Annual Report and Financial Statements 2010

Forward Looking Statements

This document contains "forward looking statements" with respect to certain of the group's plans and its current goals and expectations relating to its future financial condition, performance and results. By their nature, all forward looking statements involve risk and uncertainty because they relate to future events that are often beyond the group's control. For example, certain insurance risk disclosures are dependent on choices about assumptions and models, and by their nature are best estimates. Actual future gains and losses could differ materially from those that have been estimated. Other factors that could cause actual results to differ materially from those estimated by the forward looking statements include, but are not limited to, Irish domestic and global economic business conditions, interest rates, equity and property prices, the impact of competition, inflation and deflation, changes to customers' saving, spending and borrowing habits and the group's success in managing the above factors.

As a result, the actual future financial condition and performance of the group may differ from the targets and goals set out in the forward looking statements. The group has no obligation to update any forward looking statement contained in this annual report.

Overview	Financial Performance Summary	1
	The Group at a Glance	2
	Chairman's Statement	3
	Group Chief Executive's Review	5
	Group Performance Review	9
Business Review
	Divisional Performance Review	18
	Risk Management	33
	Corporate Responsibility	43
Corporate Governance	Board of Directors	46
	Directors' Report	49
	Corporate Governance	56
	Directors' Report on Remuneration	64

Financial Statements	Statement of Directors' Responsibilities	72
	Independent Auditor's Report	74
	Group Financial Statements	76

Notes to the Group Financial Statements 88 Embedded Value Basis Supplementary Information 219

Financial Performance Summary

year ended 31 December 2010

	2010	2009
IFRS Basis (EU IFRS) Operating profit before impairment provisions	€254m	€68m
Loss after tax (attributable to equity holders)	(€128m)	(€313m)
EPS ("earnings per share") on continuing activities	(47.4 cent)	(116.8 cent)
Embedded Value ("EV") Basis Operating loss before tax	(€197m)	(€196m)
Operating EPS1	(60.4 cent)	(65.9 cent)
Loss after tax (attributable to equity holders)	(€198m)	(€279m)
Total EPS 1	(71.7 cent)	(101.0 cent)

Banking Business New loans issued	€0.6bln	€1.2bln
Lending book	€36.6bln	€38.6bln
Residential mortgage loan book (Ireland)	€26.3bln	€27.3bln
Customer accounts	€13.4bln	€14.6bln
Stable funding mix2	52%	48%
Life Assurance and Fund Management new business Life Assurance new business
- APE ("Annual premium equivalent")	€320m	€348m
- PVNBP ("Present value of new business premiums")	€2,288m	€2,398m
Life Assurance and Fund Management new business - APE - PVNBP	€572m €4,808m	€539m €4,306m
Capital Ratios Total tier 1 capital ratio Life solvency cover (times)3	10.6% 1.75	11.3% 1.6

¹ Including own shares held for the benefit of life assurance policyholders.

² Stable funding ratio is the end of period retail deposits and long-term funding as a percentage of total funding.

³ The 2010 ratio is net of amounts available for dividend

The Group at a Glance

Irish Life & Permanent Group Holdings plc ("ILPGH" or "the group") is a leading provider of personal financial services in the Irish market with strong market positions in life and pensions, fund management and retail banking. The group's activities comprise retail banking under the permanent tsb brand, life assurance and pensions (including Bancassurance) under the Irish Life Assurance brand, fund management under the Irish Life Investment Managers brand and general insurance through its associate company, Allianz.

The group was created in 1999 from the merger of Irish Life Assurance, the largest life assurer in Ireland and Irish Permanent, the leading residential mortgage lender. In 2001, the group acquired TSB Bank and merged its business with Irish Permanent. In January 2010, a corporate restructuring programme was completed whereby ILPGH became the new holding company for Irish Life and Permanent plc.

Group strategy

Both the banking and life assurance business have developed significantly since the creation of the group in 1999 reflecting a focus on the Irish market, strong product offerings and the focus on customer satisfaction. The strong market positions reflect distribution strength with broadly diversified distribution in both banking and life businesses giving the group access to all segments of the market. The group reviews market place developments ensuring it is positioned positively to meet evolving trends, challenges and opportunities.

The retail focus of the group's banking activities and the predominantly unit-linked nature of its life and pensions business reduces the risk profile of the group. 99% of the bank's lending is secured, of which 91% consists of residential mortgages. 93% of the life business is unit-linked where the market risk is borne by the policyholder / investor.

Life assurance

Irish Life Assurance is the leader in the life and pensions market in Ireland. The business operates a multi-channel distribution strategy for its products and services through its two main divisions, Retail Life and Corporate Life.

Of particular importance has been the development of its Bancassurance operation which it successfully developed in the permanent tsb network and subsequently extended to a number of other credit institutions with branch networks in Ireland thereby expanding its customer base.

Fund management

Irish Life Investment Managers ("ILIM") is the fund management division of the group. ILIM manages money on behalf of a wide range of institutional and retail, occupational defined benefit and defined contribution pensions, large multinational corporations, charities and domestic companies and is the largest manager of Irish pension assets. ILIM has seen significant growth in funds under management since its establishment in 1992 reflecting its recognised market product and leadership position.

Banking business

permanent tsb, the group's banking division, provides a full range of retail banking products and services through its nationwide network of branches as well as through intermediaries and directly over the phone and internet. It is a leading provider of residential mortgages and new car finance in addition to current account and retail deposit facilities. Strategically, the focus of its banking business is to service the residential owner occupier mortgage and consumer finance credit markets and to offer a wide range of current account, deposit and life assurance products and services into its customer base.

Chairman's Statement

Irish Life & Permanent Group Holdings plc is overwhelmingly focused on the Irish economy and our key businesses each have exceptionally strong franchises in that market. Unfortunately 2010 represented another very difficult year for the Irish economy and particularly for the Irish banking sector. This directly impacted on our group financial performance where a strong improvement in the life assurance business's performance was not sufficient to negate the continuing losses in our banking business.

Continuing challenges impact on dividend

In light of the financial performance of the group and the continuation of the Government Guarantee Scheme, the board has proposed that no dividend be paid for 2010. This approach is consistent with our priority to conserve capital in the current economic environment.

Group unique in some key respects

While the broad Irish financial services industry is facing severe difficulties at present, our group is unique in a number of respects; in contrast to all other domestically owned credit institutions, the group has not received any capital support from the Irish exchequer; the group has not had to transfer any loans to the National Asset Management Agency ("NAMA") or other third parties and the group has not had to raise additional capital on equity markets to date. These are important differentiators.

Board pursuing three key priorities

Throughout this crisis, the board has focused on three overriding priorities. Our first has been to ensure that every business unit in the group is focused on managing those aspects of the business under our control so that we can achieve the strongest possible financial performance at a group level. A second priority has been to ensure that the group has the flexibility to adapt to changing circumstances and potential consolidation opportunities which we believe will arise in the Irish marketplace during this crisis. Our third priority has been to ensure that we work closely with Government and all relevant regulators and provide them every assistance as they seek to address the current situation.

In terms of financial performance, the overall results are dominated by the impact of rising impairments from the group's mortgage book on the profitability of the bank. However good work is being done in stabilising that business and the year also witnessed a strong recovery in the financial performance of the life assurance business which was most welcome and which followed a lot of hard work in the area of cost management and customer retention in 2009 and 2010. In February 2011 the bank announced a transformation programme which includes a reduction in staff numbers of 280 which will result in a leaner and more cost efficient bank.

On the strategic front, the group completed a corporate restructuring during the year which greatly increases the flexibility with which we can respond to any strategic opportunities which emerge in the months ahead.

The group has worked very closely with the Department of Finance and with the relevant regulatory authorities in Ireland and in Europe as they respond to the challenges of the banking sector in Ireland. This has resulted in our group participating in the various capital strength testing initiatives and, under an EU platform, the completion of a group viability plan. The current prudential capital and liquidity assessment reviews of the banking sector, being undertaken under the EU / IMF Programme of Financial Support, will significantly influence the strategic direction our group will take over the coming year.

Changes at board level

During 2010, there were a number of changes at board level. Early in the year two directors, Liam O'Reilly and Eamonn Heffernan, stepped down and I want to pay tribute to their hard work and dedication to the group during their period on the board. During the year I was delighted to announce the appointment of both Bernard Collins and Sandy Kinney as non-executive directors. Their appointments continue the process of refreshment of the Board of Directors which I identified as a priority when this crisis began.

Chairman's Statement

I have served as Chairman of the group since 2004 and in December last I stated that it was my wish and intention to retire as Chairman during 2011, in line with good corporate governance practice given my period of service. I also believe that the time is now right to hand over the reins as the group enters a new and important phase in its development.

Breffni Byrne and Danuta Gray have indicated that, having served two full terms as members of the board, in line with good corporate governance practice, they will not be putting themselves forward for re-appointment and thus will retire from the board at the conclusion of the AGM. Both Breffni and Danuta have been valued colleagues and have made important contributions to the board during their tenure. I want to express my appreciation to both of them for their work on the board.

As this will be my last Chairman's statement, I want to thank the hundreds of shareholders who I have met over the years for their unfailing support and goodwill. In particular I want to pay tribute to the hundreds of thousands of customers without whom we would have no business and whose support has always been most valued. I also want to pay a very special tribute to our staff across the country who have worked so hard particularly in these last few difficult years. I have always been tremendously encouraged by the exceptional quality of the people who work in the group and I have no doubt that we will recover from this very difficult period and that the outlook for shareholders, customers and staff will improve significantly in the months and years ahead.

Outlook

The coming months will be critical for the group and for the wider financial services industry in Ireland. For our part, our ambition is to play a constructive role in the consolidation in the sector which we believe is inevitable - while protecting the position of our shareholders, staff and customers to the greatest degree possible. In the meantime we will continue to work to resolve the financial challenges we face and to minimise the impact of the continuing economic and financial crisis on the group.

Gillian Bowler Chairman

4 March 2011

Background

2010 has been a tumultuous year for Ireland. After a positive start to the year the emerging sovereign debt crisis started in Greece and spread to Ireland and external funding for both the sovereign and the banking system dried up resulting in the EU/IMF Programme of Financial Support for Ireland.

While the international export sector of the economy recorded strong growth in 2010 the domestic economy remained weak, with employment continuing to fall along with reduced private and public consumption. After a cumulative fall of over 20% in per capita income since 2007, consensus expectations are now for a delayed recovery with modest growth in 2011.

Group performance

Against this difficult and challenging environment the group, like the economy, had two contrasting outcomes. The group's life assurance and fund management business recorded sales growth and a strong recovery in profitability with operating profit, on an embedded value ("EV") basis, up 57% on the prior year. This reflected, in particular, the continued success of the fund management business and the benefit of actions taken to improve customer retention and reduce costs in the life assurance business.

The good progress made by the group's banking business in the first half of the year was set back by the deterioration in, and eventual closing of, funding markets later in the year. Weaker consumer and business conditions were also reflected in continued falls in property values which contributed to higher impairment provisioning. As a consequence, the operating loss in the banking business for the year was €94m ahead of 2009.

Group profitability – IFRS basis

Operating profit for the group, before impairment provisions, rose to €254m (2009: €68m). The performance of life assurance and fund management businesses was the principal driver of the improved outcome with an operating profit of €179m against a loss of €2m in 2009. Pre-provision earnings from the banking business declined from €106m in 2009 to €56m in 2010 primarily as a consequence of the increased costs associated with the Government Guarantee Schemes¹ for bank funding.

Impairment provisions for the year were €420m (2009: €376m), principally reflecting the increase in provisions in the Irish residential and commercial mortgage loan books which includes the change to the assumption used for the peak-to-trough house price decline.

Total group earnings, albeit still negative, improved significantly for the period on an IFRS basis, with a loss after tax attributable to equity holders of €128m (2009: €313m loss).

Group profitability – Embedded Value basis

On an EV basis the operating profit for the group, before impairment provisions, increased to €223m (2009: €180m). Again the improvement principally reflects the increase in life assurance and fund management businesses earnings and lower corporate costs offset by reduced bank earnings from higher government guarantee and impairment charges.

The principal factor influencing the life EV operating profit relative to the same period in 2009 was the more favourable experience variances in the life assurance and fund management businesses relative to 2009. Risk experience continued to be strongly positive and persistency improved materially relative to 2009.

Post impairment provisions, the EV group operating result for the year was a loss of €197m (2009: €196m loss). Adding the impact of investment fluctuations, changes in economic assumptions, tax and other "below the line" items the total group after tax loss attributable to equity holders was €198m (2009: €279m loss).

¹ The Covered Institutions (Financial Support) ("CIFS") Scheme and the Eligible Liabilities Guarantee ("ELG") Scheme

Group Chief Executive's Review

Life assurance and fund management

The life assurance and fund management business recorded strong operating profit growth in 2010. The main challenges in the business have been to stabilise sales, reduce costs and to normalise customer retention / policy persistency levels.

Sales for the life assurance and fund management business in 2010, on an annual premium equivalent basis, of €572m were up 6% when compared to 2009. Retail Life sales of €146m were 8% behind the same period in 2009 and were particularly impacted by the fall in demand for pension products. The decline in Corporate Life sales to €137m (2009: €164m) reflects falling employment levels and static-to-falling salaries.

Our fund management business, Irish Life Investment Managers Limited ("ILIM"), had very strong inflows in 2010 of €2.5bln (2009: €1.9bln). ILIM continues to be the dominant fund manager in Ireland on the back of its product suite and fund performance.

Rising unemployment and reduced household and business incomes as a result of the recession led to adverse persistency experience, i.e. higher policy lapse rates and weaker customer retention, in the life assurance business. The actions taken in the second half of 2009 and through 2010 have seen a steady improvement across most product lines and distribution channels. However, further progress is required in the intermediary channel. The impact on persistency of the further tightening of fiscal policy and of future changes in the tax regime for pensions remains to be seen.

Bank funding and margins

The primary challenge for the banking system in Ireland and for the group's banking business has been, and remains, funding. Our strategy is to grow the bank's retail deposit base and its term funding to create a stable funding platform for the business.

The bank increased its Republic of Ireland ("RoI") retail deposit book in 2010 by €1.3bln to €11.1bln with the corporate book falling by 32% to €3.7bln reflecting the impact of the uncertainty created by the sovereign debt crisis. Good progress was made in the first quarter of 2010 in issuing into the term-debt market with three issues under the government Eligible Liabilities Guarantee ("ELG") scheme. Total long-term debt issuance to the end of August totalled over €5bn but the subsequent rapid deterioration in debt markets (for Ireland and Irish banks) precluded further planned issuance, both guaranteed and un-guaranteed, for the remainder of the year. As at the end of 2010, 52% of the bank's funding came from stable sources (2009: 48%). The loan-to-deposit ratio increased to 249% (2009: 246%) as the impact of outflows of corporate deposits outweighed the retail deposit gains. These were partially offset by a fall in outstanding loan balances.

Excluding the cost of the ELG scheme of €97m (2009: nil), net interest income for the year was €402m (2009: €375m). The reported net interest margin ("NIM")² in the bank increased in 2010 to 0.86% (2009: 0.83%). The margin benefited from the increases in standard variable mortgage rates implemented in February and August 2010 to offset the rising cost of both deposit and term funding. The 2010 NIM also benefited from the increase in the ECB drawings through 2010 which averaged €9.4bln. The downgrade in credit ratings and the risk of a further sovereign or group downgrade has restricted the group's access to funding markets; as a result, the group increased its recourse to Eurosystem financing facilities. At 31 December 2010, the group had €13.8bln of collateralised deposits from the European Central Bank.

Bank lending and credit quality

New lending activity in the bank remained very subdued through 2010 at just over €600m, over half of which was consumer finance. This activity resulted in outstanding loan balances falling by 5.2% during the year to €36.6bln.

The trends in credit quality and loan impairments reported at the half year continued for the remainder of the year. Arrears in both the UK mortgage book and in consumer finance in Ireland – in the under-and-over 90 days categories – continue to decline and this is reflected in the reduced provisioning charge for those loan books.

However arrears numbers over 90 days in the Irish residential mortgage book rose steadily through 2010 increasing by 69%, reflecting the decline in employment in 2009 and 2010. These 90 day-plus arrears increased to 6.8% of the portfolio (2009: 3.9%). Arrears under 90 days rose by just 18% over the year and for the second half of the year the trend was encouraging with the numbers of cases flat.

² Net interest margin is the ratio of net interest income and the average interest earning assets for the period.

Group Chief Executive's Review

The bank is committed to working constructively with borrowers experiencing repayment difficulties. Our approach is to engage early with borrowers who are in trouble and to agree reasonable and realistic repayment plans.

The charge for impairment provisions for 2010 increased to €420m (2009: €376m) and was ahead of previous guidance. The main reason for the increase over guidance was the impact of a change in the assumption for the peak-to-trough fall in house prices from 40% to 43%, which compares to the 38% fall recorded in the ESRI / permanent tsb house price index to December 2010.

The group's overall provision coverage at the end of 2010 increased to 2.4% from 1.2% at the end of 2009.

Costs

Cost control programmes are in place across all business divisions in the group. In the group's Irish banking business, eleven bank branches were closed and staff numbers fell by 140 full-time equivalents in early 2010. A transformation programme was announced in February 2011 which will see an additional reduction of 280 in staff numbers in the bank. The group's life assurance and fund management businesses saw operational costs fall 6% year on year reflecting the benefit of completing a cost restructuring programme in the second half of 2009.

Capital

The bank's Tier 1 capital ratio was 10.6% at 31 December 2010 (31 December 2009: 11.3%). This is before the available distribution of €243m from the life assurance business which would have effect in 2011.

During 2010 the Central Bank of Ireland conducted a prudential capital assessment review ("PCAR") on all Irish banks. The PCAR review for Irish Life & Permanent was completed in September 2010. It determined that the bank had sufficient capital to meet its base case scenario for the next three years (2009 – 2011) but required €145m in additional capital to meet its stress case scenario for the same period. A subsequent PCAR test, with raised capital hurdles, was applied in November which added a further €98m to the bank's capital requirements. The total additional capital requirement of €243m is to be in place by the end of May 2011 and is being sourced from within the group.

Under the EU/IMF Programme of Financial Support a further PCAR exercise is now being undertaken by all Irish banks for the three years to 2013. In conjunction with this latest PCAR a prudential liquidity assessment review ("PLAR") exercise is also being conducted. The 2011 PCAR and PLAR exercises are scheduled to be completed by the end of March along with an assessment of the deleveraging mechanisms for the individual Irish banks and the banking system as a whole. As a result, there is uncertainty as to the outcome and any additional capital or liquidity requirements arising. However, following an assessment of these uncertainties, associated risks and the group's business and funding plans, the board has agreed that it continues to be appropriate to prepare the financial statements of the group on a going concern basis as it will continue in business for the foreseeable future.

The life assurance business released significant capital in 2010 as well as raising loan capital of €100m secured on the in-force book in November. The minimum statutory solvency capital requirement of Irish Life Assurance plc was covered 1.75 times at the end of 2010 (2009: 1.6 times), after allowing for distribution of the available dividend to the bank.

Corporate strategy and outlook

The twin objectives of the group have been to quickly adapt the life assurance and fund management businesses to the changed economic and business environment and to restructure the banking business to create a viable bank in the context of wider banking sector consolidation in Ireland.

The actions taken to right-size the life business's cost base, to address persistency and to maximise sales have seen the performance of the business normalise in 2010. Although market conditions remain difficult, the life assurance and fund management businesses are well placed to participate fully in the recovery.

The banking business has successfully re-focused its network on retail deposit collection, re-priced where possible to protect margins and is well advanced on a major cost restructuring programme. However, progress on plans to change its funding mix was disrupted by the debt crisis. The 2011 PCAR and PLAR exercises will, when concluded, determine what is required of the bank in terms of deleveraging and capital adequacy to create a sustainable business going forward.

Group Chief Executive's Review

On 23 February 2011 the group announced the impending sale of Irish Life International Limited ("ILI"), the group's international life assurance business, for €26m. This sale, which is subject to the approval of the Central Bank of Ireland, is consistent with the group's strategy to focus on the Irish market and we believe that the new shareholder will deliver value to ILI's customers and staff. The proceeds of the sale of ILI will be available to contribute to an increase in the regulatory capital of Irish Life & Permanent plc, the group's banking subsidiary.

The group is of the view that consolidation in the Irish banking sector is both inevitable and desirable. The sale of the deposit books of Anglo Irish Bank and Irish Nationwide Building Society ("INBS") represent the first stage of that process. The group bid for the INBS deposits and on 24 February 2011 announced that pursuant to a Transfer Order (under the Credit Institutions (Stabilisation) Act 2010) INBS had transferred deposits of €3.6bln into the group's banking business. The acquisition of the INBS deposits represents an important development in transforming the funding mix of the bank and in reducing its deleveraging requirements. During 2010 the group also made an offer to Government to merge the group's banking business with that of the EBS Building Society and while we have not been successful in that offer the logic of consolidation in a down-sized and lower growth banking sector remains, in our view, unchanged.

The coming months will bring critical decisions on the future of the Irish financial institutions. As the largest domestic life assurance company and investment manager and one of Ireland's largest residential mortgage lenders, the group has a key role to play in that future.

Finally, the chairman, Gillian Bowler, will be retiring from the board in the coming year. On behalf of all my colleagues on the board, the executive team and staff across the group I want to thank Gillian for her hard work and extraordinary dedication to the group throughout her time as chairman. I wish her and her husband, Harry, every success in the future.

Kevin Murphy Group Chief Executive 4 March 2011

Summarised group income statement and key performance indicators

A summary of the group's income statement on an IFRS basis for the 12 months ended 31 December 2010 and 31 December 2009 is outlined below at a segmental level:

Summary group income statement	2010 €m	2009 €m
Operating profit / (loss) before impairment provisions
Banking
- Banking Ireland	73	77
- Banking UK	(17)	29
Total banking	56	106
Life assurance and fund management
- Life assurance	163	(15)
- Fund management	16	13
Total life assurance and fund management	179	(2)
Brokerage and third party administration	14	4
Other3	5	(40)
Operating profit before impairment provisions	254	68
Impairment provisions
- Banking Ireland	(393)	(343)
- Banking UK	(27)	(33)
Total impairment provisions	(420)	(376)
Operating loss after impairment provisions	(166)	(308)
Associated undertakings – general insurance	9	(2)
Loss before taxation	(157)	(310)
Taxation	29	(3)
Loss after tax attributable to owners of the parent	(128)	(313)

Key performance indicators	2010	2009
Total Tier 1 capital ratio (%)	10.6	11.3
Life solvency cover (after available dividend) (times)	1.75	1.6
Operating profit before impairment provisions on an IFRS basis (€m)	254	68
Operating loss after impairment provisions on an IFRS basis (€m)	(166)	(308)
Operating profit before impairment provisions on an EV basis (€m)	223	180
Operating loss after impairment provisions on an EV basis (€m)	(197)	(196)
Stable funding ratio (%)	52%	48%

The operating loss after impairment provisions on an IFRS basis of €166m for the year (2009: €308m loss) is driven by the return to profitability of the life assurance business being offset by a €364m operating loss (2009: €270m loss) in the banking business.

³ 'Other' includes reconciliations, eliminations and consolidation adjustments as detailed in Note 4, Segmental information.

Results on continuing operations

Banking businesses' operating results

Operating performance			2010			2009
€m	RoI	UK	Total	RoI	UK	Total
Operating profit / (loss) before impairment provisions	73	(17)	56	77	29	106
Impairment provisions	(393)	(27)	(420)	(343)	(33)	(376)
Operating loss	(320)	(44)	(364)	(266)	(4)	(270)

The banking businesses' operating loss of €364m was €94m higher in 2010 than 2009 (2009: €270m loss). This increase was primarily due to a €44m increase in the charge for impairments and a €81m increase in Government Guarantee Scheme costs.

Life assurance and fund management operating profit

Operating performance	2010	2009
€m	Total	Total
Life assurance	163	(15)
Fund management	16	13
Operating profit / (loss)	179	(2)

The operating profit of €179m for 2010 (2009: €2m loss) reflects a return to profitability of the life assurance business. This performance was due to 2010 having significantly reduced adverse market and economic charges while the performance in 2009 included the impact of negative market returns, in particular on property, and the impact of the movement in the risk discount rate.

Brokerage and third party administration

The group's brokerage business, Cornmarket, and our third party administration business, IPSI, facilitated the increase in operating profit from €4m in 2009 to €14m in 2010. This performance was influenced by cost management programmes in both businesses.

Other

The Other category in the above summarised income statement includes the effect of lower year-on-year corporate costs (the 2009 costs included restructuring / non-operational costs of €15m) and the impact of the differing accounting treatment of assets and liabilities by the bank and life company. Further detail can be referenced in Note 4, Segmental information.

Associated undertakings

The group's share of the profit in Allianz (a general insurance business in which the group has a 30% interest) was €9m for 2010 (2009: €2m loss). Improved underwriting results in 2010 were off set by lower investment returns than for the same period in 2009. Allianz made a dividend payment to the group of €7m in 2010 (2009: €15m).

Summarised group statement of financial position

The group's consolidated statement of financial position for the years ended 31 December 2010 and 31 December 2009 are summarised below:

	2010	2009
Summarised group statement of financial position	€m	€m
Assets
Loans and receivables to customers	36,581	38,592
Other financial assets and investment properties	28,955	32,228
Loans and receivables to banks	3,565	4,925
Assets classified as held for sale	2,089	-
Reinsurance assets	2,011	1,979
Shareholder value of in-force business	699	730
Other assets	1,799	1,567
Total assets	75,699	80,021

Liabilities and equity
Deposits by banks (including central banks)	17,146	18,713
Liabilities classified as held for sale	2,041	-
Customer accounts	13,382	14,562
Debt securities in issue	10,034	13,262
Investment contract liabilities	24,067	24,032
Insurance contract liabilities	4,238	4,034
Subordinated liabilities	1,686	1,644
Other liabilities	1,489	1,768
Equity	1,616	2,006
Total liabilities and equity	75,699	80,021

Loans and receivables to customers

permanent tsb is focused predominantly on retail lending with 99% of its loan portfolio secured on assets, 91% of which consists of residential mortgages. As a result of adopting this approach to its lending activities, the group is not engaged in business, corporate or property development lending and as a consequence the group is not transferring any loans to the National Asset Management Agency ("NAMA").

The bank's loans and receivables portfolio is focused on residential mortgages for owner occupiers and consumer finance in Ireland, its core customer lending franchises. Total loans and receivables to customers of €38.6bln at the end of 2009 fell by 5% to €36.6bln at the end 2010 reflecting lower new business volumes being more than offset by capital repayments.

The unemployment levels being experienced in the Irish economy has resulted in non-performing loans⁴ ("NPLs") increasing by 58% year on year. As a result of this increase and a falling residential mortgage portfolio, NPLs accounted for 9% of the total portfolio at the end of 2010. Further details are available in Note 36, Financial risk management.

Impairment provision balances increased by €406m during the twelve months of 2010 to €883m (2009: €477m), with specific provision increases accounting for €305m of this increase. This has been driven by an increase in RoI mortgage arrears numbers and falling property values. Specific provisions represent 35% of the impaired loan balances at the end of December 2010 (2009: 29%).

The collective / IBNR provision has increased by €101m to reflect incurred losses which have not yet been reported in all portfolios.

Further details on loans and receivables and loan impairments can be found in the Banking Operating Review.

⁴ Non-performing loans are loan balances in excess of 90 days in arrears plus impaired loans that are less than 90 days in arrears

Other financial assets and investment properties

The table below provides further analysis on financial assets for the 31 December 2010 and 31 December 2009:

Other financial assets and investment properties	2010 €m	2009 €m
Debt securities	12,098	15,780
Equity shares and units in unit trusts	13,777	13,510
Derivative assets	1,255	1,169
Investment properties	1,825	1,769
Total	28,955	32,228

(A) Debt securities

Debt securities fell 23% to €12.1bln at the end of 2010 from €15.8bln at the end of 2009. This movement reflects the tactical decision to draw down €3.5bln in ECB funding in December 2009 in order to prefund September 2010 term debt maturities and includes the €3.1bln in maturities and disposals of available-for-sale ("AFS") securities during 2010 as the bank's liquidity requirements reduced. Sovereign bonds account for 79% of the end of 2010 balance (2009: 66%).

Included in debt securities is the bank's asset portfolio of €4.7bln. This is principally held in sovereign bonds (61%), highly rated bank Floating Rate Notes (27%) and prime (non-US) euro denominated Residential Mortgage Backed Securities ("RMBS") (12%). There are no sub-prime assets held within the portfolio. The portfolio is rated 27.7% AAA, 6.8% AA, 13.5% A and 52% in lower tiers reflecting the downgrading of sovereign debt including Irish sovereign debt.

The balance of debt securities of €7.4bln is classified as fair value through the profit and loss account in the life assurance and fund management businesses. Unit-linked funds account for €5.7bln of this balance and €1.7bln is held in non-linked funds at the end of 2010.

The group has completed an impairment assessment on its debt securities held at the end of 2010. A transfer of €13m from the collective provision to the specific provision was made in relation to securities which have been specifically identified as impaired. The indication of impairments arose principally due to the postponement of interest coupon payments. €9m of this specific provision was utilised in respect of impaired AFS securities and €4m was utilised in respect of impaired debt securities classified as loans and receivables.

(B) Equity shares and units in unit trusts

Shares and units in unit trusts are held in listed and unlisted entities and are all designated as fair value through profit or loss. 99% of these balances are held in unit-linked funds on behalf of policyholders, the risk for which is primarily borne by policyholders.

Loans and receivables to banks

The fall of €1.36bln in the loans and receivables to banks balance during 2010 brought the balance to €3.57bln on 31 December 2010 (2009: €4.93bln). This reflects the €1.3bln fall in the level of inter-bank placements due to the reduction in the bank's surplus liquidity.

Assets classified as held for sale

In February 2011, in a move consistent with group's strategy to generate capital and focus on the Irish market, the group announced the share sale of Irish Life International Limited for a consideration of €26m to a leading Nordic financial services provider, SEB Trygg Liv Holding AB. In accordance with IFRS 5, Non-current Assets Held for Sale and Discontinued Operations, Irish Life International Limited's €2.1bln of assets has been classified as assets held for sale. The completion of this transaction will see inter-group loan and receivables of €28m being repaid.

Funding profile

Despite a positive start to 2010, funding conditions deteriorated from May following an escalation of the sovereign debt crisis. The year's events culminated with the approval of an EU/IMF Programme of Financial Support for Ireland in December. This was subsequently followed by a number of downgrade actions by each of main ratings agencies. Against this background, it is expected that the senior funding markets will remain closed to Irish financial institutions in the medium term. As a consequence, the group's ability to access funding and liquidity in the market could materially affect the group's results, financial condition and prospects.

The regulatory protocol, under which the group operates, requires levels of liquidity based on various cash flow stress tests. The key limits applied are that an institution must have sufficient available liquidity to cover 100% of outflows over the next eight days and 90% of outflows over the coming 9 – 30 days. The group monitors the liquidity ratio daily and reports weekly to the Central Bank. As a consequence of the industry-wide wholesale funding difficulties experienced from the last quarter of 2010, for several periods since 15 December 2010 to date the group has not met these liquidity limits.

The bank's total funding at the end of December 2010 of €42.9bln (Dec 2009: €48.1bln) was well diversified across segments as shown below:

Funding profile*	2010 2009
	€m	%	€m	%
- Retail current accounts	2,248	5%	2,215	5%
- Other retail accounts	8,853	21%	7,635	16%
- Corporate accounts	3,685	9%	5,391	11%
Customer accounts and deposits (RoI)	14,786	35%	15,241	32%
Customer accounts and deposits (UK)	-	-	471	1%
Total customer accounts & deposits	14,786	35%	15,712	33%
Short term5	16,811	39%	19,473	40%
Long term6	11,335	26%	12,962	27%
Total	42,932	100%	48,147	100%

* For 2010 this includes €1.5bln (2009: €1.3bln) of customer accounts from the group's non-banking operations

The total funding of €42.9bln fell 11% year on year and reflects the lower level of liquidity in the bank's balance sheet due principally to the decrease in loans and receivables balances. The 2009 funding position was inflated resulting from the tactical decision to draw €3.5bln from the ECB in December 2009 to mitigate refinancing risk in September 2010.

The group's funding and liquidity strategy is centralised and managed by Group Treasury. Hence both the Republic of Ireland and UK banking businesses are included in the above analysis. During 2010, the group's Isle of Man operations were wound down resulting in the UK customer accounts and deposit balances being repaid to customers.

At 31 December 2010, stable sources of funding were accounted for by 52% of total funding, up from 48% at the end of 2009.

The loan-to-deposit ratio⁷ at the end of December 2010 was 249% (2009: 246%). This ratio includes the impact of the fall in corporate deposit balances and the 5% fall in the loans and receivables to customers balance. The group continues to work to reduce this ratio through a combination of increasing retail deposit balances and deleveraging the loan book.

⁵Short-term funding includes ECB funding and market repos.

⁶ Long-term funding includes term debt and mortgage backed securitisations.

⁷ Loan to deposit ratio is the ratio of loans and receivable to customers balance (including intra-group loans) and customer accounts (including deposits from non-banking operations).

Customer accounts and deposits

The ROI retail deposit balances at the end of 2010 increased by 13% to €11.1bln resulting from the continued focus on developing the retail deposit franchise. The group's innovative 'Interest First' Savings Account has proved to be a major success attracting €1bln since its launch. Retail deposits have again proved to be a stable and resilient funding source, despite the intense price competition in the marketplace.

Corporate deposit balances at the end of 2010 were down 32% on year end 2009 to €3.7bln, reflecting the deterioration in sentiment towards Irish financial institutions on foot of rating downgrades.

Short-term debt

The group has a pool of collateralised assets that can be used as security with a range of counterparties including the European Central Bank ("ECB"). During 2010, a portion of these assets was used as security for ECB drawings with an average level of drawings for the twelve months to 31 December 2010 of €9.4bln (2009: €10.9bln). The maximum level of drawings during 2010 was €13.8bln (2009: €13.5bln) while drawings at the end of 2010 were €13.8bln (2009: €9.8bln). The increased reliance on Eurosystem funding pre and post 31 December 2010 was driven by refinancing requirements in relation to maturing debt obligations at a time when the traditional funding markets were closed.

ECB drawings, reported in the statement of financial position as 'Deposits by banks (including central banks)', are included in the short-term debt portfolio.

Long-term debt

Notwithstanding the group's focus on deposit growth, the duration of the assets in the Statement of Financial Position is such that appropriate management of duration risk requires a significant portion of the group's funding to be long term. In this regard, the group managed to complete a sizeable proportion of its 2010 refinancing requirement during the first four months of the year.

The Credit Institutions (Eligible Liabilities Guarantee) Scheme has hitherto been critical in providing Irish financial institutions with access to funding. This scheme has enabled the group to secure longer term funding in a challenging environment. During the first half of 2010, the group successfully issued three bonds under the ELG Scheme - a US\$1.75bln three-year bond in January, a €2bln five-year bond in March and a €1.25bln three-year bond in April. All three bonds were over-subscribed attracting strong interest from international investors.

Investment and insurance contract liabilities

The increase in investment contract liabilities during 2010 includes premium receipts of €4bln (2009: €3.4bln) and market movements of €1.7bln (2009: €2.5bln) being offset partially by €3.7bln (2009: €2.9bln) in claims. €2bln of investment contract liabilities has been transferred to liabilities classified as held for sale to cater for the sale of Irish Life International.

Insurance contract liabilities (net of reinsurance), which are 75% non-linked, increased by 6% year on year due to premium receipts and market movements of €0.7bln being partly offset by €0.5bln in claims and fees.

Credit ratings

At 31 December 2010 the group was rated 'BBB' by Standard & Poors and 'Baa3' by Moody's Investor Service. On 2 February 2011 Standard & Poors, who downgraded all Irish banks' credit ratings, downgraded the group's rating to 'BBB-' as a result of a weaker economic outlook.

Capital management

The group's core capital objective is to meet or exceed all relevant regulatory capital requirements and to hold sufficient economic capital to withstand a worst case loss in economic value due to risks arising from business activities. The worst case loss is derived through statistical models influenced by the group's target debt rating.

The group's capital resources, on an IFRS basis, as at 31 December 2010 and 31 December 2009 are as follows:

Capital resources	2010 €m	2009 €m
Shareholders' equity	1,616	2,006
Dated loan capital	1,122	1,117
Undated loan capital	564	527
Total capital resources	3,302	3,650

The fall in shareholders' equity of €390m includes the loss after tax of €128m for 2010 and a €258m negative change in the fair value of AFS financial assets included in the Statement of Other Comprehensive Income. The €42m increase in dated and undated loan capital is largely accounted for by the favourable exchange rate movements in undated loan capital.

The group is regulated by the Central Bank of Ireland which sets and monitors regulatory capital requirements in respect of the group's operations. Regulatory capital is the level below which the group's capital must not fall. The group manages its capital base through its Internal Capital Adequacy Assessment Process ("ICAAP") which is detailed in full on the group's website, www.irishlifepermanent.ie.

While there are a number of regulated entities within the group which have individual regulatory capital requirements, the two principal regulated entities are Irish Life & Permanent plc, the group's banking operation (trading as permanent tsb), and Irish Life Assurance plc, the group's principal life assurance operation.

Bank capital

From 1 January 2008, the minimum regulatory capital requirement of the group's banking operations has been calculated in accordance with the provisions of Basel II as implemented by the European Capital Requirements Directive and the Financial Regulator.

The group's capital ratios remained strong at 31 December 2010 with a Tier 1 and total capital ratio of 10.6% (2009: 11.3%) compared to a regulatory minimum of 8%. The capital base has no Tier 1 hybrid capital in the structure. This ratio does not include a €243m available dividend from the life assurance business.

The following table sets out the regulatory capital position of Irish Life & Permanent on a Basel II basis at 31 December 2010 and 31 December 2009:

Bank regulatory capital	2010 €m	2009 €m
Total available capital (Tier 1)	1,681	1,858
Total required capital	1,265	1,313
Excess own funds	416	545
Risk-weighted assets	15,809	16,411
Risk asset ratio (all core Tier 1)	10.6%	11.3%

The group's risk-weighted assets are predominately made up of credit risk (€15.02bln) with operational and market risk accounting for €0.77bln and €0.03bln of the risk-weighted assets at the end of December 2010 respectively.

Further capital details can be found in Note 35, Analysis of equity and capital.

Risk-weighted assets fell by 3.7% from €16.4bln at the end of 2009 to €15.8bln at 31 December 2010. The bank's available capital reduced to €1.68bln giving a 31 December 2010 capital ratio of 10.6% (2009: 11.3%).

The group continues to review developments and proposals issued by the Basel Committee on Banking Supervision in order to ensure that it remains appropriately capitalised and prepared for any additional requirements adopted by the EU.

Life capital

The solvency cover for Irish Life Assurance plc ("ILA"), the group's main life assurance operation, at 31 December 2010 is 1.75 times (2009: 1.6 times) the minimum requirement of €401m (2009: €413m). The regulatory solvency requirement is 1.5 times the minimum. Based on the ILA's current risk exposures, ILA's target is to maintain a solvency ratio of 175% of the statutory minimum. The 2010 solvency cover is post the €243m available dividend from the life assurance business to its parent. This solvency cover is summarised below:

Solvency cover	2010 €m	2009 €m
Minimum capital	401	413
Regulatory capital
Net worth	501	536
Subordinated debt	201	208
VIF loan	100	-
Other assets available	16	20
	818	764
Inadmissible assets	(114)	(108)
	704	656
Solvency cover*	1.75	1.6

*The 2010 solvency cover is net of the amount available for dividend from Irish Life Assurance of €243m. The 2010 solvency cover before the available dividend was 2.4 times.

The table below sets out the movement in life assurance and fund management regulatory capital in the twelve months to the end of 31 December 2010 and 31 December 2009:

Life assurance and fund management regulatory capital	2010	2009
	€m	€m
At 1 January	685	694
Capital generated from existing business	327	194
New business strain	(75)	(74)
STIFs and economic variances	(27)	(106)
Dividend paid	(13)	(13)
VIF loan	100	-
Other	(19)	(10)
Regulatory capital as at 31 December before available dividend	978	685
Available dividend	(243)	-
Regulatory capital as at 31 December after available dividend	735	685

For 2010, the life regulatory capital increased by €50m to €735m mainly resulting from the surplus (capital) generated from existing business (€327m) being offset partially by the €256m dividend (€243m available and €13m paid) to the parent and a €75m new business strain arising from the capital requirements for writing new business.

The short-term investment fluctuations ("STIFs") and economic variances of €27m negative (2009: €106m negative) include losses on shareholder properties and an increase in the costs of financial options and guarantees resulting from changes in interest rate movements during the year.

In November 2010 the life assurance business entered into a €100m loan secured on the in-force book of business which qualified for regulatory capital.

In line with the group's capital management policy, whereby surplus capital above targeted minimum levels is remitted to the bank, the group's life assurance business has an available dividend of €243m (2009: nil) and the fund management business has paid a €13m dividend (2009: €13m) to the bank holding company.

Solvency II

The calculation of minimum regulatory capital for the life assurance and fund management businesses is currently based on the EU Solvency I Directive. New requirements will be established under the Solvency II directive which was formally adopted in 2009 and is expected to be implemented in 2013. Solvency II will require the calculation of solvency and reserving requirements on a realistic market-consistent basis. The group believes that the adoption of Solvency II will increase available capital resources. As a consequence, as noted above, in November 2010 the group successfully accessed a limited part of this capital increase through securing a value of in-force loan facility of €100m.

Dividend

In the context of the capital generation challenges, the continuation of the Government Guarantee Scheme and the approach being adopted by financial institutions both in Ireland and internationally, the board has proposed that there will be no dividend for the twelve months of 2010 (2009: nil). This approach is consistent with the priority to conserve capital in the group in the current economic environment.

Bank operating review

permanent tsb, the group's Republic of Ireland ("RoI") banking division, provides a full range of retail banking products and services through its nationwide network of branches as well as through intermediaries and directly over the phone and internet. It is a leading provider of residential mortgages, retail deposits, current (checking) accounts as well as consumer finance. Strategically, the focus of its banking business is to service the residential owner occupier mortgage and consumer finance credit markets and to offer a wide range of deposit and life assurance products and services to its customer base.

The group's UK mortgage business, Capital Home Loans ("CHL") was closed to new business in March 2008. This business was a centralised mortgage lender focusing on the professional landlord residential investment property market or buy-to-let ("BTL") as it is referred to in the UK. The focus in CHL is now on customer service and arrears management.

In addition to CHL, the group operates a banking business in the Isle of Man (Irish Permanent (IOM) Limited). In May 2010 as part of the group's efforts to consolidate and concentrate resources on its core Irish market, the group announced its intention to phase down operations in the Isle of Man. The business's deposit book was wound down and the mortgage book is now administered by CHL. The Isle of Man operation is now closed to new business.

The pre-tax operating performance for the twelve months ended 31 December 2010 and 2009 and key performance indicators of the group's banking businesses are set out below:

Summary income statement		2010		2009
€m	RoI	UK	Total	RoI	UK	Total
Net interest income – before ELG scheme costs	409	(7)	402	336	39	375
Other income	38	–	38	48	1	49
Government guarantee charges	(110)	–	(110)	(29)	–	(29)
Total operating income / (expense)	337	(7)	330	355	40	395
Administrative expenses / depreciation / amortisation – recurring	(252)	(10)	(262)	(265)	(11)	(276)
Administrative expenses / depreciation / amortisation – restructuring & non-operational	(12)	–	(12)	(13)	–	(13)
Total administrative expenses / depreciation / amortisation	(264)	(10)	(274)	(278)	(11)	(289)
Operating profit / (loss) before impairment provisions	73	(17)	56	77	29	106
Impairment provisions
Residential lending	(243)	(27)	(270)	(154)	(33)	(187)
Consumer finance	(45)	–	(45)	(90)	–	(90)
Commercial lending	(105)	–	(105)	(99)	–	(99)
	(393)	(27)	(420)	(343)	(33)	(376)
Operating loss before tax	(320)	(44)	(364)	(266)	(4)	(270)

Other key performance indicators	2010			2009
	RoI	UK	Total	RoI	UK	Total
Retail deposits balance (€m)	11,101	-	11,101	9,850	39	9,889
Average indexed LTV – residential lending	69%	83%	–	63%	85%	–
New RoI residential lending (€m)	265	–	265	793	–	793

Against the background of an economic recession, higher funding costs and a weak Irish housing market, the group's banking business delivered an operating profit before impairments and tax of €56m (2009: €106m). The operating loss before tax for the year was €364m (2009: €270m loss). The 2010 loss was principally due to the impairment provision charge of €420m and government guarantee costs of €110m (€97m under the ELG scheme and €13m under the CIFS scheme).

Net interest income

Net interest income ("NII") for 2010 for the banking business was €305m (2009: €375m). NII excluding €97m of charges associated with the ELG guarantee scheme was €402m, 7% ahead of the €375m recognised in the same period in 2009. NII reflects the increase in asset margins being offset by the higher funding costs associated with the rise in the marginal cost of attracting retail and corporate deposits as well as the cost of refinancing maturing wholesale debt. The standard RoI variable rate mortgage interest rate was increased by 50bps in both February and August 2010 in response to these higher funding costs. These actions along with the re-pricing of the group's consumer finance portfolios resulted in the net interest margin ("NIM") at the end of 2010, excluding the ELG guarantee scheme charges, increasing to 86bps (2009: 83bps). The standard RoI variable rate mortgage interest rate was increased by a further 100bps in February 2011 and this re-pricing will support the NIM in 2011.

NIM was also positively influenced by the lower deferred acquisition charges due to the continuing low redemption levels and the quantum of lower cost ECB funding the group had during 2010.

NII in 2009 was negatively impacted by circa €30m resulting from mismatches which arose between the fees charged on fixed-rate mortgage switches and the cost of closing fixed rate positions in the early part of 2009.

NII was negative in the UK business resulting from a realignment of the funding costs charged to the UK business and the increase in funding costs associated with its Auburn securitisation vehicles.

The net interest margin of 86bps is detailed in the following table:

Net interest margin	bps
31 December 2009	83
Retail deposit funding	(12)
Wholesale funding	(3)
Asset re-pricing	24
Other	(6)
31 December 2010	86

Other income

Other income of €38m for 2010 (2009: €49m) principally relates to current account fee income, general insurance commission and bureau de change commission. The 2009 income included €8m from the purchase of Auburn and Fastnet securities in the market.

Other income excludes the contribution from bancassurance sales generated through the bank, which are reported in the group's life assurance business. APE sales of life and pension products through the bank were €29m in 2010 (2009: €29m). This includes the strong performance in single premium bond sales which were up 22% on the same period last year at €17m. This was offset by a fall in protection sales of 33% year on year to €4m due to the reduced level of mortgage lending activity in the bank.

Government guarantee charges

The CIFS government guarantee charge (which is included in fees and commission expenses) for 2010 was €13m compared to €29m for the same period in 2009. This cost is calculated as a percentage of the liabilities which are covered by the scheme and is payable on a quarterly basis. The new (ELG) Government Guarantee Scheme which the group participated in from January 2010 resulted in a charge of €97m which was included as a charge against NII. The total cost of the two guarantee schemes increased from €29m in 2009 to €110m in 2010. The year-on-year increase in the guarantee charges reflects the higher rates associated with the new ELG guarantee and the charge of this scheme increased during the year as the scheme was extended beyond December 2010.

Costs

Recurring administrative expenses including depreciation and amortisation for the group's banking businesses for 2010 were €262m, a 5% fall on the 2009 out-turn of €276m. During 2010 permanent tsb reduced its branch network by eleven branches and reduced headcount by 140 full-time equivalents. Cost management continues to receive significant management attention.

A transformation programme launched in February 2011 is expected to deliver a reduction in staff numbers of 280 under a voluntary severance plan along with delivering additional income opportunities. This transformation programme involves the greater use of service automation together with increased use of telephone and internet banking services. The bank will create a new sales platform to position it to serve its customers' needs even more proactively and more effectively.

With new lending suspended in Capital Home Loans since 2008, administrative expenses in the UK are principally accounted for by loan administration costs.

Portfolio analysis

Loans and receivables to customers	2010	2009
	€m	€m
Lending by class
RoI residential lending	26,340	27,256
UK residential lending	7,527	7,484
Consumer finance	1,375	1,749
Commercial lending8	2,348	2,386
Intra-group commercial loans	(444)	(447)
Other	-	211
	37,146	38,639
Provision for loan impairment	(883)	(477)
Deferred fees, discounts and fair value adjustments	318	430
Total	36,581	38,592
Lending by credit quality
Neither past due nor impaired	31,909	34,603
Past due but not impaired	3,699	3,208
Impaired	1,538	828
Total	37,146	38,639

Activity in the Irish housing market was significantly below that experienced in the recent past with the bank issuing €265m in new residential mortgages in 2010 (2009: €793m). Irish residential mortgage balances outstanding fell by 3% to €26.3bln compared to €27.3bln at year end 2009. A lower level of early redemption activity, reflecting market conditions generally, continues to be experienced.

The demand for new residential mortgages continues to be impacted by consumer confidence, the availability of credit and the general economic uncertainty. The permanent tsb / ESRI House Price Index reported house prices falls on average of 10.8% in 2010 having fallen by 18.5% in 2009. This reduction in house prices depressed activity in the residential switcher market. While the rate of decline in average house prices in Ireland rose in the final quarter of 2010 compared to the previous quarters, the rate of decline for the year as a whole 2010 was significantly less than was experienced in 2009.

The fall in house prices has resulted in the average indexed loan-to-value ("LTV") for the Irish residential portfolio increasing resulting in a corresponding increase in the number of cases in negative equity. The average indexed LTV of the Irish residential mortgages and residential investment property loans now stands at 69% (2009: 63%) with cases over 100% representing 28% (2009: 22%) of the portfolio.

With CHL and the Isle of Man businesses closed to new business, the UK lending portfolio after provisions fell by 3% to STG£6.4bln at the end of 2010 from STG£6.6bln at the end of 2009.

With average UK property prices now 4% above the trough reached in April 2009, as per the Halifax House Price Index, the average index-linked LTV of the UK mortgage portfolio is 83% (2009: 85%) with cases in negative equity representing 23% of the total portfolio at the end of 2010.

⁸Commercial lending includes loans of €444m (2009: €447m) to the group's life assurance operations including loans held for the benefit of unit-linked policyholders.

New consumer finance loans of €340m (2009: €326m) includes the positive impact of the Government's car scrappage scheme introduced in February 2010. This scheme resulted in an increase in new car purchases year on year. The portfolio fell 21% to €1.4bln (2009: €1.7bln) reflecting the short-term nature of this portfolio.

New commercial lending was discontinued in 2008, the portfolio remained stable at €1.9bln (excluding €0.4bln of intra-group loans) at the end of December 2010.

