2 Assumptions

(i) Methodology
The achieved profits basis results incorporate best estimate forecasts of future rates of investment return, proprietor’s spread (in the case of Jackson National Life), policy discontinuancies, mortality, expenses, expense inflation, taxation, bonus rates, surrender and paid up bases, and statutory valuation bases. In preparing these forecasts, account has been taken of recent experience and general economic conditions together with inherent uncertainty. It has been assumed that the bases and rates of taxation, both direct and indirect, will not change materially in the countries in which the Group operates.

The proportion of surplus allocated to shareholders from the UK with-profits business has been based on the present level of ten per cent. Future bonus rates have been set at levels which would fully utilise the assets of the with-profits fund over the lifetime of the business in force. In the UK, Department of Social Security rebate business has been treated as single premium business.

With the exception of the expected future rate of investment return for the UK with-profits fund and related discount rate, and assumptions for surrender rates and discount rate in Jackson National Life, the results for 1998 and 1997 have been prepared using the same principal assumptions.

(ii) Expected rates of future investment return and spread assumptions
Expected future rates of investment return reflect prevailing interest rates, the outlook for inflation and the mix of the investment portfolio. In determining the 1997 results for UK operations, the gross of tax expected future rate of investment return was taken as nine per cent. For 1998, following a revision to inflationary expectations, the expected future rate of investment return for the UK with-profits fund has been reduced to eight per cent.

For Jackson National Life, the absolute level of rates of future return is less important than the spread achieved between the earned rate and the rates credited to policyholders. In determining the results for both 1998 and 1997, a spread of 1.90 per cent for the main single premium deferred annuity product has been assumed.

Management charges on unit linked business have been projected from smoothed unit prices.