v3.25.4
Insurance business
 12 Months Ended
Dec. 31, 2025
Insurance business [Abstract]  
Disclosure of insurance contracts Note 8: Insurance business(A)Insurance service result
2025
£m
2024
£m
2023
£m
Insurance revenue
Amounts relating to the changes in liabilities for remaining coverage:
CSM recognised for services provided
590
449
329
Change in risk adjustments for non-financial risk for risk expired
49
58
84
Expected claims and other insurance service expenses
1,730
1,916
1,907
Charges to funds in respect of policyholder tax and other
200
108
87
2,569
2,531
2,407
Recovery of insurance acquisition cash flows
117
105
87
Total life
2,686
2,636
2,494
Total non-life
752
655
514
Total insurance revenue
3,438
3,291
3,008
Insurance service expense
Incurred claims and other insurance service expenses
(1,749)
(1,978)
(1,897)
Changes that relate to past service: adjustment to liabilities for incurred claims
–
(4)
–
Changes that relate to future service: (losses) reversal of losses on onerous contracts
(84)
(72)
58
Amortisation of insurance acquisition cash flows
(117)
(105)
(88)
Total life excluding net impairment loss on insurance acquisition assets
(1,950)
(2,159)
(1,927)
Net impairment loss on insurance acquisition assets
–
(9)
(7)
Total life
(1,950)
(2,168)
(1,934)
Total non-life1
(593)
(565)
(480)
Total insurance service expense
(2,543)
(2,733)
(2,414)
Net (expense) income from reinsurance contracts held
(139)
(72)
2
Insurance service result
756
486
596
1Includes weather-related claims of £111 million (2024: £82 million; 2023: £57 million), of which £97 million (2024: £64 million; 2023: £51 million) was related to severe weather events.
(B)Net investment return on assets held to back insurance and investment contracts and net insurance finance (expense)
income arising from insurance and investment contracts
The following table shows the net investment return on assets held to back insurance and participating investment contracts and the net
finance expense arising from insurance, participating investment and reinsurance contracts, as required by IFRS 17. For completeness, the
net investment return on assets held to back third party interests in consolidated funds and non-participating investment contracts and
the related finance expense is also shown. These contracts are accounted for under IFRS 9.
2025
Life
£m
Non-life
£m
Total
£m
Net gains on financial assets and liabilities at fair value through profit or loss
15,408
34
15,442
Foreign exchange
(42)
–
(42)
Investment property losses
(4)
–
(4)
Net investment return on assets held to back insurance and participating investment contracts
15,362
34
15,396
Net investment return on assets held to back third party interests in consolidated funds
2,054
Net investment return on assets held to back non-participating investment contracts
6,394
Investment return on assets held to back insurance and investment contracts1
23,844
Changes in fair value of underlying items of direct participating contracts
(14,943)
–
(14,943)
Effects of risk mitigation option
174
–
174
Interest accreted
(701)
(14)
(715)
Effect of changes in interest rates and other financial assumptions
64
–
64
Effect of changes in fulfilment cash flows at current rates when CSM is unlocked at locked-in rates
69
–
69
Net finance expense from insurance and participating investment contracts
(15,337)
(14)
(15,351)
Net finance income from reinsurance contracts held
54
–
54
Net finance expense from insurance, participating investment and reinsurance contracts
(15,283)
(14)
(15,297)
Movement in third party interests in consolidated funds
(1,954)
Change in non-participating investment contracts
(6,793)
Net finance expense arising from insurance and investment contracts
(24,044)
Net investment return and finance result in respect of insurance and investment contracts
(200)
Note 8: Insurance business continued
2024
Life
£m
Non-life
£m
Total
£m
Net gains on financial assets and liabilities at fair value through profit or loss
10,247
38
10,285
Foreign exchange
196
–
196
Investment property losses
(4)
–
(4)
Net investment return on assets held to back insurance and participating investment contracts
10,439
38
10,477
Net investment return on assets held to back third party interests in consolidated funds
1,105
