121
FINANCIAL STATEMENTS
7 SEGMENTAL REPORTING Adjusted operating profit
The Group reports adjusted operating profit as an alternative measure of profit which is used for decision making and performance measurement. The Board believes that adjusted operating profit, which excludes effects of short-term economic and investment changes, provides a better view of the longer-term performance and development of the business and aligns with the longer-term nature of the products. The underlying operating profit represents a combination of both the profit generated from new business written in the year and profit expected to emerge from the in-force book of business based on current assumptions. Actual operating experience, where different from that assumed at the start of the year, and the impacts of changes to future operating assumptions applied in the year, are then also included in arriving at adjusted operating profit. New business profits represent expected investment returns on financial instruments backing shareholder and policyholder funds after allowances for expected movements in liabilities and acquisition costs. Profits arising from the in-force book of business represent the expected return on surplus assets, the expected unwind of prudent reserves above best estimates for mortality, expenses, corporate bond defaults and, with respect to lifetime mortgages, no-negative equity guarantee and early redemptions. Adjusted operating profit excludes the impairment and amortisation of goodwill and other intangible assets arising on consolidation, non-recurring and project expenditure, implementation costs for cost saving initiatives, and investment and economic profits, since these items arise outside the normal course of business in the year. Adjusted operating profit also excludes exceptional items. Exceptional items are those items that, in the Directors’ view, are required to be separately disclosed by virtue of their nature or incidence to enable a full understanding of the Group’s financial performance. Variances between actual and expected investment returns due to economic and market changes, and gains and losses on the revaluation of land and buildings, are also disclosed outside adjusted operating profit. Segmental analysis The insurance segment writes insurance products for the retirement market – which include Guaranteed Income for Life Solutions, Defined Benefit De-risking Solutions, Care Plans, Flexible Pension Plans and Protection − and invests the premiums received from these contracts in debt securities, gilts, liquidity funds and Lifetime Mortgage advances. The professional services business, HUB, is included with other corporate companies in the Other segment. This business is not currently sufficiently significant to separate from other companies’ results. The Other segment also includes the Group’s corporate activities that are primarily involved in managing the Group’s liquidity, capital and investment activities.
The Group operates in one material geographical segment, which is the United Kingdom. Segmental reporting and reconciliation to financial information
Year ended 31 December 2020
Year ended 31 December 2019
Insurance £m
Other £m
Total £m
Insurance £m
Other £m
Total £m
199.2
–
199.2
New business operating profit In-force operating profit Underlying operating profit
182.0
–
182.0
96.8
1.0 1.0
97.8
82.6
1.8 1.8
84.4
296.0
297.0
264.6
266.4
46.2
–
46.2
Operating experience and assumption changes Other Group companies’ operating results
42.2
–
42.2
–
(17.1)
(17.1)
–
(13.1)
(13.1) (10.3) (66.6)
(5.9)
(1.4)
(7.3)
Development expenditure
(7.1)
(3.2) (5.1)
(79.5)
–
(79.5)
Reinsurance and financing costs Adjusted operating profit before tax Non-recurring and project expenditure Implementation of cost saving initiatives Investment and economic profits/(losses)
(61.5)
256.8
(17.5)
239.3
238.2
(19.6)
218.6
(7.1) (7.8)
(5.6) (0.7) (0.9)
(12.7)
(3.8)
(4.5) (0.2)
(8.3)
(8.5)
(13.3)
(13.5)
9.4
8.5
173.7
0.1 2.8
173.8
28.1
–
28.1
Interest adjustment to reflect IFRS accounting for Tier 1 notes as equity
14.0
16.8
Profit/(loss) before amortisation costs and tax
279.4
(24.7)
254.7
408.8
(21.4)
387.4
(18.0)
Amortisation costs
(18.8)
Profit/(loss) before tax
236.7
368.6
Segmental revenue All net premium revenue arises from the Group’s insurance segment. Net investment income of £1,777.6m arose from the insurance segment and £0.1m arose from other segments (2019: £1,450.2m and £1.5m respectively). Segmental fee and commission income is presented in the disaggregation of fees and other income below.
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