Portfolio quality		2009
	RoI	2010 UK	Total	RoI	UK	Total
	€m	€m	€m	€m	€m	€m
Lending book (before provisions)	29,937	7,527	37,464	31,538	7,531	39,069
Impairment provision balance (€m)
Residential lending	(446)	(63)	(509)	(194)	(42)	(236)
Consumer finance	(151)	-	(151)	(128)	-	(128)
Commercial lending	(223)	-	(223)	(113)	-	(113)
Total impairment provision balance	(820)	(63)	(883)	(435)	(42)	(477)
Lending book (after provisions)	29,117	7,464	36,581	31,103	7,489	38,592
Portfolio quality information*	2010			2009
	>90 days	IL	NPL	>90 days	IL	NPL
	in arrears			in arrears
Residential lending	9.1%	3.8%	9.2%	4.9%	1.5%	4.9%
Consumer finance	10.9%	11.3%	13.4%	8.0%	9.5%	11.8%
Commercial lending9	18.9%	11.9%	20.1%	12.3%	7.2%	12.9%
RoI portfolio	-	4.7%	10.2%	-	2.4%	5.9%
UK portfolio (residential lending)	2.0%	1.5%	3.4%	2.6%	1.0%	3.4%
Total portfolio	-	4.1%	8.9%	-	2.1%	5.5%

*based on value

IL= Impaired loans. NPL= non-performing loans which are loan balances in excess of 90 days in arrears plus impaired loans that are less than 90 days in arrears

The key priority for the group in these challenging economic conditions is to minimise the losses arising from credit impairments. Resourcing has significantly increased in the credit and collections areas across all portfolios with particular focus being placed on those arrears arising in more exposed parts of the loan portfolio. The Financial Regulator's Code of Conduct on Mortgage Arrears, which the bank adheres to, outlines details on how customer engagement should be managed when a mortgage customer falls into arrears. The group continues to work with all borrowers experiencing repayment difficulties.

Loans are treated as impaired as soon as there is objective evidence that an impairment loss has been incurred. Objective evidence includes, but is not limited to, known cash flow difficulties experienced by the borrower, overdue contractual payments of either principal or interest, or a breach of loan covenants or conditions.

(A) Residential lending – RoI

As a result of the deterioration in economic conditions and in particular, the higher levels of unemployment, arrears continued to increase across the residential portfolio in 2010. Case numbers, over 90 days in arrears, increased to 6.8% at the end of 2010 from 3.9% at the end of 2009. This is reflected in the increase in non-performing loans ("NPL") balances from €1,342m at the end of 2009 to €2,417m at the end of 2010.

Notwithstanding the level of arrears, 91% of all home loan accounts are up to date at the end of 2010 (93% at the end of 2009). Arrears management and customer affordability continue to benefit from the historically low interest rate environment.

⁹ Calculation includes intra-group loans of €444m (2009: €447m)

An impairment charge of €243m (2009: €154m) was made on this portfolio for 2010 reflecting both the increase in arrears numbers and the continuing fall in house prices. This brings the provision balance to €446m at the end of 2010 (2009: €194m) and provides 14% cover against the value of mortgages which are in arrears greater than 30 days.

The key assumption used in the group's provisioning models and methodology is the projected peak-to-trough fall in house prices. In 2010, the group changed the forecast peak-to-trough house price assumption from 40% to 43%. This assumption change had a direct impact on the level of provisions required. The permanent tsb / ESRI house price index indicated that the fall in house prices from the peak in 2007 was 38% at the end of 2010 indicating that the market would have to fall a further 8% in order for the 43% peak-to-trough assumption to be met.

(B) Residential lending – UK

The number of accounts showing more than three months' arrears in CHL peaked at over 1,600 cases in March 2009 and has declined steadily since to 935 cases at the end of 2010. This downward trend has continued in line with that reported by other buy-to-let lenders in the UK although CHL's experience has been consistently better than the industry overall. The industry average of three-month buy-to-let arrears cases, as defined by the UK Council of Mortgage Lenders, at the end of 2010 was 2.6% compared to CHL's ratio of 2.0%. This performance has resulted in the impairment provision charge for the UK portfolio falling by 18% to €27m for 2010 (2009: €33m).

(C) Consumer finance

In the consumer finance portfolio, the absolute level of impaired loans at the end of 2010 fell 7% during the year. However, as a percentage of the portfolio, impaired loans increased to 11.3% at the end of 2010 from 9.5% at the end of 2009. This performance reflects the 21% year-on-year fall in the consumer finance portfolio balances to €1,375m at the end of 2010 (2009: €1,749m).

Car finance represents the majority of the consumer finance portfolio. In this portfolio, in direct comparison to the fall in the portfolio balance, the year-on-year arrears cases in excess of 90 days have fallen by 18%.

The reduction in the year's impairment charge to €45m (2009: €90m) was influenced by the fall in arrears cases and the increase in second-hand car prices in 2010. The 2010 charge includes an exceptional recovery of €8m in respect of VAT on the car finance portfolio.

(D) Commercial lending

Commercial mortgage case numbers, over 90 days in arrears, increased by 43% to 656 cases at 31 December 2010 (2009: 458 cases). Impaired loans increased from 7.2% in 2009 to 11.9% in 2010 and NPLs increased to 20.1% in 2010 from 12.9% in 2009. In general, prime commercial exposures have continued to perform notwithstanding yield widening, but where cases do default they are difficult to cure in the short to medium term given the need to acquire tenants with good repayment capacity.

An impairment charge of €105m in 2010 (2009: €99m) reflects the impact of the downturn in economic conditions on property values and rent rolls in the commercial portfolio, particularly in the retail sector. A consequence of the events of the last quarter of 2010 was that valuers sharply marked down their assessment of commercial property values compared to where they were guiding prior to the EU/IMF Programme, even where such properties were fully let and rent producing. As a consequence of these markdowns the bank were required to reassess and increase the stock of commercial provisions by €40m. This brings the impairment provision balance for the commercial portfolio to €223m.

The group's total impairment charge on loans and receivables of €420m for 2010 brings the group's provision coverage¹⁰ net of write-offs to 2.4% at the end of 2010 (2009: 1.2%). Further details of the group's impairment charge can be found in Note 10, Provision for impairment.

¹⁰ Provision coverage is the ratio of the year end loans and receivables to customers' balance (before impairment provision and deferred fees, discounts and fair value adjustments) and the impairment provision balance.

Retail customer account balances

Retail customer account balances for the Irish banking business at the end of 2010 totalled €11.1bln, up 13% from €9.9bln at the end of 2009. Excluding current accounts, Irish retail deposit balances, principally demand and term deposits, increased by 16% to €8.9bln at the end of 2010.

The growth in these retail balances is offset by the €1.7bln fall in corporate deposit balances as at the end of 2010. The group's loan-to-deposit ratio increased to 249% as at the end of 2010 (2009: 246%) as a result of the fall in the loans and receivables to customers balance being offset by the net fall in the customer accounts balances.

The group has over 90 branches fully focussed on the deposit market. In addition, the group is continuing to utilise all its life assurance distribution strength to generate deposits. This source for deposits has increased the group's deposit-gathering ability by over 50%.

In 2010, the bank opened over 43,500 new current accounts. The launch of the bank's "Interest First" account successfully attracted over €1bln in balances in 2010.

Life assurance and fund management operating review

The group's life assurance business, Irish Life Assurance, is the leader in the life and pensions market in Ireland. The business operates a multi-channel distribution strategy for its products and services through its two main subdivisions, Retail Life and Corporate Life. Of particular importance has been the development of its bancassurance operation which it successfully developed in the permanent tsb network and subsequently extended to a number of other credit institutions with branch networks in Ireland thereby expanding its customer base.

The group's fund management business, Irish Life Investment Managers ("ILIM"), provides investment management services for the group's life and pensions business in addition to managing large segregated funds. ILIM offers a wide range of active, consensus and multi manager funds with a key focus of the business being on product innovation. The business has grown strongly in the past number of years and now ranks as the largest fund manager in Ireland as measured by domestic funds under management.

Total sales for the life assurance and fund management businesses for 2010 increased by 6% on the same period in 2009 to €572m (on an APE basis). This reflects the increase in the fund management business's sales performance and is partially offset by the fall in Life sales. Life sales (on an APE basis), fell by 8% to €320m from €348m in 2009 compared to an estimated 6% fall in the overall life market which includes the effect of the group's dominance in the corporate market. The life assurance share of the overall life market is estimated to be 28% for 2010 compared to 30% 2009.

The pensions market remains a strategic priority for the group and pension sales account for 72% of total group life sales. The pensions business in both Retail and Corporate Life enabled the group to maintain its dominant market share position in the pensions market with an estimated market share of 29%, notwithstanding that this market has been impacted by lower incomes and company closures. The business continues to review and assess the potential impact of proposed tax changes on its operational activity and performance.

Life margins, in APE terms for 2010 of 11.5% increased by 0.1% relative to the same period in 2009 (2009: 11.4%). This increase includes the effect of a favourable volume and channel mix along with lower acquisition costs in Retail Life being offset by the lower level of Corporate Life new business volumes.

Retail Life

The group's Retail Life business concentrates on sales of life and pensions products to the retail market in Ireland. It is a market leader with a comprehensive product range spanning pensions, protection, investment and regular savings.

A key strength of Retail Life is the breadth and depth of its distribution channels. It has a strong presence across all the key channels such as independent brokers, bancassurance (through permanent tsb and tied arrangements via EBS and Ulster Bank), and direct sales with employed and self-employed advisers as well as a franchise operation.

The market for retail life and pensions in Ireland has fallen by over 50% since 2007 and Irish Life's sales reflect this. Total APE sales for 2010 of €146m were 8% behind 2009. Pension sales in particular remain weak, although investment sales in 2010 increased 20% to €30m on the same period in 2009.

On a PVNBP basis total retail sales declined 7% to €1,014m which reflects stronger relative performance in single premiums. The bancassurance channel which represented 22% of the Retail Life PVNBP sales performance in 2010 increased by 9% on the same period in 2009 and this channel remains a key priority for the business.

Retail Life has reduced its costs by 25% since 2007 to reflect lower market activity. Its strong in-force book is proving resilient and provides a buffer to earnings.

Retail Life is continuing to promote a transformational programme with an emphasis on customer and distributor satisfaction and embedding a strong retention culture right across the business. As a result of the retention initiatives, the persistency experience has improved in 2010 when compared to 2009.

Corporate Life

The Corporate Life division sells pension and risk schemes to employers and affinity groups in Ireland, distributed principally through pension consultants and brokers (including Cornmarket, a specialist affinity broker and a wholly owned subsidiary of the group). The key drivers of sales growth are employment and salary growth in the Irish economy, with the trend away from defined-benefit pension provision towards defined contribution also representing a major growth opportunity. The decline in Corporate Life sales in the twelve months of 2010 vis a vis the same period in 2009 resulted principally from increasing unemployment and salary freezes. APE sales fell 16% to €137m for the twelve months of 2010 when compared to the same period in 2009. On a PVNBP basis sales fell 14% to €903m from €1,050m in 2009. Corporate Life has a leading position in this market with an estimated market share in excess of 40%.

Improving the investment protection for defined contribution customers has been an important objective of Corporate Life during 2010. An investment solution – Personal Lifestyle Strategy – was introduced and has met with significant approval from Corporate Life's defined contribution scheme clients. It is intended to continue to roll this out to 500 more clients over 2011.

Customer service levels are a key differentiator of providers in the market and the Corporate Life division has achieved competitive advantage through continued and sustained investment in both staff and technology in order to achieve significant improvement in service levels and customer satisfaction. In 2010, Corporate Life achieved a customer service index score of 94.6%, up from 92.7% at the end of 2009. This focus on service level improvements and customer satisfaction will continue to be a feature of the division's agenda into the future.

The increase in unemployment, lower salary levels and company closures impacts the persistency experience in Corporate Life. This has resulted in a negative persistency experience in 2010 when compared to long-term assumptions.

Fund Management

Irish Life Investment Managers ("ILIM") is committed to market leadership through recognising the needs of its clients and developing and providing the most appropriate investment solutions to meet those needs. ILIM delivered a strong performance in 2010 on both the active and passive sides of the business and continued to grow its client base.

Gross new fund inflows were €2.5bln (2009: €1.9bln). This included new sales of €1.0bln (2009: €0.4bln) and contributions from existing clients of €1.5bln (2009: €1.5bln). The market value of funds under management increased since the mid-year as policymakers increased economic stimulus in both the Eurozone and the US. The Irish, UK and US equity market values increased by 9%, 7.1% and 6.7% respectively for 2010 (local currency).

Outflows for the twelve months of 2010 of €2.4bln were 12% higher than the same period in 2009. This includes the loss of €0.9bln from various state institutions as part of a wider Irish Government strategic initiative to consolidate various state pension schemes at the start of 2010 and €1.5bln from other withdrawals as clients restructure their portfolios. Total funds under management for ILIM were €31.7bln (2009: €29.8bln) representing an increase of 7% during 2010. This is a significant achievement considering the ongoing economic uncertainty and the cautious investment approach still being adopted by many investors.

ILIM remains favourably positioned to grow as clients' preference for risk reduction solutions is directly met by ILIM's expertise in Liability Driven Investment Solutions (€2.5bln under management) and the demand for diversification across alternative assets classes is satisfied with active and indexed solutions brought to the market by ILIM.

ILIM paid a dividend to the group of €13m in 2010 (2009: €13m).

The operating results and key performance indicators of the group's life assurance and fund management businesses, for the twelve months ended 31 December 2010 and 2009 are set out below:

Summary income statement		2010			2009
€m		Life Fund Mgt	Total	Life	Fund Mgt	Total
Net interest payable	(33)	-	(33)	(36)	-	(36)
Net fees and commissions	(118)	-	(118)	(136)	-	(136)
Premiums on insurance contracts net of reinsurance	595	-	595	593	-	593
Investment return	2,174	-	2,174	2,616	-	2,616
Fees from investment contracts and fund management	195	42	237	203	38	241
Change in shareholder value of in-force business	(31)	-	(31)	(57)	-	(57)
Operating income	2,782	42	2,824	3,183	38	3,221
Claims on insurance contracts net of reinsurance	(304)	-	(304)	(329)	-	(329)
Change in insurance / investment contract liabilities	(2,075)	-	(2,075)	(2,614)	-	(2,614)
Administrative expenses / depreciation / amortisation – recurring	(156)	(26)	(182)	(171)	(25)	(196)
Administrative expenses / depreciation / amortisation – restructuring and non-operational	-	-	-	(17)	-	(17)
Investment expenses	(84)	-	(84)	(67)		(67)
Operating expenses	(2,619)	(26)	(2,645)	(3,198)	(25)	(3,223)
Operating profit / (loss) before tax	163	16	179	(15)	13	(2)
Key performance indicators		2010 Life Fund Mgt	Total	Life	2009 Fund Mgt	Total
New business APE (€m)
Retail Life	146	-	146	159	-	159
Corporate Life	137	-	137	164	-	164
Irish Life International	37	-	37	25	-	25
Irish Life Investment Managers	-	252	252	-	191	191
Total new business APE	320	252	572	348	191	539
New business PVNBP (€m)
Retail Life	1,014	-	1,014	1,096	-	1,096
Corporate Life	903	-	903	1,050	-	1,050
Irish Life International	371	-	371	252	-	252
Irish Life Investment Managers	-	2,520	2,520	-	1,908	1,908
Total new business PVNBP (€m)	2,288	2,520	4,808	2,398	1,908	4,306
Margin (%) – APE basis	11.5%	6.1%	9.1%	11.4%	5.9%	9.4%

The operating profit before tax for 2010 of €179m compared to the €2m loss in the same period in 2009 reflects the lower reduction in the value of in-force business in the period and the property loss experience in 2009. 2010 has seen the demand for single premium guarantee products increase while weak SME cash flows continued to dampen demand for the group's life assurance products.

Margin (%) – PVNBP basis 1.6% 0.6% 1.1% 1.6% 0.6% 1.2%

Investment return

The strong investment return performance, which principally reflects the return on assets held in unit-linked funds, of €2,174m for 2010 (2009: €2,616m) was down year on year due to higher returns experienced in 2009.

This performance directly influences and is offset by the €1,943 charge for the change in investment contract liabilities (2009: €2,484m).

Change in shareholder value of in-force business

The following table details the change in shareholder value of in-force business for insurance contracts in the life assurance business in the years ended 31 December 2010 and 31 December 2009:

Change in shareholders value of in-force business	2010	2009
	€m	€m
New business	100	99
Expected return on existing business	(83)	(88)
Experience variances	(9)	(33)
Operating assumption changes	(41)	(7)
Short-term investment fluctuations	2	8
Economic assumption changes	-	(36)
Total	(31)	(57)

Note 15, Shareholder value of in-force business, details various assumptions used for both 2010 and 2009 in the calculation of the shareholder value of in-force business.

Net claims on insurance contracts

The claims on insurance contracts net of reinsurer's share fell year on year to €304m (2009: €329m) reflecting the maturity profile and change in the size of the in-force book.

Net change in investment and insurance contract liabilities

During 2010 the net change in investment and insurance contract liabilities of €2,075m (2009: €2,614m) was influenced by assumption changes including interest rate (€61m increase), inflation rate (€16m decrease), morbidity (€24m decrease) and expense (€15m decrease) assumption changes along with the increase in investment returns. Further details are outlined in Note 25, Investment contract liabilities and Note 26, Life insurance contracts including life insurance contracts with discretionary participation features (DPF).

Operating expenses also include a gain of €13m (2009: €18m loss) due to a decrease in policyholder liabilities. This decrease occurred because Irish Life & Permanent Group Holdings plc shares, held for the benefit of policyholders, fell in value. There was a corresponding fall in value of the asset represented by the shareholding but under IFRS, a fall in the value of own shares is not recognised in the income statement.

Administration expenses, depreciation, amortisation and impairment

Resulting from various restructuring programmes in the life assurance and fund management businesses recurring costs fell year on year by 7% to €182m. This reduction directly influenced the improvement in new business margin in 2010.

Life asset portfolio

The value of the group's life operations is exposed to market movements in assets, currencies and interest rates. This is due to the fact that the non-linked insurance and investment liabilities and the shareholder value of in-force are calculated using assumptions regarding investment returns and interest rates. To the extent that actual returns and interest rates differ from the assumptions used, variances will arise, which may be positive or negative.

The group's life business is a relatively low-risk operation. Its unit-linked portfolio of €26bln represents 93% (net of reinsurance) of the life assurance and fund management businesses' liabilities. The unit-linked investment risk is primarily borne by policyholders.

In the non-linked insurance and investment portfolio, the group's policy is to match liability flows with high quality assets, principally sovereign bonds. The average duration of the non-linked liabilities is 9.9 years while the average duration of the assets matching these liabilities is 10.0 years.

The credit profile of the fixed-rate securities held in the non-linked portfolio is as follows:

Credit profile of the fixed-rate securities held in the non-linked portfolio	2010 %	2009 %
Aaa	77	77
Aa	10	22
Other	13	1
	100	100

Given the close duration match of assets and liabilities, any mark to market adjustments in the portfolio due to changes in yield curves are generally matched by equal and opposite movements in the value of the liabilities.

The life assurance and fund management businesses' shareholder funds of €878m are principally invested in cash. An analysis of the life shareholder fund investments as at 31 December 2010 is set out in the EV supplementary information in Note 5, Shareholders' equity.

Embedded value business review

The group manages its life businesses on an EV basis, as it believes that EV is a more realistic measure of the performance of life businesses than the statutory IFRS basis. The EV basis is used throughout the group to assess performance, and it is also the measure used by life insurance companies generally and by the investment community to assess the performance of life businesses.

A summary of the group's income statement on an EV basis and key performance indicators for the twelve months ended 31 December 2010 and 2009 is summarised below:

Summary income statement	2010 €m	2009 €m
Life assurance and fund management business
New business contribution	52	51
Contribution from in-force business
Expected return
In-force	117	108
Net worth	14	14
Experience variances	18	(70)
Assumption changes	(41)	(1)
	108	51
Life assurance and fund management business	160	102
Banking	(364)	(270)
Other*	(2)	(26)
	(206)	(194)
Share of associate	9	(2)
EV operating loss	(197)	(196)
Short-term investment fluctuations	49	(68)
VIF loan (financing costs)	(22)	-
Effect of economic assumption changes	(51)	(38)
Impairment of assets held for disposal	(11)	-
Adjustment on inter company segments	(5)	(17)
Operating loss before tax	(237)	(319)
Taxation	39	40
Loss after tax attributable to owners of the parent	(198)	(279)

Key performance indicators	2010	2009
Operating loss on an EV basis before tax (€m)	(197)	(196)
Adjusted operating return on capital employed (%)11	(8.1)	(7.1)
Shareholder funds per share EV basis (€)	7.4	9.0

*Other includes unallocated corporate costs and the income from brokerage and third party administration subsidiaries.

The loss after tax, on an EV basis was €198m for 2010 (2009: €279m loss). The operating profit of €160m (2009: €102m) in the life and fund management business has been offset by the operating losses in the bank of €364m (2009: €270m loss). The year-on-year increase in the life assurance and fund management profits is principally due to a €88m improvement in experience variances being offset by a €40m decline in operating assumption changes. The bank's year-on-year performance was influenced by higher impairment charges and higher Government Guarantee Scheme charges.

For additional details on the performance of the banking businesses please refer to the Banking Operating Review.

¹¹ The adjusted operating return on capital employed on an EV basis is calculated by dividing the operating profit after tax, excluding share of associate (see Note 4 to the EV basis financial statements, Analysis of loss after tax) by the average shareholder equity for 2009 and 2010 before own share adjustment, excluding associate and consolidation adjustments (see Note 5 to the EV basis financial statements, Shareholders equity).

Return on capital employed

Total embedded value for the group for 2010 fell 18% to €2.1bln (2009: €2.5bln). The adjusted operating return on capital employed on an EV basis for the group (excluding associate and own share adjustment) was 8.1% negative (2009: 7.1% negative) principally due to losses in the group's banking businesses.

Operating performance for life assurance and fund management businesses

The operating profit before tax for 2010 of the life assurance and fund management business was €160m (2009: €102m). The key drivers of this out-turn were a higher level of expected return from existing business, which was up 8% to €117m (2009: €108m) and the €18m positive experience variances (2009: €70m negative). The experience variances are driven by the positive income protection experience in Corporate Life being partly offset by negative Corporate Life persistency experience due to scheme closures and premium reductions.

New business contribution and margins

The contribution from new business for 2010 of €52m was up €1m on the same period in 2009. The impact of lower sales was offset by improved new business margins in Retail Life, cost reductions and a more favourable sales volume mix.

The Life Assurance's new business margin of 11.5% (2009: 11.4%) increased by 0.1% year on year.

The internal rate of return, excluding ILIM, for 2010 was 10.5% (2009: 9.3%). The average undiscounted payback period¹² for 2010 across the group's life product portfolio, excluding ILIM, was 7.5 years (2009: 8.3 years).

Contribution from in-force business

Total in-force earnings for 2010 increased to €108m (2009: €51m).

The expected in-force return which improved by 7% year on year to €131m, includes the effect of a higher opening interest rate applying to the un-wind of the opening shareholder value of in-force (2010: 7.5% ; 2009: 7.0%). The expected return on the net worth relates to earnings on shareholder assets. It is calculated by reference to the assumed long-term rate of return on property and equities and the actual return on short-term cash.

Experience variances and operating assumption changes in 2010 resulted in a €23m charge (2009: €71m charge) and are detailed in the following table.

Experience variances and assumption changes are analysed as follows:

		2010			2009
	Experience	Assumption	Total	Experience	Assumption	Total
		changes			changes
	€m	€m	€m	€m	€m	€m
Persistency	(9)	(62)	(71)	(66)	(42)	(108)
Risk	35	16	51	23	9	32
Expenses/Other	(8)	5	(3)	(27)	32	5
Total	18	(41)	(23)	(70)	(1)	(71)

The persistency experience in 2010 deteriorated principally on pension business due to scheme closures and premium reductions. The potential impact of the recent budgetary changes on both take-home pay and household budgets combined with the behavioural effect which changes to the existing pensions framework may have on pension premium flows has resulted in a reassessment of the long-term persistency assumptions resulting in a charge of €62m. The total persistency charge for 2010 was €71m (2009: €108m).

Persistency assumptions are set by reference to recent operating experience excluding the 2009 persistency experience which is regarded as an extreme event. The adverse persistency experience in 2009 and 2010 is expected to continue at a reduced level for a number of years. Therefore, the persistency assumptions within the VIF model have reflected this by allowing for a more adverse persistency experience over the next three years reducing to the long-term assumptions thereafter. Actual future persistency experience against the assumptions will continue to be monitored closely.

¹² Payback period is calculated as the number of years it takes to break even adding up the cash flows.

The risk experience variance results principally from positive termination experiences in Corporate Life's income protection portfolio.

The expenses / other assumption change of €5m includes the impact of unit cost reductions achieved across the group's life and fund management businesses. The experience variance charge of €8m includes the impact of oneoff project costs.

The group's policy is to review expense assumptions to reflect current experience every six months. The assumptions for demographic elements, including mortality, morbidity and persistency are reviewed annually.

Short-term investment fluctuations

Short-term investment fluctuations of €49m positive in 2010 compare to €68m negative in the corresponding period in 2009. The 2010 performance principally relates to the cost of financial options and guarantees which were €26m positive in 2010 (2009: €15m negative) and the €32m positive impact of unit-linked management charges (2009: €50m). The returns in 2009 were impacted by negative property returns on shareholder funds which were €97m negative in 2009 compared to €13m negative in 2010.

VIF loan financing costs

In November 2010 the group completed the raising of loan capital of €100m secured on the book of in-force business. The once-off embedded value costs of €22m associated with this loan were capitalised in 2010.

Economic assumptions

The effect of revised economic assumptions was a negative €51m in 2010 (2009: €38m negative). The 2010 charge includes the impact of lower European yields on financial options and guarantees and the cost of holding solvency margins. The 2009 charge includes the effect of a change in the risk discount rate from 7.0% to 7.5%. The risk discount rate of 7.5% remained unchanged in 2010.

Impairment of assets held for sale

In February 2011, the group announced it had executed an agreement whereby it would dispose of 100% of the share capital of Irish Life International. In accordance with accounting standards, the business was classified as assets held for sale at the end of 2010 and the net assets were restated to fair value. The impairment of €11m reflects the difference between the proposed consideration and the embedded value of the business at the end of 2010.

The following table restates the group's IFRS income statement in a format that is comparable to the embedded value income statement shown in the Supplementary Information for the twelve months ended 31 December 2010 and 31 December 2009:

Summarised group income statement	IFRS			EV
	2010	2009	2010	2009
	€m	€m	€m	€m
Insurance and fund management business	167	93	160	102
Banking businesses	(364)	(270)	(364)	(270)
Other*	(2)	(26)	(2)	(26)
	(199)	(203)	(206)	(194)
Share of associate			9	(2)
EV operating loss			(197)	(196)
Short-term investment fluctuations	41	(73)	49	(68)
Effect of economic assumption changes	(29)	(22)	(51)	(38)
VIF loan (financing costs)	–	–	(22)	-
Impairment of assets held for disposal	–	–	(11)	-
Other consolidation / inter segment adjustments	21	(10)	(5)	(17)
Operating loss before tax	(166)	(308)	(237)	(319)
Share of associate	9	(2)	–	–
Loss before tax	(157)	(310)	(237)	(319)
Taxation	29	(3)	39	40
Loss after tax attributable to owners of the parent	(128)	(313)	(198)	(279)

*Other includes unallocated corporate costs and the income from brokerage and third party administration subsidiaries.

Risk factors

The group is subject to risk factors that could have a material adverse effect on the business, financial condition, results of operations and prospects or its ability to continue as a going concern. In addition to the matters set out under the Forward Looking Statements on the inside cover; the principal factors that may affect the group are described below:

The group's results may be adversely affected by general economic conditions and other business conditions

The group's results are affected by general economic and other business conditions in Ireland, where the majority of the group's earnings are generated, as well as by conditions in the UK where its subsidiary Capital Home Loans operates. These conditions include changing economic cycles that affect demand for life assurance and banking products and as a result, the group's profitability. Such cycles are influenced by global political events as well as by market specific events, such as shifts in consumer confidence and consumer spending, the rate of unemployment, industrial output, and political uncertainty. The global financial system has experienced difficulties since 2007 resulting in very significant deterioration in financial markets. Banks and other lenders have suffered significant losses due to the increased risk of default and the impact of declining asset values on the value of collateral, while insurance companies have seen significant falls in sales and asset values. In that same period, the group has experienced reductions in business activity, increased funding costs and funding pressures, decreased asset values, decreased sales, additional write-downs and impairment charges with consequent adverse effects on its results of operations and financial condition. Since the end of the first quarter of 2009 there have been improvements in asset prices in general, although Irish house prices and Irish property prices generally have continued to fall. Conditions remain unpredictable, and funding pressures have intensified further following the sovereign debt crisis and the joint EU/IMF programme for Ireland. The precise nature of all the risks and uncertainties the group faces as a result of the financial crisis cannot be predicted and many of these risks are outside the group's control.

The group may be adversely affected by government action

Given the current environment in Ireland, the group is increasingly exposed to potential changes in government policy in relation to the economy and the financial sector.

The Credit Institutions (Stabilisation) Act 2010 was passed into Irish law on 21 December 2010. The Act provides the legislative basis for the reorganisation and restructuring of the Irish Banking system agreed in the joint EU/IMF programme for Ireland. The Act applies to banks who have received financial support from the State, Building Societies and Credit Unions. The group, by way of the Government Guarantee, has received such support. The Act provides broad powers to the Minister for Finance (in consultation with the Governor of the Central Bank of Ireland) to act on financial stability grounds to effect the restructuring action and recapitalisation measures envisaged in the programme. This allows the Minister to take the actions required to bring about a domestic retail bank system that is proportionate to and focused on the Irish economy.

The group is participating in the Central Bank's latest Prudential Capital Assessment Review (PCAR) and Prudential Liquidity Assessment Review (PLAR), the results of which are expected at the end of March. As a result, there is a significant uncertainty as to the outcome and any additional capital or liquidity requirements that may arise.

Market conditions may restrict or limit the availability of funding or liquidity to the group

The group's banking business

As a result of the financial crisis, the group has seen the availability of funding in certain wholesale markets which it has traditionally accessed severely disrupted or not available. Since the latter half of 2007, there has been a severe reduction in the level of liquidity and quantum of term funding available to Irish banks in the wholesale markets, and the terms of such funding are more onerous and expensive than the terms available historically. More recently, the downgrading of the group and sovereign credit ratings, the withdrawal of the Irish Government from the funding markets, the EU/IMF Programme of Financial Support for Ireland and the consequent withdrawal of funds from Irish banks have affected the group's funding plans, with the downgrade in credit ratings and the risk for a further sovereign or group downgrade limiting the group's access to capital markets. As a result of these events the group has focused on its core customer lending franchises in Ireland. In the event of continued severe curtailment of credit markets, the group could be placed in a position where it has to significantly curtail growth in the balance sheet with a consequent negative impact on profitability. However, the nature of the group's loan book and the ability to collateralise these assets has provided some flexibility in meeting the group's funding requirements. The Government Guarantee Scheme and the Eligible Liabilities Guarantee Scheme are of significant importance to the group's banking business in supporting availability of funding. Eurosystem funding, and in particular funding from the ECB, is an important lower cost source of funding which the group can access. The group's ability to maintain material levels of funding under the Eurosystem is dependent on the continued eligibility of its collateral. Accordingly, any impact on the group's eligible collateral could restrict the group's ability to continue to access Eurosystem funding. This would further limit its access to funding and liquidity and could further materially affect the group's results, financial conditions and prospects.

The group's life assurance business

For certain property linked funds of the group's life assurance business, there is the ability for the group to defer encashments for up to six months to allow it time to sell relevant properties. However, if any such properties cannot be sold within this time period the group may have to provide liquidity for these funds which could adversely affect the group's results, financial condition and prospects.

The level of credit risk faced by the group is impacted by the economic environment

Deterioration in economic conditions will continue to increase the credit risks faced by the group by way of increased impairment losses on bank lending. The current slowdown in the Irish and UK economies has resulted in a contraction in both the Irish and UK housing markets. In addition, higher unemployment and increased costs of funding may put further strain on borrowers' capacity to repay loans. These and other economic factors may cause prices of property or other assets to fall further, thereby reducing the value of collateral on many of the group's loans and increasing write-downs and impairment losses.

Specifically relating to the group's life assurance and investment business, reinsurance is entered into so that likely statistical fluctuations in insurance risk claims are within acceptable levels from a capital and profit perspective. The group would incur a credit loss if a reinsurer was unable to meet contractual claims. Collateral is employed in some cases in order to limit this risk. A replacement reinsurer would be sought in such an event.

Investment market returns and changes in equity/property/bond values may impact the group's results

The performance of the investment markets (equities, property and gilts) has a direct impact on the group's financial results. The group is exposed to direct equity/property holdings within the group's life assurance shareholder assets and from the indirect impact of changes in the value of equities/properties held in policyholder funds from which the group's life assurance operations derive management fees. The group's assets include sovereign bonds and other assets carrying a sovereign guarantee. The group is consequently exposed to sovereign default risk.

In addition, volatility of equity and property values and investment performance can affect investor confidence, which in turn can impact both sales and retention. Since 2008, the group has experienced a deterioration in persistency as customers moved to cash products due to the fall in investor confidence. Whilst the group seeks to mitigate this risk through diversification of the portfolio and by offering products which will meet customer needs in these more turbulent market conditions, current market conditions are impacting on customers' risk appetite, particularly for equity and property products.

Life assurance risk and other inherent risks affecting its life assurance business including persistency and market performance risks may impact the group's results

Life assurance risk is the volatility in the amount and timing of claims caused by unexpected changes in any of mortality, longevity or morbidity risks:

Mortality risk is the risk of deviations in timing and amounts of cash flows (premiums and benefits) due to the incidence or non-incidence of death.
Longevity risk is the risk of such deviations due to increasing life expectancy trends among policyholders and pensioners, resulting in payout amounts higher than those that the group originally accounted for.
Morbidity risk is the risk of deviations in timing and amount of cash flows (such as claims) due to the incidence or non-incidence of disability and sickness.

The group is a major participant in the Irish life and pensions market, and as such is exposed to changes in policyholder mortality, longevity and morbidity experience. Changes in mortality, longevity or morbidity rates of policyholders could, therefore, significantly affect the group's results. In its pricing and reserving policies, the group assumes that current rates of mortality for annuitants continuously improve over time, taking account of relevant actuarial data.

Persistency risk is the risk resulting from the redemption, surrender or lapse of life assurance policies. Since 2008, the group has experienced a deterioration in persistency as customers move to cash-in their policies or to stop payment of additional premium due to the general fall in investor confidence and the reduction in personal net cash flows.

A material variation from the group's actuarial assumptions in relation to life assurance or persistency risks could materially and adversely affect the group's financial condition and prospects.

In addition, within the group's life assurance business, the risk discount rate used to calculate the embedded value of the business, which is the principal performance measure used by the group in respect of its life assurance activities, will fluctuate in line with market interest rates and this can have a material impact on the reported results of this business, which in turn may adversely affect the group's results, financial condition and prospects.

Downgrades in the group's credit ratings could significantly impact its competitive position and affect its relationships with creditors or trading counterparties

The group's credit ratings are an important factor in its continuing financial performance. In particular, the interest rates the group pays on its borrowings and its ability to secure funding are affected by its debt credit ratings, which are in place to measure the group's ability to pay its contractual obligations. The group's long-term senior debt is rated Baa3 (negative outlook) by Moody's and BBB (negative watch) by Standard & Poor's. The group's short-term debt is rated P-3 by Moody's and A-2 by Standard & Poor's. Long-term and short-term debt issued by the group and covered by the Government Guarantee Scheme or by the Eligible Liabilities Guarantee Scheme carries the sovereign rating and is rated Baa1/P-2 by Moody's and A/A-1 by Standard & Poor's.

Changes in interest rates may impact the group's results

Fluctuations in interest rates can also influence the group's banking and insurance and investment performance.

The results of the group's banking operations are affected by the management of interest rate sensitivity. Interest rate sensitivity refers to the relationship between changes in market interest rates and changes in net interest income. The composition of the group's assets and liabilities, and any gap position resulting from this composition can cause the banking income to vary with changes in interest rates. A mismatch of interest-earning assets and interest-bearing liabilities in any given period may, in the event of changes in interest rates, have an effect on results from the group's banking business.

The group's ability to vary the interest rates on customer borrowings to reflect the increased cost of funding may be somewhat restricted, particularly where its customers have tracker mortgages. By their nature, these mortgages do not allow the group the flexibility to vary the rate where it would otherwise be desirable or appropriate for the group to do so. Accordingly, restrictions on the group's ability to vary rates may adversely affect the group's results.

Within the group's life assurance business, the risk discount rate used to calculate the embedded value of the business, the principal performance measure used by the group in respect of its life assurance activities, will fluctuate in line with market interest rates and this can have a material impact on the reported results of this business. Excluding this, there is no significant exposure to interest rates within the group's life operations due to the asset/liability matching strategies which it follows.

The group conducts its businesses subject to regulation and associated regulatory risks, including the effects of changes in the laws, regulations, policies and interpretations in the markets in which it operates

Changes in government policy, legislation or regulatory interpretation applying to the financial services industry in the markets in which the group operates may adversely affect the group's product range, distribution channels, capital requirements and, consequently, reported results and financing requirements. These changes include possible changes in statutory pension arrangements and policies, the regulation of selling practices and solvency requirements.

The group may be exposed to potential regulatory action arising from certain transactions between the group and Anglo Irish Bank Corporation plc which were made public in February 2009.

Adverse experience in the operational risks inherent in the group's business could have a negative impact on the results of its operations

Operational risks are present in all of the group's businesses, including the risk of direct or indirect loss resulting from inadequate or failed internal and external processes, systems and human error or from external events. The group's business is dependent on processing a large number of complex transactions across numerous and diverse products and is subject to a number of different legal and regulatory regimes. In addition, the group manages a small number of outsourced operations which include certain UK processing and IT functions. In turn, the group is reliant upon the operational processing performance of its outsourcing partners.

The group's system of internal control is designed to provide reasonable, but not absolute, assurance against the risk of material errors, fraud or losses occurring. It is possible that internal controls can be circumvented or overridden. Any weakness in the systems could have a negative impact on the results of the group. Furthermore, because of changes in conditions, the effectiveness of an internal control system may vary over time.

Systemic risk could adversely affect the group's business

Recently the credit environment has been adversely affected by significant instances of fraud and default. Concerns about, or a default by, one institution could lead to significant liquidity problems, losses or defaults by other institutions, because the commercial soundness of many financial institutions may be closely related as a result of credit, trading, clearing or other relationships between institutions. This risk is sometimes referred to as ''systemic risk'' and may adversely affect financial intermediaries, such as clearing agencies, clearing houses, banks, securities firms and exchanges with which the group interacts on a daily basis and therefore could adversely affect the group.

The impact of pension fund risk

Pension fund risk is the risk associated with the uncertainty surrounding required contributions to the group's defined benefit pension schemes. The risk arises because the value of the asset portfolios and returns from them may be less than expected or because changes in interest rates or other financial parameters may give rise to increases in the estimated value of the schemes' liabilities. Furthermore, increases in longevity may increase the value of the scheme's liabilities. Professional consulting actuaries are regularly appointed by the pension fund trustees to assess and review the funding status and the underlying risk profile of each of the group pension schemes. The results of such reviews are used to drive strategic decision making to reduce risk. In addition, stress testing is performed by pension actuaries to assess the Asset/Liability Mismatch ("ALM") impact of various stress scenarios, including adverse market and macroeconomic conditions. The asset mix within each scheme is monitored closely and rebalanced on an annual basis to ensure that the scheme's investment strategy is adhered to.

Following a full review of each pension scheme in 2006 and wide consultation with staff and pension fund members, the group's defined benefit pension schemes were closed to new members and the asset mix of the funds were altered in order to reduce ALM risk. Furthermore, it was communicated to existing members that pension benefits were not guaranteed. It was specifically pointed out that if the combination of contributions and investment returns are not sufficient to provide for the specified benefits, then either more money would need to be added, by way of increased contributions from either or both pension scheme members and the group, or else the benefits promised would have to be reduced, or a combination of both.

Damage to the group's public reputation or brands may adversely affect the group's relationship with new and existing customers

Reputation risk is the risk to earnings and capital from damage to the group's public reputation or brands. This may negatively affect the group's relationships with new and existing customers. The group considers reputation risk to be a consequence of risk events captured within other risk categories across the group. Thus, the management of reputation risk is facilitated through the risk management structures put in place for other risk categories and explained above.

Litigation and regulatory investigations may not have a material financial impact but could result in reputational damage

The group, like all other banks and insurance companies, is subject to litigation in the normal course of its business. The group has no reason to believe that any such litigation will have a material effect on its profit or loss and financial condition.

Group risk management framework

In the context of group risk management, risk is defined as unexpected future events leading to variability in performance and damage to earnings capacity, capital positioning, business reputation or cash flows; or any unexpected future event damaging the group's ability to achieve its strategic, financial, or overall business objectives.

Risk taking is fundamental to a financial institution's business profile and hence prudent risk management, limitation and mitigation forms an integral part of the group's governance structure. The group operates a proactive Enterprise Risk Management ("ERM") approach in the identification, assessment and management of risk. This framework underpins profitable and prudent risk taking throughout the group.

The group ERM is designed to ensure that all material risks are identified and managed and that business strategy across the group is implemented in full recognition of these risks.

In 2009, the board commissioned international risk management and strategy consultants Oliver Wyman to review the group's Corporate Governance framework and to advise on any changes necessary to ensure the group was operating in line with emerging international best practice. The board accepted and implemented the recommendations made by Oliver Wyman in this regard.

In addition, the board established a new board committee, the Board Risk and Compliance Committee, to provide oversight and advice to the board on risk governance, and to support the board in carrying out its responsibilities for ensuring that risks are properly identified, reported, assessed and controlled, and that the group's strategy is consistent with the group's risk appetite.

Risk appetite and strategy

The board sets overall policy in relation to the type and level of risk that the group is permitted to assume. To achieve this, the board has established a formal risk appetite statement. The risk parameters identified in the risk appetite statement are applied in practice throughout the business. These risk parameters are closely aligned with the group's strategic and business objectives.

Risk parameters established in the risk appetite statement address core group values, such as solvency stability, earnings stability, prudent liquidity management, prudent credit risk management and operational risk management. Risk parameters have been established based on relevant internal and external data.

The group risk appetite statement has been developed through an iterative process involving all the key functions of the group. The board holds the final responsibility for approval of the risk appetite statement.

Risk governance

The board is ultimately responsible for the governance of risk throughout the group and establishing mechanisms and structures to control and manage risk. In addition, the board approves overall policy in relation to the types and level of risk that the group is permitted to assume in the implementation of strategic and business plans.

The group's risk governance framework was established by:

Reviewing the risks applicable to the group and selecting the methodology and reporting structures best placed to identify, capture and monitor these risks,
Developing relevant risk policies with appropriate terms of reference, mandates and committee composition,
Benchmarking the group's structures against industry guidelines for risk governance.

The risk governance structure, which is subject to ongoing review and amendment by the Board of Directors, is set out below:

The risk governance structure facilitates reporting and escalation of risk issues from the bottom up, and communication and guidance of group risk policy and risk decisions from the top down.

Board Risk and Compliance Committee

The Board Risk and Compliance Committee has responsibility for oversight and advice to the board on risk governance, the current risk exposures of the group and future risk strategy, including strategy for capital and liquidity management, the setting of compliance policies and principles and the embedding and maintenance throughout the group of a supportive culture in relation to the management of risk and compliance. The Board Risk and Compliance Committee supports the board in carrying out its responsibilities for ensuring that risks are properly identified, reported, assessed and controlled, and that the group's strategy is consistent with the group's risk appetite.

The Board Risk and Compliance Committee is responsible for monitoring adherence to the group risk appetite statement. Where exposures exceed levels established in the appetite statement, the Board Risk and Compliance Committee is responsible for developing appropriate responses. This is facilitated by the periodic review of a key risk indicators report calibrated to the risk appetite statement.

The Board Risk and Compliance Committee, in turn, delegates responsibility for the monitoring and management of specific risks to committees accountable to it. These committees are the Group Credit Committee, the Banking Assets & Liabilities Committee, the Life Assurance Assets & Liabilities Committee, the Group Operational Risk Committee, the Group Counterparty Credit and Market Risk Committee, and the Group Compliance Committee. The terms of reference for each committee, whose members include members of group senior management, are reviewed regularly by the Board Risk and Compliance Committee.

Group Internal Audit

Group Internal Audit's mission, as per its Board approved charter, is to add value to, and improve the group's operations through the risk-based, independent assessment of the adequacy, effectiveness and sustainability of the group's governance, risk management and control processes. Group Internal Audit's primary responsibility is to the group's Board of Directors through the Audit Committee. All activities undertaken within, and on behalf of, the group are within the scope of Group Internal Audit; this includes the activities of subsidiaries and the work of risk and control functions established by the Group. To fulfil its mission, Group Internal Audit:

Undertakes regular group-wide assessments of current and emerging risks to determine audit needs;
Evaluates the adequacy, effectiveness and sustainability of the group's governance, risk management and control processes regarding the:
reliability and integrity of operational and financial information
effectiveness and efficiency of operations
safeguarding of assets
compliance with laws, regulations and contracts;
Assesses the implementation of major change initiatives;
Supports the continuous improvement of the group's operations through the sharing of best practice;
Delivers a Board-approved audit plan to a high professional standard; and,
Regularly reports significant governance, risk management and control issues to the Audit Committee and management's progress in addressing them.

The Head of Group Internal Audit reports directly to the Board of Directors through the Audit Committee for audit assurance purposes and to the Group Chief Executive Officer for administrative purposes. The Audit Committee reviews the scope and nature of the work of Group Internal Audit on an ongoing basis to confirm its independence and undertakes an independent external review of Group Internal Audit on a regular basis. The most recent review was undertaken in 2010.

In the performance of their third line of defence role (Group Risk and Compliance constitutes the second line of defence and business management constitutes the first line of defence), Group Internal Audit has unrestricted access at any time to all records, personnel, properties and information of the group, its subsidiaries and its affiliates.

Group Credit Committee

The Group Credit Committee is chaired by the Group Finance Director and includes members of group senior management. It is responsible for developing and implementing credit policy within the group. The policy addresses all material aspects of credit risk management, including credit risk assessment processes, collateral requirements and the risk grading of individual credit exposures. The credit risk management systems operate through a hierarchy of lending authorities which are related to internal loan ratings, which are in turn linked to the probability of credit default. All credit approvals are subject to a system of tiered individual authorities. Above a certain level, approvals require sign off by the Group Credit Committee. The Group Credit Committee also monitors credit and credit risk exposure and its evolution against the risk appetite set by the board, and oversees the development, implementation and performance of credit risk measurement tools. The committee oversees the application of the Internal Rating Based ("IRB") regulatory capital regime across portfolios, reviews the results of forecasting and stress testing, and monitors regulatory and economic capital consumption against limits set within the risk appetite framework.

Assets and Liabilities Committees ("ALCOs")

The group has separate ALCOs for its banking and life assurance businesses. The Banking ALCO is chaired by the Group Finance Director and includes members of group senior management. The Banking ALCO reviews and is responsible for all activities relating to Treasury counterparty credit exposures, funding and liquidity management and strategy, and structural asset and liability management. The Banking ALCO is also responsible for the management of market risk. The Life Assurance ALCO is chaired by the Group Chief Executive and includes members of group senior management. The Life Assurance ALCO is responsible for the management of risks arising from the life assurance business assets and liabilities.

Group Operational Risk Committee

The Group Operational Risk Committee is chaired by the Group Head of Risk and Compliance and includes core business unit heads from across the group. The Group Operational Risk Committee provides oversight and management of operational risk within the group. This oversight includes reputation-impacting events and risks. The committee identifies the group's top operational risks and ensures appropriate actions are taken by the business to mitigate and manage these risks.

Group Counterparty Credit and Market Risk Committee

The Group Counterparty Credit and Market Risk Committee is chaired by the Group Head of Risk and Compliance and includes management representatives from Treasury and Irish Life Investment Managers. The Group Counterparty Credit and Market Risk Committee is responsible for cascading risk appetite limits to business unit level, setting exposure limits for financial counterparties, and monitoring aggregated counterparty credit risk exposures against limits. The Group Counterparty Credit and Market Risk Committee proposes changes to credit risk limits, policy, guidelines and methodology to the Board Risk and Compliance Committee and recommends appropriate strategies.

Group Compliance Committee

The Group Compliance Committee is chaired by the Group Head of Risk and Compliance and includes core business unit heads from across the group. The Group Compliance Committee provides oversight and management of compliance within the group, including setting out the compliance and ethical standards to be observed by staff across the group in relation to legal, regulatory and market conduct responsibilities. The emphasis is on conducting business following a best practice approach and with a strong customer focus.

Group Actuarial Function

Led by the group's Chief Actuary, this function is responsible for monitoring and regulating the capital and solvency of the life assurance companies and reports to the boards of life assurance companies, Life Assurance ALCO and the Board Risk and Compliance Committee on a regular basis. Summary risk reports are prepared for the consideration of the Life Assurance ALCO on a regular basis. Reports, which include asset/liability matching reports, are prepared covering shareholder exposure to market risk. Reports are also prepared reviewing credit risk.

Group Head of Risk and Compliance

The Group Head of Risk and Compliance provides independent oversight of the group's risk governance and risk management processes. The Group Head of Risk and Compliance reports on an operational level to the Group Chief Executive, has direct access to the Risk and Compliance Committee and reports regularly to the Risk and Compliance Committee. The Group Head of Risk and Compliance is tasked with:

Developing and maintaining the group's Enterprise Risk Management ("ERM") structure;
Developing and maintaining the group's Internal Capital Adequacy Assessment Process ("ICAAP");
Providing independent risk advice to senior management throughout the group;
Identifying material risks for the group and developing appropriate responses to such risks; and
Policing group-wide adherence to risk policies and the group's risk appetite statement.

The Group Head of Risk and Compliance is a member of the executive management team and of all risk committees within the group and directly manages the risk teams and compliance teams throughout the group.

Risk identification and assessment

The risk identification and assessment process is overseen by the Group Head of Risk and Compliance, and supported by the Group Risk department. Significant input is also provided by relevant senior management and the specific risk committees.

The risk identification and assessment process operates within a clearly defined structure following four distinct steps.

(1) Risk investigation Through a consultative process involving relevant members of group senior management and business unit leaders, risks facing the group are monitored on an ongoing basis and formally reviewed on an annual basis. The risk identification process utilises a top down approach to identifying significant risks for the group supported by a bottom up risk identification exercise carried out at business unit level.
(2) Determination of materiality The group has a clearly defined definition of materiality in relation to risk assessment. This definition, which is approved by the board, is applied to all identified risks to determine which risks are material for the group. The materiality assessment is ratified with group senior management and relevant business leaders.

The determination of a risk's materiality follows an iterative approach as represented in the chart below.

(3) Risk treatment For each identified risk the group's approach to management of the risk is established. Risk management techniques include (but are not limited to) limitation, monitoring, mitigation and capitalisation.
(4) Documentation and recording The risk assessment and treatment of all material risks is documented in full. Documentation is ratified by the relevant risk committees.

Stress testing and scenario analysis

The group carries out scenario and stress testing for both the banking business and the insurance and investment business as well as at a combined group level. Stress tests consider various combinations of economic parameters reflecting different stress scenarios. From this, the group's capital adequacy is determined at a confidence level linked to the group's desired credit rating over a three-year time horizon. Stress testing is also performed in the context of credit losses, funding issues and market shocks to help inform business policy.

Stress scenarios are based on extreme, but plausible, negative events. The associated economic environment relevant to each scenario is established though a consultative process involving group senior management and external experts. The appropriateness of all stress tests and scenarios and assumptions underpinning them are agreed by the Board Risk and Compliance Committee and approved by the Board. Determination of certain macroeconomic drivers for each scenario allows the group's models to determine expected asset returns and forecast the risk profile of the group given the stressed environment.

Stressed capital adequacy projections under each scenario provide senior management with information incorporated in the strategic planning process.

Economic Capital

The group has elected to use Economic Capital as its core unit of risk currency. Internal economic capital models allow the group to allocate economic capital by business activity.

The group will continue to develop its economic capital methodologies to support risk measurement and risk-based decision making at all levels of the business.

Corporate Responsibility

Corporate Responsibility ("CR") refers to how the group views its obligations to each of its stakeholders: customers, employees, shareholders and the wider community in which the group operates, together with how it lives up to these obligations in practice.