Net investment return on assets held to back non-participating investment contracts
4,431
Net investment return on assets held to back insurance and investment contracts1
16,013
Changes in fair value of underlying items of direct participating contracts
(10,844)
–
(10,844)
Effects of risk mitigation option
161
–
161
Interest accreted
(839)
(7)
(846)
Effect of changes in interest rates and other financial assumptions
1,001
–
1,001
Effect of changes in fulfilment cash flows at current rates when CSM is unlocked at locked-in rates
140
–
140
Net finance expense from insurance and participating investment contracts
(10,381)
(7)
(10,388)
Net finance income from reinsurance contracts held
47
–
47
Net finance expense from insurance, participating investment and reinsurance contracts
(10,334)
(7)
(10,341)
Movement in third party interests in consolidated funds
(1,059)
Change in non-participating investment contracts
(4,878)
Net finance expense arising from insurance and investment contracts
(16,278)
Net investment return and finance result in respect of insurance and investment contracts
(265)
2023
Life
£m
Non-life
£m
Total
£m
Net gains on financial assets and liabilities at fair value through profit or loss
11,218
35
11,253
Foreign exchange
542
–
542
Investment property losses
(4)
–
(4)
Net investment return on assets held to back insurance and participating investment contracts
11,756
35
11,791
Net investment return on assets held to back third party interests in consolidated funds
1,179
Net investment return on assets held to back non-participating investment contracts
3,772
Net investment return on assets held to back insurance and investment contracts1
16,742
Changes in fair value of underlying items of direct participating contracts
(10,293)
–
(10,293)
Effects of risk mitigation option
172
–
172
Interest accreted
(874)
(6)
(880)
Effect of changes in interest rates and other financial assumptions
(654)
–
(654)
Effect of changes in fulfilment cash flows at current rates when CSM is unlocked at locked-in rates
(80)
–
(80)
Net finance expense from insurance and participating investment contracts
(11,729)
(6)
(11,735)
Net finance expense from reinsurance contracts held
51
–
51
Net finance expense from insurance, participating investment and reinsurance contracts
(11,678)
(6)
(11,684)
Movement in third party interests in consolidated funds
(1,109)
Change in non-participating investment contracts
(3,983)
Net finance income arising from insurance and investment contracts
(16,776)
Net investment return and finance result in respect of insurance and investment contracts
(34)
1Includes income of £15,009 million (2024: income of £10,688 million; 2023: income of £10,200 million) in respect of unit-linked and with-profit contracts measured applying the
variable fee approach. The assets generating the investment return held to back insurance and investment contracts are carried at fair value on the Group’s balance sheet.
(C)Insurance and participating investment contracts assets and liabilities
2025
2024
Life
£m
Non-life
£m
Total
£m
Life
£m
Non-life
£m
Total
£m
Insurance contract assets
113
–
113
–
–
–
Liabilities arising from insurance and participating investment
contracts1
(134,906)
(412)
(135,318)
(121,700)
(387)
(122,087)
Other liabilities2
–
–
–
(5,268)
–
(5,268)
Net liability
(134,793)
(412)
(135,205)
(126,968)
(387)
(127,355)
Insurance acquisition assets
–
34
34
–
23
23
Insurance and participating investment contacts net liability
(134,793)
(378)
(135,171)
(126,968)
(364)
(127,332)
1Excluding insurance acquisition assets.
2Liabilities arising from insurance contracts relating to the disposal of the Group's bulk annuity business were classified as disposal group liabilities in 2024 and presented in Other
liabilities in note 27.
On 13 March 2024, the Group entered into a business transfer agreement with Rothesay Life plc for the sale of the Group’s bulk annuity
business and to pursue the transfer of associated business assets and assumed liabilities under Part VII of the Financial Services and Markets
Act 2000. A reinsurance agreement between the Group and Rothesay Life plc was signed on 30 April 2024 to materially de-risk the Group’s
bulk annuity portfolio. The Part VII transfer was completed in June 2025 and associated reinsurance agreements were concluded.
