LIFE INSURANCE SENSITIVITY ANALYSIS

12 Months Ended

Dec. 31, 2018

Disclosure of information about defined benefit plans [abstract]

Disclosure of sensitivity analysis for actuarial assumptions [text block]

NOTE 32: LIFE INSURANCE SENSITIVITY ANALYSIS

The following table demonstrates the effect of reasonably possible changes in key assumptions on profit before tax and equity disclosed in these financial statements assuming that the other assumptions remain unchanged. In practice this is unlikely to occur, and changes in some assumptions may be correlated. These amounts include movements in assets, liabilities and the value of the in-force business in respect of insurance contracts and participating investment contracts. The impact is shown in one direction but can be assumed to be reasonably symmetrical.

		2018						2017
	Change in variable	Increase (reduction in profit before tax £m		)	Increase (reduction in equity £m		)	Increase (reduction in profit before tax £m		)	Increase (reduction in equity £m		)
Non-annuitant mortality and morbidity1	5% reduction		22			18			23			19
Annuitant mortality2	5% reduction		(234	)		(194	)		(221	)		(184	)
Lapse rates3	10% reduction		89			74			75			62
Future maintenance and investment expenses4	10% reduction		262			217			289			240
Risk-free rate5	0.25% reduction		76			63			(40	)		(33	)
Guaranteed annuity option take up6	5% addition		(3	)		(2	)		(6	)		(5	)
Equity investment volatility7	1% addition		(5	)		(4	)		(7	)		(6	)
Widening of credit default spreads on corporate bonds8	0.25% addition		(364	)		(303	)		(235	)		(195	)
Increase in illiquidity premia9	0.10% addition		153			127			145			120

Assumptions have been flexed on the basis used to calculate the value of in-force business and the realistic and statutory reserving bases.

1	This sensitivity shows the impact of reducing mortality and morbidity rates on non-annuity business to 95 per cent of the expected rate.
2	This sensitivity shows the impact on the annuity and deferred annuity business of reducing mortality rates to 95 per cent of the expected rate.
3	This sensitivity shows the impact of reducing lapse and surrender rates to 90 per cent of the expected rate.
4	This sensitivity shows the impact of reducing maintenance expenses and investment expenses to 90 per cent of the expected rate.
5	This sensitivity shows the impact on the value of in-force business, financial options and guarantee costs, statutory reserves and asset values of reducing the risk-free rate by 25 basis points.
6	This sensitivity shows the impact of a flat 5 per cent addition to the expected rate.
7	This sensitivity shows the impact of a flat 1 per cent addition to the expected rate.
8	This sensitivity shows the impact of a 25 basis point increase in credit default spreads on corporate bonds and the corresponding reduction in market values. Swap curves, the risk-free rate and illiquidity premia are all assumed to be unchanged.
9	This sensitivity shows the impact of a 10 basis point increase in the allowance for illiquidity premia. It assumes the overall spreads on assets are unchanged and hence market values are unchanged. Swap curves and the non-annuity risk-free rate are both assumed to be unchanged. The increased illiquidity premium increases the annuity risk-free rate.