Customers

Irish Life & Permanent Group Holdings plc ("IL&PGH") engages with its customers through customer satisfaction programmes in Irish Life Retail, Irish Life Corporate and permanent tsb. Customer satisfaction is measured using indices based on the results of customer surveys.

Customer satisfaction is the key measure of the effectiveness of the 'Survive & Prosper' business plan in Irish Life Retail. It is measured monthly using a sample of customers who have experienced one of six key interactions with the company – New Business, Financial Review, Customer Service Centre Enquiry, Enquiry Using Online Service, Withdrawal, or a Complaint. The final customer satisfaction index score for 2010 was 80.3% – an improvement of 1.9% on the 2009 score. In an independent survey of satisfaction among brokers carried out in 2010, Irish Life Retail achieved a score of 77.2%, an increase of 1.4% on the previous year's score of 75.8%. Irish Life received the award for the best Life Company at the Irish Broker's Association Insurance Service Awards 2010.

The Irish Life Corporate Business ("ILCB") customer service index measures actual performance against target service levels across twelve key administrative services carried out for clients. The customer service index achieved the highest ever level of 94.6% in 2010 – an increase of 2% on the 2009 outcome. ILCB also commissions an independent yearly survey of brokers and consultants to assess their levels of satisfaction with insurance companies operating in the group business market. ILCB topped this survey with a satisfaction score of 79%- 9% ahead of the next best company.

In permanent tsb, there are three methods of assessing performance on customer service:

An annual customer satisfaction index ("CSI") where 2,500 customers are asked their views on service across a number of activities;
Nightly Moments of Truth surveys where customers are asked to comment on their branch experiences within 24 hours of attending the branch (almost 10,000 customers surveyed in 2010); and
Participation in a pan-European retail banking service quality study involving over 40 other banks in 17 countries.

In the nightly surveys, more than 84% of customers expressed their satisfaction with the service provided. In the European service quality study, permanent tsb's satisfaction performance continues to be significantly better than the other participating banks.

Employees

		Summary workforce data
Year	Average annual turnover	Total number of employees at year end	Training and development days
2010	9.7%	4,654	14,600
2009	7.8%	5,024	14,700
2008	14.0%	5,329	17,000

Total group employee numbers have fallen from 5,329 at the end of 2008 to 4,654 at the end of 2010. The reduction in 2010 includes 233 employees who availed of voluntary severance and voluntary early retirement schemes in 2010. Turnover increased from 7.8% in 2009 to 9.7% in 2010 for the same reason (when staff who left under VSS and VER schemes are excluded, turnover fell from 6.7% in 2009 to 5.2% in 2010). Data on the composition of the workforce is published each year in the group's CR Report including gender, age profile and length of service.

Corporate Responsibility

The number of training days delivered of 14,600 is at a similar level as last year. The group is committed to the personal and professional development of employees and has tailored its approach to suit the current business environment. A range of learning methodologies is used including: e-learning courses, podcasts, knowledge libraries, shared video content, e-mentoring and online competency testing. The e-learning courses produced in 2010 include The Pension Academy (this course covers the key aspects of pensions and retirement planning) and an environmental awareness programme. IL&PGH received the award for the 'Best Large Organisation' at the 2010 National Training Awards.

The group runs Health & Well-being programmes each year in Irish Life and permanent tsb. They focus on a variety of health aspects including physical fitness, diet and lifestyle.

Community activities

The group's main community programmes to date are built on a partnership approach to community involvement. In 2006, three partners were selected with the necessary scale and expertise to work with IL&PGH to develop the group's main community programmes. These were:

Community Partner	Programme
Age Action Ireland	Care & Repair Services for older people in Ireland
Trinity Foundation	Trinity long-term study on ageing in Ireland
Foróige	permanent tsb Foróige Youth Citizenship Awards

The group's commitment to the Trinity long-term ageing study runs for ten years and for the other two programmes for five years to the end of 2011. The main programmes account for more than 75% of total community budgets. The balance is used to fund the following range of other activities:

Staff charities: all funds raised by employees for charities selected by them are matched by the group;
Small donations to charities and community organisations; and
Mentoring programme for school students.

Total investment in community programmes and activities last year was €1.3m – the same as in 2009. In addition, the group made a contribution of €750,000 to the Social Finance Foundation to support community-based projects around Ireland.

The Age Action Ireland Care & Repair programme is a minor repairs and a home visiting service for older people in Ireland. Following four years of development of the programme, it has now achieved a level of jobs/visits of 12,000 per year. A key factor in expanding the services has been the creation of Care & Repair franchises around Ireland. In 2010, there were 19 of these in place and they accounted for more than 50% of total activity.

During 2010, Irish Life signalled to Age Action that it would discontinue its sponsorship of the Care & Repair programme from the end of 2011 but in recognition of the challenging economic environment, it will make two further financial contributions to help sustain the programme until 2013. This will allow Age Action sufficient time to seek another sponsor for the programme.

Irish Life is the anchor sponsor of TILDA, the first ever long-term study of ageing carried out in Ireland. The other sponsors are the Irish Government and The Atlantic Philanthropies. Wave 1 of the study began in September 2009 and was completed in February 2011. An initial findings report on the study will be published in May 2011.

In 2010, permanent tsb completed the fourth year of its sponsorship of the Foróige Youth Citizenship Programme and Awards. For the first time since the awards began, they were televised in two programmes broadcast on TV3 in November 2010. Ten projects were selected to be showcased for the TV awards – including four youth groups from outside the Foróige organisation.

Corporate Responsibility

Environment

	2010	2009	2008
Total energy consumption (GWh)	27.3	26.8	28.0
CO2 emissions (tonnes)*	12,890	12,275	12,746
Total waste (tonnes)	1,016	1,258	1,636
Waste recycled (%)	77	79	75
Total paper use (tonnes)	505	503	758

*For calculating CO2 emissions in 2010, data on suppliers' CO2 emissions published by the Irish Commission for Energy Regulation (CER) has been used and prior year data has been restated on the same basis.

In December 2010, the group achieved accreditation to the ISO 14001 international environmental standard for the Group Head Office building in Dublin. This is a significant achievement and reflects actions taken over a number of years to improve the group environmental management system. The accreditation is subject to annual review.

Total energy consumption in 2010 at 27.3GWh showed an increase of 2% in 2010. This was mainly due to episodes of unusually severe cold weather at the start and end of the year that resulted in a significant increase in office heating requirements. Excluding these, the underlying trend of energy consumption was flat, year on year.

In 2010, the group recycled 77% of total group waste against 79% in 2009. This reduction in the level of recycled waste occurred despite action to improved waste segregation in the group Head Office building in Dublin. The building is located in a serviced office complex and the reasons for the reduction in the level of recycling and actions to improve it will be addressed with the centre property managers.

A full review of IL&PGH's work in this area can be found in its sixth annual Corporate Responsibility Report. This report is available on the group website www.irishlifepermanent.ie.

Board of Directors

Gillian Bowler (58) Chairman

A member of the board of Irish Life since July 1998. She became a director of Irish Life & Permanent in 1999 following the merger of Irish Life and Irish Permanent and was appointed Chairman in June 2004. She is a member of the Remuneration and Compensation Committee since 2000 and of the Nomination Committee since 2002. She is a non-executive director of Grafton Group plc and of the Voluntary Health Insurance Board and former Chairman of Fáilte Ireland. She is a past President of the Institute of Directors and a director of a number of other companies. Gillian brings significant marketing and consumer relations skills and expertise to the board as well as a long number of years experience as a director of companies in a wide range of business sectors.

Kevin Murphy (59)

Group Chief Executive

Group Chief Executive appointed in June 2009. An actuary and an employee of Irish Life since 1972, he was appointed a main board director following the merger of Irish Life and Irish Permanent in 1999. He is a director of a number of companies within the group including the associated company Allianz-Irish Life Holdings plc. He is president of the Society of Actuaries in Ireland and is a member of the board of the Irish Stock Exchange.

Breffni Byrne (65)

Non-Executive

Appointed to the board in July 2004 and joined the Audit Committee on appointment. He was appointed chairman of the Audit Committee in 2006. He was appointed to the Nomination Committee in 2008 and to the Risk and Compliance Committee in 2010. He is Chairman of NCB stockbrokers and a non-executive director of Coillte Teoranta, Tedcastle Holdings Limited, Hikma plc, Cpl Resources plc and a number of other companies. He is a chartered accountant and was formerly a Senior Partner of Arthur Andersen in Ireland and Director of Risk Management for Andersen's audit practice in Scandinavia, the Middle East and Africa. Breffni's accounting background and experience in an auditing firm has been of significant benefit to the company. In addition his previous risk management role and involvement as a director in a range of industry sectors provides a valuable level of expertise.

Bernard Collins (62)

Non Executive

Appointed to the board in March 2010 and joined the Risk and Compliance Committee on appointment. He was formerly vice president of international operations and director of the international board of Boston Scientific Corporation. He is currently a non-executive director of IDA Ireland and a number of other companies in the medical device/life science sectors. He is also currently chairman of the VHI. Bernard has over 30 years international general management and multifunctional experience in both large and small businesses and has worked in business in the UK, Switzerland and in the USA, including serving on the Board of a US public company and as chairman of their audit committee. He brings to the board an expertise in strategy formulation, change management and organisational development.

Danuta Gray (52)

Non-Executive

Appointed to the board in August 2004. She joined the Remuneration and Compensation Committee as chairman in May 2008 and the Nomination Committee in March 2009. She retired from her position as Chief Executive Officer of O2 Ireland in December 2010, a position she held since 2001. Prior to her move to Ireland, she held the position of Director for BT Europe in Germany and previous to that was General Manager at BT Mobile in the UK. She is non-executive chairman of Telefonica O2 Ireland and is a non-executive director of Aer Lingus plc and Barretstown. Danuta's skill and experience in general management of a large consumer focussed international organisation in a fast moving electronics business is a significant benefit to the board and the company. Her nonexecutive exposure in other business areas is also of significant advantage.

Board of Directors

Margaret Hayes (56)

Non-Executive

Appointed to the board in December 2008 and joined the Audit Committee in February 2009. A former Secretary General and Accounting Officer for the Department of Tourism and Trade, then Tourism Sport and Recreation and finally Community, Rural and Gaeltacht Affairs, she also served in the Revenue Commissioners and other Government Departments. She led Ireland's negotiations on the conclusion of the Uruguay round of the GATT and the establishment of the World Trade Organisation (WTO). She has served on a number of State Boards including Bord Bia and the Irish Trade Board, and was a member of the National Economic and Social Council. She is a barrister and currently a member of the Irish Bar and is also a member of the Panel of Interviewers for the Public Appointments Commission. Margaret was nominated by the Minister for Finance to join the Board under the Government Guarantee Scheme and brings a wide range of economic and social policy experience, as well as extensive administrative and managerial experience, and legal training, to the deliberations of the Board.

Roy Keenan (63)

Non-Executive

Appointed to the board in October 2006. He joined the Audit Committee in February 2007, the Nomination Committee in March 2009 and the Risk and Compliance Committee in March 2010. He was appointed senior independent director in May 2009. Roy is a former Chief Executive of Bank of Ireland UK and former Managing Director of Bank of Ireland Life and Bank of Ireland Mortgages. He is a non-executive director of Met Life Europe, RSA Insurance Ireland and other companies and is a former council member of the British Bankers Association and the Council of Mortgage Lenders. He is also a former President of the Irish Insurance Federation. Roy's significant board and senior management experience in both banking and life assurance in Ireland and the UK is of particular benefit to the company because of its banking and life businesses in the UK and Ireland.

Sandy Kinney (52)

Non-Executive

Appointed to the board in August 2010 and joined the Risk and Compliance Committee in February 2011. She is a non executive director of the Skipton Building Society in the UK and the UK Financial Services Compensation Scheme. She is a Fellow of the Chartered Institute of Management Accountants and has previously been a financial services partner in both PricewaterhouseCoopers and KPMG in London. She brings skills and expertise in accounting and risk management to the board and her experience of UK financial services at board level and in a regulatory environment is of particular benefit to the company.

Ray MacSharry (72)

Non-Executive

Appointed to the board in December 2008 and joined the Remuneration and Compensation Committee in March 2009. In August 2009 he joined the Nomination Committee. He is a former EU Commissioner, Minister for Finance, Minister for Agriculture and Governor of the European Investment Bank. He has served as a nonexecutive director of Bank of Ireland Group, Jefferson Smurfit Group plc and Ryanair plc and is former Chairman of London City Airport, Green Property plc and eircom plc. He was nominated by the Minister for Finance to join the board under the terms of the Government Guarantee Scheme and brings significant public service and business experience to the deliberations of board. His knowledge and skills in the political and economic areas are of particular benefit to the company.

Board of Directors

David McCarthy (50)

Executive

Group Finance Director. Appointed to the board in March 2009 he has worked within the group in various capacities since 1990 having previously worked with Coopers & Lybrand (now PricewaterhouseCoopers) in Ireland and the UK. A business school graduate of Trinity College Dublin he is a Fellow of the Institute of Chartered Accountants, a Fellow of the Institute of Bankers and a Fellow of the Royal Society of Arts. He is a former nonexecutive director of Alcatel (Ireland) Limited, Software Resources Limited and Crampton Housing Limited and is the long-serving Chairman of Energy Action Limited, a registered charity. He is a director of a number of companies within the group including the associated company Allianz-Irish Life Holdings plc.

Pat Ryan (64)

Non-Executive

Appointed to the board in December 2009 and joined the Audit and Risk and Compliance Committees in February 2010. He joined the Remuneration and Compensation Committee in March 2010. Pat was formerly Group Treasurer and Chief Risk Officer of Allied Irish Bank plc. He retired from the AIB Group in 2002 and is currently a director of AXA Life Europe Limited and J&E Davy. He holds an M.Sc in Economics and a Bachelor of Commerce degree from University College Dublin, and is a Fellow of the Institute of Bankers in Ireland. He is a Fellow of the Society of Actuaries in Ireland and of the Institute and Faculty of Actuaries in the UK. Pat's mix of skills and training in treasury, risk and actuarial matters are of significant benefit to the board and his role as chairman of the Risk & Compliance Committee has been of particular benefit to the company over the last year.

Ciarán Long (58)

Company Secretary

Appointed Company Secretary in May 2004 and acts as secretary to each of the board committees. An actuary and an employee of Irish Life since 1969, he has held senior executive positions in both the life and pensions businesses and is a former general manager and director of the Corporate Life business. Most of his time with Irish Life has been spent in the pensions area and he is the company appointed trustee in each of the staff pension schemes. Ciarán is a former director of the Retirement Planning Council and is a former member of the Pensions Board.

Board Committees

Audit

Breffni Byrne (Chairman) Margaret Hayes Roy Keenan Pat Ryan

Remuneration and Compensation

Danuta Gray (Chairman) Gillian Bowler Ray MacSharry Pat Ryan

Senior Independent Director Roy Keenan

Nomination

Gillian Bowler (Chairman) Breffni Byrne Danuta Gray Roy Keenan Ray MacSharry

Risk and Compliance

Pat Ryan (Chairman) Breffni Byrne Bernard Collins Roy Keenan Sandy Kinney

The directors present their annual report and audited consolidated and company financial statements to the shareholders for the year ended 31 December 2010.

Results

The group loss after tax and non controlling interests for the year was €128m (2009: €313m loss) and was arrived at as shown in the Consolidated Income Statement. No dividends (2009: none) were paid during the year. €59m has been transferred from distributable to non-distributable reserves (2009: €107m transferred from nondistributable to distributable reserves) and distributable reserves have been increased by €4m in respect of the sale of own shares acquired for the benefit of policyholders (2009: €9m).

Dividends

No dividends were paid or proposed for 2010 (2009: none).

Review of the business and likely future developments

A detailed review of the group's performance during the year and an indication of likely future developments are set out in the Chairman's Statement and the Business Review. Information on the key performance indicators and principal risks and uncertainties in the business is provided as required by European Accounts Modernisation Directive (2003/51/EEC). The key performance indicators are included in the Business Review section, with the group's key performance indicators in the Group Performance Review and the Bank and Life Assurance divisions' key performance indicators in the respective sections of the Divisional Performance Review. The principal risks and uncertainties are outlined in the Risk Factors in the Risk Management section and under Going Concern within the Corporate Governance section.

Accounting Policies

As required by European Union ("EU") law from 1 January 2005, the consolidated financial statements have been prepared in accordance with International Financial Reporting Standards ("IFRSs") and adopted by the EU as set out in group accounting policies in Note 1, Basis of preparation and significant accounting policies to the financial statements.

Corporate Governance

The report on Corporate Governance, as outlined in the Corporate Governance section, forms part of the Directors' Report.

Directors

The names of the directors, together with a detailed description of the skills, expertise and experience that each of the directors brings to the board, appear in the Board of Directors section. Bernard Collins was co-opted to the board in March 2010 as a non-executive director. Eamonn Heffernan and Liam O'Reilly retired from the board in May 2010 at the Company's Annual General Meeting. Sandy Kinney was co-opted to the board in August 2010 as a non-executive director. Gillian Bowler, Breffni Byrne and Danuta Gray will retire from the board at the 2011 AGM and will not offer themselves for re-appointment. All other directors will retire at the 2011 AGM and, being eligible, will offer themselves for re-appointment by election. Details of the directors' and secretary's interest in the share capital of the company and of transactions involving directors are set out in Note 55, Related parties to the financial statements. None of the directors' service contracts have notice periods exceeding 12 months.

Share Capital and Shareholders

Credit Institutions (Stabilisation) Act 2010

Under the terms of the Credit Institutions (Stabilisation) Act 2010 the Minister for Finance (the "Minister") may, in certain circumstances, direct the company to undertake actions which may impact on the pre-existing legal and contractual rights of shareholders. Directions that could impact on the rights attaching to the ordinary and preference shares set out below include the dis-application of shareholder pre-emption rights, an increase in the company's authorised share capital, the issue of shares to the Minister or to another person nominated by the Minister, or amendments to the company's memorandum and articles of association.

Authorised Share Capital

The authorised share capital of the company is €428,000,000 divided into 400,000,000 Ordinary Shares of €0.32 each and 300,000,000 Non-Cumulative Preference Shares of €1 each ("Euro Preference Shares"), STG£100,000,000 divided into 100,000,000 Non-Cumulative Preference Shares of STG£1 each ("Sterling Preference Shares") and US\$200,000,000 divided into 200,000,000 Non-Cumulative Preference Shares of US\$1 each ("Dollar Preference Shares").

Issued Share Capital

The company has only one class of issued shares and as at 31 December 2010, it had 276,782,351 Ordinary Shares in issue in that class. During 2010, no shares were issued under the group's share option and profit share schemes. At 31 December 2010 Irish Life Assurance plc, a subsidiary of the group, held 5.4m (2009: 7.1m) shares representing 1.9% (2009: 2.6%) of the issued share capital of the company. These shares are held on behalf of policyholders and in accordance with section 9(1) of the Insurance Act, 1990, carry no voting rights. In addition, at 31 December 2010 Irish Life & Permanent Group Holdings plc holds, through an employee benefit trust, 457,914 shares (2009: 457,914) in anticipation of share awards that may vest under the long-term incentive plan for senior management. Each Ordinary Share carries one vote and the number of voting rights as at 31 December 2010 was 271,403,524 (2009: 269,674,169).

Preference Shares

The general rights attaching to Sterling Preference Shares, Euro Preference Shares and Dollar Preference Shares ("Preference Shares") shall rank pari-passu as regards the right to receive dividends and the rights on a winding up of, or other return of capital by, the company.

Notwithstanding, such Preference Shares may be issued with such rights and privileges, and subject to such restrictions and limitations, as the directors shall determine in the resolution approving the issue of Preference Shares. Whenever the directors have power to determine any of the rights, privileges, limitations or restrictions attached to any of the Preference Shares, the rights, privileges, limitations or restrictions so determined need not be the same as those attached to the Preference Shares which have then been allotted or issued. Preference Shares which have then been allotted or issued shall constitute a separate class of shares. Preference Shares shall entitle the holders thereof to receive a non-cumulative preferential dividend ("Preference Dividend") which shall be calculated at such annual rate (whether fixed or variable) and shall be payable on such dates and on such other terms and conditions as may be determined by the directors prior to allotment thereof.

(A) Provisions applying to Preference Shares

The following provisions shall apply in relation to any particular Preference Shares if so determined by the directors prior to the allotment thereof:

(a) the Preference Shares shall rank as regards the right to receive dividends in priority to any Ordinary Shares in the capital of the company;
(b) a Preference Dividend may only be paid from distributable profits and distributable reserves of the company;
(c) a Preference Dividend may only be paid if it would not breach or cause a breach of the Central Bank of Ireland's capital adequacy requirements from time to time applicable to the company;
(d) Preference Shares shall carry no further right to participate in the profits and reserves of the company other than the Preference Dividend and if on any occasion an instalment of the Preference Dividend is not paid in cash for the reasons described in sub-paragraph (b) or sub-paragraph (c) above, the preference shareholders shall have no claim in respect of such instalment;
(e) each holder of Preference Shares shall, on the date for payment of Preference Dividend instalment, if such instalment had not been paid in cash, be allotted such additional nominal amount of Preference Shares of the class in question, credited as fully paid, as is equal to an amount which would have been paid to the holder had such relevant instalment been paid in cash plus an amount equal to the associated tax credit to which the holder would have been entitled had the relevant instalment been paid in cash.

(B) Capital

On a winding up of, or other return of capital (other than on a redemption of shares of any class in the capital of the company) by the company, the preference shareholders shall in respect of the Preference Shares held by them be entitled to receive, out of the surplus assets available for distribution to the company's members, an amount equal to the amount paid up or credited as paid up on the Preference Shares (including any premium paid to the company in respect thereof) together with any Preference Dividend which is due for payment after the date of commencement of the winding up or other return of capital but which is payable in respect of a period ending on or before such date and any Preference Dividend accrued prior to the date of return of capital.

The amounts payable or repayable in the event of a winding up of, or other return of capital (other than on a redemption of shares of any class in the capital of the company) by, the company, shall be so paid pari-passu with any amounts payable or repayable in that event upon or in respect of any further Preference Shares of the company ranking pari-passu with the Preference Shares as regards repayment of capital, and shall be so paid in priority to any repayment of capital on any other class of shares of the company. The preference shareholders shall not be entitled in respect of the Preference Shares held by them to any further or other right of participation in the assets of the company.

(C) Redemption

Unless otherwise determined by the directors either generally or in relation to any particular Preference Shares prior to allotment thereof, the Preference Shares shall, subject to the provisions of the Acts, be redeemable at the option of the company where the company shall give to the holders of the Preference Shares to be redeemed not less than 30 days' and not more than 60 days' notice in writing of the date on which such redemption is to be effected.

(D) Voting

The preference shareholders shall be entitled to receive notice of any General Meeting of the company and a copy of every circular or other like document sent out by the company to the holders of Ordinary Shares and to attend any General Meeting of the company but shall not, in respect of the Preference Shares, be entitled to speak or vote upon any resolution other than a resolution for winding up the company or a resolution varying, altering or abrogating any of the rights, privileges, limitations or restrictions attached to the relevant Preference Shares unless at the date of such meeting the most recent instalment of the Preference Dividend due to be paid prior to such meeting shall not have been paid in cash in which event the preference shareholders shall be entitled to speak and vote on all resolutions proposed at such meeting.

At a separate General Meeting of any class of preference shareholders, on a show of hands each preference shareholder present in person shall have one vote and on a poll each preference shareholder present in person or by proxy shall have one vote in respect of each Preference Share held by him and whenever preference shareholders are entitled to vote at a General Meeting of the company then, on a show of hands, each preference shareholder present in person shall have one vote and on a poll each preference shareholder present in person or by proxy shall have such number of votes in respect of each Preference Share held by him as the directors may determine prior to the allotment of such shares.

If the most recent instalment of the Preference Dividend has not been paid a majority of any class of Preference Shares in issue may requisition, and the directors shall procure, that an Extraordinary General Meeting of the company shall be convened forthwith.

(E) Restriction on capitalisation

Save with the written consent of the holders of not less than 662/3 % in nominal value of each class of Preference Shares, or with the sanction of a resolution passed at a separate General Meeting of the holders of each class of Preference Shares where the holders of not less than 662/3 % in nominal value of the relevant class of Preference Shares have voted in favour of such resolution, the directors shall not capitalise any part of the amounts available for distribution if, after such capitalisation the aggregate of such amounts would be less than a multiple, determined by the directors prior to the allotment of each class of Preference Shares, of the aggregate amount of the annual dividends (exclusive of any associated tax credit) payable on Preference Shares then in issue ranking as regards the right to receive dividends or the rights on winding up of, or other return of capital by the company, pari-passu with or in priority to the Preference Shares, or authorise or create, or increase the amount of, any shares of any class or any security convertible into the shares of any class ranking as regards the right to receive dividends or the rights on winding up of, or other return of capital by the company, in priority to the Preference Shares.

(F) Further Preference Shares

The company may from time to time create and issue further Preference Shares ranking as regards participation in the profits and assets of the company pari-passu with the Preference Shares and so that any such further Preference Shares may be denominated in any currency and may carry as regards participation in the profits and assets of the company rights identical in all respects to those attaching to the Preference Shares or rights differing therefrom.

The creation or issue of, or the variation, alteration or abrogation of or addition to the rights, privileges, limitations or restrictions attaching to, any shares of the company ranking after the Preference Shares as regards participation in the profits and assets of the company and, provided that, on the date of such creation or issue, the most recent instalment of the dividend due to be paid on each class of Preference Share in the capital of the company prior to such date shall have been paid in cash, the creation or issue of further Preference Shares ranking pari-passu with the Preference Shares as provided for above, shall be deemed not to be a variation, alteration or abrogation of the rights, privileges, limitations or restrictions attached to the Preference Shares. If any further Preference Shares of the company shall have been issued, then any subsequent variation, alteration or abrogation of or addition to the rights, privileges, limitations or restrictions attaching to any of such further Preference Shares shall be deemed not to be a variation, alteration or abrogation of the rights, privileges, limitations or restrictions attaching to the Preference Shares, provided that the rights attaching to such further Preference Shares thereafter shall be such that the creation and issue by the company of further Preference Shares carrying those rights would have been permitted.

Variation of rights

Whenever the share capital is divided into different classes of shares, the rights attached to any class may be varied or abrogated with the consent in writing of the holders of three-quarters in nominal value of the issued shares of that class or with the sanction of a special resolution passed at a separate general meeting of the holders of the shares of the class, and may be so varied or abrogated either whilst the company is a going concern or during or in contemplation of a winding-up.

Allotment of shares

Subject to the provisions of the Articles of Association relating to new shares, the shares shall be at the disposal of the directors and (subject to the provisions of the Articles and the Acts) they may allot, grant options over or otherwise dispose of them to such persons on such terms and conditions and at such times as they may consider to be in the best interests of the company and its shareholders, but so that no share shall be issued at a discount and so that, in the case of shares offered to the public for subscription, the amount payable on application on each share shall not be less than one-quarter of the nominal amount of the share and the whole of any premium thereon.

Holders resident in the USA

The board may at its discretion give notice to certain holders resident in the USA calling for a disposal of their shares within 21 days or such longer period as the board considers reasonable. The board may extend the period within which any such notice is required to be complied with and may withdraw any such notice in any circumstances the board sees fit. If the board is not satisfied that a disposal has been made by the expiry of the 21 day period (as may be extended), no transfer of any of the shares to which the notice relates may be made or registered other than a transfer made pursuant to a procured disposal of the said shares by the board, or unless such notice is withdrawn.

Refusal to transfer

The directors in their absolute discretion and without assigning any reason therefore may decline to register:

I. any transfer of a share which is not fully paid save however, that in the case of such a share which is admitted to listing on the Stock Exchange, such restriction shall not operate so as to prevent dealings in such share of the company from taking place on an open and proper basis;
II. any transfer to or by a minor or person of unsound mind; or

The directors may decline to recognise any instrument of transfer unless:

III. the instrument of transfer is accompanied by the certificate of the shares to which it relates and such other evidence as the directors may reasonably require to show the right of the transferor to make the transfer (save where the transferor is a Stock Exchange Nominee);
IV. the instrument of transfer is in respect of one class of share only;
V. the instrument of transfer is in favour of not more than four transferees; and
VI. it is lodged at the office or at such other place as the directors may appoint.

Voting Rights

The Directors have been notified as at 4 March 2011 of the following substantial interests in voting rights held:

Allianz GI. 4.96% (13,446,850 shares)
MassMutual. 3.31% (9,151,242 shares)

No person holds securities carrying special rights. The company has employee share schemes which hold 0.92% of the total voting rights and voting rights are exercised by employee participants in proportion to their share holding within the scheme. There are no particular restrictions on voting rights, except that shares held by Irish Life Assurance pursuant to section 9(1) of the Insurance Act 1990 carry no voting rights. The company is not aware of any agreements between shareholders that may result in restrictions on the transfer of its shares or on voting rights.

Director Appointments

The company has complied with the provisions of the Combined Code on Corporate Governance and separately has no rules governing the appointment and replacement of directors or the amendment of the company's Articles of Association outside of the provisions thereto in the said articles. Under the terms of the Government Guarantee Scheme the Minister for Finance may nominate two directors for appointment to the board of the company.

In addition the Credit Institutions (Stabilisation) Act 2010 (the "Act") provides broad powers to the Minister for Finance to take a range of actions in relation to banks covered by the Act including the composition of their boards.

Annual General Meetings

At its annual general meetings, the members normally authorise the company:

To allot relevant securities within section 20 of the Companies (Amendment) Act, 1983 up to a maximum amount equal to the lesser of (a) the aggregate of the authorised but as yet un-issued ordinary share capital of the company or (b) one third of the total amount of the company's issued ordinary share capital. The authority at (b) was last granted by shareholders at the Company's AGM on 14 May 2010 and will expire on earlier of the date of the next AGM or 14 August 2011.
To disapply the strict statutory pre-emption provisions in connection with a rights issue to deal with legal or practical problems that may arise in respect of shareholders resident in certain territories and/or to deal with any fractional entitlements or any other issue of equity securities for cash up to an aggregate nominal amount of 5% of the nominal value of the company's issued share capital. This authority was last granted by shareholders at the Company's AGM on 14 May 2010 and will expire on earlier of the date of the next AGM or 14 August 2011.

Change of control of the company

If any person or company obtains control of the company, the company's share option schemes contain provisions for the exercise of share options, provided these have not lapsed, even if the performance conditions have not been satisfied or, with the agreement of an acquiring company, exchange the subsisting options for new options in the acquiring company. Following the acquisition of Irish Life & Permanent plc by Irish Life & Permanent Group Holdings plc in January 2010, the subsisting options were exchanged for new options in Irish Life & Permanent Group Holdings plc.

The company's Long-term Incentive Plan contains similar provisions where awards may vest immediately to the extent determined by the directors or, with the agreement of an acquiring company, exchange the subsisting awards for new awards in the acquiring company. Following the acquisition of Irish Life & Permanent plc by Irish Life & Permanent Group Holdings plc in January 2010, the subsisting awards were exchanged for new awards in Irish Life & Permanent Group Holdings plc.

In the event of a change of control of the company there are no agreements (other than under normal employment contracts) between the company, its directors or employees providing for compensation for loss of office that might occur.

Shareholder Rights

The rights attaching to shares as set out in this Directors report are subject to the provisions of the Credit Institutions (stabilisation) Act 2010.

Accounting Records

The directors believe that they have complied with Section 202 of the Companies Act, 1990 with regard to books of account by employing financial personnel with appropriate expertise and by providing adequate resources to the financial function. The books of account of the company are maintained at the company's registered office, Irish Life Centre, Lower Abbey Street, Dublin 1 and the principal offices of the group and its subsidiaries, as shown on the inside back cover of this report.

Political Donations

The directors have satisfied themselves that there were no political contributions during the year, which require disclosure under the Electoral Act, 1997.

Subsidiaries and Associated Companies

The principal subsidiaries and associated undertakings and the group's interests therein are shown in Note 54, Principal subsidiaries and associated undertakings to the financial statements.

Branches outside the State

The group's subsidiary, Irish Life & Permanent plc has established branches, within the meaning of Regulation 25 of the European Communities (Accounts) Regulations, 1993 (which gave effect to EU Council Directive 89/666/EEC), in the United Kingdom.

Independent Auditor

In accordance with Section 160(2) of the Companies Act, 1963 the Auditor, KPMG, Chartered Accountants and Registered Auditor, will continue in office.

On behalf of the Board

Gillian Bowler Kevin Murphy

Chairman Group Chief Executive

David McCarthy Ciarán Long Group Finance Director Company Secretary

4 March 2011

Combined Code on Corporate Governance

The directors endorse the Combined Code on Corporate Governance ("the Code") as revised by the Financial Reporting Council ("FRC") in June 2008 which sets out Principles of Good Governance and a Code of Best Practice. The Listing Rules of the Irish and London Stock Exchanges require a statement to be made in relation to compliance with the Code. The directors have reviewed the group's corporate governance arrangements in light of the Code and believe that they are fully in compliance.

The Directors note that a review of the Code was undertaken by the FRC in 2009 following which a revised Code entitled the UK Corporate Governance Code ("the UK Code") was published in June 2010. In December 2010, the Irish Stock Exchange ("ISE") also published the Irish Corporate Governance Annex which implements the recommendations from a report commissioned by the ISE and the Irish Association of Investment Managers in early 2010. The Board welcomes the additional provisions of the new codes which come into effect for the Company's accounting period ending 31 December 2011.

The directors have developed a code of practice which deals with, among other matters, issues of corporate governance. This code of practice is designed to ensure that the main principles and the supporting principles of good governance set out in Section 1 of the Code are applied within the group.

In November 2010 the Central Bank of Ireland issued a Corporate Governance Code for Credit Institutions and Insurance Undertakings ("the CBI Code"). This CBI Code imposes minimum core standards upon all credit institutions and insurance undertakings with additional requirements upon entities which are designated as major institutions. Both Irish Life & Permanent plc and Irish Life Assurance plc have been designated as major institutions under the CBI Code.

Compliance with the Combined Code on Corporate Governance

The Irish Stock Exchange and the UK Listing Authority require listed companies to disclose, in relation to section 1 of the Code, how they have applied its principles and whether they have complied with its provisions throughout the accounting year.

The company has complied fully throughout the most recent accounting period with the provisions set down in section 1 of the Code including the application of its principles as set out in this report. The auditor's report within the Annual Report covers their review of the company's compliance with the nine provisions of the Code specified for their review by the listing rules of the Irish Stock Exchange.

Role of the Board

There is an effective board to lead and control the group. The board has reserved to itself for decision a formal schedule of matters pertaining to the group and its future direction, such as the group's commercial strategy, major acquisitions and disposals, board membership, appointment and removal of the Group Chief Executive and the Company Secretary, executive remuneration, trading and capital budgets, and risk management policies. All strategic decisions are referred to the board. Documented rules on management authority levels and on matters to be notified to the board are in place, supported by an organisational structure with clearly defined authority levels and reporting responsibilities.

The board currently comprises nine non-executive and two executive directors. While there is no optimum number of non-executive and executive directors, and the membership of the board is kept continuously under review, the board is satisfied that its current size and structure is appropriate to meet the requirements of the business. Other than as part of its ongoing refreshment and renewal no changes are currently planned in the structure or membership of the board. Biographies of each of the directors are set out in the Board of Directors section. The wide range of qualifications, skills and experience that is encapsulated in the biographies is harnessed to the maximum possible effect in the deliberations of the board. Having directors with a mix of public service, financial, risk management, consumer related and general business experience has been of particular benefit over 2010 when the company has had to deal with a particularly challenging environment.

The roles of the Chairman and the Group Chief Executive are separated and are clearly defined, set out in writing and agreed by the board. The board considers all the non-executive directors to be independent of management and free of any business or other relationship which would interfere with the exercise of their independent judgement. The Chairman, on appointment, met the independence criteria set up in the Code. The board has nominated Roy Keenan as the Senior Independent Non-executive Director.

The board had ten scheduled board meetings during 2010 and also met on other occasions as considered necessary. Full board papers are sent to each director in sufficient time before board meetings and any further papers or information are readily available to all directors on request. The board papers include the minutes of all committee meetings which have been held since the previous board meeting and the chairman of each committee is available to report on the committee's proceedings at board meetings if appropriate. Attendance at scheduled board and committee meetings is outlined later on in this section. The board receives formal reports on group compliance matters at each of its meetings.

The board has a formal performance review process to assess how the board and its committees are performing. This process, facilitated every three years by external consultants, comprises a detailed and rigorous examination by directors of all aspects of board and committee performance. The review in 2010 was facilitated by the Chairman - external consultants were last used in 2008. A report produced following the review identifies any measures which can enhance this performance and these are considered by the full board. The performance of each individual director is also assessed on an annual basis by the Chairman and is discussed with the director concerned. The non-executive directors, led by the senior independent director, evaluate the performance of the Chairman, taking into account the views of executive directors.

The Chairman meets at least once a year with the non-executive directors without the executives present.

Procedures are in place for directors, in furtherance of their duties, to take independent professional advice and training, if necessary, at the group's expense. The group has arranged directors' and officers' liability insurance cover in respect of legal action against its directors. Appropriate training is arranged for directors on first appointment and the Chairman also ensures that the directors continually update their skills and knowledge through appropriate seminars and presentations. The Company Secretary is responsible for advising the board through the Chairman on all governance matters.

All directors have direct access to the Company Secretary.

Where directors have concerns which cannot be resolved about the running of the company or a proposed action, they will ensure that their concerns are recorded in the board minutes. On resignation, non-executive directors provide a written statement to the Chairman, for circulation to the board, if they have such concerns.

Board Committees

The board has established a number of committees which operate within defined terms of reference. These committees are the Audit Committee, the Risk and Compliance Committee, the Remuneration and Compensation Committee and the Nomination Committee, all of which are committees of the board. All of these committees are composed of non-executive directors, all of whom are considered by the board to be independent. Membership and chairmanship of each committee is reviewed at least every two years. Detailed terms of reference for each of the committees are available on request and on the group's website www.irishlifepermanent.ie. In accordance with the terms of the Code, the Chairman of the group is not a member of the Audit Committee.

Audit Committee

The Audit Committee comprises Breffni Byrne (Chairman), Margaret Hayes, Roy Keenan and Pat Ryan. The board ensures that the chairman of the committee has recent and relevant financial experience.

The Audit Committee provides a link between the board and the external auditors, is independent of the group's management and is responsible for making recommendations in respect of the appointment of external auditors and for reviewing the scope of the external audit. It also has responsibility for reviewing the group's annual report and financial statements, preliminary announcement, half-yearly accounts, Interim Management Statements and the effectiveness of the group's internal control systems and risk management process.

The committee monitors the group's internal audit, compliance and risk management procedures and considers issues raised and recommendations made by the external auditors and by the Group Internal Audit function. The committee meets at least annually with the external auditors in confidential session without management being present. The committee reviews the arrangements by which staff of the group may, in confidence, raise concerns about possible improprieties in matters of financial reporting or other matters.

The Audit Committee reviews the non-audit services provided by the external auditors based on the policy approved by the board in relation to the provision of such services. Fees paid in respect of audit, other assurance services, tax advisory services and non-audit services are outlined in Note 48, Administration and other expenses to the financial statements. Other assurance services are services carried out by the auditors by virtue of their role as auditors and include assurance related work, regulatory returns and accounting advice. In line with best practice, the auditors do not provide services such as financial information system design and valuation work which could be considered to be inconsistent with the audit role.

The amount of fees paid to external auditors for audit fees was €1.7m (including VAT) payable to KPMG, of which €1.6m (including VAT) was payable to KPMG Ireland and €0.1m (including VAT) was payable to KPMG overseas affiliates. €0.6m (including VAT) was paid to KPMG Ireland for other assurance services and €1.5m (including VAT) was paid in respect of tax advisory services and non-audit services (€1.2m (including VAT) to KPMG Ireland and €0.3m (including VAT) to KPMG overseas affiliates).

Risk and Compliance Committee

The Risk and Compliance Committee comprises Pat Ryan (Chairman), Breffni Byrne, Bernard Collins, Roy Keenan and Sandy Kinney. The board ensures that the chairman of the committee has relevant risk management and / or compliance experience.

The Risk and Compliance Committee has responsibility for oversight and advice to the board on risk governance, the current risk exposures of the group and future risk strategy, including strategy for capital and liquidity management, the setting of compliance policies and principles and the embedding and maintenance throughout the group of a supportive culture in relation to the management of risk and compliance. The Risk and Compliance Committee supports the board in carrying out its responsibilities for ensuring that risks are properly identified, reported, assessed and controlled, and that the group's strategy is consistent with the group's risk appetite.

The Risk and Compliance Committee is responsible for monitoring adherence to the group risk appetite statement. Where exposures exceed levels established in the appetite statement, the Risk and Compliance Committee is responsible for developing appropriate responses. This is facilitated by the periodic review of a key risk indicators report calibrated to the risk appetite statement.

The Risk and Compliance Committee, in turn, delegates responsibility for the monitoring and management of specific risks to committees accountable to it. These committees are the Group Credit Committee, the Banking Assets & Liabilities Committee, the Life Assurance Assets & Liabilities Committee, the Group Operational Risk Committee, the Group Counterparty Credit and Market Risk Committee and the Group Compliance Committee. The terms of reference for each committee, whose members include members of group senior management, are reviewed regularly by the Risk and Compliance Committee.

Remuneration and Compensation Committee

The Remuneration and Compensation Committee comprises Danuta Gray (Chairman), Gillian Bowler, Ray MacSharry and Pat Ryan. This committee considers all aspects of the performance and remuneration of executive directors and senior executives and sets the remuneration of these executives, having consulted with the Chairman, the Group Chief Executive and the other non-executive directors. The committee also has responsibility for setting the remuneration of the Chairman (without the Chairman being present) and the Group Chief Executive. Senior management succession issues are also addressed by this committee.

During 2010 the committee used the Executive Compensation Practice of Towers Watson for advice on executive director and senior management remuneration. Services provided to the group by other Towers Watson practices include the valuation of the Irish Progressive Staff Pension Scheme and the tsb Staff Pension Scheme by its actuarial practice.

Nomination Committee

This committee comprises Gillian Bowler (Chairman), Breffni Byrne, Danuta Gray, Roy Keenan and Ray MacSharry. The committee is charged with responsibility for bringing recommendations to the board regarding the appointment of new directors and of a new Chairman. The Chairman does not attend the committee when it is dealing with the appointment of a successor to the Chairman. Decisions on board appointments are taken by the full board. The committee uses external consultants to assist in identifying and considering candidates from a wide range of backgrounds in the context of a description of the role and capabilities required for a particular appointment. All directors are subject to re-appointment by election by the shareholders at the first opportunity after their appointment.

The committee keeps under review the leadership needs of the group, both executive and non-executive, with a view to ensuring the continued ability of the group to compete effectively in the marketplace. This committee is also responsible for reviewing the effectiveness of the board's operations, including the chairmanship and composition of board committees.

Subject to satisfactory performance, non-executive directors are typically expected to serve two three-year terms, although the board may extend an invitation to serve a further three-year term. The form of appointment letter for non-executive directors is available for inspection and is also included on the group's website (www.irishlifepermanent.ie). The remuneration of the non-executive directors is determined by the board within the parameters decided by the shareholders and on the advice of the Chairman and the Group Chief Executive. The term of office of the Chairman is six years regardless of any previous term as a director. Under the Articles of Association directors are required to submit themselves to shareholders for re-appointment by election to the board every three years. However the board has adopted a practice of all directors submitting themselves for reappointment by election at each annual general meeting.

	Board		Audit		Risk and Compliance		Remuneration & Compensation		Nomination
	A	B	A	B	A	B	A	B	A	B
Non-executive Directors
Gillian Bowler	10	9	-	-	-	-	6	5	2	2
Breffni Byrne	10	10	10	10	6	5	-	-	4	4
Bernard Collins	9	8	-	-	5	4	-	-	-	-
Danuta Gray	10	8	-	-	-	-	6	6	4	4
Margaret Hayes	10	10	10	10	-	-	-	-	-	-
Eamonn Heffernan	4	4	3	3	2	2	3	3	-	-
Roy Keenan	10	10	10	10	5	5	2	2	4	4
Sandy Kinney	4	4	-	-	-	-	-	-	-	-
Ray MacSharry	10	10	-	-	-	-	6	6	4	4
Liam O'Reilly	4	4	3	3	2	2	-	-	-	-
Pat Ryan	10	10	10	10	6	6	5	5	-	-
Executive Directors
Kevin Murphy	10	10	-	-	-	-	-	-	-	-
David McCarthy	10	10	-	-	-	-	-	-	-	-

Attendance at Scheduled Board and Board Committee Meetings during the year ended 31 December 2010

Column A: number of scheduled meetings held during the period the director was a member of the Board and/or Committee.

Column B: number of scheduled meetings attended during the period the director was a member of the Board and/or Committee.

Communication with Shareholders

The group has an ongoing programme of meetings between its senior executives, institutional shareholders, analysts and brokers. These meetings, which are governed by procedures designed to ensure that price sensitive information is not divulged, are wide ranging and are designed to facilitate a two-way dialogue based upon the mutual understanding of objectives.

In addition, the Chairman attends the announcement of both half-yearly and preliminary final results, to which major shareholders are invited, and where they have the opportunity to question and discuss any issue pertaining to the business. Outside of these occasions major shareholders can meet with the Chairman or the Senior Independent Director on request. In addition, major shareholders are invited to meet newly appointed non-executive directors.

The board is kept appraised of the views of shareholders and the market in general through the feedback from the meetings' programme and results presentations. Analysts' reports on the company are also circulated to the board members on a regular basis. Finally, the group periodically commissions independent sample surveys of shareholders and stockbroker analysts to ascertain market perceptions of the group and any issues arising. The results of these surveys are provided to the board.

The annual report is designed, through the Chairman's Statement and the Business Review, in addition to the detailed financial information contained in the report, to present a balanced and understandable assessment of the group's position and prospects. The group uses its internet website (www.irishlifepermanent.ie) to provide information and access to investors. The investor relations section of the website is updated with the company's stock exchange releases and formal presentations to analysts and investors as they are made.

The directors comply with the Code as it relates to the disclosure of proxy votes, the separation of resolutions and the attendance of Committee Chairmen at the annual general meeting.

Internal Control

The board has overall responsibility for the group's system of internal controls and for reviewing its effectiveness. Such a system is designed to manage rather than eliminate the risk of failure to achieve business objectives, and can provide only reasonable and not absolute assurance against material misstatement or loss.

The Code on Corporate Governance has a requirement for the directors to review annually the effectiveness of the group's system of internal controls. This requires a review of the system of internal controls to cover all controls including:

− Financial;
− Operational;
− Compliance; and
− Risk Management.

Formal guidance for directors on the implementation of the requirements entitled "Internal Control: Guidance for Directors on the Combined Code", was published in September, 1999 ("the Turnbull guidance"). The board has established the procedures necessary to implement the Turnbull guidance and was fully compliant with it during 2010 and up to the date of approval of the financial statements.

The Audit Committee has reviewed the effectiveness of this system of internal controls and reported thereon to the board.

The directors have responsibility for maintaining a system of internal controls which provides reasonable assurance of effective and efficient operations, internal financial control and compliance with laws and regulations.

The board has delegated to executive management the planning and implementation of the system of internal controls within an established framework which applies throughout the group.

Risk Management

The board has established an ongoing process for identifying, evaluating and managing the significant risks faced by the group for the year under review and up to the date of approval of the financial statements. This risk management process is regularly reviewed by the board in accordance with the guidance provided by Turnbull. The board confirms that no significant control weaknesses were identified in the review process despite the significant challenges posed by the current environment. The group's approach to risk management is further detailed in the Risk Management section.

The Audit Committee reviews the internal audit programmes. The Head of Group Internal Audit reports regularly to the Audit Committee. The Audit Committee also reviews the half-year and annual financial statements and the nature and extent of the external audit. There are formal procedures in place for the external auditors to report findings and recommendations to the Audit Committee. Any significant findings or identified risks are examined so that appropriate action can be taken.

The Risk and Compliance Committee reviews the compliance and risk management programmes and monitors total risk levels across the group, in line with the overall policy approved by the board. The Risk and Compliance Committee supports the board in carrying out its responsibilities for ensuring that risks are properly identified, reported, assessed and controlled, and that the group's strategy is consistent with the group's risk appetite. The Group Head of Risk and Compliance reports regularly to the Risk and Compliance Committee.

The group has in place a Speaking Up (or "whistle-blowing") Policy, which allows all staff and other people, who work with or for the group, to raise any concerns they may have about suspected wrongdoing within the group, and ensures that anyone raising a concern in good faith can feel safe and confident that the group will treat the concern seriously, provide adequate protection and ensure fair treatment for the person raising the concern. In addition, the group has in place a Code of Ethics, which lays down the standards of responsibility and ethical behaviour to be observed by all employees of the group.

The group's business involves the acceptance and management of a range of risks. The group's system of internal controls is designed to provide reasonable, but not absolute, assurance against the risk of material errors, fraud or losses occurring. It is possible that internal controls can be circumvented or overridden. Further, because of changes in conditions, the effectiveness of an internal control system may vary over time.

Internal Control Procedures

The group's internal control procedures are designed to safeguard the group's net assets, support effective management of the group's resources, and provide reliable and timely financial reporting both internally to management and those charged with governance and externally to other stakeholders. They include the following:

− An organisational structure with formally defined lines of responsibility and delegation of authority.
− Established systems and procedures to identify, control and report on key risks. Exposure to these risks will be monitored mainly by the Risk and Compliance Committee through the operations of the committees accountable to it. These committees include the Group Credit Committee, the Banking Assets & Liabilities Committee, the Life Assurance Assets & Liabilities Committee, the Group Operational Risk Committee, the Group Counterparty Credit and Market Risk Committee and the Group Compliance Committee. Their activities are described in the Risk Management section. The terms of reference of these committees, whose members include executive directors and senior management, are reviewed regularly by the board.
− The preparation and issue of financial reports, including the consolidated annual accounts is managed by the Group Finance department with oversight from the Audit Committee. The group's financial reporting process is controlled using documented accounting policies and reporting formats issued by the Group Finance department to all reporting entities (including subsidiaries) within the group in advance of each reporting period end. The Group Finance department supports all reporting entities with guidance in the preparation of financial information. The process is supported by a network of finance and actuarial managers throughout the group, who have responsibility and accountability to provide information in keeping with agreed policies, including the completion of reconciliations of financial information to processing systems. Its quality is underpinned by arrangements for segregation of duties to facilitate independent checks on the integrity of financial data. The financial information for each entity is subject to a review at reporting entity and group level by senior management. The half year and annual accounts are also reviewed by the Audit Committee in advance of being presented to the Board for their review and approval.
− Comprehensive budgeting systems are in place with annual financial budgets prepared and approved by the board. Actual results are monitored and there is regular consideration by the board of progress compared with budgets and forecasts.
− There are clearly defined capital investment control guidelines and procedures set by the board.
− Responsibilities for the management of credit, investment and treasury activities are delegated within limits to line management. In addition, group and divisional management has been given responsibility to set operational procedures and standards in the areas of finance, tax, legal and regulatory compliance, internal audit, human resources and information technology systems and operations.
− The internal audit function, which has a group wide remit, acts as the third line of defence and is responsible for carrying out a risk-based, independent assessment of the adequacy, effectiveness and sustainability of the group's governance, risk management and control processes. The Head of Group Internal Audit reports directly to the Board of Directors through the Audit Committee for audit assurance purposes and to the Group Chief Executive Officer for administrative purposes. The Audit Committee reviews the scope and nature of the work of Group Internal Audit on an ongoing basis to confirm its independence and undertakes an independent external review of Group Internal Audit on a regular basis.
− Compliance in the group is controlled centrally under the Group Head of Risk and Compliance. Divisional compliance officers are in place in all of the group's operating divisions. The Group Head of Risk and Compliance reports to the Group Chief Executive and the Risk and Compliance Committee and has direct access to the Board Risk and Compliance Committee.
− There is a risk management framework in place in each business throughout the group whereby executive management reviews and monitors, on an ongoing basis, the controls in place, both financial and non financial, to manage the risks facing that business.