At 31 December 2024, the Group presented the assets and liabilities relating to the bulk annuity business, including the reinsurance
contract assets arising from the agreement between the Group and Rothesay Life plc, as a disposal group. At the Part VII transfer date, the
Group derecognised the assets and liabilities of the disposal group, comprising £4.9 billion of reinsurance contract assets, £5.1 billion of
insurance contract liabilities, £50 million of goodwill and a £9 million deferred tax asset. Following the derecognition requirements in IFRS
17 for transfers of contracts to a third party, the Group recognised £179 million in insurance revenue, representing the release of CSM for
future service at the transfer date. The derecognition of the goodwill and deferred tax asset was charged to other operating income. The
overall pre-tax gain on derecognition of the disposal group was £120 million.
Of the fair value of underlying items in respect of direct participating contracts of £121,347 million (2024: £110,045 million), £122,685 million
(2024: £111,435 million) were financial assets at fair value through profit or loss and £902 million (2024: £1,125 million) were derivative
financial liabilities.
(D)Reconciliation of insurance balances for liability for remaining coverage and liability for incurred claims
2025
2024
Liabilities for
remaining coverage
Liability for
incurred
claims
£m
Liabilities for
remaining coverage
Liability for
incurred
claims
£m
Life
Excluding loss
component
£m
Loss
component
£m
Total
£m
Excluding loss
component
£m
Loss
component
£m
Total
£m
Net liability at 1 January1
(125,854)
(515)
(599)
(126,968)
(118,724)
(466)
(593)
(119,783)
Contracts under the fair value
transition approach
1,651
–
–
1,651
1,498
–
–
1,498
Other contracts
1,035
–
–
1,035
1,138
–
–
1,138
Insurance revenue
2,686
–
–
2,686
2,636
–
–
2,636
Insurance service expenses2
(120)
(40)
(1,790)
(1,950)
(105)
(44)
(2,010)
(2,159)
Insurance service result
2,566
(40)
(1,790)
736
2,531
(44)
(2,010)
477
Net finance expense from
insurance and participating
investment contracts
(15,313)
(19)
(5)
(15,337)
(10,371)
(5)
(5)
(10,381)
Exchange differences
(84)
–
–
(84)
80
–
–
80
Total change in profit or loss
(12,831)
(59)
(1,795)
(14,685)
(7,760)
(49)
(2,015)
(9,824)
Investment components
10,411
–
(10,411)
–
10,205
–
(10,205)
–
Premiums received
(10,618)
–
–
(10,618)
(10,679)
–
–
(10,679)
Claims and other insurance
service expenses paid
–
–
12,240
12,240
849
–
12,214
13,063
Insurance acquisition cash flows
306
–
–
306
265
–
–
265
Cash flows
(10,312)
–
12,240
1,928
(9,565)
–
12,214
2,649
Derecognition Consideration3
4,932
–
–
4,932
–
–
–
–
Transfer to other items in the
balance sheet
–
–
–
–
(10)
–
–
(10)
Net liability at 31 December1
(133,654)
(574)
(565)
(134,793)
(125,854)
(515)
(599)
(126,968)
1Excluding insurance acquisition assets.
2Losses and reversal of losses on onerous contracts amounted to a net loss of £84 million (2024: net losses of £72 million). Amortisation of insurance acquisition cash flows amounted to
£117 million (2024: £105 million).
3Derecognition consideration recognised due to transfer of bulk annuity business to Rothesay, as set out in section (C).
