4 Investment Return

(i) Profit before tax
With the exception of fixed interest investments held by Jackson National Life, investment gains during the period (to the extent that changes in capital values do not directly match changes in liabilities) are included in the profit for the year and shareholders’ funds as they arise.

In the case of Jackson National Life, it is assumed that fixed income investments will normally be held until maturity. Therefore unrealised gains are not reflected in either the achieved profits or statutory basis results and, except on realisation of investments, only income received and the amortisation of the difference between cost and maturity values are recognised to the extent attributable to shareholders.

(ii) Operating profit
Except for Jackson National Life, investment returns, including investment gains, in respect of long-term insurance business are recognised in operating results at the expected long-term rate of return. For the purposes of calculating investment return to be recognised in operating results, values of assets at the beginning of the reporting period, to which the expected long-term rates of return are applied, are adjusted to be consistent with long-term expected income yields. This adjustment is most significant for the results of the UK operations.

For Jackson National Life some investments are realised before maturity, mainly through early redemption by issuers or mortgage holders. Gains made on realisation are spread forward over five years for the purposes of calculating operating results.

Consistent with the change of method for recognition of investment returns explained in note 3 the basis for crediting investment returns to operating profit for general insurance and shareholders’ funds has been altered. The effect of the change is as follows:

Click icon to see this table in Excel format		1998 £m	1997 £m
Total operating profit before tax
	Before change	1,048	1,198
	After change	1,023	1,167
Total operating profit after tax
	Before change	771	837
	After change	752	811
Operating earnings per share
	Before change	39.7p	43.3p
	After change	38.7p	42.0p
Comparative results for 1997 have been restated for the change of method. The change has no effect on total profit before or after tax.