Going Concern

The financial information has been prepared on the going concern basis. In making its assessment of the group's ability to continue as a going concern, the Board of Directors has taken into consideration the significant economic, political and market risks and uncertainties that currently impact Irish financial institutions and the group. These include the continuing ability to access funding from the Eurosystem including the Irish Central Bank to meet liquidity requirements and the ability to raise additional capital to meet required regulatory capital ratios.

The directors, having regard to these uncertainties and the terms of the EU/IMF memorandum of understanding (which indicates that the Irish Authorities will ensure that the Irish Life & Permanent Group Holdings plc is capitalised to a level of 12% core Tier 1 capital by end May 2011) are satisfied that it continues to be appropriate to prepare the financial statements of the group on a going concern basis as:

the Government has acknowledged the group's systemic importance and the actions of the Government to date indicate that it will continue to support the Irish financial system given its importance to the continued functioning of the Irish economy generally;
the group's access to liquidity and funding in particular the availability of Eurosystem funding and Central Bank liquidity facilities will enable it to meet its immediate and estimated funding requirements for the coming year;
the Government has indicated that it will ensure the group is capitalised to a level of 12% Tier 1 capital if required;
it is expected that the group will continue to meet its current regulatory capital requirements (including the additional capital requirements identified by the Central Bank in 2010) over the relevant period.

The continued deterioration of the Irish economy throughout 2010 has significantly and adversely affected the group's financial condition and performance and presents significant risks and challenges for the group in the years ahead. Given the current environment in Ireland the group is also increasingly exposed to potential changes in government policy in relation to the economy and the financial sector. Property prices remain weak and have impacted the group bad debt provisions. The group has also experienced adverse persistency in its life and pensions products impacting the financial performance of the life company.

The downgrading of the group and sovereign credit ratings, the withdrawal of the Irish Government from the funding markets, the EU/IMF Programme of Financial Support for Ireland and the consequent withdrawal of funds from Irish banks have affected the group's funding plans in 2010. There is a significant ongoing liquidity challenge for the group and for the Irish banking system generally. These challenges have given rise to breaches of regulatory liquidity requirements in the later part of 2010 and ongoing breaches in 2011. The downgrade in credit ratings and the risk of a further sovereign or group downgrade has limited the group's access to capital markets, as a result the group has increased its recourse to Eurosystem financing facilities. At 31 December 2010, the group had €13.8bn of collateralised funding from the European Central Bank. In 2011 the group used collateral to access special liquidity facilities from the Central Bank of Ireland. The group expects to have sufficient collateral to enable it to access these facilities to meet its immediate and estimated funding requirements for the coming year.

The group is required by the Central Bank to maintain adequate capital and the group is subject to the risk of having insufficient capital resources to meet minimum regulatory capital requirements. The group has confirmed that additional capital requirements of €243m identified by the Irish Central Bank's Prudential Capital Assessment Review (PCAR) in 2010 will be met from internal resources (subject to Central Bank approval) by May 2011 and is on target to do so. There is a risk that minimum regulatory capital requirements may increase in the future and that the Central Bank may change the manner in which it applies existing regulatory requirements. If the group is required to increase its capital position there is a risk that it may be unable to raise additional capital from the financial markets or from internal resources. The Government has acknowledged the group's systemic importance to the economy as a whole and the EU/IMF memorandum of understanding confirms the government's intention to ensure that the group remains adequately capitalised.

The group is participating in the Central Bank's latest Prudential Capital Assessment Review (PCAR) and Prudential Liquidity Assessment Review (PLAR), the results of which are expected at the end of March. As a result there is a significant uncertainty as to the outcome and any additional capital or liquidity requirements that may arise.

The Credit Institutions (Stabilisation) Act 2010 was passed into Irish law on 21 December 2010. The Act provides the legislative basis for the reorganisation and restructuring of the Irish Banking system agreed in the joint EU/IMF programme for Ireland. The Act applies to banks who have received financial support from the State, Building Societies and Credit Unions. The group by way of the Government Guarantee has received such support. The Act provides broad powers to the Minister for Finance (in consultation with the Governor of the Central Bank of Ireland) to act on financial stability grounds to effect the restructuring action and recapitalisation measures envisaged in the programme. This allows the Minister to take the actions required to bring about a domestic retail bank system that is proportionate to and focused on the Irish economy.

The Board's assessment of the appropriateness of preparing the financial statements on the going concern basis has considered the group's business and funding plans taking into account:

the period over which the Irish economy is expected to recover from the current crisis,
the implementation of joint EU/IMF programme for Ireland,
the group's schedule of long-term debt repayments,
the group's ability to continue to access liquidity and funding, in particular from the Eurosystem funding and the Irish Central Bank liquidity facilities,
the ability of the group to raise additional required capital in the financial markets or failing that from the Irish Authorities to meet its required regulatory capital ratios,
the ability of the group to dispose of assets and/or increase its deposit base to meet the PLAR targets set by the Central Bank of Ireland

The risk and uncertainties set out above and the options available to the group have been considered by the directors in concluding that it is appropriate to prepare the financial statements on a going concern basis.

Directors' Report on Remuneration

This report sets out the remuneration policy for the group's senior executives and directors. It has been prepared by the Remuneration and Compensation Committee and approved by the Board.

Remuneration and Compensation Committee

The members of the Remuneration and Compensation Committee are, as outlined in the report on Corporate Governance, Danuta Gray (Chairman), Gillian Bowler, Ray MacSharry and Pat Ryan. As can be seen from their profiles in the Board of Directors section, each of them brings a wealth of experience in terms of the management and oversight of large consumer-focussed organisations where the remuneration and motivation of staff and executives was of crucial importance. Specific skills in the management and assessment of risk issues were added with Pat Ryan's appointment to the committee in March 2010. The committee had six scheduled meetings during 2010 and in addition individual members met with senior management and external reward advisers on several occasions to discuss emerging regulatory requirements relating to remuneration issues.

Remuneration policy

During 2010 the committee conducted a fundamental review of the remuneration policy in light of the requirements of the third capital requirements directive ("CRD III") relating to remuneration. The committee has been advised by reward experts Towers Watson on a range of changes that are being implemented to the remuneration policy to meet the deadline date of 30 April 2011 set by the Central Bank of Ireland. Arising from the review the governance of remuneration policy and practice has been strengthened with increased Remuneration Committee involvement in oversight and approval of remuneration arrangements. In particular a range of changes in reward practice are being introduced to ensure that the risk dimensions are adequately managed and that the risk adjustment measures are sufficiently strong to reduce excessive risk-taking incentives provided by short-term measures. These will include deferral and clawback arrangements. Adjustments are also being introduced in the remuneration practice for key control function staff in line with the new regulatory requirements.

Specific measures are being introduced to ensure that remuneration packages reflect the current and potential risks involved in the cost and quantity of capital required to support the risks taken, the cost and quantity of the liquidity risks assumed in the conduct of the business and a consistency with the timing and likelihood of potential future revenues. At an overall level, the committee ensures that the risk appetite statement and business plan informs the remuneration policy. The committee had the remuneration practice for 2010 reviewed and was satisfied that it was fully in line with the risk appetite statement.

Once all the necessary adjustments have been agreed and discussed with the Regulator there will be full disclosure of the remuneration policy and its provisions so that it can be viewed by all interested parties. This work will be completed by 30 April 2011 and will be published on the company's website.

In framing the group's remuneration policy the board confirms that it has complied with the Combined Code on Corporate Governance. The group's policy on senior executive remuneration (including executive directors) is to reward executives competitively in order to ensure that the group continues to attract and retain high calibre executives and that they are properly motivated to perform in line with business strategy, objectives, values and long-term interests of the shareholders mindful of the range of regulatory changes that have taken place and capital requirements and ability to pay. The policy is also designed to ensure that there are adequate succession plans in place. The control function within the group now makes direct input into compensation issues within the business units. The Group Head of Risk and Compliance meets separately with the committee to discuss risk and compliance issues. The committee will continue to have the reward strategy independently reviewed on an annual basis to ensure it complies with emerging regulatory developments and relevant market practices.

Directors' Report on Remuneration

Non-executive directors

Non-executive directors are remunerated solely by way of fees in respect of their board membership, full details of which are set out below.

Executive directors

The remuneration of the executive directors in 2010 comprises a basic salary, certain benefits and pension entitlements. In addition, executive directors participate in the group's employee profit-sharing scheme, long-term share incentive awards and share option schemes. Each of these elements is discussed below including details of the total remuneration.

Basic salary

The basic salary is reviewed annually having regard to competitive market practice and Government guidelines. No increases in basic salary were granted to executive directors in 2010.

Benefits

Executive directors are entitled to a company car or a car allowance. The group also pays private health insurance on behalf of the executive directors and their families. In addition, executive directors may avail of subsidised house purchase loans. Loans to executive directors are on the same terms and conditions as loans to other eligible Irish Life & Permanent Group Holdings management.

Bonus and long-term incentive plans

No bonus payments were made to senior executives including executive directors during 2009 or 2010. The Remuneration and Compensation Committee has asked its reward advisers Towers Watson to review the bonus and long-term incentive policy and make appropriate recommendations having regard to the pensions, insurance, investment management and banking businesses in which the group operates. This review is expected to be completed by April 2011.

A share-based long-term incentive plan for senior management was approved by shareholders in 2006 and all awards made under the plan have now lapsed. The committee currently has no plans to operate this share-based long-term incentive plan in the future.

This plan enabled awards to be granted to executive directors, in common with other senior executives selected by the Remuneration and Compensation Committee, which would vest for participants on the attainment of certain performance criteria. Awards under the plan would have a three-year performance period and the performance criteria would be:

− 12½% of the share awards vest for cumulative return on capital ("ROC") over the performance period of 48%,
− 50% of the share awards vest for ROC of 60% and awards vest on a linear scale between 12½% and 50% for ROC between 48% and 60%,
− 12½% of the share awards vest if the Total Shareholder Return ("TSR") for the group at least matches the weighted average TSR of the FTS Eurofirst 300 Banking and Insurance indices,
− 50% of the share awards vest if the TSR for the group exceeds the weighted average TSR of the FTS Eurofirst 300 Banking and Insurance indices plus 8% p.a. Awards vest on a linear scale between 12½% and 50% for TSR between the two levels specified.

In any financial year the value of an award (based on share price at the date the award would be made multiplied by the number of shares allocated under the award) should not exceed 100% of a participant's salary. The last award under the plan was made in 2008 and this award lapsed on 2 March 2011 having failed to attain the required performance criteria.

The committee currently has no plans to introduce a new share-based long-term incentive plan.

Directors' Report on Remuneration

Pensions

There are two defined-benefit pension arrangements in place for executive directors:

− Irish Permanent Executive Pension Scheme David McCarthy and Peter Fitzpatrick are members of this defined-benefit scheme; and
− Irish Life Assurance plc Pension Scheme Kevin Murphy and Denis Casey are members of this defined benefitscheme.

The group contributes to these pension schemes. Pension benefits are determined solely in relation to basic salary.

The Finance Act 2006 introduced a tax charge on pension assets in excess of the higher of €5m or the value of the individual accrued pension entitlements as at 7 December 2005. This is generally referred to as the pension cap. As a result of these legislative changes, the board decided in 2007 to offer executive directors and management the option of limiting their pension accrual to the level of the pension cap with a taxable, non-pensionable allowance being paid in lieu of the excess pension accrual with a similar cost to the group. Two of the executives chose this option during 2008. This option was withdrawn with effect from 30 June 2009.

Directors' fees from another company

Where an executive director of the group is remunerated for service as a non-executive director of another company and retains such remuneration, the amount of this remuneration is disclosed.

The following sections are audited and form part of the financial statements.

Share option schemes

No share options were granted in 2009 or 2010. The group has three share option schemes in place which conform to the guidelines of the Irish Association of Investment Managers and were approved by the shareholders in 1994, 2000 and 2001. The option schemes were designed to encourage staff and in particular senior executives to identify with shareholder interests.

The 1994 scheme is now closed and no further options may be allocated under it. Executive directors, in common with other senior executives, held options under this scheme but these have all lapsed.

The 2000 scheme is now also closed for new option grants. Executive directors and other senior executives hold options under this scheme. Under the 2000 scheme, 50% of the options are exercisable only if growth in the group's Earnings per Share ("EPS") in the three-year period after grant exceeds growth in the Consumer Price Index ("CPI") plus 5% p.a. compounded over the period. The balance of the options are exercisable in equal instalments after the fourth and fifth anniversary of the date of grant subject to growth in EPS in the three-year period after grant exceeding growth in CPI plus 10% p.a. compounded and EPS growth being in the top 25% of a peer group of financial service companies. Following the introduction of IFRS and as permitted under the scheme the directors have amended the calculation basis for EPS to reflect the EV earnings basis which the directors believe is a more realistic measure of the performance of a life business and is the measure used by the investment community to assess the performance of life businesses. There is no change to the EPS growth criteria. The requirement that EPS growth be in the top 25% of a peer group of financial services companies has, as permitted under the scheme, been deleted since it is not possible to obtain comparable EPS growth information, following the introduction of IFRS for all quoted companies in Europe in 2005. The performance conditions attached to options granted in 2008 under the 2000 scheme which were due to be measured in 2011 fell away in January 2010 pursuant to a "change in control" clause in their terms following the implementation of a courtsanctioned Scheme of Arrangement. These options have a current exercise price of €10.377 per share.

The 2001 scheme is a Revenue-approved share option scheme in which all employees including executive directors of the company and certain subsidiaries may participate. Only one grant of options has been made to date under this scheme in July 2001. Under this scheme 30% of the options may be granted to key employees with the remaining 70% granted on similar terms to the remaining eligible staff. The Remuneration and Compensation Committee selects key employees which may include executive directors based on performance criteria. Key employees have specialist skills, qualifications and relevant experience which are considered vital to the future success of the group. Options under the 2001 scheme are exercisable where EPS growth in any three-year period after the granting of the options exceeds the increase in CPI plus 5% p.a. compounded.

Options under all the above schemes were issued at the market price on the day preceding the date of the grant. Options are granted at no consideration. The aggregate exercise price of options granted under the share options schemes may not exceed eight times an executive's emoluments. In total, not more than 15% of the issued share capital of the group can be put under option in any ten-year period. In addition, over any three-year period the number of shares which may be placed under option may not exceed 4.5% of the group's issued share capital. Options lapse if not exercised within ten years of grant.

Profit-sharing schemes

There were no payouts under the profit-sharing schemes in 2009 or in 2010. The group operates Revenueapproved employee profit-sharing schemes on terms approved by the shareholders. All employees, including executive directors of the company, and certain subsidiaries who meet the criteria laid down in the schemes, may participate in these schemes.

Directors' service contracts

In accordance with the recommendation of the Combined Code on Corporate Governance there are no directors' service contracts with notice periods exceeding twelve months or with provisions for pre-determined compensation on termination which exceeds one year's salary and benefits.

Executive directors' remuneration and pension benefits

The remuneration payable (excluding pension contributions by the group) to executive directors who held office for any part of the financial year is as follows:

		Salary			Payment in lieu of notice		Benefit in kind		Other remuneration*		Total
	Note	2010 €000	2009 €000	2010 €000	2009 €000	2010 €000	2009 €000	2010 €000	2009 €000	2010 €000	2009 €000
Denis Casey	1	-	369	-	1,249	-	26	-	2,930	-	4,574
Peter Fitzpatrick	2	-	63	-	540	-	64	-	52	-	719
Kevin Murphy	3	500	515	-	-	34	33	4	196	538	744
David McCarthy	4	497	483	-	-	31	27	4	4	532	514
		997	1,430	-	1,789	65	150	8	3,182	1,070	6,551

Note 1: Denis Casey retired from the Board on 28 February 2009. Denis Casey's employment terminated on 14 May 2009; salary payments are included up to this date. In addition to salary Denis Casey received a payment in lieu of notice of €1,249,000 in accordance with his contractual entitlements.

Note 2: Peter Fitzpatrick retired from the Board on 13 February 2009 and ceased employment from the same date. In addition to salary Peter Fitzpatrick received a payment in lieu of notice of €540,000 in accordance with his contractual entitlements.

Note 3: Kevin Murphy's annual salary, in line with Government guidelines, was reduced to €500,000 with effect from 1 August 2009 on his appointment to the position of Group Chief Executive.

Note 4: David McCarthy was appointed to the Board on 13 February 2009. The remuneration disclosed is for the full year 2009.

* Other remuneration in 2009 includes amounts of €192,000 paid to Kevin Murphy up to June 2009 and €99,000 paid to Peter Fitzpatrick, each of whom opted for a taxable allowance in compensation for loss of pension. This compensation arises from the introduction of the pensions "cap" in the Finance Act 2006 and was determined on the basis of independent actuarial advice, reflecting their long service and the pension benefits being forfeited. The payment of the compensation was discontinued with effect from 30 June 2009. Also included is an amount of €2,928,000 in respect of Denis Casey and a negative €52,000 in respect of Peter Fitzpatrick which represents in each case the transfer value of the increase in accrued pension during the year including an allowance for the impact of early payment, based on past normal custom and practice.

Aggregate remuneration for executive directors amounted to €1.4m (2009: €11.1m). This figure includes a share option grant expense of €nil (2009: €nil), a long-term incentive plan expense of €0.1m (2009: €0.1m negative) and normal pension contributions of €0.2m (2009: €0.2m). The aggregate remuneration for 2009 includes additional pension contributions amounting to €7.3m. At the request of the trustees, these additional pension contributions were made to the relevant pension schemes to enable the pensions to be paid to the retiring individuals over their remaining lifetime. These contributions would have been due over the future service lives of the relevant executive directors but were brought forward, in line with standard practice, as a result of their early retirement.

The cost of executive directors is allocated between the company and its principal subsidiaries based on duties carried out for those companies.

The directors' pension benefits under the various defined-benefit pension schemes in which they are members are as follows:

	Increase in accrued pension during the year 1		Transfer value of the	increase in accrued pension 2	Total accrued pension 3
	2010	2009	2010	2009	2010	2009
	€000	€000	€000	€000	€000	€000
Denis Casey	-	8	-	2,928	-	438
Peter Fitzpatrick 4	-	(7)	-	(52)	-	277
Kevin Murphy 4	8	12	193	211	299	291
David McCarthy 5	11	58	153	762	225	214
	19	71	346	3,849	524	1,220

1. Increases are after adjustment for inflation and reflect additional pensionable service and earnings.
1. The transfer value of the increase in accrued benefits represents the amounts that the pension scheme would transfer to another pension scheme, in relation to the benefits accrued during the year in the event of the member leaving service.
1. Total accumulated amounts of accrued benefits payable at normal retirement ages.
1. The 2009 accrued pensions for Peter Fitzpatrick and Kevin Murphy reflect the removal of the cap on pension accrual with an appropriate adjustment following the discontinuance of the compensation payments.
1. The 2009 increase in accrued pension and the associated increase in transfer value reflects adjustments to David McCarthy's salary on his appointment as Group Finance Director in February 2009.

Executive directors' share options

Scheme	As at 1 January 2010	Lapsed during the year	Forfeited during the year	Exercise price	As at 31 December 2010	Earliest exercise date	Latest exercise date
Kevin Murphy
1994	22,912	22,912	-	9.20	-	28/03/2003	27/03/2010
2001	17,418	-	-	13.85	17,418	27/06/2004	26/06/2011
2000	17,930	-	-	14.85	17,930	18/04/2005	17/04/2012
2000	28,864	-	-	9.68	28,864	08/04/2006	07/04/2013
2000	22,620	-	-	13.21	22,620	08/10/2007	07/10/2014
2000	48,182	-	-	10.38	48,182	04/03/2011	03/03/2018
	157,926				135,014
David McCarthy
1994	31,746	31,746	-	9.20	-	28/03/2003	27/03/2010
2001	18,564	-	-	13.85	18,564	27/06/2004	26/06/2011
2000	25,656	-	-	14.85	25,656	18/04/2005	17/04/2012
2000	45,884	-	-	9.68	45,884	08/04/2006	07/04/2013
2000	36,336	-	-	13.21	36,336	08/10/2007	07/10/2014
2000	30,644	-	-	10.38	30,644	04/03/2011	03/03/2018
	188,830				157,084

The official closing price of the shares at 31 December 2010 was €1.08 (31 December 2009: €3.30) and the price range during 2010 was €0.51 to €3.94 (2009: €0.63 to €5.90). Executive directors' and non-executive directors' shareholdings in the company are detailed in Note 55, related parties of the financial statements.

Long-term incentive plan

Conditional shares awarded under the long-term incentive plan are as follows:

	Granted in	Granted in	Granted in	Lapsed in	Lapsed in	Total as at 31
	2006	2007	2008*	2009	2010	December 2010*
Kevin Murphy	18,662	26,595	48,182	18,662	26,595	48,182
David McCarthy	15,398	16,914	30,644	15,398	16,914	30,644

The fair value of conditional shares at the grant date in 2008 was €6.12 and at 31 December 2010 was €2.18.

*As stated earlier the awards made in 2008 lapsed on 2 March 2011 having failed to attain the required performance criteria. All awards made under the plan have now lapsed.

Non-executive directors' remuneration

Fees paid to non-executive directors are reviewed annually. The Chairman's fee was reduced by 29% to €200,000 with effect from 1 January 2009 and the level of basic fees for non-executive directors was reduced by 25% to €56,250 with effect from 1 September 2009. Non-executive directors who perform additional services outside the normal duties of a director may receive additional fees. Directors who received additional fees include Roy Keenan as Senior Independent Director and as a member of the Audit Committee, Breffni Byrne as Chairman of the Audit Committee and Pat Ryan and Margaret Hayes as members of the Audit Committee.

The remuneration payable in respect of each non-executive director is as follows:

	Notes	2010	2009
		€000	€000

Gillian Bowler		200	200
Breffni Byrne		84	103
Bernard Collins	1	47	-
Danuta Gray		56	69
Margaret Hayes		64	77
Eamonn Heffernan	2	25	78
Roy Keenan		83	95
Sandy Kinney	3	19	-
Ray MacSharry		56	69
Liam O'Reilly	2	25	78
Pat Ryan	4	63	5
Finbar Sheehan	5	-	38
		722	812

Note 1: Bernard Collins joined the board in March 2010.

Note 2: Eamonn Heffernan and Liam O'Reilly retired from the board in May 2010.

Note 3: Sandy Kinney joined the board in August 2010.

Note 4: Pat Ryan joined the board in December 2009. In addition to board fees, in 2009 prior to his appointment as a director, Pat Ryan was paid €121,000 (inclusive of VAT) in respect of consultancy services to the bank's treasury operation from April to September 2009.

Note 5: Finbar Sheehan retired from the board in May 2009.

Financial Statements

Statement of Directors' Responsibilities	72
Independent Auditors' Report	74
Consolidated Statement of Financial Position	76
Consolidated Income Statement	77
Consolidated Statement of Comprehensive Income	78
Consolidated Statement of Changes in Equity	79
Consolidated Statement of Cash Flows	81
Company Statement of Financial Position	83
Company Statement of Comprehensive Income	84
Company Statement of Changes in Equity	85
Company Statement of Cash Flows	87
Notes to the Group Financial Statements	88
Additional Information	217
Shareholder Information	218
Embedded Value Basis Supplementary Information	219

Statement of Directors' Responsibilities in respect of the Annual Report and the Financial Statements

The directors are responsible for preparing the Annual Report and the consolidated and company financial statements, in accordance with applicable law and regulations.

Company law requires the directors to prepare consolidated and company financial statements for each financial year. Under company law the directors are required to prepare the consolidated financial statements in accordance with IFRSs, as adopted by the European Union ("EU"), and have elected to prepare the company financial statements in accordance with IFRSs as adopted by the EU and in relation to the company as applied in accordance with the provisions of the Companies Acts, 1963 to 2009. In preparing the consolidated and company financial statements, the directors have also elected to comply with IFRSs issued by the International Accounting Standards Board ("IASB").

The consolidated and company financial statements are required by law and IFRSs as adopted by the EU to present fairly the financial position and performance of the group and company. The Companies Acts, 1963 to 2009 provide in relation to such financial statements, that references in the relevant part of these Acts to financial statements giving a true and fair view are references to their achieving a fair presentation.

In preparing each of the consolidated and company financial statements, the directors are required to:

select suitable accounting policies and then apply them consistently;
make judgements and estimates that are reasonable and prudent;
state that the financial statements comply with IFRSs as adopted by the EU, IFRSs issued by the IASB and, in the case of the company as applied in accordance with the Companies Act 1963 to 2009; and
prepare the financial statements on the going concern basis unless it is inappropriate to presume that the group and the company will continue in business.

Under applicable law and the requirements of the Listing Rules issued by the Irish Stock Exchange regulations, the directors are also responsible for preparing a Directors' Report and reports relating to directors' remuneration and corporate governance which comply with that law and those Rules. In particular, in accordance with the Transparency (Directive 2004/109/EC) Regulations 2007 (the "Transparency Regulations"), the directors are required to include in their report a fair review of the business and a description of the principal risks and uncertainties facing the group and the company and a responsibility statement relating to these and other matters, included below.

The directors are responsible for keeping proper books of account that disclose with reasonable accuracy at any time the financial position of the company and enable them to ensure that its financial statements comply with the Companies Acts, 1963 to 2009 and, as regards the consolidated financial statements, Article 4 of the IAS Regulation.

The directors are also responsible for taking such steps as are reasonably open to them to safeguard the assets of the group and to prevent and detect fraud and other irregularities. The directors are responsible for the maintenance and integrity of the corporate and financial information included on the company's website www.irishlifepermanent.ie. Legislation in the Republic of Ireland governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions.

Statement of Directors' Responsibilities in respect of the Annual Report and the Financial Statements

Responsibility Statement, in accordance with the Transparency Regulations

Each of the directors, whose names and functions are listed in the Board of Directors section, confirm that to the best of each person's knowledge and belief:

the consolidated financial statements, prepared in accordance with IFRSs as adopted by the EU, give a true and fair view of the assets, liabilities and financial position of the group at 31 December 2010 and its loss for the year then ended;
the company financial statements, prepared in accordance with IFRSs as adopted by the EU and as applied in accordance with the Companies Acts 1963 to 2009, give a true and fair view of the assets, liabilities and financial position of the company at 31 December 2010; and
the directors' report contained in the Annual Report includes a fair review of the development and performance of the business and the position of the group and company, together with a description of the principal risks and uncertainties that they face.

On behalf of the Board

Gillian Bowler Kevin Murphy Chairman Group Chief Executive

David McCarthy Ciarán Long Group Finance Director Company Secretary

4 March 2011

Independent Auditor's Report to the Members of Irish Life & Permanent Group Holdings plc

We have audited the consolidated and company financial statements (the ''financial statements'') of Irish Life & Permanent Group Holdings plc for the year ended 31 December 2010 which comprise the Consolidated and Company Statement of Financial Position, the Consolidated Income Statement, the Consolidated and Company Statement of Comprehensive Income, the Consolidated and Company Statement of Changes in Equity, the Consolidated and Company Statement of Cash Flows, and the related notes. These financial statements have been prepared under the accounting policies set out therein.

This report is made solely for the company's members, as a body, in accordance with section 193 of the Companies Act 1990. Our audit work has been undertaken so that we might state to the company's members those matters we are required to state to them in an auditor's report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the company and the company's members as a body, for our audit work, for this report, or for the opinions we have formed.

Respective Responsibilities of Directors and Independent Auditor

The directors' responsibilities for preparing the Annual Report and the financial statements in accordance with applicable law and International Financial Reporting Standards ("IFRSs") as adopted by the European Union are set out in the Statement of Directors' Responsibilities.

Our responsibility is to audit the financial statements in accordance with relevant legal and regulatory requirements and International Standards on Auditing (UK and Ireland).

We report to you our opinion as to whether the financial statements give a true and fair view in accordance with IFRSs as adopted by the European Union and, and have been properly prepared in accordance with the Companies Acts 1963 to 2009 and, in the case of the consolidated financial statements, Article 4 of the IAS Regulation. We also report to you whether, in our opinion:

proper books of account have been kept by the company;
at the financial position date, there exists a financial situation requiring the convening of an extraordinary general meeting of the company; and
the information given in the Directors' Report is consistent with the financial statements.

In addition, we state whether we have obtained all the information and explanations necessary for the purposes of our audit, and whether the Company Statement of Financial Position is in agreement with the books of account.

We also report to you if, in our opinion, any information specified by law or the Listing Rules of the Irish Stock Exchange regarding directors' remuneration and directors' transactions is not disclosed and, where practicable, include such information in our report.

We review whether the Corporate Governance Statement reflects the group's compliance with the nine provisions of the 2008 FRC Combined Code specified for our review by the Listing Rules of the Irish Stock Exchange, and we report if it does not. We are not required to consider whether the board's statements on internal control cover all risks and controls, or form an opinion on the effectiveness of the group's corporate governance procedures or its risk and control procedures.

We read the other information contained in the Annual Report and consider whether it is consistent with the audited financial statements. The other information comprises only; the Directors' Report, the Overview, including the Chairman's Statement and the Business Review. We consider the implications for our report if we become aware of any apparent misstatements or material inconsistencies with the financial statements. Our responsibilities do not extend to any other information.

Independent Auditor's Report to the Members of Irish Life & Permanent Group Holdings plc

Basis of Audit Opinion

We conducted our audit in accordance with International Standards on Auditing (UK and Ireland) issued by the Auditing Practices Board. An audit includes examination, on a test basis, of evidence relevant to the amounts and disclosures in the financial statements. It also includes an assessment of the significant estimates and judgements made by the directors in the preparation of the financial statements, and of whether the accounting policies are appropriate to the group's and company's circumstances, consistently applied and adequately disclosed.

We planned and performed our audit so as to obtain all the information and explanations which we considered necessary in order to provide us with sufficient evidence to give reasonable assurance that the financial statements are free from material misstatement, whether caused by fraud or other irregularity or error. In forming our opinion we also evaluated the overall adequacy of the presentation of information in the financial statements.

Opinion

In our opinion:

the consolidated financial statements give a true and fair view, in accordance with IFRSs as adopted by the European Union, of the state of the group's affairs as at 31 December 2010 and of its profit/(loss) for the year then ended;
the company financial statements give a true and fair view, in accordance with IFRSs as adopted by the European Union and as applied in accordance with the provisions of the Companies Acts 1963 to 2009, of the state of the company's affairs as at 31 December 2010;
the consolidated financial statements have been properly prepared in accordance with the Companies Acts 1963 to 2009 and Article 4 of the IAS Regulation; and
the company financial statements have been properly prepared in accordance with the Companies Acts 1963 to 2009.

Emphasis of matter – going concern

In forming our opinion on these financial statements, which is not qualified, we have considered the adequacy of the disclosures in Note 1 to the financial statements. These disclosures set out a number of material economic, political and market risks and uncertainties that impact the Irish banking system which may cast doubt upon the group's ability to continue as a going concern. These include the groups continuing ability to access funding from the Eurosystem and the Irish Central Bank to meet its liquidity requirements and its ability to raise additional capital to meet its required regulatory capital ratios. These matters, together with the options available to the group, have been considered by the directors in concluding that it is appropriate to prepare the financial statements on a going concern basis.

Other matters

We have obtained all the information and explanations which we consider necessary for the purposes of our audit. In our opinion proper books of account have been kept by the company. The Company Statement of Financial Position is in agreement with the books of account.

In our opinion the information given in the Directors' Report and the description in the annual corporate governance statement of the main features of the internal control and risk management systems in relation to the process for preparing the consolidated group financial statements is consistent with the financial statements.

The net assets of the company, as stated in the company statement of financial position are more than half of the amount of its called up share capital and, in our opinion, on that basis there did not exist at 31 December 2010 a financial situation which under Section 40 (1) of the Companies (Amendment) Act, 1983 would require the convening of an extraordinary general meeting of the company.

KPMG

Chartered Accountants Registered Auditor 1 Harbourmaster Place IFSC Dublin 1

4 March 2011

Consolidated Statement of Financial Position

as at 31 December 2010

	Notes	2010	2009
		€m	€m
Assets
Cash and balances with central banks	5	312	218
Items in course of collection	5	124	108
Debt securities	6, 10	12,098	15,780
Assets classified as held for sale	21	2,089	-
Equity shares and units in unit trusts	7	13,777	13,510
Derivative assets	8	1,255	1,169
Loans and receivables to customers	9, 10	36,581	38,592
Loans and receivables to banks	11	3,565	4,925
Investment properties	12	1,825	1,769
Reinsurance assets	36	2,011	1,979
Prepayments and accrued income		385	294
Interest in associated undertaking	13	124	122
Property and equipment	14	200	238
Shareholder value of in-force business	15	699	730
Intangible assets	16	30	42
Goodwill	17	70	75
Deferred tax assets	31	112	-
Other assets	18	150	129
Deferred acquisition costs	19	188	245
Retirement benefit assets	20	104	96
Total assets		75,699	80,021

Liabilities
Deposits by banks (including central banks)*	22	17,146	18,713
Liabilities classified as held for sale	21	2,041	-
Customer accounts	23	13,382	14,562
Debt securities in issue	24	10,034	13,262
Derivative liabilities	8	503	665
Investment contract liabilities	25	24,067	24,032
Insurance contract liabilities	26	4,238	4,034
Outstanding insurance and investment claims		108	115
Accruals		158	220
Other liabilities	28	321	306
Provisions	29	17	63
Current tax liabilities		9	9
Deferred front end fees	30	48	102
Deferred tax liabilities	31	172	129
Retirement benefit liabilities	20	153	159
Subordinated liabilities	32	1,686	1,644
Total liabilities		74,083	78,015

Equity
Share capital	33, 34	89	89
Share premium	33	364	135
Other reserves	33	(1,048)	87
Retained earnings	33	2,211	1,695
Total equity		1,616	2,006

Total liabilities and equity		75,699	80,021

*Deposits by banks including central banks includes €13.8bln (2009: €9.8bln) of ECB funding.

On behalf of the Board

David McCarthy Ciarán Long Group Finance Director Company Secretary

Gillian Bowler Kevin Murphy Chairman Group Chief Executive

Consolidated Income Statement

for the year ended 31 December 2010

		2010	2009
	Notes	€m	€m
Interest receivable	41	1,131	1,281
Interest payable	41	(822)	(918)
		309	363
Fees and commission income	42	79	77
Fees and commission expenses	42	(126)	(157)
Trading income	43	(3)	(4)
Premiums on insurance contracts	44	719	709
Reinsurers' share of premiums on insurance contracts		(124)	(116)
Investment return	45	2,152	2,585
Fees from investment contracts and fund management		219	225
Change in shareholder value of in-force business	15	(31)	(57)
Total operating income		3,194	3,625
Claims on insurance contracts	46	(473)	(489)
Reinsurers' share of claims on insurance contracts		169	160
Change in insurance contract liabilities	26	(204)	(27)
Change in reinsurers' share of insurance contract liabilities	26	72	(103)
Change in investment contract liabilities, net of reinsurance	25	(1,943)	(2,484)
Investment expenses	47	(49)	(35)
Administrative expenses	48	(464)	(518)
Depreciation and amortisation
Property and equipment	14,48	(27)	(30)
Intangible assets	16,48	(16)	(20)
Impairment
Property and equipment	14	(3)	(9)
Intangible assets	16	-	(2)
Assets and liabilities classified as held for sale	21	(1)	-
Loss on the disposal of property and equipment	14	(1)	-
Total operating expenses		(2,940)	(3,557)
Operating profit before provisions		254	68
Provisions for impairment
Loans and receivables	10	(420)	(376)
		(420)	(376)
Operating loss		(166)	(308)

Share of profits / (losses) of associated undertaking	13	9	(2)
Loss before taxation		(157)	(310)
Taxation	51	29	(3)
Loss for the year		(128)	(313)
Attributable to:
Owners of the parent		(128)	(313)
		(128)	(313)

On behalf of the Board

Gillian Bowler Kevin Murphy

David McCarthy Ciarán Long Group Finance Director Company Secretary

Chairman Group Chief Executive

Consolidated Statement of Comprehensive Income

for the year ended 31 December 2010

		2010	2009
	Notes	€m	€m
Loss for the year		(128)	(313)
Other comprehensive income
Revaluation of owner occupied property	51	(14)	(97)
Currency translation adjustment reserve
Gains on hedged investment in foreign operations		2	2
Gains on unhedged investment in foreign operations		-	1
Losses on hedging of investment in foreign operations		(2)	(2)
	51	-	1
Change in value of available-for-sale financial assets
Change in fair value of AFS financial assets	6	(320)	42
Impairment of AFS securities recycled to income statement	10	9	-
		(311)	42
Amortisation of AFS securities reclassified to loans and receivables	6, 51	15	15
Other comprehensive income		(310)	(39)
Deferred tax on other comprehensive income	51	43	1
Other comprehensive income, net of tax		(267)	(38)
Total comprehensive income for the year		(395)	(351)
Attributable to:
Owners of the parent		(395)	(351)
Total comprehensive income for the year		(395)	(351)

Earnings per share		Cent	Cent
Basic	52	(47.4)	(116.8)
Diluted	52	(47.4)	(116.8)

On behalf of the Board

Gillian Bowler Kevin Murphy

David McCarthy Ciarán Long

Chairman Group Chief Executive

Group Finance Director Company Secretary

Consolidated Statement of Changes in Equity

for the year ended 31 December 2010 2010

Share capital* Share premium* Revaluation reserveAvailablefor-sale reserveCurrency translation adjustment reserveShare based payments reserveOther capital reservesOwn share reserveDistributable reserveNondistributable reserve Total €m €m €m €m €m €m €m €m €m €m €m As at 1 January 89 135 68 5 (2) 9 7 (66) 703 1,058 2,006 Transactions with owners, recorded directly in equity - - - - - - - - - - - Impact of Scheme of Arrangement - - - - - - - - - - - Cancellation of share capital and share premium (89) (135) - - - (9) 233 - - - - Issue of share capital of ILPGH 89 998 - - - 9 (1,096) - - - - Pre-acquisition reserves of subsidiaries - - - - - - - - (703) 703 - Court authorised movements in reserves - (634) - - - - - - 634 - - As at 15 January 89 364 68 5 (2) 9 (856) (66) 634 1,761 2,006 Loss for the year - - - - - - - - (128) - (128) Other comprehensive income Revaluation losses (net of tax) - - (9) - - - - - - - (9) Change in value of available for sale financial assets (net of tax) - - - (279) - - - - - - (279) Impairment of AFS securities recycled to income statement (net of tax) - - - 8 - - - - - - 8 Amortisation of AFS securities reclassified to loans and receivables (net of tax) - - - 13 - - - - - - 13 Total other comprehensive income - - (9) (258) - - - - - - (267) Total comprehensive income for the year ended 31 December - - (9) (258) - - - - (128) - (395) Transactions with owners, recorded directly in equity Contributions by and distributions to ownersRevaluation losses realised on sale (net of tax) - - (2) - - - - - 2 - - Revaluation on transfer of held for sale assets - - (1) - - - - - 1 - - Equity-settled transactions - - - - - 1 - - - - 1 Release of share option / LTIP reserve - - - - - (3) - - 3 - - Change in own shares at cost - - - - - - - 4 - - 4 Realised loss on own shares - - - - - - - 11 (11) - - Transfer between reserves - - - - - - - - (59) 59 -

Attributable to owners of the parent

Balance at 31 December 89 364 56 (253) (2) 7 (856) (51) 442 1,820 1,616

Consolidated Statement of Changes in Equity

for the year ended 31 December 2010 2009

				Av aila ble	Cu rre ncy nsl atio tra n	Sh -ba sed are	Oth er			No n	Tot al lud ing exc non	No n	Tot al inc lud ing non
	Sh are	Sh are	Re val ion uat	for le -sa	adj ust nt me	nts pay me	ital cap	Ow har n s e	Dis trib ble uta	dis trib ble uta	llin tro con g	llin tro con g	llin tro con g
	ital * cap	miu m* pre	res erv e	res erv e	res erv e	res erv e	res erv es	res erv e	res erv e	res erv e	inte t res	inte t res	inte t res
	€m	€m	€m	€m	€m	€m	€m	€m	€m	€m	€m	€m	€m
As 1 J at anu ary	89	135	157	( 45 )	( 3)	8	7	( 86)	92 0	1, 165	2, 34 7	1	8 2, 34
Los s fo r th e y ear	-	-	-	-	-	-	-	-	( 3) 31	-	( 3) 31	-	3) ( 31
Oth e ( of ) hen siv e in net tax er c om pre com
Re val ion los (n f ta x) uat et o ses	-	-	( 89 )	-	-	-	-	-	-	-	( 89 )	-	) ( 89
Ch e in nsl atio dju tra stm ent ang cu rre ncy n a
e ( of ) net tax res erv	-	-	-	-	1	-	-	-	-	-	1	-	1
Ch e in lue of ilab le-f sal e fi cia l ang va ava or- nan
(n f ta x) ets et o ass	-	-	-	37	-	-	-	-	-	-	37	-	37
Am isa tion of AF S s ritie cla ssi fied ort to ecu s re
(n f ta x) loa and cei vab les et o ns re	-	-	-	13	-	-	-	-	-	-	13	-	13
Tot al o the reh ive inc r co mp ens om e Tot al c hen siv e in e fo r th om com ear	-	-	( 89 )	50	1	-	-	-	-	-	( 38 )	-	( 38 )
pre e y end ed 31 De ber cem	-	-	( ) 89	50	1	-	-	-	( 3) 31	-	( 1) 35	-	( 1) 35
Tra ctio wit h o ded dir ect ly in nsa ns wn ers , re cor ity equ
Co ntri but ion s b nd dis trib utio to o y a ns wn ers
Eq uity ttle d tr ion act -se ans s	-	-	-	-	-	1	-	-	-	-	1	-	1
Ch e in har at c ost ang ow n s es	-	-	-	-	-	-	-	9	-	-	9	-	9
Re alis ed los sh s o n o wn are s	-	-	-	-	-	-	-	11	96	( ) 107	-	-	-
Ac isit ion of ntro llin inte t qu non -co g res	-	-	-	-	-	-	-	-	-	-	-	( 1)	1) (
Ba lan at 3 1 D mb ce ece er	89	135	68	5	( 2)	9	7	( ) 66	70 3	1, 05 8	2, 00 6	-	2, 00 6

Attributable to owners of the parent

* Share capital and share premium for the year ended 31 December 2010 relate to Irish Life & Permanent Group Holdings plc while the comparatives relate to Irish Life & Permanent plc.

There were no dividends paid to shareholders of either company for any of the years ended 31 December 2010 or 31 December 2009.

On behalf of the Board

G illi B ler an ow C ha irm an	Ke vin M hy urp Gr Ch ief Ex tive ou p ecu
Da vid M cC hy art	Cia rán Lo ng
Gr Fin Dir ect ou p an ce or	Co Se tar mp any cre y

Consolidated Statement of Cash Flows

for the year ended 31 December 2010

	Notes	2010 €m	2009 €m
Cash flows from operating activities
(Loss) / profit before taxation for the year		(157)	(310)
Adjusted for:
Depreciation, amortisation and impairment of property, equipment and intangibles		47	61
Impairment losses on loans and receivables	10	420	376
Other mortgage related adjustments		40	-
Loss on disposal of property and equipment		1	-
Fair value losses on investment properties	12	90	517
Realised and unrealised (profits) / losses on financial assets excluding
trading assets recognised in investment return Other realised and unrealised (profits) / losses on financial assets		(1,431)	(2,345)
excluding trading assets		180	-
Interest on subordinated liabilities	41	50	57
Equity-settled share-based payment expenses		1	1
Share of results of associated undertaking		(9)	2
Change in investment contract liabilities due to unrealised movements		(105)	(154)
Other provisions including pensions		48	-
Other non-cash items*		11	-
(Increase) / decrease in operating assets
Loans and receivables to banks		(359)	1,224
Loans and receivables to customers		1,677	1,165
Other financial assets		2,425	(5,370)
Investment properties		(145)	(6)
Reinsurance assets		(32)	154
Shareholder value of in-force business		31	57
Other assets		(180)	(122)
Deferred acquisition costs		6	11
Retirement benefit assets		(14)	(7)

Increase / (decrease) in operating liabilities Deposits by banks (including central banks)		(1,887)
Customer accounts		(1,218)	(104) (148)
Debt securities in issue		(3,501)	2,364
Insurance contract liabilities		204	27
Investment contract liabilities		2,118	3,068
Payables related to direct insurance contracts		(6)	1
Deferred front end fees		(7)	(15)
Derivative liabilities		(22)	120
Other liabilities and accruals		(7)	50
Provisions used		(70)	-
Retirement benefit liabilities		(24)	1
Net cash flows from operating activities before tax		(1,825)	675
Tax paid		2	9
Net cash flows from operating activities		(1,823)	684

* Other non-cash movements principally comprise movements in exchange rates and the fair value of available for sale

investments less subordinated debt hedging.

Consolidated Statement of Cash Flows

for the year ended 31 December 2010

		2010	2009
	Notes	€m	€m
Cash flows from investing activities
Purchase of property and equipment		(14)	(14)
Sale of property and equipment		3	2
Purchase of intangible assets		(7)	(9)
Purchase of non-controlling interest in subsidiary undertaking		-	(5)
Dividends received from associated undertaking		7	15
Net cash flows from investing activities		(11)	(11)
Cash flows from financing activities
Interest paid on subordinated liabilities		(49)	(60)
Cash from buyback of debt securities in issue	24	-	(57)
Receipt of VIF loan		100	-
Payment of up-front interest on VIF loan		(10)	-
Net cash flows from financing activities		41	(117)
(Decrease) / increase in cash and cash equivalents		(1,793)	556
Analysis of changes in cash and cash equivalents
Cash and cash equivalents as at 1 January		2,836	2,280
Net cash flow		(1,793)	556
Effect of exchange translation adjustments		341	-
Cash and cash equivalents as at 31 December**	5	1,384	2,836

** The net cash flow excludes restricted cash as per Note 5, Cash and Cash Equivalents.

Company Statement of Financial Position

as at 31 December 2010

		2010	2009
	Notes	€m	€m
Assets
Interest in subsidiary undertakings	13	1,085	-
Total assets		1,085	-
Liabilities
Current tax liabilities		-	-
Total liabilities		-	-
Equity
Share capital	33,34	89	-
Share premium	33	364	-
Other reserves		7
Retained earnings	33	625	-
Total equity		1,085	-
Total liabilities and equity		1,085	-

On behalf of the Board

Gillian Bowler Kevin Murphy

Chairman Group Chief Executive

David McCarthy Ciarán Long Group Finance Director Company Secretary

Company Statement of Comprehensive Income

for the year ended 31 December 2010

			From 24 August to
		2010	31/12/2009
	Notes	€m	€m
Profit / (loss) for the year		-	-
Other comprehensive income			-
Deferred tax on other comprehensive income		-	-
Other comprehensive income, net of tax		-	-
Total comprehensive income for the year		-	-

On behalf of the Board

Gillian Bowler Kevin Murphy Chairman Group Chief Executive

David McCarthy Ciarán Long Group Finance Director Company Secretary

Company Statement of Changes in Equity

2010

			Sh ba sed are			No n
	Sh ita are ca p	l S ha mi re pre um	nts pay me res erv e	Ot he r re ser ves	Dis trib ble uta res erv e	dis trib ble uta res erv e	To tal
	€m	€m	€m	€m	€m	€m	€m
As 1 J at an ua ry	-	-	-	-	-	-	-
Tra cti ith rde d d ire ctly in uit nsa on s w ow ne rs, re co eq y Imp f S ch f A t (n 3) t o ote ac em e o rra ng em en
1 Ca llat ion of sha nce res	-	-	-	-	-	-	-
2 Inv est nt i n IL &P lc me p	89	998	8	2, 489	-	-	3, 584
3 of d Re niti istr ibu tab le r cog on ese rve s	-	( 634 )	-	-	634	-	-
4 Imp airm ent of inv est nt i n IL &P lc me p	-	-	1	( 2, 489 )	( 9)	-	( 2, 497 )
As 15 Ja at nu ary	89	364	9	-	625	-	1, 087
Los s fo r th e y ear	-	-	-	-	-	-	-
Oth reh siv e i (n of ) et tax er co mp en nco me	-	-	-	-	-	-
To tal ot he he ive in r c om pre ns co me	-	-	-	-	-	-	-
siv e i fo To tal reh r th nd ed 31 De be co mp en nco me e y ea r e cem r	-	-	-	-	-	-	-
Co ibu tio ist rib uti ntr by d d s t ns an on o o wn ers
Iss of s har ital ue e c ap	-	-		-	-	-	-
Eq uity ttle d t tion -se ran sac s	-	-	1	-	-	-	1
Re lea of s har e-b d p ent se ase aym re ser ve	-	-	( 3)	-	-	-	( 3)
Ba lan at 31 De be ce cem r	89	364	7	-	625	-	1, 085

1This is in respect of the purchase and subsequent cancellation of 119,031 ordinary shares, the value of which amounted to €0.038m.

2The recognition of the issue of shares and share options in return for the investment in Irish Life & Permanent plc on 15 January 2010. The investment of €3,584,366,000 represents the book value of Irish Life & Permanent plc reserves as at 31 December 2008.

3For the company to have the ability to make distributions to the company's new shareholders who were previously shareholders of Irish Life & Permanent plc, the High Court approved an application to create a distributable reserve (SPA reduction reserve) through a reduction in the share premium account.

4Following the initial recognition of the company's investment in Irish Life & Permanent plc, an impairment occurred to recognise the investment at its recoverable amount, the market value for Irish Life & Permanent plc on 15 January 2010.

Company Statement of Changes in Equity

From date of incorporation 24 August 2009 to 31 December 2009

				Dis trib uta ble No	n d istr ibu tab le
	Sh ital are ca p	Sh ium are pr em	Oth er res erv es	res erv e	res erv e	To tal
	€m	€m	€m	€m	€m	€m
As 24 Au at t gus	-	-	-	-	-	-
Pro fit / ( los s) for th erio d e p	-	-	-	-	-	-
Oth hen siv e in e ( of ) net tax er com pre com	-	-	-	-	-	-
To tal oth hen siv e in er com pre com e	-	-	-	-	-	-
To tal hen siv e in e fo r th ded 31 De ber com pre com e y ear en cem	-	-	-	-	-	-
Tra ctio wit h o ded dir ly in e ity ect nsa ns wn ers , re cor qu
Co ibu tion s b nd dis trib utio ntr to o y a ns wn ers
of s Iss har ital ue e c ap	-	-	-	-	-	-
Ba lan at 3 1 D mb ce ece er	-	-	-	-	-	-

On behalf of the Board

Gillian BowlerChairman

David McCarthy Ciarán Long Group Finance Director Company Secretary

Kevin Murphy Group Chief Executive

Company Statement of Cash Flows

for the year ended 31 December 2010

			From 24 August to
		2010	31/12/2009*
	Notes	€m	€m
Profit before taxation for the period		-	-
(Increase) / decrease in operating assets
Other assets		-	-
Net cash flows from operating activities before tax		-	-
Tax paid		-	-
Net cash flows from operating activities		-	-
Cash flows from investing activities		-	-
Net cash flows from investing activities		-	-
Cash flows from financing activities
Issue of ordinary share capital		-	-
Net cash flows from financing activities			-
Increase in cash and cash equivalents			-
Analysis of changes in cash and cash equivalents
Cash and cash equivalents as at beginning of period		-	-
Net cash flow		-	-
Cash and cash equivalents at 31 December		-	-

* Refer to Note 3, Acquisition of Irish Life & Permanent plc by Irish Life & Permanent Group Holdings plc for details on the incorporation of Irish Life & Permanent Group Holdings plc.