Note 8: Insurance business continued
2025
2024
Liabilities for
remaining coverage
Liability for
incurred
claims
£m
Liabilities for
remaining coverage
Liability for
incurred
claims
£m
Non-life
Excluding loss
component
£m
Loss
component
£m
Total
£m
Excluding loss
component
£m
Loss
component
£m
Total
£m
Net liability at 1 January1
(32)
–
(355)
(387)
(25)
–
(339)
(364)
Contracts under the fair value
transition approach
–
–
–
–
–
–
–
–
Other contracts
752
–
–
752
655
–
–
655
Insurance revenue
752
–
–
752
655
–
–
655
Insurance service expenses2
(31)
–
(562)
(593)
(32)
–
(533)
(565)
Insurance service result
721
–
(562)
159
623
–
(533)
90
Net finance income (expense)
from insurance and participating
investment contracts
–
–
(14)
(14)
–
–
(7)
(7)
Total change in profit or loss
721
–
(576)
145
623
–
(540)
83
Premiums received
(744)
–
–
(744)
(659)
–
–
(659)
Claims and other insurance
service expenses paid
–
–
540
540
–
–
524
524
Insurance acquisition cash flows
34
–
–
34
29
–
–
29
Cash flows
(710)
–
540
(170)
(630)
–
524
(106)
Net liability at 31 December1
(21)
–
(391)
(412)
(32)
–
(355)
(387)
1Excluding insurance acquisition assets.
2Losses and reversal of losses on onerous contracts amounted to £nil (2024: £nil). Amortisation of insurance acquisition cash flows amounted to £31 million (2024: £32 million).
(E)Summary of contractual service margin and risk adjustment
2025
2024
Life
£m
Non-life
£m
Total
£m
Life
£m
Non-life
£m
Total
£m
CSM on insurance and participating investment contracts1
4,385
–
4,385
4,646
–
4,646
CSM on reinsurance contracts2
(90)
–
(90)
(467)
–
(467)
Total CSM
4,295
–
4,295
4,179
–
4,179
Risk adjustment on insurance and participating investment contracts1
946
23
969
891
19
910
Risk adjustment on reinsurance contracts2
(39)
–
(39)
(68)
(1)
(69)
Total risk adjustment
907
23
930
823
18
841
Total
5,202
23
5,225
5,002
18
5,020
1Includes CSM of £nil (2024: £544 million) and risk adjustment of £nil (2024: £36 million) arising from insurance contracts classified as disposal group liabilities and presented in other
liabilities. Further information on the disposal group is provided in section (C).
2Includes CSM of £nil (2024: £(426) million) and risk adjustment of £nil (2024: £(36) million) on reinsurance contracts classified as disposal group assets and presented in other assets.
Further information on the disposal group is provided in section (C).
Note 8: Insurance business continued
(F)Reconciliation of measurement components of insurance contract balances
2025
Contractual service margin (CSM)
Life
Present
value of
future
cash
flows
£m
Risk
adjustment
for non-
financial
risk
£m
Contracts
measured
under the
fair value
approach
£m
Other
contracts
£m
Total CSM
£m
Total
£m
Net liability at 1 January1
(121,431)
(891)
(1,415)
(3,231)
(4,646)
(126,968)
Relating to current services
179
51
190
400
590
820
Contracts initially recognised in the year
(14)
(60)
–
(18)
(18)
(92)
Changes in estimates that adjust the CSM
319
(49)
65
(335)
(270)
–
Changes in estimates that result in losses and reversal
of losses on onerous contracts
10
(2)
–
–
–
8
Relating to future services
315
(111)
65
(353)
(288)
(84)
Relating to past services
(6)
6
–
–
–
–
Insurance service result
488
(54)
255
47
302
736
Net finance expense from insurance and participating
investment contracts
(15,302)
–
5
(40)
(35)
(15,337)
Exchange differences
(77)
(1)
(6)
–
(6)
(84)
Total change in profit or loss
(14,891)
(55)
254
7
261
(14,685)
Premiums received
(10,618)
–
–
–
–
(10,618)
Claims and other insurance service expenses paid
12,240
–
–
–
–
12,240
Insurance acquisition cash flows
306
–
–
–
–
306
Cash flows
1,928
–
–
–
–
1,928
Derecognition Consideration2
4,932
–
–
–
–
4,932
Transfer to other items in the balance sheet
–
–
–
–
–
–
Net liability at 31 December1
(129,462)
(946)
(1,161)
(3,224)
(4,385)
(134,793)
1Excluding insurance acquisition assets.
