RBS 2008 Annual Report Download - page 117

RBS Group Annual Report and Accounts 2008116
Business review continued
Life insurance 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 FSA 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 a voluntary
buffer above the regulatory minimum. Reserving risk is managed for life
businesses through detailed analysis of historical and industry claims
data and robust control procedures around reserving models. The
Group uses exclusively proportional reinsurance, quota share and
surplus, for its life insurance entities.
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. In the UK, 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 mortality risk.
The Group’s long-term assurance contracts include whole-life, term
assurance, endowment assurance, 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:
Assumptions 2008 2007 2006
Valuation interest rate
Term assurance 2.50% 3.00% 3.00%
Interest 2.50% 3.00% 3.00%
Unit growth 3.70% 3.50% 3.50%
Expense inflation 3.00% 4.00% 4.00%
Sample mortality rates, expressed as deaths per million per annum, for term assurance products (age 40).
2008 2007 2006
Mortality per annum per annum per annum
Male non-smoker 723 810 517
Male smoker 1,590 1,830 983
Female non-smoker 568 460 278
Female smoker 1,277 1,310 618
Expenses:
2008 2007 2006
Pre-2000 products – RSA per annum per annum per annum
Lifestyle protection plan £29.30 £25.18 £28.96
Mortgage savings plan £65.92 £56.67 £65.15
Pre-2000 products – NatWest Life
Term assurances £26.01 £26.01 £26.01
Linked life bonds £26.01 £26.01 £26.01
Post-2000 products
Term assurances £23.17 £23.16 £23.16
Guaranteed bonds £25.71 £25.71 £25.71