1. Basis of preparation and significant accounting policies
1. Critical accounting judgements and estimates
1. Acquisition of Irish Life & Permanent plc by Irish Life & Permanent Group Holdings plc
1. Segmental information
1. Cash and cash equivalents
1. Debt securities
1. Equity shares and units in unit trusts
1. Derivative instruments
1. Loans and receivables to customers
1. Provision for impairment
1. Loans and receivables to banks
1. Investment properties
1. Interest in subsidiaries and associated undertaking
1. Property and equipment
1. Shareholder value of in-force business
1. Intangible assets
1. Goodwill
1. Other assets
1. Deferred acquisition costs
1. Retirement benefit obligations
1. Assets and liabilities classified as held for sale
1. Deposits by banks (including central banks)
1. Customer accounts
1. Debt securities in issue
1. Investment contract liabilities
1. Life assurance contracts including life insurance contracts with discretionary participation features (DPF)
1. Financial options and guarantees
1. Other liabilities
1. Provisions
1. Deferred front end fees
1. Deferred taxation
1. Subordinated liabilities
1. Shareholders' equity
1. Authorised and issued share capital
1. Analysis of equity and capital
1. Financial risk management
1. Fair value of financial instruments
1. Measurement basis of financial assets and liabilities
1. Current / non-current assets and liabilities
1. Assets held in unit-linked funds
1. Net interest income
1. Net fees and commission expenses
1. Trading income
1. Premiums on insurance contracts
1. Investment return
1. Claims on insurance contracts
1. Investment expenses
1. Administrative and other expenses
1. Employment costs
1. Share-based payments
1. Taxation
1. Earnings per share
1. Commitments and contingencies
1. Principal subsidiaries and associated undertakings
1. Related parties
1. Reporting currency and exchange rates
1. Events after reporting period

Introduction

Irish Life & Permanent Group Holdings plc is a parent company domiciled in Ireland. The consolidated financial statements for the year ended 31 December 2010 consolidate the individual financial statements ("the financial statements") of the company and its subsidiaries (together referred to as "the group") and show the group's interest in associates using the equity method of accounting.

Permanent plc. On 15 January 2010 Irish Life & Permanent plc was acquired by IL&PGH. As a result, Irish Life & Permanent plc is now a 100% subsidiary of Irish Life & Permanent Group Holdings plc. Further details of this acquisition are disclosed in Note 3, Acquisition of Irish Life & Permanent plc by Irish Life & Permanent Group Holdings plc. group holding company. At 31 December 2009, the company had no subsidiaries and was not the group company of Irish Life & Irish Life & Permanent Group Holdings plc ("IL&PGH") was incorporated on 24 August 2009. The company was established as a

The individual and consolidated financial statements of the company were authorised for issue by the directors on 4 March

below. The accounting policies applied in the preparation of the financial statements for the year ended 31 December 2010 are set out

Basis of preparation

As required by European Union (EU) law from 1 January 2005, the consolidated financial statements have been prepared in accordance with International Financial Accounting Standards ("IFRSs") as adopted by the EU. The individual financial statements of the company ("company financial statements") have been prepared in accordance with IFRSs as adopted by the EU and as applied in accordance with the Companies Acts 1963 to 2009, which permits a company that publishes its company and consolidated financial statements together to take advantage of the exemption in Section 148(8) of the Companies Act 1963 from presenting to its members its company income statement and related notes.

for 2009 with the exception of amendments to standards applied in the current reporting period as detailed within this note. The 2010 IFRS financial information has been prepared on a consistent basis with the annual report and financial statements

the phased implementation of IFRS for insurance business, the group believes that shareholders will continue to place IFRS 4 brings into force phase I of the International Accounting Standard Board's ("IASB") insurance accounting project. In view of considerable reliance on embedded value ("EV") information relating to the life assurance business. The statutory financial information includes insurance contracts written in the life assurance business based on embedded value earnings calculated using the EEV principles developed by the European Chief Financial Officers' ("CFO") Forum. The EV basis supplementary information section extends these principles to investment contracts written in the life assurance business.

Going concern

The directors, having regard to these uncertainties and the terms of the EU/IMF memorandum of understanding (which indicates that the Irish Authorities will ensure that the Irish Life & Permanent Group Holdings plc is capitalised to a level of 12% core tier1 capital by end May 2011) are satisfied that it continues to be appropriate to prepare the financial statements of the group on a going concern basis as:

that it will continue to support the Irish financial system given its importance to the continued functioning of the Irish economy generally. - the Government has acknowledged the group's systemic importance and the actions of the Government to date indicate
the group's access to liquidity and funding in particular the availability of Eurosystem funding and Central Bank liquidity facilities will enable it to meet its immediate and estimated funding requirements for the coming year.
the Government has indicated that it will ensure the group is capitalised to a level of 12% tier1 capital if required.
it is expected that the group will continue to meet its current regulatory capital requirements (including the additional capital requirements identified by the Central Bank in 2010) over the relevant period.

The continued deterioration of the Irish economy throughout 2010 has significantly and adversely affected the group's financial condition and performance and presents significant risks and challenges for the group in the years ahead. Given the current environment in Ireland the group is also increasingly exposed to potential changes in government policy in relation to the economy and the financial sector.Property prices remain weak and have impacted the group bad debt provisions. The group has also experienced adverse persistency in its life and pensions products impacting the financial performance of the life company.

1. Basis of preparation and significant accounting policies (continued)

The downgrading of the group and sovereign credit ratings, the withdrawal of the Irish Government from the funding markets, the EU/IMF Programme of Financial Support for Ireland and the consequent withdrawal of funds from Irish banks have affected the group's funding plans in 2010. There is a significant ongoing liquidity challenge for the group and for the Irish banking system generally. These challenges have given rise to breaches of regulatory liquidity requirements in the later part of 2010 and ongoing breaches in 2011. The downgrade in credit ratings and the risk of a further sovereign or group downgrade has limited the group's access to capital markets; as a result the group has increased its recourse to Eurosystem financing facilities. At 31 December 2010, the group had €13.8bn of collateralised funding from the European Central Bank. In 2011 the group used collateral to access special liquidity facilities from the Central Bank of Ireland. The group expects to have sufficient collateral to enable it to access these facilities to meet its immediate and estimated funding requirements for the coming year.

The group is participating in the Central Bank's latest Prudential Capital Assessment Review (PCAR) and Prudential Liquidity Assessment Review (PLAR), the results of which are expected at the end of March. As a result there is a significant uncertainty as to the outcome and any additional capital or liquidity requirements that may arise.

The Credit Institutions (Stabilisation) Act 2010 was passed in the Irish law on 21 December 2010. The Act provides the legislative basis for the reorganisation and restructuring of the Irish Banking system agreed in the joint EU/IMF programme for Ireland. The Act applies to banks which have received financial support from the State, Building Societies and Credit Unions. The group by way of the Government Guarantee has received such support. The Act provides broad powers to the Minister for Finance (in consultation with the Governor of the Central Bank of Ireland) to act on financial stability grounds to effect the restructuring action and recapitalisation measures envisaged in the programme. This allows the Minister to take the actions required to bring about a domestic retail bank system that is proportionate to and focused on the Irish economy.

The Board's assessment of the appropriateness of preparing the financial statements on the going concern basis has considered the group's business and funding plans taking into account:

the period over which the Irish economy is expected to recover from the current crisis,
the implementation of joint EU/IMF programme for Ireland,
the group's schedule of long-term debt repayments,
the group's ability to continue to access liquidity and funding, in particular from the Eurosystem funding and the Irish Central Bank liquidity facilities
the ability of the group to raise additional required capital in the financial markets or failing that from the Irish Authorities to meet its required regulatory capital ratios.
the ability of the group to dispose of assets and/or increase its deposit base to meet the PLAR targets set by the Central Bank of Ireland

The IFRSs adopted by the EU applied by the company and group in the preparation of these consolidated financial statements are those that were effective for accounting periods ending on or before 31 December 2010.

Standards and interpretations which are effective for annual periods beginning on or after 1 July 2009 and have been adopted for the first time in the current reporting period are detailed below:

Standards and interpretations effective for annual periods beginning on or after 1 July 2009
Title	Impact on company and consolidated financial statements
IAS 1: Presentation of Financial Statements	The amendments to this standard arise as a consequence of the revisions
(Revised)	introduced in IFRS 3: Revised - Business Combinations. These amendments did
	not have a material impact on the consolidated financial statements of the group.
IFRS 3: Revised - Business Combinations	The revisions to this standard addresses: partial and step acquisitions, costs
	associated with acquisitions, contingent consideration (measurement and
	recognition) and transactions with non-controlling interests. These amendments
	did not have a material impact on the consolidated financial statements of the
	group.
IAS 27: Consolidated and Separate	The amendments to this standard arise as a consequence of the revisions
Financial Statements (Amendment)	introduced in IFRS 3: Revised-Business Combinations. These amendments did
	not have a material impact on the consolidated financial statements of the group.
IAS 28: Investments in Associates	The amendments to this standard arise as a consequence of the revisions
(Amendment)	introduced in IFRS 3: Revised-Business Combinations. These amendments did
	not have a material impact on the consolidated financial statements of the group.
IAS 31: Interests in Joint Ventures	The amendments to this standard arise as a consequence of the revisions
(Amendment)	introduced in IFRS 3: Revised-Business Combinations. These amendments did
	not have a material impact on the consolidated financial statements of the group.
IAS 38: Intangible Assets (Amendment)	The amendments to this standard arise as a consequence of the revisions
	introduced in IFRS 3: Revised-Business Combinations. These amendments did
	not have a material impact on the consolidated financial statements of the group.
IAS 39: Financial Instruments: Recognition	This amendment includes guidance on how existing principles on hedge
and Measurement-Eligible Hedged Items	accounting should be applied. This amendment did not have a material impact on
(Amendment)	the consolidated financial statements of the group.
IFRIC 17: Distributions of Non-cash Assets	This interpretation advises on the appropriate accounting treatment to be applied
to Owners	when an entity distributes assets other than cash dividends to its shareholders.
	This IFRIC did not have a material impact on the consolidated financial statements
	of the group.

	Standards and interpretations effective for annual periods beginning on or after 1 January 2010
Title	Impact on company and consolidated financial statements
IFRS 2: Share-based Payment (Amendment)	The amendments incorporate 'IFRIC 8: Scope of IFRS 2' and 'IFRIC 11: IFRS-Group and treasury share transactions' and expand on the guidance included in IFRIC 11 to address the classification of group arrangements which were not previously covered by that interpretation. These amendments did not have a material impact on the consolidated financial statements of the group.
IFRS 5: Non-current Assets Held for Sale and Discontinued Operations (Amendment)	This amendment clarifies that IFRS 5 specifies the disclosures required in respect of non-current assets (or disposal group) classified as held for sale and discontinued operations. This amendment did not have a material impact on the consolidated financial statements of the group.
IAS 1: Presentation of Financial Statements (Revised)	This amendment clarifies that the potential settlement of a liability by the issue of equity will not affect its classification as current or non-current. This allows a liability to be classified as non-current (provided the entity has an unconditional right to defer settlement by transfer of cash or other assets for at least 12 months following the accounting period). This amendment did not have a material impact on the consolidated financial statements of the group.
IAS 7: Statement of Cash Flows (Amendment)	The amendments specify that only expenditures that result in a recognised asset in the statement of financial position can be classified as investing activities in the statement of cash flows. This amendment did not have a material impact on the consolidated financial statements of the group.
IAS 17: Leases (Amendment)	This amendment provides specific guidance on the classification of leases of land to make it consistent with general guidance on leases. In accordance with the general principles of IAS 17, leases should be classified as operating or finance leases. This amendment did not have a material impact on the consolidated financial statements of the group.
IAS 36: Impairment of Assets (Amendment)	This amendment clarifies that the largest cash generating unit (or group of units) to which goodwill should be allocated for impairment testing purposes is an operating segment as defined by IFRS 8: Operating segments (paragraph 5) before the aggregation of operating segments with similar economic characteristics allowed by paragraph 12 of IFRS 8. This amendment did not have a material impact on the consolidated financial statements of the group.

Standards and interpretations effective for annual periods beginning on or after 1 January 2010 (continued)
Title	Impact on company and consolidated financial statements
IAS 39: Financial Instruments: Recognition	This amendment clarifies that pre-payment options, the exercise price which
and Measurement (Amendment)	compensates the lender for loss of interest by reducing the economic loss from
	reinvestment risk, should be considered closely related to the host debt contract.
	This amendment did not have a material impact on the consolidated financial
	statements of the group.
IAS 39: Financial Instruments: Recognition	This amendment clarifies when to recognise a gain or loss on hedge instruments
and Measurement (Amendment)	as a reclassification adjustment in a cash flow hedge of a forced transaction that
	results subsequently in the recognition of a financial instrument. This amendment
	did not have a material impact on the consolidated financial statements of the
	group.
IAS 39: Financial Instruments: Recognition	This is an amendment to the scope exemption in IAS 39 to clarify that (a) it only
and Measurement (Amendment)	applies to binding (forward) contracts between an acquirer and a vendor in a
	business combination to buy an acquiree at a future date; (b) the term of the forward
	contract should not exceed a reasonable period normally necessary to obtain any
	acquired approvals and to complete the transaction; and (c) the exemption should
	not be applied to option contracts that on exercise will result in control of an entity,
	nor by analogy to investments in associates and similar transactions. This
	amendment did not have a material impact on the consolidated financial
	statements of the group.

The following amendment to IAS 24 'Related Party Disclosures' is not effective until 1 January 2011 but has been in part early adopted by the group in the current reporting year as permitted by the standard:

Title	Impact on company and consolidated financial statements
IAS 24: Related Party Disclosures	The definition of related party has been clarified to simplify the identification of
	related party relationships, particularly in relation to significant influence and joint
	control. A partial exemption from the disclosures has been included for the
	government and government-related entities. For these entities the general
	disclosures requirements of IAS 24 will not apply. Instead, alternative disclosures
	will be included. The group has elected to early adopt the partial exemption for the
	government and government-related entities in these consolidated financial
	statements.

The following table provides a brief outline of the likely impact on future financial statements of amendments to IFRSs which have been issued by the IASB and endorsed by the EU but are not yet effective and have not been early adopted in these financial statements:

Title	Impact on company and consolidated financial statements
IAS 32: Financial Instruments: Presentation	This amendment allows rights, options or warrants to acquire a fixed number of the
(Amendment)	entity's own equity instruments for a fixed amount of any currency to be
	classified as equity instruments provided the entity offers the rights, options or warrants pro rata to all of its existing owners of the same class of its own non-derivative equity instruments. This amendment will not have a material impact on the consolidated financial statements of the group.

	Standards and interpretations effective for annual periods beginning on or after 1 July 2010
Title	Impact on company and consolidated financial statements
IFRIC 19: Extinguishing Financial Liabilities	IFRIC 19 clarifies that equity instruments issued to a creditor to extinguish a
with Equity Instruments	financial liability are consideration paid in accordance with IAS 39. This amendment
	will not have a material impact on the consolidated financial statements of the
	group.

	Standards and interpretations effective for annual periods beginning on or after 1 January 2011
Title	Impact on company and consolidated financial statements
IFRS 1: First time Adoption of International	IFRS 1 has been amended to allow first time adopters to utilise the transition
Financial Reporting Standards	provisions in IFRS 7. Normally first time adopters are not permitted to use transition
	provisions. The provisions give relief from providing comparative information in the
	disclosures required by the amendment to IFRS 7 in the first year of application.
	This amendment will not have a material impact on the consolidated financial
	statements of the group.
IFRIC 14: Prepayments of a Minimum	IFRIC 14 provides guidance on assessing the recoverable amount of a net pension
Funding Requirement (Amendment)	asset. The amendment permits an entity to treat the prepayment of a minimum
	funding requirement as an asset. This amendment did not have a material impact
	on the consolidated financial statements of the group.

Comparative amounts

The comparative IFRS financial information for 2009 has been prepared on a consistent basis.

Basis of measurement

cost basis except that the following assets and liabilities are stated at their fair values: derivative financial instruments, trading financial instruments and other financial instruments designated at fair value through profit or loss, certain risks in hedged financial instruments, financial assets classified as available for sale, investment properties and share-based payments on initial recognition. In addition, earnings of the life assurance in-force business are included on an embedded value ("EV") basis. The consolidated and company financial statements are presented in millions of euro. They have been prepared on the historical

(i) Estimates and assumptions

judgements, estimates and assumptions that affect the application of policies and reported amounts of assets, liabilities, income and expenses. The estimates and associated assumptions are based on historical experience and various other factors that are believed to be reasonable under the circumstances and are reflected in the judgements made about the carrying amounts of assets and liabilities that are not objectively verifiable. The preparation of financial statements in conformity with IFRSs, as adopted by the EU, requires management to make

and estimates. where necessary are revised to reflect current conditions. The principal estimates and assumptions made by management relate to insurance liabilities, investment valuations and investment contract liabilities, impairment of loans, interest rates, demographic and other factors. Judgements made by management that have a significant effect on the financial statements and estimates with a significant risk of material adjustment in the next year are discussed in Note 2, Critical accounting judgements Actual results may differ from the estimates made. The estimates and assumptions are reviewed on an ongoing basis and

(ii) Accounting for subsidiaries

Consolidated financial statements

until the date that control ceases. Financial statements of subsidiaries are prepared up to the financial position date. the group has the power, directly or indirectly, to govern the operating and financial policies of an entity in order to gain economic benefits. In assessing control, potential voting rights that are currently exercisable or convertible are taken into account. The financial statements of subsidiaries are included in the consolidated financial statements from the date that control commences Subsidiaries are those entities (including special purpose entities and unit trusts) controlled by the group. Control exists when

Life & Permanent plc by Irish Life & Permanent Group Holdings plc. consolidated income statement from the date of acquisition. Profits or losses of subsidiary undertakings sold or acquired during the period are included in the consolidated results up to the date of disposal or from the date of gaining control. Details of the acquisition of Irish Life & Permanent plc by Irish Life & Permanent Group Holdings plc are disclosed in Note 3, Acquisition of Irish The result of subsidiaries acquired, other than the combination of Irish Permanent plc and Irish Life plc, are included in the

dealt with on consolidation through reserves. In accordance with S149 (5) of the Companies Act 1963, pre-acquisition profits of Irish Life plc are presented in accordance with merger accounting rules in retained earnings. consolidated financial statements using merger accounting rules whereby the assets and liabilities of the acquired entity were included at their previous carrying amounts as if the businesses had always been combined. The merger adjustment, which is the difference between the fair value of the shares issued to effect the merger and the nominal value of the shares acquired, is The combination of the businesses of Irish Life plc and Irish Permanent plc, which occurred in 1999, has been included in the

All significant inter-company transactions and balances are eliminated on consolidation.

non-controlling interest liability is included in investment contract liabilities. The group has a controlling interest in an investment unit trust that is consolidated into the consolidated financial statements. The

Company financial statements

are recorded at their recoverable amount. Investments in subsidiaries are assessed for impairment when dividends are received Investments in subsidiaries are shown at cost in the company financial statements unless they are impaired, in which case they from the subsidiary in excess of the underlying subsidiary profit for that year.

(iii) Interest in associates

Investment in Associates, it is presumed that the group has significant influence where it has between 20% and 50% of the voting rights in the entity. Associates are entities over which the group has significant influence but which it does not control. Consistent with IAS 28

and other movements recognised directly in the equity of the associated undertaking. Goodwill arising on the acquisition of an associate is included in the carrying amount of the investment (net of any accumulated impairments). recorded at cost and increased or decreased each year by the group's share of the post-acquisition profit or loss of the associate Interests in associates are accounted for on consolidation under the equity method. The investment in the associate is initially

(iv) Foreign currencies

statement. the date of the transaction. Monetary and non-monetary assets and liabilities denominated in foreign currency are translated at the exchange rates prevailing at the reporting date. Exchange movements on these are recognised in the income Foreign currency transactions are translated into the functional currency of the entity at the exchange rate prevailing at

follows: The results and financial position of group entities which have a functional currency different from euro are translated into euro as

Assets and liabilities, including goodwill and fair value adjustments, are translated at the rates of exchange ruling at the reporting date;
Income and expenses are translated at the average exchange rates for the period; and
All resulting exchange differences are recognised as a separate component of reserves called the currency translation adjustment reserve.

income statement immediately. On disposal or partial disposal of an overseas subsidiary, the appropriate portion of the separate component of other comprehensive income is included in the gain or loss on disposal. hedges of the net investment in overseas subsidiaries are also taken to a separate component of other comprehensive income to the extent to which the hedge is deemed to be effective. The ineffective portion of any net investment hedge is recognised in the On consolidation, exchange differences arising from the translation of borrowings and currency instruments designated as

(v) Investment properties

Investment Property and with guidance set down by their relevant professional bodies. properties are carried at fair value with changes in fair value included in the income statement within the net investment return. Valuations are undertaken at least annually by external chartered surveyors at open market value in accordance with IAS 40 Investment properties consist of land and buildings which are held for long-term rental yields and capital growth. Investment

(vi) Financial assets

and loss ("FVTPL"), available for sale ("AFS"), held to maturity ("HTM") or loans and receivables. All derivatives are classified as HFT unless they have been designated as hedges. Purchases and sales of financial assets are recognised on the trade date, being the date on which the group commits to purchase or sell the asset. Financial assets are initially recorded at fair value. The group classifies its financial assets on initial recognition as held for trading ("HFT"), designated at fair value through profit transaction costs. The fair value of assets traded on an active market is based on current bid prices. In the absence of current bid prices, the group establishes a fair value using various valuation techniques. These include recent transactions in similar items, discounted cash flow projections, option pricing models and other valuation techniques used by market participants. However, with the exception of assets classified as HFT or FVTPL, the initial fair value includes direct and incremental

transferred substantially all the risks and rewards of ownership. Financial assets are derecognised when the right to receive cash flows from the financial assets has expired or the group has

All assets attributable to life operations are carried at FVTPL to eliminate an inconsistency that would otherwise arise between the valuation of assets and liabilities.

Debt securities

Debt securities may be classified as HFT, FVTPL, AFS or loans and receivables. In 2008, the group disposed of its HTM portfolio. The consequence of this disposal is that the HTM portfolio is tainted for a two-year period.

statement. Debt securities classified as HFT or FVTPL are measured at fair value and transaction costs are taken directly to the income

All debt securities held as part of the group's life assurance operations are classified as FVTPL. Realised and unrealised gains together with income earned on these assets are shown as investment return in the income statement.

Where the group's banking operations hold debt securities as HFT, realised and unrealised gains together with interest are shown as trading income in the income statement.

is subject to a fair value hedge, in which case changes in fair value resulting from the risk being hedged are recorded in net interest income. Income on debt securities classified as AFS is recognised on an effective interest basis and included as interest other than currency translation differences, recognised in a separate reserve within other comprehensive income. Realised gains and losses, impairment losses and foreign exchange movements are reflected in the income statement unless the asset receivable in the income statement. Debt securities classified as AFS, subsequent to initial recognition, are measured at fair value with unrealised gains and losses,

this reclassification is detailed in Note 6, Debt securities. Financial Instruments: Disclosures (October 2008) the group reclassified debt securities from the available-for-sale category to a loans and receivables category. The securities reclassified meet the qualifying criteria per the amendment to the standard and the group has the intention and the ability to hold these financial assets for the foreseeable future or until maturity. The impact of In 2008, in compliance with the amendments to IAS 39 Financial Statements: Recognition and Measurement and IFRS 7

was determined at the date of reclassification. Debt securities classified as loans and receivables are measured at amortised cost, based on an effective interest rate which

Equities and units in unit trusts

as net investment return in the income statement. Dividends are recognised in the income statement when the group's right to receive payment is established. Equities are classified as HFT or FVTPL. Realised and unrealised gains together with dividend income on equities are reported

Loans and receivables

market and that the group has no intention of trading. Loans and receivables, subsequent to initial recognition, are held at amortised cost less allowance for incurred impairment losses unless they are part of a fair value hedge relationship. Income is recognised on an effective interest basis as interest receivable in the income statement. Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted on an active

statement. Where loans and receivables are part of a fair value hedging relationship the accumulated change in the fair value resulting from the hedged risk is recognised together with the movements in the fair value of the related hedging instrument in the income

Cash and cash equivalents

Cash and cash equivalents include liquid investments that are readily convertible to known amounts of cash and which are subject to an insignificant risk of change in value.

(vii) Impairment provisions

individually significant and collectively for assets that are not individually significant. The group assesses impairment of financial assets at each financial position date on a case-by-case basis for assets that are

characteristics and applies a collective methodology based on existing risk conditions or events which have a strong correlation with a tendency to default. Potential impairment is calculated by comparing the present value of the estimated future cash flows (after taking account of the security held) discounted at the effective interest rate applicable to the asset with the carrying value in the statement of financial position. recognition of the asset have had an impact on the estimated future cash flows of the asset. For individual assets this includes changes in the payment status of the counterparty. Collective assessment groups together assets that share similar risk Assets are impaired only if there is objective evidence that the results of one or more events that have occurred after the initial

time using the original effective interest rate. This is reported through interest receivable within the income statement and represents the unwinding of the discount. A write-off is made when all or part of a loan is deemed uncollectible or forgiven. Writeoffs are charged against previously established provisions for impairment or directly to the income statement. Where loans are impaired, the written down value of the impaired loan is compounded back to the net realisable balance over

(viii) Derivative instruments

forward rate contracts, currency and interest rate swaps, futures contracts, forward rate agreements and options. All derivatives are classified as HFT unless they have been designated as hedges. Derivative instruments are used in both the group's banking and life assurance operations and primarily comprise currency

All derivatives are held on the statement of financial position at fair value. Fair values are obtained from quoted prices prevailing in active markets, where available. Otherwise, valuation techniques including discounted cash flow analysis and option pricing models are used to value the instruments.

Gains and losses arising on derivatives held by life operations, which are measured at fair value, are recognised in investment return.

Gains and losses arising from derivatives held for trading are recognised in trading income.

drawn up at inception of the hedge specifying the hedging strategy, the component transactions and the methodology that will be used to measure effectiveness. Monitoring of hedge effectiveness is carried out on an on going basis. Derivatives are used to hedge the group's banking operations. Where derivatives are used as hedges, formal documentation is

income and investment return. All existing hedge relationships are fair value hedges. Movements in the fair value of derivative hedge positions together with the fair value movement in the hedged risk of the underlying financial instrument are reflected in the income statement under net interest

(ix) Leases

Lessee

Rentals payable under operating leases are charged to the income statement on a straight-line basis over the lease period.

Assets held as finance leases are capitalised and included in property and equipment initially at fair value and subsequently at depreciated cost.

Lessor

Assets leased to customers that transfer substantially all the risks and rewards incidental to ownership to the customer are classified as finance leases. They are recorded at an amount equal to the net investment in the lease, less any provisions for impaired rentals, within loans and receivables to customers. Leasing income is credited to interest income on an actuarial beforetax net investment basis to give a constant periodic rate of return.

Assets leased to customers are classified as operating leases if the lease agreements do not transfer substantially all the risks and rewards of ownership. The leased assets are included as investment properties. Lease income is recognised on a straightline basis over the term of the lease.

(x) Securitised assets

assets are held on the group statement of financial position and a liability recognised for the proceeds of the funding The group has entered into funding arrangements to finance specific loans and receivables to customers. All such financial transactions.

(xi) Financial liabilities

Financial liabilities include deposits, debt securities issued, customer accounts and subordinated debt issued.

Financial liabilities are carried at amortised cost calculated on an effective interest basis.

Financial liabilities that are part of a hedging relationship are carried at amortised cost adjusted for changes in the fair value of the hedged risk. The change in the fair value of the hedged risk is recognised together with the movement in the fair value of the derivative positions hedging the liability in the income statement. Interest expense on an effective interest basis is recorded in the income statement as interest payable.

(xii) Product classifications

insurance contracts or investment contracts at inception of the contract. Insurance contracts are contracts which transfer significant In accordance with IFRS 4 Insurance Contracts, the group's life assurance products are classified for accounting purposes as either insurance risk. Contracts which do not transfer significant insurance risk are investment contracts. The group has a small closed book of insurance contracts which have discretionary participation features, all of these contracts also have significant insurance risk and are therefore classified as insurance contracts.

(xiii) Insurance contract liabilities

upon the advice of the appointed actuaries, allocate a proportion of the statutory surplus to policyholders through an appropriation of declared bonuses. been allocated to policyholders as well as an assessment of the cost of any future options and guarantees contained within the insurance contracts measured on a market consistent basis. Changes in the liabilities are included in the income statement. Statutory surpluses are determined by the appointed actuary following the annual investigations. The Board of Directors, acting Insurance contract liabilities are determined by the appointed actuaries. The liabilities include statutory surpluses which have not

(xiv) Liability adequacy tests

statement. is sufficient to cover estimated future cash flows. When performing the liability adequacy tests, the group discounts all contractual cash flows and compares this amount to the carrying value of the liability. Any deficiency is immediately charged to the income The group performs liability adequacy tests on its insurance contract liabilities to ensure that the carrying amount of the liabilities

(xv) Investment contract liabilities

Investment contracts are measured at FVTPL to eliminate an inconsistency that would otherwise arise between the valuation of assets and liabilities. Unit-linked liabilities are valued with reference to the value of the underlying net asset value of the group's unitised investment funds at the financial position date. Non-linked investment contracts are measured based on the value of the liability to the policyholder at the financial position date.

contract liabilities. Deposits and withdrawals are accounted for directly in the statement of financial position as movements in the investment

(xvi) Reinsurance

reinsurance premiums are accounted for in the same period as related premiums for the business being reinsured. The group cedes insurance premiums and risk in the normal course of business in order to limit the potential for loss. Outward Reinsurance assets include amounts due from reinsurance companies in respect of paid and unpaid losses and ceded future life and investment policy benefits. Amounts recoverable from reinsurers are estimated in a manner consistent with the claim liability associated with the reinsured policy. Reinsurance is recorded gross in the consolidated statement of financial position.

(xvii) Property and equipment

depreciation and impairment losses. Depreciation is calculated to write off the costs of such assets to their residual value over their estimated useful lives, which are assessed annually by the directors. Leasehold premises with initial lease terms of less than fifty years and all other equipment are stated at cost less accumulated

Freehold premises and leasehold premises with initial lease terms in excess of fifty years are revalued at least annually by external valuers. The resulting increase in value is transferred to a revaluation reserve. The revalued premises, excluding the land element, are depreciated to their residual values over their estimated useful lives, which are assessed annually by the directors.

Subsequent costs are included in the asset's carrying amount, only when it is probable that increased future economic benefits associated with the item will flow to the group and the cost of the item can be measured reliably.

The estimated useful lives are as follows: The depreciation charge for the asset is then adjusted to reflect the asset's revised carrying amount. carrying amount of the asset is reduced to its recoverable amount and the impairment loss recognised in the income statement. Property and equipment is assessed for impairment where there is an indication of impairment. Where impairment exists, the

Motor vehicles Office equipment Computer hardware Freehold buildings Leasehold buildings 50 years 5 - 15 years 3 - 10 years 5 years 50 years or term of lease if less than 50 years

(xviii) Goodwill

The excess of the cost of a business combination over the interest in the net fair value of the identifiable assets, liabilities and contingent liabilities at the date of acquisition, of subsidiary undertakings, associated undertakings and other businesses, arising is capitalised as goodwill.

off against reserves in the year of acquisition. Goodwill arising on the acquisition of shares in subsidiary and associated undertakings prior to 31 December 1996 was written

goodwill at 1 January 2004 is recognised on the statement of financial position at deemed cost, and accumulated amortisation on Goodwill arising on acquisitions between 31 December 1996 and 1 January 2004 was recognised on the statement of financial goodwill arising before 1 January 2004 has not been reversed. position and amortised on a straight-line basis over its estimated useful life. The group has availed of the transitional arrangements under IFRS 1 First-time Adoption of International Financial Reporting Standards and accordingly the unamortised

For acquisitions between 1 January 2004 and 31 December 2009, goodwill is carried on the statement of financial position at cost less any accumulated impairment losses.

including the recognised amount of any non-controlling interest in the acquiree, less the net recognised amount (generally fair value) of the identifiable assets and liabilities assumed, all measured as at the acquisition date. When the excess is negative, a bargain purchase gain is recognised immediately in the income statement. For acquisitions on or after 1 January 2010, the group measures goodwill as the fair value of the consideration transferred

proportionate share of the recognised amount of identifiable net assets. The group elects on a transaction-by-transaction basis whether to measure a non-controlling interest at its fair value or at its

a business combination are expensed as incurred. Transaction costs, other than those associated with the issue of debt or equity securities, that the group incurs in connection with

Goodwill arising on associates is shown as part of the investment in the associate.

in the year. Goodwill is subject to an impairment review at least annually and if events or changes in circumstances indicate that the carrying amount may not be recoverable it is written down through the income statement by the amount of any impairment loss identified

(xix) Intangible assets

Software

internal costs of acquiring and developing software are capitalised where it is probable that future economic benefits that exceed Computer software is stated at cost, less amortisation and provision for impairment, if any. The external costs and identifiable its cost will flow from its use over more than one year.

Capitalised computer software is amortised over three to seven years.

costs to sell or value in use. greater than its estimated recoverable amount. The estimated recoverable amount is the higher of the asset's fair value less recoverable. An asset's carrying value is written down immediately to its recoverable amount if the asset's carrying amount is Software is reviewed for impairment whenever events or changes in circumstances indicate that carrying amount may not be

Other intangible assets

Other intangible assets relate to the client portfolio acquired on the acquisition of a brokerage company.

Other intangible assets are amortised over twenty years. They are subject to an impairment review at least annually and if events or changes in circumstances indicate that the carrying amount may not be recoverable it is written down through the income statement by the amount of any impairment loss identified in the year.

(xx) Assets and liabilities classified as held for sale

An asset or a disposal group is classified as held for sale if the following criteria are met:

its carrying value will be recovered principally through sale rather than continuing use;
it is available for immediate sale; and
the sale is highly probable within the next twelve months.

When an asset (or disposal group) is initially classified as held for sale, it is measured at the lower of its carrying amount or fair value less costs to sell at the date of reclassification. Prior period amounts are not reclassified.

Impairment losses subsequent to the classification of assets as held for sale are recognised in the income statement. Increases in the fair value less the costs to sale of assets classified as held for sale are recognised in the income statement to the extent that the increase is not in excess of any cumulative impairment loss previously recognised in respect of the asset.

under the appropriate statement of financial position classifications. Where the above conditions cease to be met, the assets (or disposal group) are reclassified out of held for sale and included

(xxi) Shareholder value of in-force business

present value of future statutory surpluses attributable to shareholders expected to arise from the contracts which have been classified as insurance contracts. The shareholders' interest in the value of the in-force business is included as an asset on the statement of financial position and the movement in this asset is reflected in the income statement. methods, applying EEV principles and reflecting the provisions of FRS 27. The shareholder value of in-force business is the As permitted under IFRS 4 Insurance Contracts, insurance contracts are accounted for in accordance with embedded value

independent actuaries. The value of in-force business calculated in accordance with EEV Principles is determined by the group in consultation with

Assumptions regarding future rates of mortality, morbidity, persistency, taxation, investment returns and expense levels are based on the recent experience of the business, taking account of current economic conditions.

the time value of money and a risk margin to make prudent allowance for the risk that experience in future years may differ from The risk discount rate used to calculate the shareholder value of in-force business is a combination of a discount rate to reflect the assumptions.

(xxii) Retirement benefit obligations

The group has both defined benefit and defined contribution schemes.

the market yield of high quality corporate bonds that have maturity dates approximating to the terms of the pension liability. represents the present value of the obligation to employees in respect of service in the current or prior period less the fair value of the plan assets. The present value of the obligation is calculated annually by external actuaries using the projected unit method. The present value of the obligation is determined by discounting the estimated future cash flows. This discount rate is based on The group's net obligation in respect of the defined benefit schemes is calculated separately for each scheme. The net obligation

1. Basis of preparation and significant accounting policies (continued)

Actuarial gains and losses up to 1 January 2004 have been taken directly to reserves. As permitted under IAS 19, the corridor approach has been adopted for actuarial gains and losses arising since that date. Under the corridor approach actuarial gains and losses are recognised only where the cumulative unrecognised actuarial gains or losses at the end of the previous reporting period exceed the greater of:

10% of the present value of the defined benefit obligations at that opening financial position date; or
10% of the fair value of the scheme assets at that opening financial position date.

statement over the expected remaining service lives of the active members of each scheme. The limits are applied separately to each scheme, with any resulting excess actuarial gains or losses recognised in the income

The current and past service cost, the interest cost of the scheme liabilities and the expected return on scheme assets are recognised in the income statement in the period in which they are incurred.

The group pays contractual contributions in respect of defined contribution plans. These contributions are recognised as employee expenses when the related employee service is received.

(xxiii) Share-based payments

The group operates a number of equity-settled share option schemes based on non-market vesting criteria. The group has availed of the transitional arrangements under IFRS 1 First-time Adoption of International Financial Reporting Standards and no charge is included for share options granted before 7 November 2002 which had not vested by 1 January 2005. For all other options, the fair value of the options is determined at the date of grant and expensed in the income statement over the period during which the employees become unconditionally entitled to the options. The expense is credited to a separate equity reserve on the statement of financial position. At each year end the group revises its estimate of the number of shares that it expects to vest and any adjustment relating to current and past vesting periods is charged to the income statement.

financial position. For the grant under non market vesting criteria, at each period end the group revises its estimate of the number of options that it expects to vest and any adjustment relating to current and past vesting periods is charged to the income statement. determined with reference to non-market vesting criteria is expensed in the income statement over the period during which the employees become unconditionally entitled to the shares. The expense is credited to a separate reserve in the statement of criteria. The fair value of conditional shares granted is determined at the date of grant; the value determined with reference to market-vesting criteria is expensed in the income statement over the period from the date of grant to vesting date, the value The group operates an equity-settled long-term incentive plan. The plan has grants under both market and non-market vesting

(xxiv) Termination payments

employment before the normal retirement date. Termination payments for voluntary redundancies are recognised where an offer has been made by the group, it is probable that the offer will be accepted and the number of acceptances can be reliably Termination payments are recognised as an expense when the group is demonstrably committed to a formal plan to terminate estimated.

(xxv) Taxation

item which is recognised directly in equity. Taxation comprises both current and deferred tax. Taxation is recognised in the income statement except where it relates to an

Corporation tax payable is provided on taxable profits at current tax rates.

tax purposes, or where the temporary difference arose on the initial recognition of an asset or liability in a transaction which was Deferred tax is provided using the liability method on all temporary differences except those arising on goodwill not deductible for not a business combination and which at the time of the transaction affects neither accounting profit or taxable profit. Deferred tax assets are recognised only to the extent that it is probable that future taxable profits will be available against which the asset can be utilised.

Deferred tax liabilities and assets are offset only where there is both the legal right and the intention to settle on a net basis or to realise the asset and settle the liability simultaneously.

(xxvi) Premium income and claims recognition on insurance contracts

Premiums earned in respect of insurance contracts are accounted for in the same period in which the liabilities arising from those premiums are established.

Claims are accounted for when paid or payable, or if earlier, on the date when the policy ceases to be included within the calculation of insurance contract liabilities.

(xxvii) Revenue from investment contracts

and withdrawals from investment contract liabilities in the statement of financial position. Fees charged in respect of investment contracts are recognised when the service is provided. Initial fees, which exceed the level Premiums and claims in respect of investment contracts are not included in the income statement but are reported as deposits to of recurring fees are deferred and amortised over the anticipated period in which services will be provided. Fees charged for investment management services for institutional fund management are also recognised over the period of the service.

(xxviii) Interest receivable and payable

Revenue on assets classified as HTM and AFS as well as loans and deposits is recognised on an effective interest basis. This calculation takes into account interest received or paid, directly attributable fees and commissions and incremental transaction costs. The effective interest rate is the rate that discounts the expected future cash flows over the expected life of the instrument to the net carrying amount of the financial asset or liability at initial recognition.

(xxix) Acquisition costs

The costs directly associated with the acquisition of new investment management service contracts are deferred to the extent that they are expected to be recoverable out of future revenues to which they relate.

Such costs are amortised through the income statement over the period in which the revenues on the related contracts are expected to be earned, at a rate commensurate with those revenues.

contracts, acquisition costs, to the extent that they are deferred, are reflected within the shareholder value of in-force business. justified the deferral of costs no longer apply costs, to the extent that they are believed to be irrecoverable, are written off. For insurance Deferred acquisition costs are reviewed by category of business at the end of each financial year. Should the circumstances which

(xxx) Other income and expense recognition

Unless included in the effective interest calculation, fees and commissions receivable and payable are recognised on an accruals basis. Expenses are recognised on an accruals basis.

(xxxi) Sales and repurchase agreements (including stock borrowing and lending)

Financial assets may be lent for a fee or sold subject to a commitment to repurchase them. Such assets are retained on the statement of financial position when substantially all the risks and rewards of ownership remain with the group. The liability to the counterparty is included separately on the statement of financial position as appropriate.

Similarly, where financial assets are purchased with a commitment to resell, or where the group borrows financial assets but does not acquire the risks and rewards of ownership, the transactions are treated as collateralised loans, and the financial assets are not included in the statement of financial position.

The difference between the sale and repurchase price is recognised in the income statement over the life of the agreements using the effective interest rate. Fees earned on stock lending are recognised in the income statement over the term of the lending agreement. Securities lent to counterparties are also retained on the statement of financial position.

(xxxii) Dividends

Final dividends on ordinary shares are recognised in equity in the period in which they are approved by the company's shareholders. Interim dividends are recognised in equity in the period in which they are paid.

(xxxiii) Purchases and sales of own shares

Under IFRS the cost of the shares is required to be deducted from shareholders' equity. However, as the shares are held on policyholders. These shares are required to be treated as though they were purchased by the company for its own benefit and treated as treasury shares and therefore treated as a deduction in arriving at shareholders' equity rather than as an asset. As permitted under Irish legislation, a subsidiary of the group holds Irish Life & Permanent Group Holdings plc shares on behalf of life assurance behalf of policyholders the liability to the policyholder is carried at fair value. As a result shareholders' equity is also reduced by the unrealised gain or loss on the shares reflected in the measurement of the liability with changes in the unrealised gain and loss during the year resulting in a gain or loss in the income statement. Shares purchased and held by the employee benefit trust in anticipation of share awards that may vest under the long-term incentive plan are treated as treasury shares and therefore treated as a deduction in arriving at shareholders' equity rather than an asset.

(xxxiv) Netting

ability to settle on a net basis. Assets, liabilities, income and expenses are shown net where there is a legal right to offset and there is an intention and an

2. Critical accounting judgements and estimates

Management discussed and agreed with the Audit Committee the development, selection and disclosure of the group's critical accounting policies and estimates and the application of these policies and estimates.

Critical accounting judgements made by management in applying the group's accounting policies are set out below.

Insurance and investment contracts

Under IFRS, the group accounts for its insurance contracts using the embedded values, calculated based on the European Embedded Value Principles, and investment contracts are accounted for under IAS 39 Financial Instruments: Recognition and Measurement and IAS 18 Revenue. Insurance contracts are defined as those contracts which transfer significant insurance risk. Insurance risk is defined as the possibility of having to pay benefits on the occurrence of an insured event which are significantly more than the benefits payable if the insured event were not to occur. Investment contracts are those contracts which carry no significant insurance risk.

Insurance contracts

The group accounts for its insurance contracts using the embedded value basis of accounting which recognises the present value of in-force business (shareholder value of in-force business) as an asset.

Policyholder liabilities for non-linked insurance contracts are estimated by management. This requires management to estimate future policyholder cash flows and to make assumptions regarding the probability and the timing of the occurrence of the insured event, future investment returns and future expenses. The liability will therefore vary with movements in interest rates and with changes in the actual cost of life assurance and annuity benefits where future mortality experience is uncertain. Management follows industry guidelines in setting assumptions, using standard insurance risk tables amended to reflect the group's own experience and where appropriate makes allowance for expected insurance risk improvements or disimprovements. Assumptions and sensitivities are set out in Note 26, Life insurance contracts including life insurance contracts with discretionary participation features (DPF).

Reinsurance assets for non-linked insurance contracts require the group to estimate future cash flows from reinsurance contracts. The cash flows make assumptions regarding the probability and the timing of the occurrence of the reinsured event, future investment returns and future expenses. The asset will therefore vary with movements in interest rates and with future changes in actual experience. Management follows industry guidelines in setting assumptions using standard insurance risk tables amended to reflect the group's own experience and where appropriate makes allowance for expected insurance risk improvements or disimprovements.

The shareholder value of in-force business is calculated by projecting future surpluses attributable to shareholders and discounting them to the financial position date. Future surpluses depend inter alia on insurance risk, lapse rates, future investment returns, expenses, reinsurance charges, product charges and taxation. Management estimates the future surpluses using industry standard methodologies having regard to both actual experience and current economic conditions. Surpluses are discounted at a risk-adjusted discount rate which is estimated by management based on current interest rates and an estimated risk margin. There is an acceptable range into which these assumptions can validly fall, and the use of different assumptions may cause the shareholder value of in-force business to differ from that assumed at the financial position date. This could significantly affect the income recognised and the value attributed to the in-force business in the financial statements.

Assumptions and sensitivities are set out in Note 15, Shareholder value of in-force business.

Investment contracts

Investment contracts are accounted for as financial instruments under IAS 39 Financial Instruments: Recognition and Measurement and IAS 18 Revenue. These are primarily unit-linked contracts whose value is contractually linked to the fair value of the financial assets within the group's unitised investment funds. Initial fees earned and incremental costs (mainly commission) paid on sale of an investment contract are deferred and recognised over the expected life of the contract. The expected life of the contracts is estimated based on current experience and the term of the contracts and is reviewed at least annually. Changes to the expected life could affect the income and cost recognised and the value of the asset and liability in the financial statements. However, given that any changes to expected life will affect both costs and fees, the net impact is unlikely to be significant.

Impairment losses - loans and receivables

Management reviews the group's loan portfolios to assess impairment at least quarterly. Impairment loss calculations involve the estimation of future cash flows of loans and receivables based on observable data at the financial position date. Estimates of loan losses in the mortgage portfolio are based upon account behavioural trends, collateral valuations and current economic conditions. In the consumer portfolios the estimates also include the historical loss experience in each portfolio. These calculations are undertaken on either a portfolio basis or separately for individually significant exposures. In applying the portfolio basis the group makes use of various modelling techniques which are specific to different portfolio types. Significant judgement is applied in use of various modelling techniques which are specific to different portfolio types. Significant judgement is applied in selecting and updating these models.

2. Critical accounting judgements and estimates (continued)

Impairment losses (continued)

In calculating individual impairment provisions the group takes account of a number of relevant considerations including historical experience, future prospects of the customer and value of collateral held. Significant judgement is applied in estimating the impact of these considerations on the expected future cash flows which relies heavily on the individual case circumstances and available information including the date of the most recent professional valuation, the value of similar property recently sold, geographically adjacent property disposals, similar case experience and expert judgement. Where there has been a passage of time since a valuation has been obtained either an up-to-date valuation is obtained or an appropriate discount is applied.

Financial instruments

The group carries certain financial assets and liabilities at fair value, including all derivatives as well as assets and liabilities of the life assurance operations. Assets and liabilities are priced using a quoted market price where there is an active market for the instrument or by using a valuation model. Valuation models use data such as interest rate yield curves, equity prices, option volatilities and currency rates. Most of these parameters are directly observable from the market. Changes in the fair value of financial assets of the life assurance operations will largely be offset by corresponding changes in the fair value of liabilities and therefore the net impact on equity is unlikely to be significant.

Interest receivable and payable

Revenue on assets classified as HTM, AFS or FVTPL as well as on loans and deposits is recognised on an effective interest basis. This calculation takes into account interest received or paid, fees and commissions attributable to the asset or liability and incremental transaction costs. The effective interest rate is the rate that discounts the expected future cash flows over the expected life of the instrument to the net carrying amount of the financial asset or liability at initial recognition. The expected life is calculated based on current experience. Changes to the expected life could affect the income recognised and the value of the asset in the financial statements.

Deferred taxation

own taxable profits and available group relief. The deferred tax asset has been recognised on the basis that management expects to be able utilise the asset from future

Retirement benefit obligations

The group operates a number of defined benefit and defined contribution pension schemes. For defined contribution schemes, the pension cost recognised in the income statement represents the contributions payable to the scheme. For defined benefit schemes, actuarial valuation of each of the scheme's obligations using the projected unit method and the fair valuation of each of the scheme's assets are performed annually in accordance with the requirements of IAS 19. The actuarial valuation is dependent upon a series of assumptions, the key ones being discount rates, expected rate of return on plan assets, salary increases, pension increases, rate of price inflation and mortality rates. The discount rate used to calculate the defined benefit scheme liabilities is based on the market yield at the financial position date of high quality bonds with a similar duration to that of the schemes' liabilities.

The returns on Irish and overseas equities are set relative to fixed interest returns by considering the long-term expected equity risk premium. The price inflation assumption reflects long-term expectations of both earnings and retail price inflation. Mortality estimates are based on standard industry and national mortality tables, adjusted where appropriate to reflect the group's own experience. The impact on the consolidated income statement and the consolidated statement of financial position could be materially different if a different set of assumptions were used.

The difference between the fair value of the plan assets and the present value of the defined benefit obligation at the financial position date, adjusted for any historic unrecognised actuarial gains or losses, is recognised as a liability in the statement of financial position. An asset arising, for example, as a result of past over funding or the performance of the plan investments, is recognised to the extent that it does not exceed the present value of future contribution holidays or refunds of contributions. To the extent that any unrecognised gains or losses at the start of the measurement year in relation to any individual defined benefit scheme exceed 10% of the greater of the fair value of the scheme assets and the defined benefit obligation for that scheme, a proportion of the excess is recognised in the income statement. Further information on retirement benefit obligations, including assumptions is set out in Note 20, Retirement benefit obligations.

3. Acquisition of Irish Life & Permanent plc by Irish Life & Permanent Group Holdings plc

established as a group holding company. At 31 December 2009, the company had no subsidiaries. Irish Life & Permanent Group Holdings plc was incorporated on 24 August 2009 as Aquilani plc, its name was subsequently changed to Irish Life & Permanent Group Holdings plc on 9 October 2009. The company was

day, Irish Life & Permanent plc issued 276,782,344 ordinary shares to Irish Life & Permanent Group Holdings plc. Irish Life & Permanent plc is now a 100% subsidiary of Irish Life & Permanent Group Holdings plc. On this date under a scheme of arrangement sanctioned by the High Court, 276,782,344* Irish Life & Permanent plc ordinary shares were cancelled and Irish Life & Permanent Group Holdings plc subsequently issued the 276,782,344 ordinary shares to the shareholders of Irish Life & Permanent plc on a one-for-one basis. On the same On 15 January 2010, Irish Life & Permanent plc ("IL&P") was acquired by Irish Life & Permanent Group Holdings plc.