2Derecognition consideration recognised due to transfer of bulk annuity business to Rothesay, as set out in section (C).
2024
Contractual service margin (CSM)
Life
Present
value of
future
cash
flows
£m
Risk
adjustment
for non-
financial
risk
£m
Contracts
measured
under the
fair value
approach
£m
Other
contracts
£m
Total CSM
£m
Total
£m
Net liability at 1 January1
(114,209)
(1,159)
(1,473)
(2,942)
(4,415)
(119,783)
Relating to current services
46
58
155
294
449
553
Contracts initially recognised in the year
33
(65)
–
(61)
(61)
(93)
Changes in estimates that adjust the CSM
334
252
(95)
(491)
(586)
–
Changes in estimates that result in losses and reversal
of losses on onerous contracts
(2)
23
–
–
–
21
Relating to future services
365
210
(95)
(552)
(647)
(72)
Relating to past services
(3)
(1)
–
–
–
(4)
Insurance service result
408
267
60
(258)
(198)
477
Net finance (expense) income from insurance and
participating investment contracts
(10,341)
–
(9)
(31)
(40)
(10,381)
Exchange differences
72
1
7
–
7
80
Total change in profit or loss
(9,861)
268
58
(289)
(231)
(9,824)
Premiums received
(10,679)
–
–
–
–
(10,679)
Claims and other insurance service expenses paid
13,063
–
–
–
–
13,063
Insurance acquisition cash flows
265
–
–
–
–
265
Cash flows
2,649
–
–
–
–
2,649
Derecognition Consideration
–
–
–
–
–
–
Transfer to other items in the balance sheet
(10)
–
–
–
–
(10)
Net liability at 31 December1
(121,431)
(891)
(1,415)
(3,231)
(4,646)
(126,968)
1Excluding insurance acquisition assets.
Note 8: Insurance business continued
The Group estimates the Risk adjustment separately from other components of the fulfilment cashflows using an explicit margins
approach. A confidence level scenario, allowing for diversification of risks across the insurance business, is used to determine the margins to
be applied to the best estimate assumptions which are then used to calculate the risk adjustment at a policy level. The risk adjustment
represents the difference in the value of the best estimate cash flows with and without these margins.
The confidence level corresponding to the risk adjustment is 85% (2024: 85%). The risk adjustment is calibrated to the value at risk over a
one-year time horizon at this confidence level for non-financial risks. This is translated, using statistical approximations, into an equivalent
confidence level on a value at risk basis over the expected lifetime of in-force policies of approximately 68% (2024: 68%) at end of the
reporting period.
(G)Impacts of insurance and participating investment contracts recognised in the year
2025
2024
Life
Profitable
contracts
issued
£m
Onerous
contracts
issued
£m
Total
£m
Profitable
contracts
issued
£m
Onerous
contracts
issued
£m
Total
£m
Insurance and participating investment contracts
Insurance acquisition cash flows
123
185
308
56
203
259
Claims and other directly attributable expenses
5,573
524
6,097
1,446
4,498
5,944
Estimates of the present value of future cash outflows
5,696
709
6,405
1,502
4,701
6,203
Estimates of the present value of future cash inflows
(5,761)
(630)
(6,391)
(1,577)
(4,659)
(6,236)
Risk adjustment for non-financial risk
47
13
60
14
51
65
Contractual service margin
18
–
18
61
–
61
Losses recognised on initial recognition
–
92
92
–
93
93
(H)Life business contractual service margin run-off
The following table analyses the expected recognition of the contractual service margin (CSM) in profit or loss.
