ANNUAL REPORT AND FINANCIAL STATEMENTS 2012 | 97


28. 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 reinsurance ceded Liability as at 31 December


3


2012 £m


472.8 52.1 40.6 (1.5)


(424.2) (2.9)


136.9


2011 £m


559.2 41.6 13.7 (1.9)


(139.8) –


472.8


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. As at 25 March 2013 the vast majority of the remaining investment contract liabilities have been settled, in accordance with the planned closure of the underlying investment product.


29. 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:


2012


Gross Reinsurance £m


At 1 January Claims paid


2.0


Change in economic assumptions ––– 0.1 Unwinding of discount rate Transferred out during the year


(0.2) 0.1


(1.9) At 31 December


(0.1) 1.9


– £m


(2.0) 0.2


Net £m


– –


2.0


(0.2) 0.1


––– 2.0 2011


Gross Reinsurance £m


£m


(2.0) 0.2


(0.1) (0.1)


Net £m


– – – –


– ––– (2.0)


–


The reinsurance liabilities related to annuity business reinsured with Friends Life Limited. The liabilities and the associated assets were transferred to Friends Life Limited following Court Approval on 28 December 2012.


A liability adequacy test was carried out at policy level and resulted in no additional provision for either 2012 or 2011. No significant gain or loss arose on reinsurance contracts incepted in 2012 or 2011.


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


2012 n/a


n/a 2011


Males: 97% FCMA00; Females: 92% FCFA00


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


Discount rate The discount rate used at 31 December 2011 was 4.02% based on fixed interest gross redemption yields, with an adjustment for risk.


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