Irish Life & Permanent Group Holdings plc was only incorporated on 24 August 2009 and was not a group company as at 31 December 2009, the comparative numbers disclosed in these consolidated financial statements for the period to 31 December 2009 are those of the accounting acquirer, Irish Life & Permanent plc group. The comparative numbers for the company primary statements are from the period of incorporation 24 August 2009 to 31 December shareholders as the previous parent is a common control transaction and has been accounted for similar to a reverse acquisition where the existing group is determined to be the accounting acquirer. Consequently, even though The introduction of Irish Life & Permanent Group Holdings plc as a new holding company with exactly the same

applied the exemption in Section 149(5) of the Companies Act 1963 only for the purpose of presenting preacquisition earnings of the legal subsidiary as revenue profits and losses in the consolidated financial statements. In adopting this accounting approach, which is in accordance with IFRS as adopted by the EU, the company has

same date, Irish Life & Permanent Group Holdings plc was listed on those stock exchanges. On 18 January 2010, Irish Life & Permanent plc was delisted from the London and Irish stock exchanges. On the

Irish Life & Permanent plc had a number of share option and share award schemes in which employees of the company participated prior to the acquisition of that company by Irish Life & Permanent Group Holdings plc. These included:

-	Vested share options	6,355,335
-	Unvested share options	577,670
-	Vested share awards	-
-	Unvested share awards	971,967

On 18 January 2010 Irish Life & Permanent Group Holdings plc replaced all existing vested share options and all share awards with the same number of share options and share awards on equivalent terms. 577,670 unvested share options were also replaced on equivalent terms with the exception that performance conditions attached to these options fell away pursuant to a "change in control" clause in their terms. This has been accounted for in line with IFRS 2, Share-based Payments as a modification. The vesting conditions in respect of share options issued in 2008 were dissolved and as such the costs accruing in 2010 have been accelerated. The total cost for 2010 amounted to €0.3m.

* To meet statutory requirements, seven shares were left in issue following this cancellation. These shares are now held directly by or in trust for Irish Life & Permanent Group Holdings plc.

4. Segmental information

Segmental information is presented in respect of the group's business segments.

Irish Life Corporate Business, the Group Head of Risk and Compliance and the Group Head of Human Resources and Organisation Development. The Strategy Group is responsible for implementing the the Group Chief Executive, the Group Finance Director, the Chief Executive of permanent tsb, the Chief Executive of Irish Life Investment Managers, the Chief Executive of Irish Life Retail, the Chief Executive of The segmental information is determined based on internal reporting provided to the Strategy Group, the chief operating decision maker ("CODM") of the group. All the members of the Strategy Group are members of key management personnel as described in Note 55, Related parties. The members include strategic management of the group as guided by the board. The Strategy Group reviews key performance indicators and internal management reports on a monthly and on a quarterly basis.

receivable. is measured in a manner consistent with that in the income statement. The primary performance measure utilised by the Strategy Group for the Banking-Ireland and UK reportable segments is net interest The accounting policies of the segments are the same as for the group as a whole. Transactions between the reportable segments are on normal commercial terms and conditions. Revenue from external parties

The group is not reliant on revenue from transactions with a single external customer in the current or comparative reporting years.

The group is organised into six reportable segments. Management identifies its reportable operating segments by service line consistent with the reports used by the Strategy Group. The reporting segments represent the revenues generated from the group's products and services. The group's products and services have been aligned with the relevant reporting segments.

These segments and their respective operations are as follows:

Banking - Ireland	Retail banking services including current accounts, residential mortgages and other loans to the Irish market and internally to other segments.
Banking - UK	Retail banking services including residential mortgages and lending services to the UK market and internally to other segments.
Life assurance	Includes individual and group life assurance and investment contracts, pensions and annuity business written in Irish Life Assurance plc and Irish Life International Limited.
Fund management	Investment management services business provided to corporate, pension and charity clients and internally to Irish Life Assurance plc written in Irish Life Investment Managers Limited.
General insurance	Property and casualty insurance carried out through the group's associate company Allianz-Irish Life Holdings plc.
Brokerage, third party administration and other	This includes a number of small business units including third party life assurance administration, insurance brokerage and other group entities.

The segmental results which relate to continuing activities are as follows:

2010

Net interest receivable 152 173 (16) - - - - 309 - external 160 (180) (17) - - - 37 - - inter-segment Other non-interest income / (expenses) 26 - (101) - - 25 - (50) - external - - (17) - - 17 - - - inter-segment Premiums on insurance contracts, net of reinsurance - - 595 - - - - 595 Investment return ( - 1) 2,158 - - - - 2,157 - external - - 16 - - - (21) (5) - inter-segment Fees from investment contracts and fund management - external - - 195 7 - 17 - 219 - inter-segment - - - 35 - - (35) - Change in shareholder value of in-force business - - (31) - - - - (31) Total operating income / 337 (7) 2,782 42 - 59 (19) 3,194 (expenses) Claims on insurance contracts, net of reinsurance - - (304) - - - - (304) Change in insurance / investment contract liabilities - - (2,075) - - - - (2,075) Investment expenses - - (84) - - - 35 (49) Administrative expenses (243) (9) (135) (25) - (41) (11) (464) Depreciation and amortisation (1) (19) (1) - (3) - (19) (43) Impairment (2) - - (1) - ( - 1) (4) Loss on the disposal of property and equipment ( - 1) - - - - - (1) Total operating (expenses) / (264) (10) (2,619) (26) - (45) 24 (2,940) income Operating profit / (loss) 73 (17) 163 16 - 14 5 254 before provisions (393) (27) - - - - - (420) Loans and receivables Total provisions for (393) (27) - - - - - (420) impairment Operating (loss) / profit (320) (44) 163 16 - 14 5 (166) Share of profits of associated undertaking - - - - 9 - - 9 42 5 (16) (2) - (2) 2 29 Taxation (Loss) / profit for the year (278) (39) 147 14 9 12 7 (128)	Banking Ireland €m	Banking UK €m	Life assurance €m	Fund management €m	General insurance €m	third party administration and other 1 €m	Brokerage / Reconciliations / eliminations / consolidation adjustments 2 €m	Total €m

2009

						Brokerage / third party	Reconciliations/ eliminations /
	Banking	Banking	Life	Fund	General	administration	consolidation
	Ireland	UK	assurance	management	insurance	and other 1	adjustments 2	Total
	€m	€m	€m	€m	€m	€m	€m	€m
Net interest receivable
- external	132	249	( 18)	-	-	-	-	363
- inter-segment	204	(210)	( 18)	-	-	-	24	-
Other non-interest income /
(expenses)
- external	11	1	(119)	-	-	23	-	(84)
- inter-segment	-	-	( 17)	-	-	17	-	-
Premiums on insurance
contracts, net of reinsurance	-	-	593	-	-	-	-	593
Investment return
- external	8	-	2,585	-	-	-	-	2,593
- inter-segment	-	-	31	-	-	-	(39)	(8)
Fees from investment
contracts and fund
management
- external	-	-	203	6	-	16	-	225
- inter-segment	-	-	-	32	-	-	( 32)	-
Change in shareholder value
of in-force business	-	-	( 57)	-	-	-	-	(57)
Total operating income /	355	40	3,183	38	-	56	(47)	3,625
(expenses)
Claims on insurance
contracts, net of reinsurance	-	-	(329)	-	-	-	-	(329)
Change in insurance /
investment contract liabilities	-	-	(2,614)	-	-	-	-	(2,614)
Investment expenses	-	-	( 67)	-	-	-	32	(35)
Administrative expenses	(255)	(10)	(160)	( 24)	-	(44)	(25)	(518)
Depreciation and amortisation	(21)	(1)	(23)	( 1)	-	(4)	-	(50)
Impairment	(	- 2)	( 5)	-	-	(4)	-	(11)
Total operating (expenses) / income	(278)	(11)	(3,198)	(25)	-	( 52)	7	(3,557)

Operating profit / (loss) before provisions	77	29	(15)	13	-	4	(40)	68
Loans and receivables	(343)	(33)	-	-	-	-	-	(376)
Total provisions for	(343)	(33)	-	-	-	-	-	(376)
impairment
Operating (loss) / profit	(266)	(4)	(15)	13	-	4	(40)	(308)
Share of losses of associated
undertaking	-	-	-	-	(2)	-	-	(2)
Taxation	23	1	(27)	(2)	-	(1)	3	(3)
(Loss) / profit for the year	(243)	(3)	(42)	11	(2)	3	(37)	(313)

2010

							Brokerage / Reconciliations /
						third party	eliminations /
	Banking	Banking	Life	Fund	General	administration	consolidation
	Ireland	UK	assurance	management	insurance	and other	adjustments 2	Total
	€m	€m	€m	€m	€m	€m	€m	€m
Assets
Interest in associate	-	-	-	-	124	-	-	124
Held for sale	4	-	2 ,087	-	-	-	(2)	2,089
Other assets	43,092	12,782	31,224	21	-	178	(13,811)	73,486
Total assets	43,096	12,782	33,311	21	124	178	(13,813)	75,699
Liabilities
Held for sale		- -	2 ,069	-	-	-	(28)	2,041
Other liabilities	42,969	12,771	29,964	10	-	113	(13,785)	72,042
Total liabilities	42,969	12,771	32,033	10	-	113	(13,813)	74,083

Equity attributable to
owners	127	11	1,278	11	124	65	-	1,616
Capital expenditure
	12	-	7	1	-	1	-	21
2009

						Brokerage	Reconciliations /
						and third party	eliminations /
	Banking	Banking	Life	Fund	General	administration	consolidation
	Ireland*	UK	assurance	management	insurance	and other*	adjustments2	Total
	€m	€m	€m	€m	€m	€m	€m	€m
Assets
Interest in associate	-	-	-	-	122	-	-	122
Other assets	48,513	13,035	31,564	17	-	183	(13,413)	79,899
Total assets	48,513	13,035	31,564	17	122	183	(13,413)	80,021
Other liabilities	47,867	12,987	30,428	9	-	116	(13,392)	78,015
Liabilities	47,867	12,987	30,428	9	-	116	(13,392)	78,015
Equity attributable to owners
	646	48	1,136	8	122	67	(21)	2,006

Capital expenditure	9	-	10	-	-	4	-	23

* Brokerage, third party administration and other has been restated to include loans held to finance the purchase of the underlying subsidiary companies. These balances were previously consolidated as part of Banking Ireland reporting segment.

¹ Brokerage / third party administration and other

Brokerage and third party administration services include:

	2010	2009
	€m	€m
Profit in respect of insurance brokerage company	12	8
Loss in respect of third party administration company	-	(5)

² Reconciliations / eliminations / consolidation adjustments

The (negative) / positive return adjustments included on the income statement comprise the following adjustments arising on:

	2010 €m	2009 €m
Consolidation of the movement in the value of properties financed by non-recourse inter-group loans	(5)	(8)
Differing accounting treatment for assets and liabilities by the bank and life company**	26	(2)
The allocation of corporate costs, net of tax***	(14)	(27)
	7	(37)

** The bank carries its liabilities at amortised cost while the corresponding assets in the life company are held at fair value.

*** These costs relate to group functions and are included here as they are not directly attributable to any business unit and hence are unallocated amounts.

The equity effect of these adjustments on the statement of financial position is detailed below:

	2010	2009
	€m	€m
Consolidation of the movement in the value of properties financed by
non-recourse inter-group loans Differing accounting treatment for assets and liabilities by the bank	(22)	(17)
and life company	22	(4)
	-	(21)

Further eliminations are made on the statement of financial position in respect of the following items:

	2010	2009
	€bln	€bln
The elimination of floating-rate notes issued by special purpose vehicles between Banking Ireland and Banking UK reporting segments but held within the group	(12)	(12)
The elimination of inter-group balances between the bank and other group entities.	(2)	(1)
	(14)	(13)

deposits and loans together with inter-segmental commission payments and receipts. - Reconciliations / eliminations / consolidation adjustments include inter-segmental interest receivable and payable on

Elimination of inter-group rental expenses is also included.

5. Cash and cash equivalents

	2010	2009
	€m	€m
Cash and balances with central banks	312	218
Items in the course of collection	124	108
Loans and receivables to banks (note 11)	935	2,510
	1,371	2,836
Cash and bank balances included in assets classified as held for sale
(note 21)	14	-
	1,385	2,836

Restricted cash amounted to €1.3m (2009: €1.7m) and relates to client monies held by a brokerage subsidiary.

6. Debt securities

	2010	2009
	€m	€m
Available for sale	3,400	5,856
Loans and receivables	1,279	1,570
Designated at FVTPL	7,425	8,373
Gross debt securities	12,104	15,799
Less provision (note 10)	(6)	(19)
Net debt securities	12,098	15,780

Debt securities amounting to €397m (2009: nil) have been transferred from the 'Designated at FVTPL' category to assets held for sale as disclosed in Note 21, Assets and liabilities classified as held for sale.

Debt securities exclude €176m (2009: €90m) issued by Irish Life & Permanent plc and held by Irish Life Assurance plc which have been eliminated on consolidation.

(2009: €6.1bln) have been pledged to third parties in sale and repurchase agreements and debt securities of Debt securities, representing a mix of government gilts and high-rated corporate bonds, with a carrying value of €1.6bln €2.2bln (2009: €nil) have been pledged against deposits made by the ECB (Note 22, Deposits by banks (including central banks)).

As at 31 December 2010, the amount of debt securities eligible for and remaining available to be used, in sale and repurchase agreements as collateral had a carrying value of €760m.

Under a stock lending agreement, the group has transferred debt securities to third parties of €1,225m (2009: €223m), but has substantially retained all the risks and rewards associated with the transferred assets. Due to retention of substantially all the risks and rewards on these assets, the group continues to recognise these assets within debt securities.

In return the group has accepted financial assets as collateral. The fair value of such collateral that the group holds externally with an agent amounted to €1,342m (2009: €229m). Collateral consists of AAA-rated OECD sovereign debt securities. In addition the external agent has provided an indemnity (at a charge) to make good any losses in excess of the collateral should a counterparty default.

These transactions are conducted under terms that are usual and customary to standard stock lending agreements.

to the loans and receivables category as the group has the intention and ability to hold the financial assets for the foreseeable future or until maturity. No items were reclassified during the current accounting period. 2008, effective 1 July 2008, which permitted financial assets classified as available for sale ("AFS") that would have met the definition of loans and receivables, had they not been designated as AFS, to be reclassified out of the AFS category During the year ended 31 December 2008 the group availed of the amendment to IAS 39 and IFRS 7 issued in October

The table below sets out the financial assets reclassified and their carrying and fair values:

	Carrying value			Fair value
	2010	2010 2009	2009
	€m	€m	€m	€m
AFS debt securities reclassified to loans and
receivables	1,279	1,570	1,123	1,542

tables within this note for both the current and prior year reporting periods. The movement in the carrying value of debt securities classified as loans and receivables is included in subsequent

The table below sets out the amounts actually recognised in the income statement and other comprehensive income in respect of assets reclassified out of AFS debt securities into loans and receivables.

	Income statement		Other comprehensive income
	2010 €m	2009 €m	2010 €m	2009 €m
Period before reclassification Interest income	-	-	-	-
Net change in fair value	-	-	-	-
Period after reclassification
Interest income	32	40	-	-
Amortisation	(15)	(15)	15	15
Total for period after reclassification	17	25	15	15

6. Debt securities (continued)

The table below sets out the amounts that would have been recognised in the periods following reclassification if the reclassification had not been made:

	Income statement			Other comprehensive income
	2010	2009	2010	2009
	€m	€m	€m	€m
Interest income	32	40	-	-
Fair value movement	-	-	(128)	186
Cumulative impact	123	91	(156)	(28)

At the date of reclassification, the effective interest rates on reclassified AFS investment securities ranged from 1.5% to 5% with expected recoverable cash flows of €2,098m.

and prior years. The group has not reclassified any debt securities from available for sale to loans and receivables during the current

specific provision was utilised in respect of impaired AFS securities and €4m was utilised in respect of impaired debt securities classified as loans and receivables. The impairment provision is analysed in Note 10, provision for impairment. The group has carried out an impairment assessment on its debt securities held. A transfer of €13m from the collective provision to the specific provision has been effected in relation to securities which have been specifically identified as impaired. Subsequently €9m of this

The carrying value of debt securities is analysed as follows:

	2010 €m	2009 €m
Government bonds	9,616	10,337
Bonds issued by public boards	78	101
Bonds issued by credit institutions	1,818	4,336
Other bonds	586	1,006
	12,098	15,780
Listed	11,858	15,342
Unlisted	240	438
	12,098	15,780

The movement in AFS and loans and receivables securities may be classified as follows:

	2010		2009
	Available for sale €m	Loans and receivables €m	Available for sale €m	Loans and receivables €m
As at 1 January	5,856	1,570	1,342	1,970
Exchange differences on monetary assets	8	9	(2)	(5)
Change in fair value recognised in equity Impairment recognised in income statement	(320) -	- (4)	42 -	- -
Additions	933	-	4,797	-
Maturities / disposals	(3,063)	(311)	(329)	(416)
Effective interest	(14)	-	6	6
Amortisation to statement of comprehensive
income	-	15	-	15
As at 31 December	3,400	1,279	5,856	1,570

7. Equity shares and units in unit trusts

	2010	2009
	€m	€m
Designated as FVTPL
Listed	13,679	13,381
Unlisted	98	129
	13,777	13,510

Equity shares and units in unit trusts amounting to €1,406m (2009: nil) listed and €64m (2009: nil) unlisted have been transferred to assets classified as held for sale as disclosed in Note 21, Assets and liabilities classified as held for sale.

Under a stock lending agreement, the group has transferred equity shares to third parties of €641m (2009: €153m), but has substantially retained all the risks and rewards associated with the transferred assets. Due to retention of substantially all the risks and rewards on these assets, the group continues to recognise these assets within equity shares.

In return the group has accepted financial assets as collateral. The fair value of the segregated collateral that the group holds externally with an agent amounted to €691m (2009: €164m). Segregated collateral consists of AAA-rated OECD sovereign debt securities. In addition the external agent has provided an indemnity (at a charge) to make good any losses in excess of the segregated collateral should a counterparty default.

These transactions are conducted under terms that are usual and customary to standard stock lending agreements.

8. Derivative instruments

The group uses derivatives in both its banking and insurance businesses. Within the banking operations derivatives are used to reduce interest and foreign currency exchange rate exposures (fair value hedges) and to generate incremental income for the group (trading). In the insurance business derivatives are used to match fixed rate or tracker bond liabilities arising on insurance or investment contracts and within the unitised investment funds which match unit-linked policyholder liabilities as part of the efficient portfolio management of these funds.

business also has a fair value hedge to reduce interest rate exposure on a subordinated debt issue. All derivatives are carried at fair value. Derivatives not qualifying as fair value hedges are classified as trading in the note below. The movement in the valuation of life derivatives is included in investment return. Derivatives have also been purchased for Constant Proportion Portfolio Insurance (CPPI) unitised investment funds. In turn, the CPPI counterparty has purchased a zero strike option from the insurance company. In the case of derivatives entered into for the benefit of unit-linked policyholders all of the risks are borne by the policyholder. The insurance

The derivatives used include:

transactions; Currency forward rate contracts which are commitments to purchase and sell currencies, including undelivered spot
example, fixed interest rates for floating interest rates; Currency and interest rate swaps which are commitments to exchange one set of cash flows for another, for
receive an amount based on changes in exchange rates, interest rates or equity indices; Futures contracts which may be for currency, interest rates or equity indices and are contractual obligations to pay or
between a contracted rate of interest and the interest rate at the date of settlement based on a notional principal amount; and Forward rate agreements which are contracts that give rise to a cash settlement at a future date for the difference
Options which are contractual agreements under which the seller grants the purchaser the right but not the obligation to buy (a call option) or to sell (a put option) at a set date or during a set period a specific amount of a currency or a financial instrument at a specified price. Options may be traded on an exchange or negotiated between two parties.

Further details on the group's risk management policies are set out in Note 36, Financial risk management.

The fair value of derivative instruments is set out below:

	2010			2009
	Fair value	Fair value	Fair value	Fair value
	asset	liability	asset	liability
	€m	€m	€m	€m
Derivatives held by banking operations
- Designated as fair value hedges	256	196	234	376
- Embedded derivatives	12	51	-	-
- Held for trading	92	26	36	35
	360	273	270	411
Derivatives held by life operations
- Designated as fair value hedges	17	-	13	-
- Held for trading	878	230	886	254
	895	230	899	254
Total derivative instruments	1,255	503	1,169	665

Derivative liabilities amounting to €2m (2009: nil) have been transferred from the 'Derivatives held by life operations-Held for trading' category to liabilities held for sale as disclosed in Note 21, Assets and liabilities classified as held for sale.

Fair value hedges

hedged items recognised in income attributable to the hedged risk are analysed below: The losses recognised in income on the hedging instruments designated as fair value hedges and the gains on the

	2010	2009
	€m	€m
Gains on hedging instruments	497	111
Losses on hedged items attributable to hedged risk	(491)	(123)
Net gains/(losses)	6	(12)

8. Derivative instruments (continued)

Net investment in foreign operations

held to manage the group's net investment in foreign operations in addition to the gains / (losses) on the net investment: The following gains / (losses) have been recorded in other comprehensive income in respect of hedging instruments

	2010 €m	2009 €m
Net losses in respect of hedging instruments held for net investment in foreign operations	(2)	(2)
Gains in respect of non-derivative hedged net investment in foreign operations	2	2
Gains in respect of unhedged net investment in foreign operations	-	1
Total gains in respect of net investment	2	3

Banking operations

Fair value hedges by the banking operations are analysed as follows:

	2010			2009
	Contract /			Contract /
	notional	Fair value	Fair value	notional	Fair value	Fair value
	amount	asset	liability	amount	asset	liability
	€m	€m	€m	€m	€m	€m
Currency swaps	1,651	118	-	8,599	52	1
Interest rate swaps	10,858	138	196	14,506	182	375
	12,509	256	196	23,105	234	376

closing of trading positions by instruments of equal duration. Trading derivatives are analysed below. Generally, derivative assets are matched by derivative liabilities and reflect the

	2010			2009
	Contract/			Contract/
	notional	Fair value	Fair value	notional	Fair value	Fair value
	amount	asset	liability	amount	asset	liability
	€m	€m	€m	€m	€m	€m
Forwards*	6,185	84	18	-	-	-
Currency swaps	-	-	-	211	-	-
Interest rate swaps	391	8	8	4,033	36	35
	6,576	92	26	4,244	36	35

*Forward contract derivatives which are used as economic hedges have been reclassified from derivatives in fair value hedges to trading derivatives.

8. Derivative instruments (continued)

Life operations

Life operations derivatives are analysed as follows:

	2010			2009
	Contract /			Contract /
	notional	Fair value	Fair value	notional	Fair value	Fair value
	amount	asset	liability	amount	asset	liability
	€m	€m	€m	€m	€m	€m
Designated as fair value hedges
- Interest rate swap	300	17	-	200	13	-
	300	17	-	200	13	-
Held for trading
- held in unitised / closed funds for the benefit of
policyholders	6,343	822	34	5,309	848	30
- zero strike option to return growth in unitised fund
to CPPI counterparty	196	-	196	224	-	224
- held to match fixed rate and tracker bond liabilities	505	56	-	305	38	-
	7,044	878	230	5,838	886	254
Total life operations	7,344	895	230	6,038	899	254

Derivatives held in unitised / closed funds for the benefit of unit-linked policyholders are as follows:

	2010			2009
	Contract/ notional amount	Fair value asset	Fair value liability	Contract/ notional amount		Fair value liability
	€m	€m	€m	€m	asset €m	€m
CPPI	744	778	-	818	822	-
Interest rate swaps	67	-	5	68	-	6
Currency swaps	4,424	38	21	3,237	17	16
Equity futures	1,108	6	8	1,186	9	8
	6,343	822	34	5,309	848	30

Derivatives held to match fixed-rate and tracker bond liabilities within life insurance operations are analysed as follows:

	2010			2009
	Contract / notional amount €m	Fair value asset €m	Fair value liability €m	Contract / notional amount €m	Fair value asset €m	Fair value liability €m
Interest rate swaps Over-the-counter ("OTC") options	- 505	- 56	- -	28 277	- 38	- -
	505	56	-	305	38	-

9. Loans and receivables to customers

Loans and receivables by category are set out below:

	2010	2009
	€m	€m
Residential mortgage loans
Held through special purpose vehicles	26,932	25,983
Held directly	7,255	9,189
	34,187	35,172
Commercial mortgage loans*	1,904	1,939
Consumer finance
Finance leases	906	1,211
Term loans / other	467	536
Money market funds	-	211
Gross loans and receivables to customers	37,464	39,069
Less allowance for impairment (note 10)	(883)	(477)
Net loans and receivables to customers	36,581	38,592

*Commercial mortgage loans exclude loans of €444m (2009: €447m) to the group's life assurance operations including loans held for the benefit of unit-linked policyholders.

There is no particular concentration of risk within these categories.

Loans and receivables can be analysed into fixed and variable-rate loans as follows:

	2010	2009
	€m	€m
Tracker	24,187	22,454
Variable rate	9,679	10,222
Fixed rate	2,715	5,916
	36,581	38,592

purchase of these mortgage pools. The notes are secured by a first fixed charge over the residential mortgages in each pool. The notes may be sold to investors or held by the group and used as collateral for borrowings. The group has established a number of special purpose vehicles which involve the selling of pools of residential mortgages to the special purpose vehicles which issue mortgage-backed floating-rate notes ("notes") to fund the

Details of the residential mortgage pools sold to special purpose vehicles and the notes issued by the special purpose vehicles are included below:

		2010	2009
		€bln	€bln
Residential mortgages held through special purpose vehicles		26.9	26.0
Notes issued by special purpose vehicles	- rated	23.4	23.8
	- unrated	2.9	2.3

9. Loans and receivables to customers (continued)

The notes issued by these special purpose vehicles comprise the following:

	2010	2009
	€bln	€bln
Sold to third parties and included within debt securities in issue (non -
recourse) on the statement of financial position	3.0	2.8
- Held by the European Central Bank ("ECB") as collateral in respect of
funds raised under the Eurosystem funding programme (note 22)1	17.7	13.7
- Held by other banks as part of collateralised lending or sale
and repurchase agreements	2.3	1.3
Held by Irish Life Assurance plc as collateral for Government securities -
under a stock lending agreement with the bank operations of the group2
	-	0.2
- Other
Available collateral	0.4	5.8
Unrated notes	2.9	2.3
	26.3	26.1

¹ See Note 22, Deposits by banks (including central banks) for amounts placed by the ECB with Irish Life & Permanent plc.

2 (2009: €0.1bln). The stock lending agreement provides for a minimum collateral value of 150% of Aaa-rated bonds to Government securities held by the bank under a stock lending agreement with Irish Life Assurance plc amount to €nil be maintained in respect of the Government securities borrowed.

Details of provisions for loan impairments are set out in Note 10, Provision for impairment.

Ireland (CBFSAI). At 31 December 2010 and 31 December 2009, the group had no facility and consequently no amounts drawn down under the mortgage-backed promissory note programme with the Central Bank and Financial Services Authority of

Finance leases net of provision include the following:

	2010	2009
	€m	€m
Finance leases receivables gross of future income
No later than 1 year	588	664
Later than 1 year and no later than 5 years	312	554
Later than 5 years	1	11
	901	1,229
Unearned future finance income on finance leases
No later than 1 year	(30)	(35)
Later than 1 year and no later than 5 years	(23)	(44)
Later than 5 years	-	(1)
	(53)	(80)
Total	848	1,149
Present value of minimum lease payments analysed by residual maturity
No later than 1 year	559	629
Later than 1 year and no later than 5 years	288	510
Later than 5 years	1	10
	848	1,149
Provision for uncollectible minimum payments receivable*	58	62
Unguaranteed residual values accruing to the benefit of the group	n/a	n/a

*This provision is disclosed in Note 10, Provision for impairment within the 'consumer finance' category.

Finance leases normally have a term of five years or less.

10. Provision for impairment

(A) Loans and receivables

	2010				2009
	Specific	Collective	Total	Specific	Collective	Total
	€m	€m	€m	€m	€m	€m
As at 1 January	241	236	477	37	102	139
Charge to income statement
Impairment losses	312	131	443	213	163	376
Amounts recovered during the year	-	(8)	(8)	-	-	-
Amounts written off during the year	(7)	(22)	(29)	(10)	(30)	(40)
Exchange movements	-	-	-	1	1	2
As at 31 December	546	337	883	241	236	477

Analysis of charge to income statement

	2010			2009
		Specific Collective	Total	Specific	Collective	Total
	€m	€m	€m	€m	€m	€m
Impairment losses	312	131	443	213	163	376
Amounts recovered during the year	-	(8)	(8)	-	-	-
Provision for interest on impaired loans / unwind
of discount	(15)	-	(15)	-	-	-
	297	123	420	213	163	376

Analysis of impairment losses

	2010		2009
	Specific	Collective	Total	Specific	Collective	Total
	€m	€m	€m	€m	€m	€m
ROI residential lending	187	56	243	107	47	154
ROI commercial lending	80	25	105	69	30	99
UK lending	25	2	27	27	6	33
Consumer finance	5	40	45	10	80	90
	297	123	420	213	163	376

Analysis of amounts written off during the year

	2010			2009
	Specific €m	Collective €m	Total €m	Specific €m	Collective €m	Total €m

ROI residential lending	(1)	-	(1)	(1)	-	(1)
UK lending	(6)	-	(6)	(9)	-	(9)
Consumer finance	-	(22)	(22)	-	(30)	(30)
As at 31 December	(7)	(22)	(29)	(10)	(30)	(40)

Analysis of provisions

	2010		2009
	Specific	Collective	Total	Specific	Collective	Total
	€m	€m	€m	€m	€m	€m
ROI residential lending	322	124	446	125	69	194
ROI commercial lending	163	60	223	78	35	113
UK lending	47	16	63	28	14	42
Consumer finance	14	137	151	10	118	128
As at 31 December	546	337	883	241	236	477

(B) Debt securities

	2010			2009
	Specific	Collective	Total	Specific	Collective	Total
	€m	€m	€m	€m	€m	€m
As at 1 January	-	19	19	-	122	122
Transfer from collective to specific provision	13	(13)	-	-	-	-
Charge to income statement
Provision utilised - AFS securities*	(9)	-	(9)	-	-	-
Amounts written off during the year - Loans and
receivables	(4)	-	(4)	-	(103)	(103)
As at 31 December	-	6	6	-	19	19

* Offset against impairment recycled from other comprehensive income.

11. Loans and receivables to banks

	2010	2009
	€m	€m
Held at amortised cost
Repayable on demand (note 5)	935	2,510
Other loans and receivables to banks	36	94
	971	2,604
Designated as FVTPL
Life operations deposits with banks	2,594	2,321
	3,565	4,925

Loans and receivables to banks amounting to €146m have been transferred from the 'Designated as FVTPL' category to assets classified as held-for-sale as disclosed in Note 21, Assets and liabilities classified as held for sale.

banks). No right of set-off existed between these deposits by banks and the loans and receivables to banks. They were recorded in loans and receivables to banks in accordance with accounting standards. No such balances existed at 31 December 2010. At 31 December 2009, loans and receivables to banks included €0.65bln deposits placed with one financial institution covered by the Irish Government Guarantee Scheme. This covered institution placed €0.65bln with Irish Life & Permanent plc on the same terms and the €0.65bln was included in Note 22, Deposits by banks (including central

12. Investment properties

	2010 €m	2009 €m
As at 1 January	1,769	2,280
Additions from acquisitions	241	25
Additions from subsequent expenditure	2	14
Disposals	(97)	(33)
Fair value adjustments	(90)	(517)
As at 31 December	1,825	1,769

Investment property is held for capital appreciation and income and is let on a commercial basis to third parties. Investment property is carried at fair value as determined by an independent valuer who has appropriate recognised professional qualifications and recent experience in the location and category of the property being valued. The valuers apply the Royal Institution of Chartered Surveyors (RICS) guidance in determining the fair value of properties. In the RICS standards, market value is defined as "the estimated amount for which property should exchange on the date of valuation between a willing buyer and a willing seller in an arms-length transaction after proper marketing wherein the parties had each acted knowledgeably, prudently and without compulsion". The guidance set down by the RICS standards is consistent with fair value as defined within the accounting standards. Fair value takes into account recent occupancy and rental levels and is based on yields which are applied to arrive at the property valuation.

There has been some improvement in sentiment and investor interest in the Irish property investment market since the beginning of 2010. However the market is still suffering from illiquidity. The EU/IMF Programme of Financial Support for Ireland has seen investor demand decline by year end, resulting in a number of substantial pipeline deals being put on hold. The shortage of supply as a result of seller wariness and a slow rate of progress in NAMA loan transfer and business plan approval is also contributing to this illiquidity. While there is greater uncertainty attaching to valuations in the current market, property valuers are generally taking the view that the yield stability that emerged during 2010 is reasonably robust.

The Investment Property Databank (IPD) provides a benchmark for the institutional commercial property investment market. The total IPD return for the Irish market for 2010 was a negative 2.4% (2009: negative 23.3%). The UK market has continued to see a good level of investment transactional activity albeit the weight of investor demand has reduced. This has led to a stabilisation in yield over recent months following a period of yield compression. The UK IPD total return for 2010 was positive 14.5% (2009: positive 2.2%).

At 31 December 2010, €1,679m (2009: €1,751m) of investment properties were held by unit-linked funds.

The yield spreads used in the independent valuations were as follows:

	2010		2009
Sector	ROI	UK	ROI	UK
Office
Prime	6.07%-8.60%	4.04%-7.47%	6.80%-9.96%	5.00%-8.00%
Suburban	7.28%-11.19%	5.96%-7.69%	6.91%-12.01%	6.76%-8.92%
Provincial	7.57%-12.24%	6.13%-8.97%	7.57%-12.51%	5.35%-10.00%
Industrial
Prime	6.63%-11.02%	7.14%-7.86%	7.80%-11.34%	7.64%-9.26%
Secondary	6.00%-11.56%	-	8.1%-11.78%	11.25%
Provincial	-	-	13.30%	-
Retail
Prime high street	5.79%-7.97%	4.04%-6.68%	6.00%-8.76%	4.74%-7.39%
Secondary	6.00%-8.50%	-	6.65%-8.54%	-
Shopping centre	7.84%-10.47%	7.10%	7.72%-10.08%	9.39%
Retail warehousing	7.45%-8.64%	5.83%-7.50%	7.57%-8.81%	7.04%-8.18%
Provincial	7.11%-10.14%	5.33%-5.85%	7.04%-9.38%	6.26%-9.82%

12. Investment properties (continued)

Residential

Residential properties are valued on a capital value per square foot rather than on basis of investment yield. Residential properties represent 1.3% (2009: 1.6%) of total investment property.

Investment properties as at 31 December 2010 are analysed as follows:

	ROI €m	UK €m	Other €m	Total €m
Residential	21	3	-	24
Office	484	363	274	1,121
Industrial	118	11	-	129
Retail	374	177	-	551
	997	554	274	1,825

Investment properties as at 31 December 2009 are analysed as follows:

	ROI €m	UK €m	Other €m	Total €m
Residential	29	-	-	29
Office	531	356	142	1,029
Industrial	138	12	-	150
Retail	410	151	-	561
	1,108	519	142	1,769

These borrowings (including accrued interest), which have recourse only to the specific property which they were used to acquire, amounted to €607m at 31 December 2010 (2009: €625m). At 31 December 2010 loans (including accrued interest) of €368m (2009: €370m) were issued by Irish Life & Permanent plc and were eliminated on consolidation. The remaining balance of borrowings is contained within Note 22, Deposits by banks (including central banks). The acquisition of certain investment properties on behalf of unit-linked policyholders is funded by borrowings.

policyholders, there were some breaches of loan-to-value terms attached to certain borrowings during the year. rectified as at 31 December 2010. As a result of the decrease in the values of investment properties held in unit-linked funds for the benefit of The group continues to fulfil all of its repayment obligations for such borrowings. These breaches have been

current assets and liabilities. recourse loans from third party banks secured on residential property included in unit trusts held by unit-linked funds for the benefit of policyholders. There were payment arrears of €0.35m (2009: €0.14m) on loan balances of €5m (2009: €4m) at 31 December 2010. These loans have been classed as current in Note 39, Current / non At 31 December 2010 there were some breaches of loan-to-value terms and payment defaults relating to non-

Property held under long leasehold interest at 31 December 2010 was €49m (2009: €48m). There are no future payments under these leases. There are no contingent rents on these properties.

13. Interest in subsidiary and associated undertaking

(A) Group's interest in associated undertaking

The group owns 30.43% (2009: 30.43%) of Allianz-Irish Life Holdings plc, an unlisted general insurance company operating in Ireland.

The group's share of Allianz-Irish Life Holdings plc net assets is as follows:

	2010	2009
	€m	€m
As at 1 January	122	139
Share of results before tax	10	(2)
Share of tax	(1)	-
Dividends paid	(7)	(15)
As at 31 December	124	122
Summary financial information on Allianz-Irish Life Holdings plc (100%) is as follows:

	2010 €m	2009 €m
Assets	1,679	1,677
Liabilities	1,229	1,277
Equity	450	400
Gross premium written	437	445
Profit / (loss) after tax	30	(5)

The group's share of profits / (losses) after tax of Allianz-Irish Life Holdings plc for the year ended 31 December 2010 was €9m (2009: (€2m)).

(B) Company's interest in subsidiary undertaking

Acquisition of Irish Life & Permanent plc by Irish Life & Permanent Group Holdings plc

plc. On this date under a Scheme of Arrangement sanctioned by the High Court, 276,782,344 IL&P ordinary shares were cancelled and Irish Life & Permanent Group Holdings plc subsequently issued the 276,782,344 On 15 January 2010, Irish Life & Permanent plc ("IL&P") was acquired by Irish Life & Permanent Group Holdings ordinary shares to the shareholders of IL&P on a one-for-one basis. On the same day, IL&P issued 276,782,344 ordinary shares to Irish Life & Permanent Group Holdings plc. IL&P is now a 100% subsidiary of Irish Life & Permanent Group Holdings plc. Further details of this acquisition are disclosed in Note 3, Acquisition of IL&P by Irish Life & Permanent Group Holdings plc.

no comparative numbers for the company in 2009. Irish Life & Permanent Group Holdings plc did not acquire Irish Life & Permanent plc until 2010, hence there are

	2010	2009
	€m	€m
As at 1 January	-	-
Investment in IL&P1	3,584	-
Impairment of investment in IL&P2	(2,497)
Decrease in investments relating to share options	(2)
As at 31 December	1,085	-

1 capital and reserves at 31 December 2008. This investment in Irish Life & Permanent plc represents the book value of Irish Life & Permanent plc

2 occurred to recognise the investment at its recoverable amount, the market value for Irish Life & Permanent plc on 15 January 2010. Following the initial recognition of the company's investment in Irish Life & Permanent plc, an impairment

and associated undertaking. Details of the group's principal subsidiary and associated undertakings are set out in Note 54, Principal subsidiary

14. Property and equipment

				Total
				€m
Cost or valuation	2010 Office and Land and computer Motor buildings equipment vehicles €m €m €m 195 260 21 476 1 9 4 14 (18) - - (18) (4) (3) (6) (13) (2) (3) - (5) (2) - - 3 - 167 264 19 12 214 12 7 16 4 (4) - - (2) (2) (5) 3 - - (2) (3) - - (1) - - 1 - 14 225 11
As at 1 January
Additions
Valuation
Disposals
Elimination of assets with nil carrying value				(5)
Reclassification to assets classified as held for sale
(note 21)				(7)
Reclassification from intangible assets (note 16)				3
As at 31 December				450

Depreciation
As at 1 January				238
Provided in the year (note 48)				27
Valuation				(4)
Disposals				(9)
Impairment				3
Elimination of assets with nil carrying value				(5)
Reclassification to assets classified as held for sale
(note 21)				(1)
Reclassification from intangible assets (note 16)				1
As at 31 December				250
Net book value as at 31 December	153	39	8	200

	2009
		Office and
	Land and	computer	Motor
	buildings	equipment	vehicles	Total
	€m	€m	€m	€m
Cost or valuation
As at 1 January	318	250	23	591
Additions	4	8	2	14
Valuation	(113)	-	-	(113)
Disposals	-	(4)	(3)	(7)
Impairment	(9)	-	-	(9)
Reclassification	(5)	6	(1)	-
As at 31 December	195	260	21	476
Depreciation
As at 1 January	23	195	11	229
Provided in the year (note 48)	10	16	4	30
Valuation	(16)	-	-	(16)
Disposals	-	(3)	(2)	(5)
Reclassification	(5)	6	(1)	-
As at 31 December	12	214	12	238
Net book value as at 31 December	183	46	9	238

14. Property and equipment (continued)

Valuations have used yields ranging from 6.07% to 8.2% (2009: 6.86% to 8.2%), depending on the property size and location. In relation to the larger head office buildings in 2010 vacant periods of 2 to 2.5 years (2009: 2 to 3 years) have been applied. Land and buildings were revalued at 31 December 2010. Valuations were carried out by registered, independent appraisers having an appropriate recognised professional qualification and recent experience in the location and category of the property being valued. Values take into account recent market transactions for similar properties.

The net book value of land and buildings include the following:

	2010 €m	2009 €m
Buildings - freehold	105	121
Buildings - leasehold	15	17
Land	33	45
	153	183

The historic cost of land and buildings in the group is €165m (2009: €169m).

of in 2010 and generated a loss on the disposal of €1m (2009: nil). liabilities classified as held for resale). The associated assets of certain of these bank branches were disposed of in 2010 Assets reclassified to the held-for-sale category relate to bank branches closed during 2010 (Note 21, Assets and

15. Shareholder value of in-force business

The shareholder value of in-force business for insurance contracts is computed using EEV principles issued in May 2004 by the European Chief Financial Officers' forum. Shareholder value of in-force business represents the present value of future shareholder cash flows less a deduction for the cost of required capital and before allowing for tax and includes a deduction for the time value of financial options and guarantees.

Further details of the EV principles are set out in the notes to the EV Basis Supplementary Information.

(A) Assumptions

The principal assumptions are set out below:

Principal economic assumptions

based on European swap rates for the effective duration of the future cash flows underlying the present value of in-force ("PVIF"), plus a margin of 1.3%. The base interest rate used at 31 December 2009 was based on the yield available from Irish Government bonds at that time, and was equal to the European swap rate at 31 December 2009 The assumed future pre-tax returns on fixed interest securities are set by reference to gross redemption yields appropriate risk premium. An asset mix based on the assets held at the valuation date within policyholder funds has been assumed within the projections. plus 1.3%. The corresponding return on equities and property is equal to the base interest rate assumption plus the available in the market at the end of the reporting period. The base interest rate used for the risk discount rate is

	31 December	31 December	31 December
	2010	2009	2008
Equity risk premium	3.0%	3.0%	3.0%
Property risk premium	2.0%	2.0%	2.0%
Irish government bond yield	n/a*	4.6%	4.1%
European swap rate	3.1%	3.3%	-
Margin	1.3%	1.3%	-
Base interest rate	4.4%	4.6%	4.1%
Non-market risk margin	2.1%	2.1%	2.1%
Market risk margin	1.0%	0.8%	0.8%
Risk discount rate	7.5%	7.5%	7.0%
Investment return
- Fixed interest	0.8% - 5.2%	1.1% - 4.2%	2.7% - 4.3%
- Equities	7.4%	7.6%	7.1%
- Property	6.4%	6.6%	6.1%
Expense inflation	3.0%	3.0%	3.0%

believed to be a suitable representative base rate due to the dislocation of the market in these bonds at that date. *The Irish Government bond yield at 31 December 2010 is higher than the base interest rate of 4.4% p.a., but is not

Other assumptions

Therefore, the persistency assumptions within the PVIF model have reflected this by allowing for a more adverse persistency experience over the next three years, reducing to the long-term assumptions thereafter. Actual future persistency experience against the assumptions will continue to be monitored closely. persistency experience in 2009 and 2010 is expected to continue at a reduced level for a number of years. analyses of recent operating experience. Persistency assumptions are set by reference to recent operating experience excluding the 2009 persistency experience which is regarded as an extreme event. The adverse The assumed future mortality and morbidity assumptions are based on published tables of rates, adjusted by

discretionary participation features ("DPF"). Further details of assumptions are included in Note 26, Life insurance contracts including insurance contracts with

to the acquisition of new business and the maintenance of business in-force. No allowance has been made for future productivity improvements in the expense assumptions. The management expenses attributable to life assurance business have been analysed between expenses relating

Projected tax has been determined assuming current tax legislation and rates.

15. Shareholder value of in-force business (continued)

(B) Analysis of the movement in the year

The change in the shareholder value of in-force business asset is analysed as follows:

	2010	2009
	€m	€m
As at 1 January	730	787
Charge to income statement in the year	(31)	(57)
As at 31 December	699	730
Analysis of charge to income statement
New business	100	99
Expected return on existing business	(83)	(88)
Experience variances	(9)	(33)
Operating assumption changes	(41)	(7)
Short-term investment fluctuations	2	8
Economic assumption changes	-	(36)
	(31)	(57)

(C) Sensitivity calculations

for associated changes to the insurance contract liabilities or any associated tax effects. shareholder value of in-force business asset ("insurance VIF") to changes in key assumptions. The details of each sensitivity are set out below. These figures do not show the impact on shareholder equity, as no allowance is made A number of sensitivities have been produced on alternative assumption sets to reflect the sensitivity of the insurance

1% decrease in risk discount rate would increase the insurance VIF by €65m,
1% increase in risk discount rate would reduce the insurance VIF by €58m,
10% decrease in maintenance expenses would increase the insurance VIF by €13m,
10% improvement in assumed persistency rates would increase the insurance VIF by €12m, and
5% decrease in both mortality and morbidity rates would increase the insurance VIF by €15m.

16. Intangible assets

Group		2010
	Software	Other	Total
	€m	€m	€m
Cost
As at 1 January	166	10	176
Additions	7	-	7
Disposals	(1)	-	(1)
Write-off	-	-	-
Elimination of assets with nil carrying value	(2)	-	(2)
Reclassification to assets classified as held for sale (note
21)	(4)	-	(4)
Reclassification to property and equipment (note 14)	(3)	-	(3)
As at 31 December	163	10	173


Amortisation
As at 1 January	132	2	134
Amortisation for the year (note 48)	16	-	16
Disposals	(1)	-	(1)
Elimination of assets with nil carrying value Reclassification to assets classified as held for sale (note	(2)	-	(2)
21)	(3)	-	(3)

Reclassification to property and equipment (note 14)	(1)	-	(1)
As at 31 December	141	2	143
Net book value as at 31 December	22	8	30

		2009
	Software	Other	Total
	€m	€m	€m
Cost
As at 1 January	160	9	169
Additions	9	-	9
Impairment	(4)	-	(4)
Write-off	(1)	-	(1)
Reclassification	2	1	3
As at 31 December	166	10	176

Amortisation
As at 1 January	114	1	115
Amortisation for the year (note 48)	20	-	20
Impairment	(2)	-	(2)
Write-off	(1)	-	(1)
Reclassification	1	1	2
As at 31 December	132	2	134

Net book value as at 31 December	34	8	42

17. Goodwill

	2010 €m	2009 €m
As at 1 January	75	71
Additions	-	4
Transfer to assets held for sale (note 21)	(5)	-
As at 31 December	70	75

Goodwill is allocated to the group's operating divisions which represent the lowest level within the group at which goodwill is monitored for internal management purposes and is not higher than the group's operating segments as reported in Note 4, Segmental information.

	2010	2009
	€m	€m
Life assurance	-	5
Brokerage / third party administration and other	70	70
	70	75

The goodwill acquired during the year ended 31 December 2009 of €4m arose on the acquisition of the remaining 2% non-controlling interest in Cornmarket Group Financial Services Limited.

No impairment losses on goodwill were recognised during 2010 or 2009.

for sale. The carrying goodwill value is tested for impairment by calculating the recoverable amount. The recoverable amount is based on value-in-use calculations of cash generating units using cash flow projections based on actual operating results and future business plans, discounted at an appropriate rate. The determination of cash flows and discount rates require the exercise of judgement. In respect of the life assurance operating division, an offer price has been used to determine the recoverable amount, for further details see Note 21, Assets and liabilities classified as held

The calculation of the value in use was based on the following key assumptions:

assume no future growth (2009: 0%). Cash flows for a period of seven years (2009: 7 years) based on 2011 business plans were used. The forecast period is based on the group's long-term perspective with respect to the operation of these cash-generating units. Cash flows were projected based on past experience, actual operating results and future business plans and

value of in-force business with an additional risk premium of 5% (2009: 5%). generating units. The discount rate is based on the rate used in calculating the future cash flows for shareholder A pre-tax discount rate of 12.5% (2009: 12.5%) was applied in determining the recoverable amounts for the cash

the value in use for the brokerage / third party administration and other operating division is sensitive to changes in future profits and the discount rate. A 5% decrease in future profits would have resulted in an impairment of c.€3.5m. The key assumptions described above may change as economic and market conditions change. The calculation of A 2% increase in the discount rate would have resulted in an impairment of c.€5m.

18. Other assets

	2010	2009
	€m	€m
Amounts falling due within one year
Amount due from policyholders	44	55
Amount due from intermediaries	2	2
Investment trading balances	-	1
Repossessed assets	38	46
Other debtors	66	25
	150	129

19. Deferred acquisition costs

	2010 €m	2009
		€m
As at 1 January	245	256
Arising in the year (note 42)	40	45
Charge to income arising in the year (note 42)	(46)	(56)
Transfer to assets classified as held for sale (note 21)	(51)	-
As at 31 December	188	245

20. Retirement benefit obligations

Defined benefit schemes

pensionable pay for each year of credited service. The group operates six Irish defined benefit pension schemes and two small UK defined benefit schemes for employees. All of the defined benefit schemes are funded by the payment of contributions into separately administered trust funds. The benefits paid from the defined benefit scheme are based on percentages of the employees' final

The pension costs and provisions are assessed in accordance with the advice of independent qualified actuaries. Valuations are carried out every three years by independent actuarial consultants. The actuarial reports are available for inspection by members of the scheme and are not available for public inspection. All of the group's defined benefit pension schemes have been revalued within the last three years with valuation dates ranging from 30 June 2008 to 5 April 2010.

Actuarial gains and losses are accounted for under the corridor approach as set out in Note 1, Basis of preparation and significant accounting policies.

The key financial assumptions used are:

	2010	2009
	%	%
Actuarial assumptions at the statement of financial
position date
Discount rate	5.00	5.50
Expected rate of return on plan assets	5.80	6.60
Salary increases 1	3.25	3.50
Pension increases	2.00	2.00
Rate of price inflation	2.00	2.00

1 In addition to the salary inflation assumption above an assumed salary scale is also allowed for.

underlying the value of the schemes' liabilities at 31 December 2010 and 31 December 2009 were the following: The main post retirement mortality assumptions used at 31 December 2010 were 108% PNM(F)L00-1 with CSO improvements from 2006 for active/deferred members and pensioners (2009: 95% PA92 (c=2040) less two years for active / deferred members and 95% PA92 (c=2025) less two years for pensioners). On this basis the life expectancies

		2010	2009
		Years	Years
Retiring today age 65	Males	22.8	22.4
	Females	24.4	25.4
Retiring in 15 years' time aged 65	Males	25.0	23.3
	Females	26.2	26.3
Amounts recognised in the income statement in respect of these defined benefit schemes are:
		2010	2009
		€m	€m
Current service cost		34	34
Past service cost		1	8
Interest cost		69	70
Expected return on scheme assets		(73)	(63)
Amortisation of corridor excess		1	4
Changes due to curtailments		(9)	-
Recognition of actuarial losses due to curtailments		1	-
		24	53

This charge has been included in administrative expenses.

Unrecognised actuarial gains or losses which are outside the corridor under IAS 19 are amortised in the income statement over the estimated remaining service lives of the members which averaged seventeen years in 2010 (2009: seventeen years).

The actual return on scheme assets was €81m (2009: €131m).

The actual return is calculated as follows:

	2010	2009
	€m	€m
Expected return on plan assets	73	63
Actuarial gain on plan assets	8	68
	81	131

20. Retirement benefit obligations (continued)

such as inflation, credit spreads and equity risk premiums. The expected return on assets is determined by calculating a total return estimate based on weighted average estimated returns for each asset class. Asset class returns are estimated using current and projected economic and market factors

rate of return on bonds reflected the prevailing yield on the specific portfolio of nominal and inflation linked long-dated bonds for the years ended 31 December 2010 and 31 December 2009. The effect of the major categories of plan assets on the overall expected rate of return on assets is set out in the table overleaf on the long-term rate of return expected for each class of asset. bond yields. The equity rate allows for a yield on 30-year Eurozone Government bonds of 4.10% (2009: 4.30%) together with an equity risk premium of 2.90% (2009: 3.60%), giving a total of 7.00% (2009: 7.90%). For property, a risk premium 1% lower than for equities was adopted for the years ended 31 December 2010 and 31 December 2009. The expected The expected rates of return for equities and property were calculated by allowing for a risk premium over prevailing long-dated

The movements in the present value of defined benefit obligations in the year are:

	2010	2009
	€m	€m
Benefit obligation as at 1 January	(1,225)	(1,183)
Current service cost	(34)	(34)
Interest cost	(69)	(70)
Past service cost	(1)	(8)
Actuarial gain / (loss) - experience adjustments	26	97
- assumption changes	(67)	(52)
Curtailments	9	-
Contributions by plan participants	(7)	(7)
Benefits paid	28	32
Benefit obligation as at 31 December	(1,340)	(1,225)
The movement in the fair value of defined benefit assets in the year are:
	2010	2009

	€m	€m
Fair value of plan assets as at 1 January	1,093	928
Expected return on plan assets	73	63
Employer contribution	38	59
Contributions by plan participants	7	7
Actuarial gain	8	68
Benefits paid	(28)	(32)
Fair value of plan assets as at 31 December	1,191	1,093

The pension assets and liabilities recognised on the statement of financial position are as follows:

	2010 €m	2009 €m	2008 €m	2007 €m	2006 €m
Benefit obligation as at 31 December	(1,340)	(1,225)	(1,183)	(1,293)	(1,211)
Fair value of plan assets as at 31 December	1,191	1,093	928	1,262	1,277
Net (obligation) / asset	(149)	(132)	(255)	(31)	66
Unrecognised actuarial losses / (gains)	100	69	186	(45)	(152)
Net recognised retirement benefit obligation	(49)	(63)	(69)	(76)	(86)

The experience adjustments arising on plan liabilities and plan assets are as follows:

Actuarial (gains) / losses	2010	2009	2008	2007	2006
- arising on benefit obligation (€m)	(26)	(97)	19	48	19
- arising on benefit obligation (% plan liabilities)	(2)	(8)	2	4	2
Actuarial gains / (losses)
- arising on plan assets (€m)	8	68	(442)	(116)	73
- arising on plan assets (% of plan assets)	1	6	(48)	(9)	6

20. Retirement benefit obligations (continued)

The movement in the present value of defined benefit obligations in the year are:

	2010	2009
	€m	€m
Net post retirement benefit obligations as at 1 January	(63)	(69)
Expense recognised in income statement	(24)	(53)
Contributions paid	38	59
Net post retirement benefit obligations as at 31 December	(49)	(63)
Net post retirement benefit assets	104	96
Net post retirement benefit liabilities	(153)	(159)
Net post retirement benefit obligations	(49)	(63)

together with the long-term rate of return expected for each class of asset for the group and the company. The following tables set out, on a combined basis for all schemes, the fair value of the assets held by the schemes

	Long-term rate of return expected	Fair value	Plan assets	Long-term rate of return expected	Fair value	Plan assets
	2010	2010	2010	2009	2009	2009
	%	€m	%	%	€m	%
Equities	7.00	673	56	7.90	637	58
Bonds	4.10	381	32	4.40	377	35
Property	6.00	78	7	6.90	53	5
Other	2.80	59	5	5.90	26	2
Fair value of plan assets as at 31 December	5.80	1,191	100	6.60	1,093	100

investments relating to Irish Life & Permanent Group Holdings plc shares or properties occupied by Irish Life & Permanent Group Holdings plc group. As at 31 December 2010, the group's pension scheme assets had an indirect holding in Irish Life & Permanent Group Holdings plc shares of €0.6m (2009: €2m) and an indirect holding of properties occupied by the Irish Life & Permanent Group Holdings group of €0.1m (2009: €0.2m). The fair value of plan assets includes investments in Irish Life Assurance plc unit-linked funds which on occasion include

The group is expected to pay contributions of approximately €35m to the pension schemes in 2011.

losses. A similar effect would arise if the rate of increase in salaries and pensions was to rise by 0.5% over the assumptions used at 31 December 2010. If the discount rate was 0.5% lower than the assumption made at 31 December 2010 then the present value of defined benefit obligations would increase by approximately €157m, all of which would be included as unrecognised actuarial

would increase by approximately €28m, all of which would be included as unrecognised actuarial losses. If the expectation of life post retirement increased by one year, then the present value of defined benefit obligations

21. Assets and liabilities classified as held for sale

	2010	2009
	€m	€m
Assets classified as held for sale
(a) Assets of Irish Life International Limited	2,085	-
(b) Bank branches	4	-
	2,089	-
Liabilities classified as held for sale
(a) Liabilities of Irish Life International Limited	2,041	-
	2,041	-

(a) Assets and liabilities of Irish Life International Limited

expected during 2011. The sale of ILI was not deemed a discontinued operation as it is not considered a major line of business or geographical area. agreed sale for €26m of ILI is subject to regulatory approvals including that of the Central Bank of Ireland, which is The assets and liabilities related to Irish Life International Limited (ILI) which form part of the life assurance the board on 11 February 2011 and signing of the relevant agreements on 23 February 2011. The completion of the reporting segment have been presented as held for sale. This follows the board entering negotiations with a potential purchaser during the latter stages of 2010, the subsequent approval in principle of a sale transaction by

The assets and liabilities of ILI are set out below:

	2010
Assets	€m
Cash and balances with central banks	14
Debt securities	397
Equity shares and units in unit trusts**	1,470
Loans and receivables to banks	146
Property and equipment	1
Intangible assets	1
Goodwill	5
Deferred acquisition costs	51
Assets classified as held for sale*	2,085

Liabilities

Derivative liabilities	2
Investment contract liabilities	1,978
Outstanding investment claims	2
Accruals	2
Other liabilities	11
Deferred front end fees	46
Liabilities classified as held for sale*	2,041

* The ILI assets and liabilities shown above exclude net €26m inter-company liabilities, which are eliminated in the consolidated financial statements. These balances will be recovered after the sale is completed.

** Equity shares and units in unit trusts include €1,406m listed and €64m unlisted.

(b) Bank branches held for sale

presented as held for sale within the Banking - Ireland segment. Assets classified as held for sale include eight bank branches that were closed during 2009 as part of a restructuring programme, the sale of which is highly probable in the next twelve months. These branches are

€1m from the revaluation reserve which was recognised in the statement of changes in equity. On the same date these branches were classified from property and equipment to held for sale with no further adjustment to the fair value of these branches at that date. On 30 June 2010, seven of the eight branches were remeasured with a fair value of €4m resulting in a release of

On 31 December 2010, an additional branch was remeasured with a fair value of €1m and classified from property and equipment to held for sale with no impairment loss or gain. Subsequently on 31 December 2010, all eight branches were remeasured with a fair value of €4m resulting in an impairment loss of €1m being recognised in the income statement.

22. Deposits by banks (including central banks)

	2010	2009
	€m	€m
Deposits by banks	17,146	18,713
	17,146	18,713
Deposits by banks include the following:
	2010	2009
	€bln	€bln
Placed by the European Central Bank ("ECB") 1	13.8	9.8
Placed by other banks2	1.4	1.0
Held as a result of repurchase agreements	1.6	6.1
Collateral held for investments for unit-linked funds (CPPI)	-	0.6
Inter-bank deposits3	-	0.7
Other4	0.3	0.5
	17.1	18.7
Balances placed by the European Central Bank (ECB)
Maximum	13.8	13.5
Average	9.4	10.9

1 The deposits made by the ECB are secured on €17.7bln (2009: €13.7bln) notes issued by special purpose vehicles controlled by the group and €2.2bln (2009: nil) of debt security assets. The notes are secured by a first fixed charge over residential mortgages held by the special purpose vehicles which are included in Note 9, Loans and receivables to customers.

2 These deposits are collateralised on €2.3bln (2009: €1.3bln) of notes issued by special purpose vehicles controlled by the group. The notes are secured by a first fixed charge over residential mortgages held by the special purpose vehicles, which form part of the group's consolidated financial statements which are included in Note 9, Loans and receivables to customers.

3 These deposits were placed by a bank covered under the Irish government guarantee scheme on the same terms as deposits placed with this institution by Irish Life Assurance plc (Note 11, Loans and receivables to banks). No right of set-off existed between these deposits by banks and the loans and receivables to banks.

4 These deposits include loan capital raised of €100m raised by Irish Life Assurance plc (Note 35, Analysis of equity and capital) secured on the in-force book of business. The repayment of this loan is contingent on the positive cashflows being generated from a defined portion of the value of inforce emerging in the future. Subject to certain triggers being satisfied there will be no capital repayment on this loan until 22 February 2013.

23. Customer accounts

	2010	2009
	€m	€m
Repayable on demand	3,510	3,503
Other	9,872	11,059
	13,382	14,562

At 31 December 2010, customer accounts exclude deposits of €1,463m (2009: €1,251m) from the group's non-banking operations including deposits held for the benefit of unit-linked policyholders.

24. Debt securities in issue

	2010 €m	2009 €m
At amortised cost:
Bonds and medium-term notes	6,928	7,855
Other debt securities in issue	947	3,043
Non-recourse funding	2,159	2,364
	10,034	13,262
Repayable in not more than 1 year	1,501	8,132
Repayable in more than 1 year but not more than 2 years	116	1,395
Repayable in more than 2 years but not more than 5 years	5,032	452
Repayable in more than 5 years	3,385	3,283
	10,034	13,262

Bonds and medium-term notes exclude €35m (2009: €77m) of debt securities issued by the group held in the group's life assurance operations which have been eliminated on consolidation.

Other debt securities in issue

Other debt securities in issue at 31 December 2010 included €805m (2009: €425m) advances secured on notes issued by special purpose vehicles which are secured on residential property loans. These loans which have not been derecognised, are shown within loans and receivables to customers and the funding is shown as a separate liability.

Non-recourse funding

At 31 December 2010, the group had advances secured on residential property loans subject to non-recourse funding. These loans, shown as a separate liability. which have not been derecognised, are shown within loans and receivables to customers and the non-recourse funding is

The securitisations involve the selling of pools of mortgages to special purpose entities which issue mortgage-backed floating notes ("notes") to fund the purchase of these mortgage pools. The non-recourse funding is collateralised on €3bln of the notes in issue by the special purpose vehicle, Note 9, Loans and receivables to customers.

Under the terms of these securitisations, the rights of the providers of the related funds are limited to the mortgage loans in the securitised portfolios and any related income generated by the portfolios, without recourse to Irish Life & Permanent plc. Irish Life & Permanent plc is not obliged to support any losses in respect of the mortgages subject to the non-recourse funding and does not intend to do so. During the term of the transactions, any amounts realised from the portfolios in excess of that due to the providers of the funding, less any related administrative costs, will be paid to Irish Life & Permanent plc. The providers of this funding have agreed in writing (subject to the customary warranties and covenants) that they will seek repayment of the finance, as to both principal and interest, only to the extent that sufficient funds are generated by the mortgages and related security, and that they will not seek recourse in any other form.

Profit on repurchase of debt securities in issue

During the year ended 31 December 2009, the group repurchased €53m and £10m of medium-term non-recourse notes in in Note 45, Investment return. issue at discounts of 7% to 34% for the securities outlined below. This repurchase of debt is accounted for under IAS 39 Financial Instruments, Recognition and Measurement and met the requirements to be treated as an extinguishment of the original instruments. It resulted in a total profit of €8m (€7m after taxation) being recognised in the investment return as detailed

The carrying value of each instrument repurchased and the consideration given including costs to arrive at the profit are set out below:

Instrument exchange

EMTN Tranche	Percentage repurchased	Nominal value	Carrying value
		€m	€m
Auburn 5 A2	4.53%	12	12
Fastnet 2 A2	3.33%	53	53
Total		65	65
Repurchase consideration given including costs			€m
Consideration			57
Costs			-
Total repurchase consideration including costs			57
Profit			8

25. Investment contract liabilities

	2010
	Gross	Reinsurance	Net
	€m	€m	€m
Unit-linked liabilities	25,724	(57)	25,667
Non-linked and guaranteed tracker liabilities	290	-	290
Investment financial options and guarantees	31	-	31
Transfer of unit-linked liabilities to liabilities classified
as held for sale (note 21)	(1,978)	-	(1,978)
As at 31 December	24,067	(57)	24,010

	2009
	Gross €m	Reinsurance €m	Net €m
Unit-linked liabilities	23,434	(91)	23,343
Non-linked and guaranteed tracker liabilities	381	-	381
Investment financial options and guarantees	43	-	43
Non-controlling share of unit trust	174	-	174
As at 31 December	24,032	(91)	23,941

The non-controlling share of unit trust refers to the portion of unit trusts consolidated in the financial statements which are not attributable to Irish Life Assurance plc policyholders. The trusts are consolidated where Irish Life Assurance plc is deemed by its percentage holdings to have a controlling interest. At 31 December 2010, the unit trusts consolidated are all owned 100% by Irish Life Assurance plc, therefore the non-controlling interest is zero.

The change in liabilities during the year ended 31 December 2010 is analysed as follows:

	2010
	Gross	Reinsurance	Net
	€m	€m	€m
As at 1 January	24,032	(91)	23,941
Premiums	3,993	(1)	3,992
Claims	(3,705)	37	(3,668)
Fees deducted	(174)	-	(174)
Exchange movements	35	-	35
Change in investment contract liabilities	2,038	(2)	2,036
Non-controlling interest:
- Change in investment contract liabilities	(93)	-	(93)
- Investment by non-controlling interest in unit trust	(81)	-	(81)
Transfer of unit-linked liabilities to liabilities classified
as held for sale (note 21)	(1,978)	-	(1,978)
As at 31 December	24,067	(57)	24,010

25. Investment contract liabilities (continued)

The change in liabilities during the year ended 31 December 2009 is analysed as follows:

	2009
	Gross	Reinsurance	Net
	€m	€m	€m
As at 1 January	21,118	(144)	20,974
Premiums	3,358	(1)	3,357
Claims	(2,869)	88	(2,781)
Fees deducted	(174)	-	(174)
Exchange movements	15	-	15
Change in investment contract liabilities	2,666	(34)	2,632
Non-controlling interest:
- Change in investment contract liabilities	(148)	-	(148)
- Investment in non-controlling interest in unit trust	66	-	66
As at 31 December	24,032	(91)	23,941

26. Life insurance contracts including life insurance contracts with discretionary participation features ("DPF")

(A) Analysis of insurance contract liabilities

	2010
	Gross	Reinsurance	Net
	€m	€m	€m
Unit-linked liabilities	574	-	574
Non-linked liabilities
- without discretionary participation features	3,628	(1,901)	1,727
- with discretionary participation features	36	-	36
As at 31 December	4,238	(1,901)	2,337
		2009
	Gross	Reinsurance	Net
	€m	€m	€m
Unit-linked liabilities	591	-	591
Non-linked liabilities
- without discretionary participation features	3,391	(1,829)	1,562
- with discretionary participation features	52	-	52
As at 31 December	4,034	(1,829)	2,205

The change in liabilities during the year ended 31 December 2010 is analysed as follows:

	Gross	Reinsurance	Net
	€m	€m	€m
As at 1 January	4,034	(1,829)	2,205
Premiums	719	(124)	595
Claims	(473)	169	(304)
Expected return on insurance contract liabilities	71	(42)	29
Return credited to policyholders	50	-	50
Fees deducted	(372)	131	(241)
Change in economic assumptions	252	(207)	45
Change in operating assumptions	(40)	1	(39)
Exchange differences	1	-	1
Other	(4)	-	(4)
As at 31 December	4,238	(1,901)	2,337

The change in liabilities during the year ended 31 December 2009 is analysed as follows:

	Gross	Reinsurance	Net
	€m	€m	€m
As at 1 January	4,007	(1,932)	2,075
Premiums	709	(116)	593
Claims	(489)	160	(329)
Expected return on insurance contract liabilities	100	(59)	41
Return credited to policyholders	96	-	96
Fees deducted	(317)	67	(250)
Change in economic assumptions	(33)	15	(18)
Change in operating assumptions	(35)	36	1
Exchange differences	6	-	6
Other	(10)	-	(10)
As at 31 December	4,034	(1,829)	2,205

26. Life insurance contracts including life insurance contracts with discretionary participation features ("DPF") (continued)

(B) Assumptions

The liabilities for insurance contracts are calculated in accordance with insurance regulations in force in Ireland.

Liabilities for unit-linked insurance contracts include amounts reflecting the value of the underlying funds in which the policy is invested.

Liabilities are calculated using either the net or the gross premium method. In calculating the appropriate liability for non-linked insurance liabilities including the closed book of business with discretionary participation features, it is necessary to make assumptions on a range of items. The assumptions which have the most significant impact on the measurement of liabilities are:

Interest rates
Mortality and morbidity
Expenses.

The interest rates gross of tax used are as follows:

	2010	2009
Regular premium business
- No DPF	2.50% to 3.94%	2.70% to 3.98%
- With DPF	1.76% to 3.06%	2.11% to 2.53%
Single premium business	0.15% to 4.58%	1.12% to 5.47%

Mortality and morbidity assumptions are based on the standard industry published tables amended where appropriate to reflect the group's current experience and to allow for expected improvements or disimprovements in mortality. The tables used for 2010 and 2009 are as follows:

	2010	2009
Lives assured
- Non-linked	55%-90% AM / AF00 select	55%-90% AM / AF00 select
- Linked	100% AM / AF00 ultimate	100% AM / AF00 ultimate
Annuities
- Males	104% PNMA00	104% PNMA00
- Females	104% PNFA00	104% PNFA00
- Future mortality rates to improve on medium
cohorts basis with minimum improvement of	1.50% p.a.	1.50% p.a.
Disability rates
- Inception: Males	80%-320% CMIR (12)	105%-320% CMIR (12)
- Inception: Females	160%-640% CMIR (12)	210%-640% CMIR (12)
- Termination	45%-230% CIDA rates	25%-160% CIDA rates
Serious illness rates
- Smokers	163% of IC94 with 3% p.a. future deterioration	163% of IC94 with 3% p.a. future deterioration
- Non-smokers	100% of IC94 with 3% p.a. future deterioration	100% of IC94 with 3% p.a. future deterioration

Expense assumptions are based on the current year expenses and size of book. Expense inflation assumption is 3.0% (2009: 3.0%).

26. Life insurance contracts including life insurance contracts with discretionary participation features ("DPF") (continued)

(C) Changes in assumptions

The principal changes in assumptions since 31 December 2009 were:

Interest rates used were changed to reflect the actual market interest rates at 31 December 2010. This increased liabilities by €61m after allowing for reinsurance. This is offset by returns on matching assets, reflecting the group's policy of matching assets and liabilities where possible.
The benefit inflation assumption was reduced to reflect a fall in inflation which reduced liabilities by €16m after allowing for reinsurance. This is offset by returns on matching assets, reflecting the group's policy of matching assets and liabilities where possible.
Morbidity rates were changed to reflect the latest experience, which reduced liabilities by €24m after allowing for reinsurance.
Expense assumptions were changed to reflect current unit costs and a change in the expense reserving methodology. This reduced liabilities by €15m after allowing for reinsurance.

(D) Sensitivities

The following indicates the sensitivities of insurance liabilities to changes in the assumptions:

1% decrease in interest rates would increase liabilities by €194m after allowing for reinsurance;
1% increase in interest rates would decrease liabilities by €159m after allowing for reinsurance;
10% decrease in maintenance expenses would decrease liabilities by €9m after allowing for reinsurance; and
5% decrease in both mortality and morbidity rates would decrease liabilities by €12m after allowing for reinsurance.

liabilities will also have an impact on the tax charge, which is not reflected in the figures above. The above are based on a change in one assumption while holding all other assumptions constant. In practice this is unlikely to occur and changes in assumptions may be correlated. Changes in interest rates would be linked to equivalent changes in the value of the assets backing the insurance reserves. Changes to insurance contract

27. Financial options and guarantees

The main options and guarantees for which financial options and guarantees ("FOG") costs have been determined are:

(a) Investment guarantees on certain unit-linked funds, where the unit returns to policyholders are smoothed subject to a minimum guaranteed return (in the majority of cases the minimum guaranteed change in unit price is 0%, usually representing a minimum return of the original premium). An additional management charge is levied on policyholders investing in these funds, compared to similar unit-linked funds without this investment guarantee. This extra charge is allowed for in calculating the FOG cost.
(b) Guaranteed annuity rates on a small number of products.
(c) Return of premium death guarantees on certain unit-linked single premium products.
(d) Guaranteed benefits for policies in the closed with-profit fund.

The cost of these FOGs are calculated using stochastic models. There are two elements to the cost:

The time value, which is required where a financial option exists which is exercisable at the discretion of the policyholder. The time value of an option reflects the additional value inherent in the option due to the potential for the option to increase in value prior to its expiry date, usually due to movements in the market value of assets; and
The intrinsic value, which is the value based on market conditions at the date of the valuation.

Where a FOG relates to a contract classed as an investment contract, the investment contract liability includes both the time value and the intrinsic value.

In accordance with EEV principles where FOGs are part of an insurance contract, allowance is made for the intrinsic asset for the time value. The time value of FOGs is calculated using stochastic models. value of FOGs in the insurance contract liabilities and an explicit deduction is made to the shareholder value of in-force

The supplementary EV information in Note 12, EV assumptions sets out the detailed assumptions used to calculate the cost.

28. Other liabilities

	2010	2009
	€m	€m
Amounts falling due within one year
PAYE and social insurance	24	18
Other taxation	7	4
Investment trading balances	-	4
Other payables*	243	227
Premiums on deposit	32	46
Bank overdraft	15	7
	321	306

*Liabilities amounting to €11m (2009: nil) have been transferred from 'Other payables' to liabilities classified as held for sale disclosed in Note 21, Assets and liabilities classified as held for sale.

29. Provisions

	Staff restructuring costs €m	2010 Onerous contracts €m	Other €m	Total €m
As at 1 January	7	33	23	63
Provisions made during the year	19	-	5	24
Provisions used during the year	(24)	(33)	(13)	(70)
As at 31 December	2	-	15	17

Staff restructuring costs

statement. Staff restructuring costs include provisions for employees on career breaks, voluntary severance schemes and voluntary early retirement. The provision is expected to be fully utilised during the year ended 31 December 2011. The provision of €19m made during the year was partially utilised and is recognised in administration expenses on the income

Onerous contracts

Irish Life Assurance plc had an onerous contract in respect of an investment property where the market value reduced. During the year the onerous contract was subject to arbitration. A settlement was agreed resulting in a loss of €39m. The provision of €33m was fully utilised with the additional loss of €6m recognised in investment return.

Other

Policyholder claims are expected to be settled in 2011. The other provision is in relation to outstanding settlements on certain closed derivative contracts and policyholder claims. The settlement of the closed derivative contracts are currently under commercial negotiations a partial settlement was made during the year and the final settlement is expected to be resolved within the next twelve months.

30. Deferred front-end fees

	2010	2009
	€m	€m
As at 1 January	102	117
Arising in the year	17	17
Credit to income arising in the year	(25)	(32)
Transfer to liabilities classified as held for sale (note 21)	(46)	-
As at 31 December	48	102

31. Deferred taxation

	2010	2009
	€m	€m
Deferred tax liabilities	(172)	(129)
Deferred tax assets*	112	-
Net Deferred tax obligations as at 31 December	(60)	(129)

* Banking Ireland incurred further trading losses in the year, which gives rise to a closing deferred tax asset of €112m, which includes €36m in respect of AFS assets and €16m in respect of the retirement benefits deficit. This asset has been recognised on the basis that management expects to be able to utilise this asset from future own taxable profits and available group relief and in the case of the retirement benefits deficit and AFS reserve through a reversal of existing balances. The estimated future profits are based on projections which show the bank returning to profit and that there will be sufficient cumulative profits to recover the asset in full.

Net Deferred tax obligations are attributable to the following:

	2010
	As at	Recognised	Recognised		As at
	1 Jan	in income	in equity	Other	31 Dec
	€m	€m	€m	€m	€m
Property and equipment	(12)	-	5	-	(7)
Deferred acquisition costs	10	-	-	-	10
Deferred front-end fees	1	(1)	-	-	-
Shareholder value of in-force business	(120)	6	-	-	(114)
Investment contract liabilities	2	(1)	-	-	1
Undistributed life business surpluses	(48)	(5)	-	-	(53)
Unrealised gains on assets/(losses)	(3)	(2)	38	-	33
Retirement benefits	9	(2)	-	-	7
IFRS/FRS transition spreading	1	(1)	-	-	-
Losses carried forward	38	31	-	(1)	68
Other temporary differences	(7)	3	-	(1)	(5)
	(129)	28	43	(2)	(60)

	As at 1 Jan €m	Recognised in income €m	2009 Recognised in equity €m	Other €m	As at 31 Dec €m
Property and equipment	(12)	(8)	8	-	(12)
Deferred acquisition costs	10	-	-	-	10
Deferred front-end fees	1	-	-	-	1
Shareholder value of in-force business	(99)	(21)	-	-	(120)
Investment contract liabilities	(1)	3	-	-	2
Undistributed life business surpluses	(43)	(5)	-	-	(48)
Unrealised gains on assets/(losses)	3	1	(7)	-	(3)
Retirement benefits	9	-	-	-	9
IFRS/FRS transition spreading	-	1	-	-	1
Losses carried forward	-	38	-	-	38
Other temporary differences	2	(9)	-	-	(7)
	(130)	-	1	-	(129)

32. Subordinated liabilities

	2010	2009
	€m	€m
Dated
Issued by Irish Life & Permanent plc
€18m floating-rate notes 2011 *	16	18
€250m 6.25% fixed-rate notes 2011	261	258
€10m floating-rate step-up callable notes 2015	10	10
€50m floating-rate step-up callable notes 2015	51	50
€200m floating-rate step-up callable notes 2015	201	200
€50m floating-rate step-up callable notes 2016	50	50
€75m floating-rate step-up callable notes 2017	75	75
€300m 4.625% fixed step-up callable notes 2017	308	308
€45m floating-rate step-up callable notes 2018	45	45
€25m step-up callable notes 2018	25	25
€20m floating-rate step-up callable notes 2018	20	20
€5m constant maturity swap notes 2018 *	4	5
€5m constant maturity swap notes 2018 *	5	5
€55m 8.76% non-callable lower tier 2 capital notes due 2018	31	28
€10m floating-rate notes 2023 *	10	10
€10m 4.31% fixed-rate callable notes 2035	10	10
	1,122	1,117
Undated
Issued by Irish Life & Permanent plc
JPY 7bln 3.98% undated step-up notes	70	56
JPY 10bln 3.75% undated step-up notes	93	82
JPY 20bln 4.655% undated step-up notes	185	177
Issued by Irish Life Assurance plc
€200m 5.25% step-up perpetual capital notes	216	212
	564	527
	1,686	1,644

* These notes contain embedded derivatives which have been separated out and disclosed in Note 8, Derivative instruments as they are not closely related to the host debt instrument. The 10yr notes are linked to 30yr swap rates.

Of the above total for subordinated liabilities, €1,166m (2009: €1,167m) is classified as Tier 2 capital.

The consent of the Central Bank is required before:

Any repayment, for whatever reason, of a dated subordinated liability prior to its stated maturity; and
Any exercise of any redemption option in any undated liability.

In the event of the winding up of the entity which issued the subordinated liability the claims of the holders of the subordinated liabilities shall be subordinated to the claims of depositors, policyholders and creditors of the relevant entity other than creditors whose claims are expressed to rank pari passu with or junior to the claims of the holders of the subordinated liabilities.

Dates above for callable notes represent the final maturity dates, notes are callable by Irish Life & Permanent plc at dates prior to final maturity.

32. Subordinated liabilities (continued)

The terms and conditions of the subordinated liabilities are detailed below:

Irish Life & Permanent plc

€18m notes repayable on 30 August 2011. Coupon payments are calculated by reference to 20 year forward fixed swap rates versus 6-month Euribor rates, reset every six months on the coupon payment dates, and paid bi-annually in February and August of each year.
annually in arrears in February. €250m notes repayable on 15 February 2011. The coupon interest rate is fixed at 6.25% and is payable
coupon step-up incurred as a result of the notes not called on 10 August 2010, as permitted by its terms. quarterly on the coupon date thereafter. The coupon interest rate was 3-month Euribor + 0.28% until August 2010 after which the interest rate became 3-month Euribor + 0.78% until maturity in August 2015. The notes are redeemable at the option of the issuer subject to the prior consent of the Central Bank. The carrying amount of the subordinated liability has been increased by €nil (December 2009: €nil) for the effect of a €10m step-up callable notes due on 10 August 2015 and callable after 5 years from 10 August 2010, and
quarterly on the coupon date thereafter. The coupon interest rate was 3-month Euribor + 0.30% until August €50m step-up callable notes due on 10 August 2015 and callable after 5 years from 10 August 2010, and 2010 after which the interest rate became 3-month Euribor + 0.80% until maturity in August 2015 and payable quarterly in arrears. The notes are redeemable at the option of the issuer subject to the prior consent of the Central Bank. The carrying amount of the subordinated liability has been increased by €0.4m (December 2009: €nil) for the effect of a coupon step-up incurred as a result of the notes not called on 10 August 2010, as permitted by its terms.
the Central Bank. The carrying amount of the subordinated liability has been increased by €1m (December 2009: €nil) for the effect of a coupon step up incurred as a result of the notes not called on 7 December 2010, as permitted by its terms. €200m step-up callable notes due on 7 December 2015 and callable after 5 years from 7 December 2010, and 2010 after which the interest rate became 3-month Euribor + 0.75% until maturity in December 2015 and payable quarterly in arrears. The notes are redeemable at the option of the issuer subject to the prior consent of quarterly on the coupon date thereafter. The coupon interest rate was 3-month Euribor + 0.25% until December
7 November 2011, as permitted by its terms. payable quarterly in arrears. The notes are redeemable at the option of the issuer subject to the prior consent of the Central Bank. The carrying amount of the subordinated liability has been increased by €nil (December 2009: €nil) for the effect of a coupon step up incurred as a result of the notes not being called on and quarterly on the coupon date thereafter. The coupon interest rate is 3-month Euribor + 0.3% until November 2011 after which the interest rate becomes 3-month Euribor + 0.80% until maturity in November 2016 and €50m step-up callable notes repayable on 7 November 2016 and callable after 5 years on 7 November 2011,
quarterly in arrears. The notes are redeemable at the option of the issuer subject to the prior consent of the Central Bank. quarterly on the coupon date thereafter. The coupon interest rate is 3-month Euribor + 0.275% until April 2012 after which the interest rate becomes 3-month Euribor + 0.775% until maturity in April 2017, and payable €75m step-up callable notes repayable on 24 April 2017 and callable after 5 years on 24 April 2012, and
annually in arrears. The notes are redeemable at the option of the issuer subject to the prior consent of the Central Bank. on the coupon date thereafter. The coupon interest rate is 4.625% paid annually until May 2012 after which the coupon interest rate steps up by 0.5% and is re-set to a floating rate set at 3-month Euribor + 0.80% and payable €300m step-up callable notes repayable on 9 May 2017 and callable after 5 years on 9 May 2012, and annually
notes are redeemable at the option of the issuer subject to the prior consent of the Central Bank. quarterly on the coupon date thereafter. The coupon interest rate is 3-month Euribor + 4.00% paid quarterly until June 2013 after which the interest rate becomes 3-month Euribor + 4.5%, and payable quarterly in arrears. The €45m step-up callable notes repayable on 25 June 2018 and callable after 5 years on 25 June 2013 and

32. Subordinated liabilities (continued)

prior consent of the Central Bank. coupon date thereafter. The coupon interest rate is fixed for the first 5 years at 8.25%, payable semi-annually up until June 2013. From then on, if not called, the coupon interest rate switches to a floating rate based on 3-month Euribor + 4.25%, payable quarterly in arrears. The notes are redeemable at the option of the issuer subject to the €25m step-up callable notes repayable on 18 June 2018 and callable after 5 years on 18 June 2013, and on the
quarterly on the coupon date thereafter. The coupon interest rate is 3 month Euribor + 4.00% until June 2013 after which the interest rate becomes 3-month Euribor + 4.5%, payable quarterly in arrears. The notes are redeemable at the option of the issuer subject to the prior consent of the Central Bank. €20m step-up callable notes repayable on 25 June 2018 and callable after 5 years on 25 June 2013, and
and thereafter is referenced to 30 year Euro swap rates, subject to a maximum rate of 8%, all payable annually. €5m constant maturity swap notes repayable on 20 June 2018. The coupon interest rate is 9.75% to June 2011
Euro swap rates, subject to a minimum rate of 6.55% payable annually. €5m constant maturity swap notes repayable on 25 June 2018. The coupon interest rate is referenced to 30 year
aggregate nominal amount of €54.56m. The notes carry a rate of return of 8.76% on a zero coupon basis. €55m non-callable lower tier 2 capital notes repayable on 15 September 2018, issued at 43.1825% of
year Euro swap rates, subject to a maximum rate of 6.5% payable annually in arrears. €10m constant maturity swap notes repayable on 21 March 2023. The coupon interest rate is referenced to 20
November 2010 and every 5 years thereafter. The coupon interest rate is fixed at 4.31% payable annually. The notes are redeemable at the option of the issuer subject to the prior consent of the Central Bank. €10m notes repayable on 28 November 2035 and callable by the issuer in whole after 5 years from 28
payment date thereafter. The notes are redeemable at the option of the issuer subject to the prior consent of the Central Bank. 2035 payable annually, thereafter the interest rate becomes 12-month JPY Libor +1.45%, also payable annually. The issuer retains the option to redeem the loan at the step up date in October 2035 and at every interest JPY 7bln undated step-up subordinated loans. The coupon interest rate is fixed at USD 3.98% until 18 October
annually in arrears. The issuer retains the option to redeem the loan at the step-up date in October 2035 and at every interest payment date thereafter. The notes are redeemable at the option of the issuer subject to the prior consent of the Central Bank. 2035 payable annually in arrears, thereafter the interest rate becomes 12-month JPY Libor +1.37%, also payable JPY 10bln undated step-up subordinated loans. The coupon interest rate is fixed at USD 3.75% until 25 February
JPY 20bln undated step-up loans. The coupon interest rate is fixed at USD 4.655% until 23 August 2034, payable annually in arrears, thereafter the interest rate becomes 12-month JPY Libor +1.44%, also payable annually in arrears. The issuer retains the option to redeem the loan at the step-up date in August 2034 and at every interest payment date thereafter. The notes are redeemable at the option of the issuer subject to the prior consent of the Central Bank.

Irish Life Assurance plc

first reset date"). On the first reset date the interest rate becomes Euribor +2.03%. The note is callable in whole €200m step-up perpetual capital notes. The interest rate is fixed at 5.25% for 10 years until 8 February 2017 ("the at the first reset date and each coupon payment thereafter. The notes may also be redeemed if they no longer qualify as eligible regulatory capital.

33. Shareholders' equity

Share capital

Share capital is the funds raised as a result of a share issue and comprises the ordinary shares of the company.

Share premium

The share premium reserve represents the excess of amounts received for share issues over the par value of those shares for the group.

Revaluation reserve

The revaluation reserve comprises the unrealised gain or loss, net of tax on the revaluation of owner occupied properties. This is a non-distributable reserve.

Available-for-sale ("AFS") reserve

The AFS reserve comprises unrealised gains or losses, net of tax on AFS financial assets which have been recognised at fair value on the statement of financial position. It also includes a residual amount of €17m (2009: €30m) relating to AFS securities reclassified to loans and receivables.

Currency translation adjustment reserve

The currency translation adjustment reserve represents the cumulative gains and losses, net of hedging on the retranslation of the group's net investment in foreign operations, at the rate of exchange at the reporting date.

Share-based payments reserve

This reserve comprises the cost of share options and the long-term incentive plan, which have been charged to the income statement over the vesting period of the options.

Other capital reserves

premium arising on the shares (€2,698m) issued in connection with the merger has been classified with the merger reserve rather than with the other share premium in existence in Irish Life & Permanent plc. Under the Other capital reserves include the share premium of €21m of Irish Life plc at the date of the merger, €7m capital redemption reserve arising from the repurchase and cancellation of shares. It also includes the merger reserve which is the difference between the shares issued by Irish Permanent plc and the nominal value of the issued share capital of Irish Life plc on the merger of the companies and amounts to a deficit of €2,719m. The share scheme of arrangement the share capital and share premium in IL&P €2,922m (including the €2,698m already presented in capital reserves) was cancelled and share capital and share premium was issued in IL&PGH at fair value €1,087m. These changes in share capital are reflected in the other capital reserve.

Own share reserve

Own shares held (excluding shares held for the long-term incentive plan) are held within the group's life operations for the benefit of life assurance policyholders. In accordance with IFRS the cost of these shares, €51m (2009: €66m), is deducted from distributable reserves. The liability to policyholders is based on the fair value of the shares and the change in liability due to the marked-to-market movement on the shares is transferred from retained earnings to non-distributable reserves.

Retained earnings

The group retained earnings include distributable and non-distributable earnings. These reserves represent the retained earnings of the company, subsidiaries and associate after consolidation adjustments.

In respect of the company statement of financial position, retained earnings represent the cumulative revenue reserves of that company.

34. Authorised and issued share capital

Authorised share capital

		IL&PGH	IL&P
		2010	2009
		Share capital	Share capital
	Number of shares	€m	€m
Ordinary shares of 32 cent each	400,000,000	128	128
€ preference shares	300,000,000	300	300
US\$ preference shares	200,000,000	150	139
Stg£ preference shares	100,000,000	116	113

The company has only one class of issued shares and as at 31 December 2010, it had 276,782,351 (2009: 276,782,351 (IL&P), 119,038 (IL&PGH)) ordinary shares in issue in that class. Each ordinary share carries one vote except for shares held for the benefit of life assurance policyholders, which pursuant to section 9(1) of the Insurance Act 1990, do not have voting rights.

The number of ordinary 32 cent fully paid-up shares is as follows:

	IL&PGH	IL&P
	2010	2009
As at 1 January	119,038	276,782,351
Issued under Scheme of Arrangement	276,782,344	-
Cancellation of shares during the year	(119,031)	-
As at 31 December	276,782,351	276,782,351
Own shares held for the benefit of life assurance policyholders	5,378,827	7,108,182
Shares held under employee benefit trust	457,914	457,914

On 4 August 2009, Acquilani was incorporated with an authorised share capital of 400,000,000 ordinary shares of €0.32 each. On this date, the issued share capital of the company was seven fully paid-up ordinary shares at €0.32 each, total amount of €2.

On 29 September 2009 the authorised share capital was increased to reflect exactly the authorised share capital of IL&P. The change in the foreign currency denominated share capital reflects movements in exchange rates.

On 9 October 2009, Acquilani changed its name to Irish Life & Permanent Group Holdings plc and 119,031 ordinary shares of €0.32 each were issued at par for total cash proceeds of €38,090 to facilitate commencement of trading.

Pursuant to the Scheme of Arrangement described in Note 3, Acquisition of Irish Life & Permanent plc by Irish Life & Permanent Group Holdings plc, on 15 January 2010, 276,782,344 shares were cancelled in IL&P and on the same date IL&P issued 276,782,344 shares in favour of IL&PGH (making IL&PGH the parent of IL&P). On 15 January 2010, 276,782,344 shares were issued in IL&PGH to the former shareholders of IL&P whose shares had been cancelled.

On 15 January 2010, the 119,031 ordinary shares that were issued on 9 October 2009 to facilitate the commencement of trading were bought back by IL&PGH and were subsequently cancelled.

No shares were issued as a result of the exercise of options under the group's share option schemes during the period (2009: nil). There were no shares issued to the group profit sharing scheme in the current year (2009: nil).

Own shares held for the benefit of life assurance policyholders are held by Irish Life Assurance plc and represent 1.9% (2009: 2.6%) of the issued share capital of the company.

There were no acquisitions of treasury shares during the year (2009: nil) in anticipation of share awards that may vest under the long-term incentive plan for senior management.

35. Analysis of equity and capital

(A) Shareholders' equity

The group's equity is analysed as follows:

	2010	2009
	€m	€m
Banking - Ireland*
Net assets	127	646
	127	646
Banking - UK
Net assets	11	48
	11	48
Life assurance
Net assets	1,284	1,154
Goodwill	-	5
Deduction in respect of liability relating to own
shares held for the benefit of life assurance policyholders	(6)	(23)
	1,278	1,136
Fund management
Net assets	11	8
	11	8
Brokerage and third party administration and other*
Net assets	(5)	(3)
Goodwill	70	70
	65	67
Associated undertaking	124	122
Consolidation adjustments (note 4)	-	(21)
Total equity	1,616	2,006

* 2009 'Brokerage and third party administration and other' has been restated to include loans held to finance the purchase of the underlying subsidiary companies. This balance was previously consolidated as part of the Banking - Ireland reporting segment.

(B) Capital management

& Permanent Group Holdings plc. As a result, Irish Life & Permanent plc is now a 100% subsidiary of Irish Life & Permanent Group Holdings plc. Further details of this acquisition are disclosed in Note 3, Acquisition of Irish Life & Permanent plc by Irish Life & Permanent Group Holdings plc. Irish Life & Permanent Group Holdings plc ("IL&PGH") was incorporated on 24 August 2009. The company was established as a group holding company. At 31 December 2009, the company had no subsidiaries and was not a group company of Irish Life & Permanent plc. On 15 January 2010 Irish Life & Permanent plc was acquired by Irish Life

Irish Life & Permanent plc ("IL&P"), a subsidiary of IL&PGH, carries out the business activities of the group. IL&P was regulated by the Financial Services Authority of Ireland ("Financial Regulator" or "FR") which set and monitored the regulatory capital requirements in respect of the group's ("IL&P's") operations. In October 2010, under the Central Bank Reform Act 2010, the Financial Regulator was replaced by the Central Bank of Ireland ("Central Bank") which is now responsible for central banking and financial regulation. While there are a number of regulated entities within the group which have individual regulatory capital requirements, two of the principal regulated entities are IL&P: the group's former holding company which is also the group's banking operation (trading as permanent tsb), and Irish Life Assurance plc ("ILA"), the group's principal life assurance operation.

the European Communities (Life Assurance) Framework Regulations, 1994. A similar abbreviated return is submitted quarterly. Irish Life Investment Managers Limited ("ILIM") is authorised to act as an investment business firm and is regulated by the Central Bank under the European Communities (Markets in Financial Instruments) Regulations 2007 (MiFID). Both ILA and Irish Life International Limited ("ILI") separately provide an annual return to the Central Bank under

35. Analysis of equity and capital (continued)

The group is participating in the Central Bank's latest Prudential Capital Assessment Review (PCAR) and Prudential Liquidity Assessment Review (PLAR), the results of which are expected at the end of March. As a result there is a significant uncertainty as to the outcome and any additional capital or liquidity requirements that may arise.

Assets and Liabilities Committee and the Life Assurance Assets and Liabilities Committee in accordance with board approved policy. In general, outside of IL&P, all regulated entities within the group operate to an internal target level of capital which provides a margin of comfort above the regulatory minimum with any excess capital above this target level being remitted to IL&P. The management of capital within the group is monitored by the Board Risk and Compliance Committee, the Banking

Banking operations

II methodology. overseen by the bank Chief Executive and is calculated in accordance with the provisions of Basel II as implemented under the European Capital Adequacy Directive and monitored by the Central Bank. The objective of Basel II is to more closely align bank regulatory capital with the economic capital required to support the risks being undertaken. The capital required to cover credit, operational and market risks is required to be explicitly measured under the Basel The banking segments' minimum capital requirement is managed by the group's banking operations, which is

compute the capital required to support credit risk by calculating the probability of default and the loss given default in all of its various portfolio exposures. The models and calculations are conservatively based. awarded IRB accreditation in late 2007. Under the IRB approach the bank uses internally generated risk models to In implementing Basel II, the group has adopted the Internal Ratings Based ("IRB") approach to credit risk and was

detail in Note 36, Financial risk management. methodically identified together with the probability and magnitude of any loss which might arise from such risks, taking into account any mitigating factors and controls. Value at risk, an industry wide standard, is the methodology With regard to operational risk, the group has adopted the standardised approach under which all operational risks are which the group has adopted in regard to the measurement of market risk. For regulatory capital purposes in respect of market risk the group utilises the standardised approach. The value at risk methodology is discussed in further

35. Analysis of equity and capital (continued)

The following table summarises the composition of regulatory capital and the ratios of the bank for the years ended 31 December 2010 and 31 December 2009. They are calculated in accordance with Basel II regulatory capital requirements.

	2010	2009
	€m	€m
Tier 1 capital
Share capital and share premium	2,922	2,922
Reserves	760	951
Prudential filters	62	65
Total qualifying Tier 1 capital	3,744	3,938
Tier 2 capital
Subordinated liabilities	1,166	1,167
Revaluation reserve	4	8
Other	62	25
Total qualifying Tier 2 capital	1,232	1,200
Total qualifying Tier 1 and Tier 2 capital	4,976	5,138
Deductions
Investment in life operations	(3,295)	(3,187)
Other	-	(93)
Total deductions	(3,295)	(3,280)
Total own funds	1,681	1,858
Required capital	1,265	1,313
Excess of total own funds over total required capital	416	545
The following information has not been subject to audit by the independent auditor:
Risk weighted assets
Total risk-weighted assets	15,809	16,411
Risk asset ratio (all Core Tier 1)	10.6%	11.3%
The above ratio is calculated and reported to the Central Bank on a quarterly basis.
The percentage of capital is in excess of the regulatory minimum of 8% effective as at 31 December 2010.
The movement in the bank's regulatory capital is summarised below:
	2010	2009
	€m	€m
As at 1 January	1,858	2,059
Bank earnings after tax and corporate costs	(325)	(262)
Dividends received	28	42
Other*	120	19
As at 31 December	1,681	1,858

*Other movement of €120m in 2010 includes the change year on year from an excess of expected loss (EL) over IRB provisions to an excess of IRB provisions over EL €146m and reductions in standardised provisions, revaluation reserves and prudential filters (€26m).

35. Analysis of equity and capital (continued)

Life assurance and fund management operations

regulations set down the approach to be used to value the assets and liabilities and the calculation of the required solvency margin. The regulatory capital requirements of the life assurance business are determined according to the European Communities (Life Assurance) Framework Regulations 1994 modified by the EU directive 2002/83/EC. The

	2010 €m	2009 €m
Total shareholders' funds attributable to life and fund management business	1,289	1,144
Less: Shareholder value of in-force ("VIF") business
Gross	(699)	(730)
Related deferred tax	114	121
Shareholders' funds excluding VIF	704	535
Adjustments to valuation of assets and liabilities to regulatory basis	(43)	(78)
Subordinated liabilities	201	208
VIF loan	100	-
Other assets available to cover solvency margin	16	20
Regulatory capital on continuing activities, before available dividend	978	685
Available dividend	(243)	-
Regulatory capital on continuing activities, after available dividend	735	685
Held within the long-term business fund	491	248
Held outside the long-term business fund	487	437
Available dividend	(243)	-
	735	685

The solvency cover for Irish Life Assurance plc, the group's main life assurance operation, net of the amount available for dividend, is 1.8 times (2009: 1.6 times) the minimum requirement of €401m (2009: €413m). The directors consider this to be a conservative level of capital to manage the business having regard for the basis of calculating liabilities and the insurance and operational risks inherent in the underlying products. At 31 December 2010 each of the group's injections were expected to be needed in the future. Transfers of capital out of the life companies are subject to the life assurance and fund management entities had sufficient capital on a stand-alone basis and therefore no capital companies continuing to meet the regulatory capital requirements.

The solvency position of Irish Life Assurance plc strengthened during 2010.This was achieved by the following:

It completed the raising of loan capital of €100m (Note 22, Deposits by banks (including central banks)) secured on the in-force book of business; and
It implemented changes in the statutory reserving basis which released circa €50m of additional capital at year end.

Shareholder capital is invested in cash, short-term debt securities and property.

and risk management policies are discussed in Note 36, Financial risk management. The group has provided for the cost of financial options and guarantees on a market-consistent basis, details of which, together with the process of setting other assumptions, are included in Note 27, Financial options and guarantees. Capital is affected by a range of factors including interest rates, mortality and morbidity. The group's capital management

In November 2008 a stop-loss reinsurance treaty in relation to new business was signed with Swiss Re and the effect on regulatory assets is analysed below:

	2010 €m	2009 €m
Effect on regulatory assets	44	22
Analysis of effect on regulatory assets:
New business strain	39	44
Expected return	(47)	(34)
Experience variance	52	12
	44	22

35. Analysis of equity and capital (continued)

The accounting treatment in the IFRS financial statements of this stop-loss reassurance treaty is not to show either the contingent asset or contingent liability on the statement of financial position as they offset each other but the reassurance fee €3.2m (2009: €2.6m) for this treaty is accounted for in the IFRS consolidated income statement.

This table analyses the change in regulatory capital of the life and fund management operations on continuing activities (net of tax).

	2010	2009
	€m	€m
Regulatory capital as at 1 January	685	694
Capital generated from existing business
- Expected return	155	161
- Experience variances	89	12
- Operating assumption changes	70	9
New business strain	(75)	(74)
Expected investment return	13	12
Short-term investment fluctuations
- Direct shareholder property short-term investment fluctuations	1	(56)
- Property commitment cost	(13)	(29)
- Other short-term investment fluctuations	33	(24)
Effect of economic assumption changes	(48)	3
VIF loan	100	-
Other	(4)	(9)
Change in inadmissible assets	(8)	(4)
Dividends paid	(13)	(13)
Change in subordinated liabilities	(7)	3
Regulatory capital as at 31 December before available dividend	978	685
Available dividend	(243)	-
Regulatory capital as at 31 December after available dividend	735	685

Best estimate assumptions are used to analyse the various components of the capital movements which are explained as follows:

Capital generated on existing business which has three components:

Expected return: the capital which would arise if the existing business behaved in line with the EV assumptions;
Experience variances: the capital arising because actual experience in the year differs from the EV assumptions on mortality, morbidity, persistency, expenses and non-linked matching; and
Operating assumption changes: the effect on capital of changes to regulatory liability demographic and expense current or expected experience. assumptions. These assumptions are reviewed regularly and are changed where appropriate in light of either

New business strain: when a life assurance contract is written significant acquisition costs are normally incurred upfront, these costs are then recovered through future charges. This up-front payment gives rise to a reduction in capital.

Expected investment return: capital generated by the expected investment earnings on the net assets attributable to shareholders using the equity and property investment return EV assumptions applicable at the start of the financial year. The expected investment earnings allow for interest payable on subordinated debt and the fee payable in relation to the stop-loss reassurance treaty.