At 31 December 2025
Less than 1
year
£m
1 to 2
years
£m
2 to 3
years
£m
3 to 4
years
£m
4 to 5
years
£m
5 to 10
years
£m
Over 10
years
£m
Total
£m
Pensions and investments
(277)
(251)
(207)
(189)
(172)
(663)
(1,358)
(3,117)
Annuities, protection and other
(106)
(98)
(90)
(83)
(78)
(306)
(507)
(1,268)
Insurance and participating
investment contracts
(383)
(349)
(297)
(272)
(250)
(969)
(1,865)
(4,385)
Reinsurance contracts held
12
10
8
7
6
18
29
90
Total
(371)
(339)
(289)
(265)
(244)
(951)
(1,836)
(4,295)
At 31 December 2024
Less than 1
year
£m
1 to 2
years
£m
2 to 3
years
£m
3 to 4
years
£m
4 to 5
years
£m
5 to 10
years
£m
Over 10
years
£m
Total
£m
Pensions and investments
(240)
(218)
(199)
(164)
(152)
(591)
(1,169)
(2,733)
Annuities, protection and other1
(660)
(106)
(98)
(90)
(83)
(331)
(545)
(1,913)
Insurance and participating
investment contracts
(900)
(324)
(297)
(254)
(235)
(922)
(1,714)
(4,646)
Reinsurance contracts held2
433
5
4
3
3
8
11
467
Total
(467)
(319)
(293)
(251)
(232)
(914)
(1,703)
(4,179)
1CSM of £(544) million arising from insurance contracts classified as disposal group liabilities was included in less than one year.
2CSM of £426 million arising from reinsurance contracts held classified as disposal group assets was included in less than one year.
(I)Life insurance sensitivity analysis
Critical accounting judgements and key sources of estimation uncertainty
Critical judgements:
Determining the characteristics which make a product illiquid, the level of illiquidity premium to apply to
the discount rate of different products and how the illiquidity premium is determined
Key sources of estimation uncertainty:
Increase in illiquidity premia and widening of credit default spreads
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. The sensitivities below are on a net of reinsurance basis. These amounts include movements in
liabilities relating to insurance and participating investment contracts and related assets in order to demonstrate the impacts on
shareholder profit and equity. Therefore, these sensitivities have not been applied to the proportion of assets and liabilities where the risks
are borne by the policyholder and where assets and liabilities are well matched so as not to have a significant impact on shareholder profit.
In 2025, the Group utilised all its remaining brought forward life assurance expenses to reduce the cost of policyholder tax charged on its
investment gains. Future investment gains cannot therefore be sheltered by expenses, and as a result the equity impacts in sensitivity table
below for 2025 includes the cost of policyholder tax whereas the 2024 comparatives do not.
Note 8: Insurance business continued
2025
2024
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
Key sources of estimation uncertainty
Risk free rate, including illiquidity premia
1% reduction
271
157
272
204
1% increase
(237)
(136)
(227)
(171)
Widening of credit default spreads on corporate bonds
and other credit risky assets
0.25% addition
(186)
(140)
(174)
(131)
Other market exposure
Equity
10% reduction
64
145
137
103
10% increase
(58)
(144)
(127)
(95)
Inflation
50bps reduction
(77)
(58)
(88)
(66)
50bps increase
84
63
98
73
Other accounting estimates
Annuitant mortality
5% reduction
33
25
48
36
5% increase
(37)
(28)
(45)
(33)
Future maintenance and investment expenses
10% reduction
29
22
30
23
10% increase
(31)
(23)
(30)
(23)
Non-annuitant mortality and morbidity
5% reduction
31
24
17
13
5% increase
(26)
(20)
(10)
(8)
Lapse rates
10% reduction
8
6
5
4
10% increase
(9)
(6)
(4)
(3)
At each measurement date, the Group estimates, based on information about past events, current conditions and forecasts of future
conditions, the expected value of future cash flows. The calculation uses a range of scenarios that reflect the full range of possible
outcomes. The assumptions used to develop the estimates of future cash flows are reassessed at each reported date to reflect conditions
existing at the measurement date.
