RBS 2007 Annual Report Download - page 199

RBS Group • Annual Report and Accounts 2007 197
Financial statements
Europe UK
Assumptions 2007 2007 2006 2005
Valuation interest rate
Term assurance 3.00% 3.00% 2.85%
Interest 4.06% 3.00% 3.00% 2.85%
Unit growth 5.38% 3.50% 3.50% 2.85%
Expense inflation 3.00% 4.00% 4.00% 4.00%
Sample UK mortality rates, expressed as deaths per million per annum, for term assurance products (age 40).
Mortality
Male non-smoker 810 517 470
Male smoker 1,830 983 893
Female non-smoker 460 278 253
Female smoker 1,310 618 563
In 2007 the Group moved from the UK 80 series to the 00 series for mortality. In Europe there is an aggregate mortality rate of 1,117
deaths per million per annum (aged 40).
Expenses:
2007 2006 2005
Pre-2000 products – RSA per annum per annum per annum
Lifestyle protection plan £25.18 £28.96 £29.81
Mortgage savings plan £56.67 £65.15 £67.05
Pre-2000 products – NatWest Life
Term assurances £26.01 £26.01 £26.79
Single premium unit-linked bonds £23.17 £23.17 £23.86
Post-2000 products
Term assurances £23.16 £23.16 £23.97
Guaranteed bonds £25.71 £25.71 £26.92
Life business
The Group’s three UK 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 £2 million
per annum (2006 – £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
the UK accounting standard FRS 27 ‘Life Assurance’.
Estimations (assumptions) including future mortality, morbidity,
persistency and levels of expenses are made in calculating
actuarial reserves. Key metrics include: