RBS 2009 Annual Report Download - page 319

317RBS Group Annual Report and Accounts 2009
Financial statements
Notes on the accounts
Sensitivity factor Description of sensitivity factor applied
Interest rate and investment return Change in market interest rates of ±1%.
The test allows consistently for similar changes to investment returns
and movements in the market value of backing fixed interest securities.
Expenses Increase in maintenance expenses of 10%
Assurance mortality/morbidity Increase in mortality/morbidity rates for assurance contracts of 5%
Annuitant mortality Reduction in mortality rates for annuity contracts of 5%
The above sensitivity factors are applied via actuarial and statistical models, with the following effect on the financial statements.
Increase/(decrease) in profit and equity
2009 2008 2007
Risk factor £m £m £m
Interest rates (11) (11) (18)
Interest rates 10 11 15
Expenses (9) (7) (5)
Assurance mortality/morbidity (12) (9) (8)
Frequency and severity of claims – for contracts where death is the
insured risk, the most significant factors that could increase the overall
frequency of claims are epidemics or widespread changes in lifestyle,
resulting in earlier or more claims than expected.
For contracts where survival is the insured risk, the most significant
factor is continued improvement in medical science and social
conditions that would increase longevity.
For contracts with fixed and guaranteed benefits and fixed future
premiums, there are no mitigating terms and conditions that reduce the
insurance risk accepted. Participating contracts can result in a
significant portion of the insurance risk being shared with the insured
party.
Sources of uncertainty in the estimation of future benefit payments and
premium receipts – the Group uses base tables of standard mortality
appropriate to the type of contract being written and the territory in
which the insured person resides. These are adjusted to reflect the
Group’s experience, mortality improvements and voluntary termination
behaviour.
Limitations of sensitivity analysis: the above tables demonstrate the
effect of a change in a key UK assumption whilst other assumptions
remain unaffected. In reality, such an occurrence is unlikely, due to
correlation between the assumptions and other factors. It should also
be noted that these sensitivities are non-linear, and larger or smaller
impacts should not be interpolated or extrapolated from these results.
The sensitivity analyses do not take into consideration that assets and
liabilities are actively managed and may vary at the time that any actual
market movement occurs.
25 Subordinated liabilities Group Company
2009 2008 2007 2009 2008 2007
£m £m £m £m £m £m
Dated loan capital 24,597 30,162 23,065 6,526 7,421 5,585
Undated loan capital 8,164 11,697 9,866 574 1,071 781
Preference shares 2,000 2,194 1,686 1,662 1,822 1,377
Trust preferred securities 2,891 5,101 3,426 ———
37,652 49,154 38,043 8,762 10,314 7,743