Risk free rate, including illiquidity premia
The Group has applied judgement in determining the characteristics which make a product illiquid, the level of illiquidity premium to apply
to the discount rate of different products and how the illiquidity premium is determined, where material.
Due to the illiquid nature of their cash flows, an illiquidity premium has been applied to the discount rate of the Group’s annuity contracts.
At initial recognition, the illiquidity premium is calculated with reference to a strategic portfolio of assets, and subsequently measured to
reflect the mix of actual assets backing annuity contracts. To reflect differences between the characteristics of insurance contracts and a
reference portfolio, adjustments for credit risk are required when determining appropriate discount rates. The Group uses the fundamental
spread to maintain consistency with its Solvency II approach. For protection contracts, the illiquidity premium is based on the spread on a
covered bond index.
The average sterling yield curves that were used to discount the estimates of future cash flows that do not vary based on the returns of the
underlying items are as follows:
1 year
5 year
10 year
20 year
30 year
2025
4.74
5.25
6.00
6.24
5.57
2024
5.58
5.17
5.66
5.71
5.06
The Group determines the quantity of benefits provided under each contract using different bases, depending on the product. For with-
profits and unit linked products, the policyholder account value (or the guaranteed benefits, if higher) is used. For annuities, pre-vesting
date the defined amount payable is used (immediate annuities have no pre-vesting date period) and post-vesting date the annuity payout
is used.
Widening of credit default spreads on corporate bonds and other credit risky assets
The Group applies a sensitivity showing the impact of an increase in credit default spreads on corporate bonds and other credit risky assets
and the corresponding reduction in market values. Swap curves, the risk-free rate and illiquidity premia are all assumed to be unchanged
and therefore this sensitivity impacts the related assets.
Equity
The Group applies a sensitivity showing the impact of an instantaneous increase (decrease) in the value of equity markets. This impacts the
value of unit linked and with-profits business as the assets backing the policyholder liabilities rise (fall) leading to an increase (reduction) the
value of future annual management charges received. The overall impact is affected by the Group's unit-matching policy which mitigates
the impact of equity market movements on the value of these future charges. The Group also implements an equity market hedge along
with utilising the Risk Mitigation Option under IFRS17 to further mitigate equity market movement impacts.
Inflation
The Group applies a sensitivity showing the impact of an increase (decrease) in inflation. This impacts the level of expenses incurred across
all lines of business as well as any inflation linked premiums or benefits.
Note 8: Insurance business continued
Mortality
The mortality assumptions for the main classes of business are set with regard to recent Group experience and general industry trends,
which are adjusted for smoker status and age/gender specific factors. The base mortality tables used for the annuities business for the year
ended 31 December 2025 and the prior period were selected from the bespoke mortality tables. The mortality improvements adopt the
100% Bespoke tables and CMI2024_{M/F}_Q3(7.25) HL-1_{2.0/1.8}%_{0.5/0.5}A_2013 for the year ended 31 December 2025; and the 100%
Bespoke tables and CMI 2023_{M/F}_(7.25)_{2.0/1.8}%_{0.5/0.5}A_2013 for the prior period.
Lapse rates
Lapse rates refer to the rate of policy termination or the rate at which policyholders stop paying regular premiums due under the contract.
Historical persistency experience is analysed using statistical techniques. As experience can vary considerably between different product
types and for contracts that have been in force for different periods, the data is broken down into broadly homogeneous groups for the
purposes of determining the Group’s lapse rate in determining the assumptions, which are set on a best estimates basis, based on
investigations of historical experience with some expert judgement overlays reflecting expectations of future trends and other external
data. The lapse rates for workplace pensions range from 1.3% to 16.9% (2024: 0.8% to 13.8%) and for longstanding business range from
0.5% to 74.1% (2024: 0.5% to 74.1%), the wide range being a result of the age and variety of products.