Direct Line Life Insurance Company Limited,
are required to meet minimum capital requirements at all times
under the Financial Service Authority’s Prudential Sourcebook.
The capital resources covering the regulatory requirement are
not transferable to other areas of the Group. To ensure that the
capital requirement is satisfied at all times, each company
holds an additional voluntary buffer above the regulatory
minimum.
The Group is not exposed to price, currency, credit, or interest
risk on unit linked life contracts but it is exposed to variation in
management fees. A decrease of 10% in the value of the
assets would reduce the asset management fees by £5 million
per annum (2005 – £5 million). The Group also writes insurance
contracts with minimum guaranteed death benefits that expose
it to the risk that declines in the value of underlying investments
may increase the Group’s net exposure to death risk.
The Group’s long-term assurance contracts include whole-life,
term assurance, endowment assurances, flexible whole life,
pension and annuity contracts that are expected to remain in
force for an extended period of time.
Contracts under which the Group does not accept significant
insurance risk are classified as investment contracts. Long
term business provisions are calculated in accordance with
FRS 27 ‘Life Assurance’.
Estimations (assumptions) including future mortality, morbidity,
persistency and levels of expenses are made in calculating
actuarial reserves. Key metrics include:
Assumptions 2006 2005 2004
Valuation interest rate
Term assurance 3.00% 2.85% 3.00%
Sterling interest 3.00% 2.85% 3.00%
Unit growth 3.50% 2.85% 3.00%
Expense inflation 4.00% 4.00% 4.00%
Sample mortality rates, expressed as deaths per million per annum, for term assurance products (age 40).
Mortality
Male non-smoker 517 470 497
Male smoker 983 893 946
Female non-smoker 278 253 270
Female smoker 618 563 599
Expenses:
2006 2005 2004
Pre-2000 products – RSA per annum per annum per annum
Lifestyle protection plan £28.96 £29.81 £27.17
Mortgage savings plan £65.15 £67.05 £60.08
Pre-2000 products – NatWest Life
Term assurances £26.01 £26.79 £25.13
Single premium unit-linked bonds £23.17 £23.86 £22.38
Post-2000 products
Term assurances £23.16 £23.97 £22.38
Guaranteed bonds £25.71 £26.92 £25.13