100 | FINANCIAL STATEMENTS | Notes to the Consolidated Financial Statements


29. Investment contract liabilities Investment contract liabilities in respect of policyholder investments at the start and end of the year and an analysis of movements during the year are as follows:


Note


Liability as at 1 January Contributions received Investment return applied Charges levied Repayments


Movement in contingency reserve Movement in reinsurance ceded


Liability as at 31 December 3


2011 £m


559.2 41.6 13.7 (1.9)


(139.8) – –


472.8


2010 £m


649.9 66.4 74.3 (3.1)


(229.2) (0.2) 1.1


559.2


All investment contract liabilities have been disclosed as current liabilities as this is considered to be appropriate to the rights of policyholders who may withdraw their investments at short notice. The Directors expect that the majority of the investment contract liabilities will be repayable outwith one year.


30. Insurance contract liabilities Insurance contract liabilities include life assurance liabilities in respect of lifetime guarantees provided with certain investment products, and annuity liabilities in respect of pension investment contracts where the investor has retired. These liabilities and related reinsurance balances at the start and end of the year, together with an analysis of movements in the year, are as follows:


2011


Gross Reinsurance £m


At 1 January Claims paid


Change in economic assumptions Unwinding of discount rate


At 31 December 2.0


(0.2) 0.1 0.1


2.0 £m


(2.0) 0.2


(0.1) (0.1)


(2.0) The reinsurance liabilities relate to annuity business reinsured with Friends Life Limited.


A liability adequacy test was carried out at policy level and resulted in no additional provision for either 2011 or 2010. No significant gain or loss arose on reinsurance contracts incepted in 2011 or 2010.


Assumptions The principal assumptions used in determining the insurance contract liabilities and the reinsurer’s share of these liabilities, and the process adopted to arrive at these assumptions are as follows:


Mortality rates Annuities in payment 2011


Males: 97%FCMA00; Females: 92%FCFA00


2010 82–93% PCXA00


Due to the small number of annuity policies, the mortality assumptions reflect recent experience of the reinsurer together with an allowance for future mortality improvement. Experience analysis for mortality is performed annually by the reinsurer.


Discount rate The discount rate used at 31 December 2011 is 4.02% (31 December 2010: 4.81%) based on current fixed interest gross redemption yields, with a prudent adjustment for risk.


Net £m


– – – –


– 1.9


(0.1) 0.1 0.1


2.0 2010


Gross Reinsurance £m


£m


(1.9) 0.1


(0.1) (0.1)


(2.0)


Net £m


– – – –


–


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