(i) Change of presentation
Consistent with the recommendations included within the Statement of Recommended Practice on Accounting for Insurance Business issued by the Association of British Insurers in December 1998, the accounting policy for recognition of investment returns has been altered. Under the new policy, investment returns credited to operating results, for investments attributable to shareholders, are determined using the longer term rate of return or (by five year averaging of gains) an estimate thereof. Previously, all gains on these investments were recognised in operating results on a five year averaged basis. The basis for determining tax charges allocated to operating profits has also been altered to reflect the changes made at the pre-tax level.

The changes have no effect on total profit before or after tax.

(ii) Longer term investment return
The longer term rate of return is based on historical real rates of return and current inflation expectations adjusted for consensus economic and investment forecasts. The only significant general business and shareholder investments which require calculation of a longer term rate of return are UK equities. For these investments the longer term rate of return (net of advance corporation tax credits) has been taken to be 8.1% (9.2%). The net longer term dividend yield has been assumed to be 2.6% (3.0%).

For long-term business the most significant element of gains on investments that are attributable to shareholders arises in Jackson National Life. Gains made on realisation of such investments, which are principally fixed income securities, continue to be averaged over five years for the purposes of calculating operating results. From 1998 onwards the gains subject to averaging are determined after deduction of related amortisation charges for deferred acquisition costs.

(iii) Comparison of longer term investment gains with actual investment gains
For the Group’s continuing operations with investment portfolios that are both attributable to shareholders and subject to short-term volatility, a comparison of actual and longer term gains is set out below.

No distinction has been made between gains attributable to general business and shareholders as the relevant assets are managed on a combined basis.