Short-term investment fluctuations: this is the effect on capital of the difference between the actual investment return achieved and the long-term investment return assumed for both policyholder and shareholder assets.

changes in non-linked regulatory liability interest assumptions. Effect of economic assumption changes: this is the impact on capital of changes in economic assumptions excluding

36. Financial risk management

operations of Irish Life & Permanent Group Holdings plc. The group risk identification and assessment process identifies the following risks as being material to the

Credit risk Liquidity risk Market risk Insurance risk Operational risk

The group's approach to management of these risks is set out in the following pages. ("IL&PGH"). All of the directors of IL&PGH are also directors on the board of Irish Life & Permanent plc (trading as permanent tsb). In addition, they have representation on the boards of all of the key subsidiary companies. This allows the directors to monitor the key risks and controls in the underlying subsidiaries of IL&PGH plc group. The key financial risks arise in the underlying subsidiary companies of Irish Life & Permanent Group Holdings plc

Risk management framework

assume in the implementation of its strategic and business plans. The Board of Directors approves overall policy in relation to the types and levels of risk that the group is permitted to

The Board Risk and Compliance Committee has responsibility for oversight and advice to the board on risk governance, the current risk exposures of the group and future risk strategy, including strategy for capital and liquidity management, and the embedding and maintenance throughout the group of a supportive culture in relation to the management of risk. The Board Risk and Compliance Committee supports the board in carrying out its responsibilities for ensuring that risks are properly identified, reported, assessed and controlled, and that the group's strategy is consistent with the group's risk appetite.

Committee is responsible for developing appropriate responses. This is facilitated by the periodic review of a key risk indicators report calibrated to the risk appetite statement. The Board Risk and Compliance Committee is responsible for monitoring adherence to the group risk appetite statement. Where exposures exceed levels established in the appetite statement, the Board Risk and Compliance

Committee, the Group Counterparty Credit and Market Risk Committee and the Group Compliance Committee. The terms of reference for each committee, whose members include members of group senior management, are reviewed regularly by the Board Risk and Compliance Committee. specific risks to committees accountable to it. These committees are the Group Credit Committee, the Banking Assets and Liabilities Committee, the Life Assurance Assets and Liabilities Committee, the Group Operational Risk The Board Risk and Compliance Committee, in turn, delegates responsibility for the monitoring and management of

Credit risk

the terms of any contract with the group or its failure to perform as agreed. Credit risk is defined as the current or prospective risk to earnings and capital arising from an obligor's failure to meet

loan can be made. Credit policies establish coherent limit systems for credit risk. The various limit structures in place create a credit risk 'ceiling'. Limit structures are in place to manage credit default risk, concentration risk, settlement risk and counterparty risk, as described below. For Irish Life & Permanent Group Holdings plc this risk can be further subcategorised into: The group maintains detailed credit policies for each business unit which outlines relevant conditions under which a

Credit default risk Concentration risk Securitisation risk Settlement risk Reinsurance counterparty risk

Credit default risk - The potential for loss occasioned by the counterparty's insolvency or lack of willingness to pay. effective credit risk measurement takes place across the group. A core part of the tools used in the management of credit risk is the calculation of obligor level probability of default ("PD") and portfolio level loss given default ("LGD") defaulting within the next twelve months. Where an obligor is: A robust management process is in place to ensure that credit risk taken on is in line with group risk appetite and that under the Basel II Internal Ratings Based ("IRB") approach. The PD is a measure of the likelihood of a specific obligor

(a) More than 90 days in arrears; and / or

(b) Expected to default on obligations due to known financial difficulties or other rationale;

the allocated PD for the obligor is 1, indicating a 100% probability of default.

Both PD and LGD are calculated using internally developed models and give a statistical view of the risk profile of the lending portfolios and individual accounts. The Group Credit Committee is provided with the lending portfolio statistical profiles on a regular basis.

incorporate expert lender judgement where relevant. Individual accounts and applications are allocated a credit risk score from a graded scale, which distributes the loans according to their propensity to default. Underwriting authorities group's IRB model. As a basis for the IRB credit rating for a counterparty, the group uses the following approach. Where a counterparty has two credit ratings, the lower credit rating is used, while, if the counterparty has three credit systems at account application and at subsequent points in the life of the account (using a combination of application and behavioural scorecards) are used to assess the risk inherent in new credit applications and for existing customers. The statistical scorecards differ across lending portfolio classification and product type. Scorecards and economic market stability, amongst others.This IRB Credit rating is mapped to a statistical PD. Calculation tools generate the measures of credit risk through statistically-based scoring mechanisms. Scorecard For wholesale credit applications (and ongoing assessment), the PD for a counterparty is determined using the ratings, the middle credit rating is used. A further "notching" process then increases the counterparty IRB credit rating upwards dependent on factors such as geographical location, presence of the counterparty on rating agency "watchlists" in place cascade down from the Group Credit Committee to individual business units and credit officers.

Credit default risk also arises on non-traded / over-the-counter derivative exposures since the group is exposed to the Banking Assets and Liabilities Committee (Banking ALCO). risk of the counterparty defaulting prior to the maturity of "in-the-money" products, thereby necessitating replacement of the contract at applicable market rates. To manage this risk, counterparty limits are maintained in the group's investment accounting system, and specialist Risk Management and Compliance teams undertake regular independent monitoring of counterparty exposure against limits. All breaches of counterparty limits are notified to the

In the case of some counterparties, to avoid a build-up of exposure on derivatives, the group uses a credit support annex ("CSA"), which is an addendum to the bi-lateral ISDA Agreement with a counterparty, and which requires daily settlement of mark to market values of outstanding derivative deals.

Credit default risk represents the most significant element of credit risk for the group. Irish Life & Permanent Group stand-alone unexpected loss figure at a credit risk sub-portfolio level. The stand-alone unexpected loss can then be converted to a sub-portfolio unexpected loss contribution which generates required economic capital. Expected losses should be covered by the normal business operating margins but unexpected losses are by definition rare and of significant impact, necessitating the setting aside of a capital cushion. Holdings plc capitalises for credit default risk using the key risk parameters of probability of default ("PD"), loss given default ("LGD") and exposure at default ("EAD"). These parameters are utilised to calculate expected loss ("EL") and a

Concentration risk - The risk that any single (direct and / or indirect) exposure or group of exposures has the potential to produce losses large enough to threaten the institution's health or its ability to maintain its core business.

The group risk appetite statement explicitly outlines limits for lending and non-lending concentration that will be tolerated by the group. The group position against these limits is monitored on a regular basis by the Group Credit Committee, the Board Risk and Compliance Committee and the Board of Directors.

The bank's lending strategy in Ireland is not targeted at any particular geographic locations and should, in the ordinary course, be spread throughout the country proportionately to local economic activity.

Securitisation risk - The risk of loss associated with buying or selling asset-backed securities.

risk is minimised through the use of "standard" (as opposed to exotic) securitisation structures, the use of only highquality counterparties to perform the structuring, and oversight and governance provided by appropriately qualified and experienced external and internal parties. Securitisation risk occurs when issuing mortgage-backed securities as a risk transfer or funding device. Securitisation

Monitoring of securitisation risk within the group principally occurs through three processes:

(a) A review of the mortgage pool to be used in the securitisation including checking the pool is appropriately homogeneous by reference to time in arrears and loan-to-value ("LTV") amongst other parameters;
(b) A review of the internal securitisation process following the execution of a transaction allowing the process to be improved in terms of efficiency and risk reduction; and
(c) Monthly monitoring of the underlying mortgage pool performance following the transaction.

High quality counterparties to securitisation structuring are chosen from a panel of suitable counterparties after consideration of selection parameters such as:

Recent securitisation activity and performance;
Presence of an ongoing successful relationship with Irish Life & Permanent plc; and
Position in relevant industry league tables.

Settlement risk - The risk that the group delivers a sold asset or cash to a counterparty and then does not receive the purchased asset or cash as expected.

The group is involved in a limited volume of derivatives contracts trading, and thus this risk is limited in the group context. Robust management controls including established counterparty limits, and the potential risk is also limited by a restriction on entering into trades with counterparties with an A- credit rating or higher from the middle rating of Standard & Poor's, Moody's and Fitch as first notched down where one or more defined risk factors are observed; and the addition of a further risk factor to the marked to market exposure, depending on the complexity of the contract traded and the tenure.

Credit risk mitigation

The credit policy includes guidelines on the acceptability of specific classes of collateral or risk mitigation. The principal guarantees. Estimates of the fair value of collateral are assessed at the time of borrowing and are generally not updated except when a loan is individually assessed as impaired. collateral types for loans and receivables are mortgages over residential properties, charges over business assets and

The group has a concentration of credit risk in retail mortgages which reflects the group's strategic decision to focus on this market.

The group makes use of collateral agreements to mitigate exposures to wholesale credit risk. Collateral is obtained on credit risk exposures in line with the group's lending policies and procedures (and the reinsurance strategy in the case of reinsurance counterparty risk). The accepted collateral is also governed by the group's lending policies.

Impairment provisions

For individually assessed accounts, loans are treated as impaired as soon as there is objective evidence that an impairment loss has been incurred. The criteria used by the group to determine whether there is such objective evidence includes, but is not limited to:

Known cash flow difficulties experienced by the borrower;
Overdue contractual payments of either principal or interest; and
Breach of loan covenants or conditions.

Account-specific impairment provisions are established by evaluating the total exposure to loss on a case-by-case basis for all individually significant exposures and any other accounts that do not qualify for the collective assessment approach outlined below.

Commercial Mortgages – Individual Assessment

Commercial loans meeting the following criteria are reviewed individually for impairment:

Loans > 6 months in arrears;
Large exposures; and
Watchlist Cases performing commercial loans but where evidence is obtained that the borrower may be experiencing difficulties.

To determine the appropriate account-specific impairment provision for commercial mortgages, a discounted cash flow approach using a number of factors is adopted. The factors considered include:

The group's aggregate exposure to the customer;
The viability of the customer's business model in generating sufficient cash flow to service its debt obligations;
The ranking of the group's claim in relation to the customer's other obligations;
The realisable value of any security (or other credit risk mitigant) and the likelihood of a successful
repossession; - The expected distribution available on any liquidation or bankruptcy;
The cost of realising the collateral; and
The estimated time to realise the security / collateral.

In addition to the above the bank operates a comprehensive annual review process for performing commercial loans and loans not subject to individual impairment assessment.

ROI Residential Mortgages – individual assessment

greater than six months in arrears or where evidence is obtained that the borrower may be experiencing difficulties. A discounted cash flow approach using a number of factors is adopted. The factors considered include: In respect of residential mortgage exposures the account-specific impairment provision is determined for all accounts

The loan exposure;
The recent repayment history;
The estimated value of the collateral; and certain assumptions with regard to the peak to trough decline in residential house prices.
The cost of realising the collateral; and
The estimated time to realise the security / collateral.

UK Residential Mortgages – individual assessment

UK residential mortgages that meet the following criteria are individually assessed:

RIP loans in arrears by more than three months and in litigation;
Home loans in arrears by more than six months and in litigation; and
Other facilities not meeting the above criteria where evidence is obtained that the borrower may be experiencing difficulties.

Collective Provisions

identified on loans subject to individual assessment and on loans that have not been individually assessed. These provisions also include impairment provisions calculated for large numbers of loans managed on a portfolio basis (for example, credit cards or motor vehicle financing). Impairment provisions are also established on a collective basis to cover losses which have been incurred but not yet

losses are present in the portfolio as at the date of assessment. A collective provision may also be established if no account-specific indicators of impairment loss have been identified and attributed to specific customers. However, experience and other observable data indicate that such impairment

The collective impairment provision factors in the historical loss experience in portfolios with similar credit risk characteristics, current economic conditions and account behavioural trends.

Valuation Methodologies

The valuation methodologies for the bank's key portfolios of collateral held are as follows:

PTSB residential property valuations are based on the ptsb / ESRI house price index or based on recent valuations where property is repossessed;
Commercial property valuations are based on opinions from professional valuers, Investment Property Database Index, local knowledge of the properties, benchmarking similar properties and other industry-wide available information, including estimated yields and estimated discount rates; and
In the UK property values are determined using drive by valuations, local knowledge of the properties and valuations using a recognised desktop provider.

considered by the directors to reflect their best estimate of current values of collateral held. The valuation methodologies outlined above are determined as close to the reporting date as is feasible and are therefore

Credit quality

(models). The credit quality of loans is assessed by reference to the group's rating system. The group uses the Basel II 25 point scale for the internal ratings approach ("IRB") for credit risk. The scale ranges from 1 to 25 where 1 represents the best risk grade or lowest Probability of Default ("PD") and 25 represents the defaulted exposures or PD = 100% for The credit risk ratings employed by the group are designed to highlight exposures requiring management attention. credit risk. The internal rating scale or masterscale is not a rating tool but is based on probability of default and is used to aggregate borrowers for comparison and reporting purposes after their rating by the underlying rating tool(s)

The internal gradings below incorporate the IRB rating.

Investment grade (IRB ratings 1 to 7) includes loans and receivables to banks.
Excellent risk profile (IRB ratings 8 to 16) includes exposures whose general profiles are considered to be of a very low risk nature.
Satisfactory risk profile (IRB ratings 17 to 21) includes exposures whose general profiles are considered to be of a low to moderate risk nature.
Fair risk profile (IRB ratings 22 to 24) includes exposures whose general profiles are considered to require some additional monitoring.
Defaulted (IRB rating 25) includes exposures that are impaired and unimpaired greater than 90 days past due.

Credit risk

Maximum exposure to credit risk before collateral held or other credit enhancements:

	2010
		Unit-linked	Group
	Total	funds*	exposure
	€m	€m	€m
Assets
Cash and balances with central banks (note 5)	312	(31)	281
Items in course of collection (note 5)	124	-	124
Debt securities (note 6)	12,098	(5,587)	6,511
Derivative assets (note 8)	1,255	(878)	377
Loans and receivables to customers (note 9)	36,581	-	36,581
Loans and receivables to banks (note 11)	3,565	(2,304)	1,261
Reinsurance assets	2,011	(57)	1,954
Assets held for sale (note 21)**	557	(543)	14
	56,503	(9,400)	47,103
Contingent liabilities and commitments (note 53)	506	-	506
	57,009	(9,400)	47,609
		2009
		Unit-linked	Group
	Total	funds*	exposure
	€m	€m	€m

Assets
Cash and balances with central banks (note 5)	218	(15)	203
Items in course of collection (note 5)	108	-	108
Debt securities (note 6)	15,780	(6,329)	9,451
Derivative assets (note 8)	1,169	(858)	311
Loans and receivables to customers (note 9)	38,592	-	38,592
Loans and receivables to banks (note 11)	4,925	(1,577)	3,348
Reinsurance assets	1,979	(91)	1,888
	62,771	(8,870)	53,901
Contingent liabilities and commitments (note 53)	565	-	565

* Excludes unit-linked tracker funds where an investment guarantee is given by the shareholder.

** Assets held for sale (note 21) are all unit-linked funds except cash.

Debt securities

has set counterparty limits for all debts and loans on a group-wide basis. The group is exposed to credit risk on third parties where the company holds debt securities (including sovereign debt) With the exception of Ireland, sovereign debt is restricted to countries with a Moody's rating of A3 or higher. The group

The following table gives an indication of the level of creditworthiness of the group's debt securities and is based on the ratings prescribed by the rating agency Moody's Investor Services Limited.

63,336 54,466 (8,870)

	2010	2009 €m
	€m
Neither past due nor impaired	6,494	9,451
Impaired	17	-
Total	6,511	9,451
Debt securities neither past due nor impaired	2010	2009
	€m	€m
Rating
Aaa	2,664	3,719
Aa	502	4,628
A	700	881
Baa *	2,605	178
Below Ba	23	45
Total	6,494	9,451

*The increase in exposure to Baa is a result of the downgrade of the Irish sovereign debt rating during 2010.

36. Financial risk management (continued)

Derivative assets

€m €m

Rating
Aa 93 43
A 123 112
Baa 43 1
Covered by netting agreements 118 155
Total 377 311

Loans and receivables to customers

Loans and receivables are summarised as follows:

	2010	2009
	€m	€m
ROI residential mortgages	26,340	27,256
UK residential mortgages	7,527	7,484
Commercial	1,904	1,939
Consumer finance
Finance leases	907	1,213
Term loans / other	468	536
Money market funds	-	211
	37,146	38,639
Provision for loan impairment (Note 10)	(883)	(477)
Deferred fees, discounts and fair value adjustments	318	430
	36,581	38,592

	2010
	ROI mortgages €m	UK Residential Residential mortgages €m	Commercial €m	Consumer finance €m	Money market funds €m	Total €m
Neither past due nor impaired	22,342	7,195	1,261	1,111	-	31,909
Past due but not impaired	3,006	221	363	109	-	3,699
Impaired	992	111	280	155	-	1,538
Total	26,340	7,527	1,904	1,375	-	37,146

	2009
	ROI Residential	UK Residential		Consumer	Money market
	mortgages	mortgages	Commercial	finance	funds	Total
	€m	€m	€m	€m	€m	€m
Neither past due nor impaired	24,306	7,158	1,495	1,433	211	34,603
Past due but not impaired	2,535	251	273	149	-	3,208
Impaired	415	75	171	167	-	828
Total	27,256	7,484	1,939	1,749	211	38,639

on balances of €60m (2009: €57m). Repossessed assets are sold as soon as practicable, with proceeds offset against any outstanding indebtedness. Repossessed assets are included within other assets in the statement of financial position. The fair value of collateral held is estimated to be €1,134m (2009: €739m). This collateral is held against loans and receivables classified as impaired. At 31 December 2010, the group had repossessed collateral of €38m (2009: €46m)

renegotiated is €2,256m (2009: €1,701m). The carrying amount of loans and receivables that would otherwise have been past due or impaired whose terms have been

Loans and receivables to customers neither past due nor impaired balances

	2010
	ROI mortgages €m	UK Residential Residential mortgages €m	Commercial €m	Consumer finance €m	Money market funds €m	Total €m
Excellent risk profile	18,089	4,001	265	484	-	22,839
Satisfactory risk profile	2,806	2,781	808	474	-	6,869
Fair risk profile	1,447	413	188	153	-	2,201
Total	22,342	7,195	1,261	1,111	-	31,909

	2009
	ROI	UK			Money
	Residential	Residential		Consumer	market
	mortgages	mortgages	Commercial	finance	funds	Total
	€m	€m	€m	€m	€m	€m
Excellent risk profile	18,874	3,788	229	739	211	23,841
Satisfactory risk profile	3,652	2,617	1,072	544	-	7,885
Fair risk profile	1,780	753	194	150	-	2,877
Total	24,306	7,158	1,495	1,433	211	34,603

Loans and receivables to customers past due but not impaired balances

	2010
	ROI	UK
	Residential	Residential		Consumer
	mortgages		mortgages Commercial	finance	Total
	€m	€m	€m	€m	€m
Past due up to 30 days	824	3	84	50	961
Past due 30 - 60 days	448	36	48	20	552
Past due 60 - 90 days	309	35	40	10	394
Past due more than 90 days	1,425	147	191	29	1,792
Total	3,006	221	363	109	3,699

		2009
	ROI	UK
	Residential	Residential		Consumer
	mortgages	mortgages	Commercial	finance	Total
	€m	€m	€m	€m	€m
Past due up to 30 days	935	1	80	66	1,082
Past due 30 - 60 days	402	25	30	26	483
Past due 60 - 90 days	271	42	27	18	358
Past due more than 90 days	927	183	136	39	1,285
Total	2,535	251	273	149	3,208

These are loans and receivables where contractual interest or principal payments are past due but the group believes that impairment is not appropriate on the basis of the level of security / collateral available and / or the stage of collections of amounts owed to the group.

Loans and receivables to banks

of creditworthiness of the group's loans and receivables to banks and is based on the ratings prescribed by the rating agency Loans and receivables to banks are with investment grade counterparties. The following table gives an indication of the level Moody's Investor Services Limited.

	2010	2009
	€m	€m
Rating
Aaa	787	107
Aa	351	1,921
A	34	1,301
Baa	89	19
Total	1,261	3,348

The increase in exposure to Baa is a result of the downgrade in the Irish bank's credit ratings during 2010.

Reinsurance assets

The group's life operations cede insurance and investment risk to a number of reinsurance companies. There are three main categories of reinsurance assets as set out below:

	2010 €m	2009 €m
Assets held in a charged account	1,372	1,342
Assets where credit risk is borne by the policyholder	57	91
Other assets where credit risk is borne by the shareholder	582	546
Total	2,011	1,979

The assets held in a charged account are in respect of reinsurance treaties for annuity business, where all withdrawals from the charged account have to be authorised by Irish Life Assurance plc. Assets are managed in accordance with a mandate which matches the assets and liabilities.

Assets where credit risk is borne by the policyholders relate to unit-linked investment contracts where the policy documents specify that the return to the policyholder is based on the return from the reinsurance companies.

Reinsurance counterparty risk is managed through the group's reinsurance strategy. The reinsurance strategy is established by the Life Assurance Assets and Liabilities Committee and approved by the Irish Life Assurance plc board.

The group regularly reviews the financial security of its reinsurance companies. Where the reinsurance arrangement involves asset accumulation on the part of the reinsurance company, these companies have a Moody's rating of at least A. Other limits are set with reference to premium income, assets and shareholder capital of the reinsurance company.

The reinsurance assets where the credit risk is borne by the shareholder are broken down by credit rating of the counterparty as follows:

	2010	2009
	€m	€m
Rating
Aa	223	153
A	359	393
Total	582	546

Liquidity risk

Liquidity risk is the risk that the group may be unable to meet payment of obligations in a timely manner at a reasonable cost or the risk of unexpected increases in the cost of funding the portfolio at appropriate maturities or rates.

January 2010, facilitates debt issuance for terms up to five years. These schemes enable the group to secure longer and a 5 year €2bln bond in March 2010 and a three-year €1.25bln bond in April 2010, all of which are guaranteed by the ELG these Schemes which expired on 31 December 2010. The ELG Scheme has subsequently been extended to 30 June 2011. The ELG Scheme, which Irish Life & Permanent plc and its subsidiary Irish Permanent (IOM) Limited joined on 4 Scheme. The charge to the income statement in respect of the ELG scheme for the period ended 31 December 2010 was €97m ( 2009: €nil). Guarantee) Scheme (the "ELG Scheme") have been critical in providing Irish financial institutions with access to funding. During the course of 2009, the group successfully secured term funding of €3bln from international investors under The Credit Institutions (Financial Support) Scheme 2008 (the "Scheme") and the Credit Institutions (Eligible Liabilities term funding, as evidenced by the issuance under the ELG Scheme of a 3 year US \$1.75bln bond in January 2010

market access whilst an upgrade may achieve the reverse. The senior debt credit ratings of Irish Life & Permanent plc at Without the government guarantee, the cost and availability of funding is influenced by the credit rating allocated to the 31 December 2010 were; Moodys Investor Services Limited Baa3, Standard and Poors BBB. Following a downgrade in group by industry rating agencies. A downgrade of the group's credit rating may increase financing costs and restrict February 2011, the credit ratings of Irish Life & Permanent plc are; Moody's Investor Services Limited Baa3, Standard and Poors BBB-.

The downgrading of the group and sovereign credit ratings, the withdrawal of the Irish Government from the funding to Eurosystem financing facilities. At 31 December 2010, the group had €13.8bn of collateralised funding placed from the the later part of 2010 and ongoing breaches in 2011. The downgrade in credit ratings and the risk for a further sovereign or group downgrade has limited the group's access to capital markets; as a result the group has increased its recourse markets, the EU/IMF Programme of Financial Support for Ireland and the consequent withdrawal of funds from Irish banks have affected the group's funding plans in 2010. There is a significant ongoing liquidity challenge for the group and for the Irish banking system generally. These challenges have given rise to breaches of regulatory liquidity requirements in estimated funding requirements for the coming year. European Central Bank. In 2011 the group used collateral to access special liquidity facilities from the Central Bank of Ireland. The group expects to have sufficient collateral to enable it to access these facilities to meet its immediate and

out this responsibility, treasury's principal objective is to ensure that the banking operations have sufficient funding available, at an optimal cost, to meet the operational needs of the bank and to adhere to regulatory and prudential requirements. The liquidity management process includes: Liquidity management for banking operations within the group is carried out by the group's treasury function. In carrying

Day-to-day funding; managed by monitoring future cash flows to ensure that requirements can be met. This includes replacing funds that mature or are borrowed by customers;
Balance sheet funding; managed by monitoring the funding profile against established target funding levels, with monitoring performed by the Banking Assets and Liabilities Committee;
Maintaining a portfolio of marketable assets that can be easily liquidated as protection against any unforeseen interruption to cash flow;
Monitoring statement of financial position liquidity ratios against internal and regulatory requirements; and
Managing the concentration and profile of debt securities in issue.

Irish Life & Permanent plc liquidity policies and protocols establish quantitative rules and targets in relation to measurement and monitoring of liquidity risk. The Banking Assets and Liabilities Committee plays a fundamental role in the monitoring of liquidity risk measures through the monthly review of liquidity reports.

The Banking Assets and Liabilities Committee monitors sources of funding and reviews short-term and long-term borrowings and their respective maturity profiles.

The bank's funding profile at year end was:

	2010	2009
	%	%
Customer accounts	35	33
Long-term debt	26	27
Short-term debt	39	40
	100	100

An analysis of the maturity profile of debt securities in issue is given in Note 24, Debt securities in issue. ECB drawings as detailed in Note 22, Deposits by banks (including central banks) are included in short-term debt.

as detailed in Note 9, Loans and receivables to customers. As a result of the dislocation of financial markets, the group's access to wholesale funding has been reduced, durations shortened and credit spreads widened. However, the group has the ability to use the loan book as collateral for borrowings

The Banking Assets and Liabilities Committee also monitors the dependencies inherent in funding by reviewing the group's usage of lines of credit with financial institutions.

to deposit ratio at the end of 2010 was 249% compared to 246% at the end of 2009. Liquidity reports to the Banking Assets and Liabilities Committee each month include the loans to deposits ratio. The loan

The key limits applied are that an institution must have sufficient available liquidity to cover 100% of outflows over the next The regulatory protocol, under which the group operates, requires levels of liquidity based on various cash flow stress tests. eight days and 90% of outflows over the subsequent 9 – 30 days. The group monitors the liquidity ratio daily and reports weekly to the Central Bank. As a consequence of the industry wide wholesale funding difficulties experienced from the last quarter of 2010, mostly the group has not met these limits since 15 December 2010.

In accordance with IFRS 7, Financial Instruments: Disclosures the following tables present the maturity analysis of financial liabilities on an undiscounted basis, by remaining contractual maturity at the statement of financial position date.

				2010
	Group banking operations
	Up to 1 month €m	1-3 months €m	3-6 months €m	6-12 months €m	1-2 years €m	Over 2 years €m	Total €m
Liabilities
Deposits by banks	6,554	8,900	1,174	201	-	-	16,829
Customer accounts	7,313	3,974	1,296	1,762	243	408	14,996
Debt securities in issue	44	1,227	128	283	287	8,580	10,549
Subordinated liabilities	-	269	17	32	35	1,553	1,906
Derivatives liabilities	(1)	(46)	6	84	14	86	143
Total liabilities	13,910	14,324	2,621	2,362	579	10,627	44,423

	2009
	Group banking operations
	Up to	1-3 3-6 6-12 1-2 Over 2
	1 month	months	months	months	years	years	Total
	€m	€m	€m	€m	€m	€m	€m
Liabilities							-
Deposits by banks	2,404	6,128	1,426	7,940	1	2	17,901
Customer accounts	6,711	4,754	1,502	2,290	296	454	16,007
Debt securities in issue	1,768	1,951	982	4,060	1,401	3,663	13,825
Subordinated liabilities	-	20	17	12	316	1,516	1,881
Derivatives liabilities	20	64	69	24	96	259	532
Total liabilities	10,903	12,917	3,996	14,326	2,110	5,894	50,146

The table below presents the cash flows payable by the group by remaining contractual maturities at the statement of financial position date for assets and liabilities. The amounts disclosed in the table are the contractual undiscounted cash flows. Debt securities and loans and receivables in the tables below are based on contractual maturity except where they are pledged as collateral for ECB and other repurchase funding agreements, in which case they are included based on the maturity of the agreement. Therefore the tables included a haircut on assets pledged as collateral, the return of which is not reflected in the table resulting in the disclosed gap.

funding requirements of the bank. Regulatory limits based on this approach are imposed and, except as described The group manages the inherent liquidity risk based on expected cash inflows and cash outflows. This maturity mismatch approach takes into account the inherent stability of particular funding sources. The above, are adhered to. focus on an ongoing basis is to ensure that the bank can meet all its obligations as they fall due while continuing to provide for all

liquidity risk management as the liquidity is managed on a net asset and liability basis. of contingency funding. The inclusion of information on financial assets is necessary in order to understand the group's The bank's forward looking approach to liquidity management also incorporates running stressed scenarios for the purposes

The 2009 comparatives have been amended to be consistent with the current year.

				2010
	Up to 1 month €m	1-3 months €m	3-6 months €m	Group banking operations 6-12 months €m	1-2 years €m	Over 2 years €m	Total €m
Assets
Debt securities	639	21	39	52	78	2,794	3,623
Loans and receivables to banks	560	-	-	200	-	-	760
Loans and receivables to customers	6,648	9,260	1,718	1,000	1,145	17,657	37,428
Derivatives assets	4	(3)	(2)	11	3	240	253
Total assets	7,851	9,278	1,755	1,263	1,226	20,691	42,064
Liabilities
Deposits by banks	6,535	8,941	1,189	220	2	1	16,888
Customer accounts	7,826	3,933	1,280	1,743	241	407	15,430
Debt securities in issue	154	1,597	567	1,072	318	6,570	10,278
Subordinated liabilities	-	544	-	80	489	808	1,921
Derivatives liabilities	(1)	(46)	6	84	14	86	143
Total liabilities	14,514	14,969	3,042	3,199	1,064	7,872	44,660
Gap	(6,663)	(5,691)	(1,287)	(1,936)	162	12,819	(2,596)

			2009

Up to	1-3	3-6	6-12	1-2	Over 2
1 month	months	months	months	years	years	Total
€m	€m	€m	€m	€m	€m	€m

5,886			51	99		10,647
2,134			8	-		2,142
2,188			8,494	1,379		37,918
-		(1)	(12)	6		147
10,208			8,541	1,484		50,854


						21,533
						15,068
1,793			4,215	1,401		11,345
-			12	316		1,881
						536
11,098			14,928	2,149		50,363
(890)		(2,369)	(6,387)	(665)		491
	2,878 6,406 21	13 - 6,544 13 6,570 6,587 4,566 1,997 20 52 13,222 (6,652)	21 - 1,989 2,009 1,888 1,327 1,065 17 81 4,378	8,658 2,019 24	Group banking operations 40 296 96	4,577 - 17,324 141 22,042 1,482 454 874 1,516 262 4,588 17,454

curves at the end of the reporting period. The 2009 comparatives have been amended to be consistent with the current year. The following table details the group's liquidity analysis for derivative instruments. The table has been drawn up based on the undiscounted contractual net cash inflows and outflows on derivative instruments that settle on a net basis and the undiscounted gross inflows and outflows on those derivatives that require gross settlement. When the amount payable or receivable is not fixed, the amount disclosed has been determined by reference to the projected interest rates by the yield

				2010
		Group banking operations
	Up to 1 month €m	1-3 months €m	3-6 months €m	6-12 months €m	1-2 years €m	Over 2 years €m	Total €m
Net settled:
Interest rate swaps	-	(3)	3	-	-	-	-
Gross settled:
FX Forwards
- inflow	3,667	2,350	36	44	6	-	6,103
- outflow	(3,641)	(2,310)	(36)	(44)	(6)	-	(6,037)
	26	37	3	-	-	-	66

				2009
	Group banking operations
	Up to	1-3	3-6	6-12	1-2	Over 2
	1 month	months	months	months	years	years	Total
	€m	€m	€m	€m	€m	€m	€m
Net settled:
Interest rate swaps	1	(6)	6	-	-	1	2
Gross settled:
FX Forwards
- inflow	3,251	3,416	194	110	2	-	6,973
- outflow	(3,270)	(3,440)	(192)	(108)	(2)	-	(7,012)
Currency swaps
- inflow	-	-	-	209	-	-	209
- outflow	-	-	-	(209)	-	-	(209)
	(18)	(30)	8	2	-	1	(37)

36. Financial risk management (continued)

Interest rate risk is managed principally through monitoring interest rate gaps. Repricing Gap is a duration based interest rate gap analysis which displays the bank's positions in quarterly buckets, highlighting possible interest rate exposures on the statement of financial position. The gap is produced and quantified by Treasury Risk Management and reported to senior management daily.

The gap analysis reflects the estimated discounted cash flows on a mix of interest bearing assets and liabilities and assumptions on the expected repricing dates.

2010

On a daily basis management are provided with the following analysis:

deals are grouped into assets and liabilities in each currency;
deals are grouped in quarterly 'buckets' according to their duration;
weighted average rates for the various 'buckets' of assets and liabilities are calculated and displayed;
a break-even rate is calculated and displayed;
five year equivalent risk figure is calculated and displayed.

Interest Rate Repricing

Group banking operations	Not more than 3 mths €m	Over 3 months but not more than 6 mths €m	Over 6 months but not more than 1 year €m	Over 1 year but not more than 5 years €m	Over 5 years €m	Total €m

Assets
Euro	30,640	475	859	3,174	1,485	36,633
Sterling	7,025	8	19	234	41	7,327
US dollar	1,408	-	-	90	-	1,498
Other	-	-	-	-	-	-
Total assets (A)	39,073	483	878	3,498	1,526	45,458

Liabilities
Euro	(30,894)	(1,302)	(1,901)	(4,156)	(1,248)	(39,501)
Sterling	(1,626)	(1,228)	(44)	(46)	-	(2,944)
US dollar	(236)	(5)	(9)	(1,328)	(4)	(1,582)
Other	-	-	-	-	-	-
Total liabilities (B)	(32,756)	(2,535)	(1,954)	(5,530)	(1,252)	(44,027)

Derivatives
Euro	1,957	55	(252)	2,622	(376)	4,006
Sterling	(4,227)	62	22	(182)	(41)	(4,366)
US dollar	(1,192)	3	5	1,250	4	70
Derivatives affecting interest rate sensitivities (C)	(3,462)	120	(225)	3,690	(413)	(290)
Interest rate repricing gap

Euro	1,703	(772)	(1,294)	1,640	(139)	1,138
Sterling	1,172	(1,158)	(2)	6	-	18
US dollar	(20)	(2)	(4)	11	-	(15)
Interest rate repricing gap	2,855	(1,932)	(1,300)	1,657	(139)	1,141
(A) + (B) + (C)
Cumulative interest rate repricing gap	2,855	923	(377)	1,280	1,141

Interest Rate Repricing

Not more than three mths Over three months but not more than six mths Over six months but not more than one year Over one year but not more than five years Over five years Total €m €m €m €m €m €m Assets Euro 31,198 890 3,160 3,286 1,253 39,787 Sterling 6,592 199 1,034 253 52 8,130 US dollar 601 - - 14 69 684 Total assets (A) 38,391 1,089 4,194 3,553 1,374 48,601 Liabilities Euro (22,924) (3,098) (13,107) (959) (1,269) (41,357) Sterling (2,340) (126) (103) (49) - (2,618) US dollar (2,642) (347) (228) (19) (7) (3,243) Total liabilities (B) (27,906) (3,571) (13,438) (1,027) (1,276) (47,218) Derivatives Euro 1,245 116 2,699 (979) 4 3,085 Sterling (4,665) (105) (931) (193) (41) (5,935) US dollar 2,005 252 227 15 (62) 2,437 Derivatives affecting interest rate sensitivities (C) (1,415) 263 1,995 (1,157) (99) (413) Interest rate repricing gap Euro 9,519 (2,092) (7,248) 1,348 (12) 1,515 Sterling (413) (32) - 11 11 (423) US dollar (36) (95) (1) 10 - (122) Interest rate repricing gap 9,070 (2,219) (7,249) 1,369 (1) 970 (A) + (B) + (C) Cumulative interest rate repricing gap 9,070 6,851 (398) 971 970 Group banking operations

2009

Liquidity risk - Life operations

operations. Liquidity risk for life operations unit-linked funds is managed by Irish Life Investment Managers, by means of asset selection process. For certain property linked funds there is the ability to defer encashments for up to six months to allow time to sell properties. If properties cannot be sold within this period then the shareholder may have to provide liquidity for these funds. At 31 December 2010 a deferral period is applied to most property linked funds, but the shareholder is not providing liquidity to the funds. The liquidity position of the property linked funds is monitored on a regular basis by the Life Assurance Assets and Liabilities Committee. The liquidity risk for non-linked funds is managed through the matching of asset and liability cash flows as shown in the liquidity risk table for life

exclude all unit linked funds. liabilities including discretionary participating contracts where the shareholder is exposed to a financial risk. They The following tables set out the expected cash flows for the assets and liabilities relating to insurance contract

				2010
		Over 1	Over 5	Over 10
	Not more	year but	years but	years but
	than 1	less than	less than	less than	Over 20	No fixed
	year	5 years	10 years	20 years	years	term	Total
	€m	€m	€m	€m	€m	€m	€m
Assets
Debt securities	185	520	640	598	1,084	-	3,027
Equities	-	-	-	-	-	8	8
Investment properties	-	-	-	-	-	1	1
Reinsurance assets	86	343	440	863	1,235	-	2,967
Total assets	271	863	1,080	1,461	2,319	9	6,003
Liabilities
Insurance contracts	272	734	913	1,792	2,079	-	5,790

Gap	(1)	129	167	(331)	240	9	213

				2009
		Over 1	Over 5	Over 10
	Not more	year but	years but	years but
	than 1	less than 5	less than	less than	Over 20	No fixed
	year	years	10 years	20 years	years	term	Total
	€m	€m	€m	€m	€m	€m	€m
Assets
Debt securities	246	448	497	540	1,180	-	2,911
Equities	-	-	-	-	-	10	10
Investment properties	-	-	-	-	-	1	1
Reinsurance assets	88	330	426	859	1,407	-	3,110
Total assets	334	778	923	1,399	2,587	11	6,032
Liabilities
Insurance contracts	258	687	856	1,743	2,294	-	5,838

Gap	76	91	67	(344)	293	11	194

36. Financial risk management (continued)

Liquidity risk - Life operations (continued)

shareholder has given the guarantee and other fixed interest return single premium bonds. Both assets and liabilities are held at fair value in the statement of financial position. It is group policy to purchase assets to match The group is also exposed to financial risk on certain investment contracts, principally tracker products where the liabilities. The undiscounted cash flows for the assets and liabilities by maturity date are set out below:

	2010
	Over 1
Not more than 1	year but less than	No fixed
year	5 years	term	Total
€m	€m	€m	€m
Assets
Debt securities 96	227	-	323
Derivative assets 1	23	-	24
Total assets 97	250	-	347

Liabilities
Investment contracts*	79	248	31	358

Gap	18	2	(31)	(11)

*Liabilities relating to financial options and guarantees are derived using stochastic modelling techniques, and are
shown in the 'no fixed term' column above.

		2009
		Over 1
	Not more	year but
	than 1	less than 5	No fixed
	year	years	term	Total
	€m	€m	€m	€m
Assets
Debt securities	131	266	-	397
Derivative assets	3	22	-	25
Total assets	134	288	-	422
Liabilities
Investment contracts*	119	268	43	430

Gap 15 20 (43) (8)

*Liabilities relating to financial options and guarantees are derived using stochastic modelling techniques, and are shown in the 'no fixed term' column above.

Shareholders' assets of the life operations including those assets required to match solvency capital are predominately invested in cash and properties occupied by the group. An analysis of the shareholders' assets is set out in Note 5, Shareholders' equity of the EV basis supplementary information.

Currency exposure

The group's life assurance liabilities are primarily denominated in euro and it is group policy to match the currency exposure of the liabilities and the underlying assets.

36. Financial risk management (continued)

Market risk – Banking operations

Market risk is the risk of change in fair value of a financial instrument due to changes in equity prices, property prices, interest rates or foreign currency exchange rates. All market risks within the group are subject to strict internal controls and reporting procedures and are monitored by the group's Assets and Liabilities Committees. All market risks are subject to limits on the magnitude and nature of exposures which may be undertaken. These limits are outlined in policy documents which are regularly reviewed by the board.

an overall basis and is also separated into trading and non-trading portfolios. Market risk in the group's banking operations arises from open positions in interest rate or currency products. The market risk exposure is managed by Group Treasury. Group Treasury use a number of tools to identify market risk; including Value at Risk, Interest rate gap, Stress-testing, Mark to market / stop loss reports. Market risk is reported on

is applied. Volatilities and correlations are exponentially weighted (the most recent event carries a greater weighting), and are calculated based on price movements over the past 150 days. The volatilities and correlations are imported daily from Risk Metrics. potential loss on a portfolio from adverse market movements, which summarises the predicted maximum loss over a target time horizon and a given confidence level. Group Treasury adopts JP Morgan's Risk Metrics methodology, which is a variance co-variance approach. The VaR model assumes a holding period of 10 days, and a 99% confidence level In managing market exposures, the group uses a Value at Risk (VaR) model. VaR is a statistically based estimate of

by Treasury Risk Management and reported to senior management daily and to the Banking Assets and Liabilities Committee on a monthly basis. Individual trader VaR limits are established internally within Group Treasury. VaR reports are produced and quantified VaR limits are approved by the board and are established for the overall banking book and trading portfolio.

contained in a portfolio of different financial instruments cannot be calculated by taking the sum total of the individual risks. The VaR methodology employed by the group calculates the risk in each instrument held in the portfolio and The prices of similar financial instruments do not move in exact step with each other and, as a result, the total risk measures the impact of diversification of the risk of the portfolio using an industry standard methodology called the variance co-variance approach.

As with any market risk measurement system, the VaR methodology utilised by the group has recognised limitations. VaR does not measure "event" (e.g. crash) risk or incorporate assumptions about the range of likely changes in future market conditions, including behavioural assumptions about the various types of assets and liabilities (particularly those arising from retail transactions). Accordingly, the group supplements its VaR methodology with other risk measurement techniques including interest rate gap, stress testing and mark to market / stop loss reports.

liabilities model. risk factors. Stress tests (one basis point move in interest rates) are applied to the trading, available-for-sale and heldto-maturity portfolios and the results are reported to the Banking Assets and Liabilities Committee on a monthly basis. A projected income sensitivity analysis is also performed on the statement of financial position through the assets Stress testing techniques are also used as a means to assess potential exposure to predefined moves in individual

model incorporates projected new business growth, using current rates to produce its base case scenario. Group Treasury applies parallel basis point shocks to the individual yield curves of 50, 100, 200 and 300bps. The

The impact on the mark to market of a 100 basis point straight line increase in interest rates, applied to the investment portfolios at 31 December 2010 gives a 1% increase of €54.2m negative. The 2009 comparatives have been amended to be consistent with the current year.

	2010	2009
	€m	€m
Euro
1% increase	(54.2)	(126.7)
1% decrease	0	(0.3)
Sterling	£m	£m
1% increase	0	(0.2)
1% decrease	0	2.8
US Dollar	\$m	\$m
1% increase	0	1.5
1% decrease	0	(0.3)

Mark to Market / Stop loss limits are applied to the trading portfolio and to individual traders. Treasury Risk management reports stop losses to senior management on a daily basis.

Value at risk - Total

	2010	2009
	€m	€m
At 31 December	5.5	4.6
Average	5.4	5.4
Minimum	3	3.4
Maximum	8.9	7.3

Treasury. The non-trading book comprises the bank's retail and corporate deposit books and its loan book combined with the inter-bank book, wholesale funding instruments and the liquid asset investment portfolio, which is managed by

Value at risk – non-trading

	2010	2009
	€m	€m
At 31 December	5.2	4.2
Average	5.1	5.0
Minimum	2.6	3.4
Maximum	9.9	7.5

have been run off. In cases where derivatives are used to hedge back book positions but cannot be accounted for under IAS 39, movements in the value of these hedges will be reported in the income statement as trading profits or losses. Value at risk – trading 2010 2009 €m €m and they are in "run off" mode. Although these portfolios are no longer active a Trading Book exists until all positions and are held separately from other holdings and all trading positions are marked to market. Trading book exposures are subject to strict limits which have been approved by the board. Interest rate exposures within the trading book are measured using VaR. The methodology employed is the same as that utilised in respect of the non-trading book set out above. Foreign currency exposures are measured by reference to open positions (the sum of all long and short positions). All financial instruments held for trading purposes are clearly designated In addition to the responsibility for managing the liquidity and interest rate exposures arising in the banking operations, Treasury manages a trading portfolio in liquid interest rate and foreign currency exchange rate instruments, and derivatives thereof, in order to profit from short-term changes in market values. Trading portfolios are no longer active

At 31 December	0	0.2
Average	0.2	0.4
Minimum	0	0.1
Maximum	0.3	2.2

36. Financial risk management (continued)

Market Risk - Life operations

take into account the differing requirements and risk profiles of different classes of policyholder funds, whether the investments are in respect of guaranteed or non-guaranteed business and the solvency and financial strength requirements of the life companies. Adherence to the policy is monitored by the Life Assurance Assets and Liabilities Committee. The life operations' investment policies set out the principles in respect of the management of market risk. They are determined by the Irish Life Assurance plc board and are designed to ensure that investment activity is carried out in a prudent and controlled manner. They are subject to annual review by the Irish Life Assurance plc board. The policies

	Liability as at 31 December 2010*
	€m
Unit-linked funds where the financial risks are primarily borne by the policyholders	24,320
Other policyholder liabilities	3,631
Unit-linked tracker bonds** and non-linked fixed-interest return single premium bonds	287
Discretionary participation insurance contracts	36
Investment financial options and guarantees	31
Non-controlling share of unit trust	-
	28,305
	Liability as at
	31 December 2009*
	€m

Unit-linked funds where the financial risks are primarily borne by the policyholders	24,025
Other policyholder liabilities	3,396
Unit-linked tracker bonds** and non-linked fixed-interest return single premium bonds	376
Discretionary participation insurance contracts	52
Investment financial options and guarantees	43
Non-controlling share of unit trust	174
	28,066

* Liabilities before reinsurance.

** Only includes unit-linked tracker bonds where the investment guarantee is given by the shareholder (it is group policy to purchase assets to match these liabilities). Tracker bonds where the investment guarantee is given by a third party and the shareholder is not at risk are included in unit-linked funds liabilities.

operations solvency capital and free shareholder funds. The group holds assets at fair value to back the liabilities set out above together with the assets relating to the life

Details of the financial options and guarantees are set out in Note 27, Financial options and guarantees.

Unit-linked funds

net of reinsurance liabilities, policyholders primarily bear the investment risk, with changes in the underlying For unit-linked funds, which comprise 94% (2009: 94%) of the group's long-term insurance and investment contracts investments being matched by changes in the underlying contract liabilities. On a day-to-day basis, cash outflows which are necessitated by policyholders withdrawing their funds are generally met by cash inflows from new investors. In circumstances where funds are contracting, or to meet unusually high levels of withdrawals, the group sells assets in the fund in order to meet the cash demands with any dealing costs charged to the underlying unit-linked fund and consequently the policyholders.

unit-linked funds; hence these assets and liabilities are also excluded from the risk analysis. from the risk analysis. The assets and liabilities classified as held for sale (note 21) are predominantly held within changes are matched by changes in the unit-linked liabilities. Accordingly, the group is not directly exposed to significant liquidity, credit or market risks, although the policyholders' benefits will vary as a consequence. As the group The underlying assets in the unit-linked funds are subject to credit and market risks in the form of interest rate, equity prices, foreign exchange and other market risks depending on the fund, including movement in property values. These is not exposed to any significant financial risk on assets or liabilities held within unit-linked funds, these are excluded

36. Financial risk management (continued)

surrender rates for both insurance and investment contracts reduces the value of future investment management charges. Actions to control and monitor this risk include charges applicable on some products where the investor surrenders early, regular experience monitoring, consideration of the sensitivity of product profitability to levels of lapse rates at the product development stage and initiatives within the relevant businesses to encourage customer retention. interest assets) will however reduce the future annual investment management charges that will be earned from unitlinked business. An additional risk the group faces in respect of unit-linked business is the risk that increases to Decreases in the capital value of unit-linked funds (as a result of falls in market values of equities, property or fixed-

Equity / property price risk

changes in equity / property values. indirect impact of changes in the value of equities and properties held in policyholder funds from which management charges are taken. The group manages the life operations measuring earnings in accordance with the European Embedded Value ("EEV") Principles issued in May 2004 by the European Chief Financial Officers' Forum. The Embedded Value Supplemental Information includes a measurement of the sensitivity of the continuing operations to including changes in the value of investment properties. Investment in equities and property is generally limited to investments to match commitments to policyholders or to match a portion of the liabilities under discretionary participation contracts. The group's shareholders are exposed to direct equity / property holdings in its shareholder assets, including assets acquired through providing liquidity support to certain property-linked funds, and from the Equity / property price risk is defined as the risk of a potential loss in market values due to an adverse change in prices

Derivative risk

parameters set down by senior management as well as by statutory requirements. There is regular reporting of asset Derivatives are permitted to be held only as part of efficient portfolio management. All investments made are within the and liability mismatches to investment committees within business units and to the Life Assurance Assets and Liabilities Committee. Derivative transactions are fully covered by either cash or corresponding assets and liabilities.

Interest rate risk

Life operations of the group carry interest rate risk exposures on its debt securities and its loans to banks portfolio and on its fixed-rate insurance and investment liabilities. It is the group's policy where possible to match its asset and liability profile and this is monitored on a regular basis by the investment committees within each business unit and by the Life Assurance Assets and Liabilities Committee. The Embedded Value Supplemental Information includes a measurement of the sensitivity of the continuing operations to changes in interest rates.

Insurance risk

Insurance risk is the risk associated with the variability in liability cash flows caused by fluctuations in policyholder claims under insured events. The theory of probability is applied to the pricing and provisioning for a portfolio of insurance contracts. The principal risks are that the frequency of claims or the severity of claims is greater than expected. Insurance events are random by their nature and the actual number and size of events during any one year may vary from those estimated using established statistical techniques.

The group manages its insurance risk through underwriting limits, approval procedures for new products and reinsurance where appropriate.

Reinsurance is managed in accordance with approved policy and is regularly reviewed by the Life Assurance Assets and Liabilities Committee.

assumptions to a range of factors is set out in Note 26, Life insurance contracts. The assumptions used to place a value on the liabilities of insurance contracts and the sensitivity of these

Insurance risk falls into three main categories:

Life assurance contracts;
Annuity contracts; and
Insurance contracts with a discretionary participation feature.

36. Financial risk management (continued)

Life assurance contracts

index. case of serious illness an annual income stream which may be fixed or escalate at a fixed rate or in line with a relevant These are contracts where the benefit is payable on death or serious illness. The benefit may be a lump sum or in the

lifestyle such as smoking habits and stress-related diseases. Insurance risks associated with life insurance contracts include the risk of epidemics, accidents and changes in

written for a maximum of a three-year term and the insurance risk may be repriced at the end of each term. For Life assurance contracts may be unit-linked or non-linked. For unit-linked contracts the group charges for the insured individual business written for a fixed term there are no mitigating terms and conditions which reduce the insurance risk. risk on a monthly basis and has the right to alter these charges based on its risk experience. In this way the group can limit its exposure. Non-linked business may be group business or individual contracts. Group business is normally

Individual business risk is managed through the inclusion of medical selection in the underwriting criteria and through reinsurance of the risk.

The sum-at-risk amounts net of reinsurance are as follows:

	2010 €m	2009 €m
Unit-linked contracts Non-linked contracts	9,135	12,311
- Individual - Group	16,634 35,357	17,808 52,318

The calculation of the insurance contract liabilities allows for the discounted expected cost of the sum at risk amounts shown above using mortality and morbidity assumptions and interest rate assumptions as shown in Note 26(b), Life insurance contracts.

Annuity contracts

relevant index. These are contracts where the policyholder, in return for a single premium paid at the start of the contract, purchases an annual income stream for the remainder of his or her life. Annuities may be level, escalate at a fixed rate or in line with a

Payments are often guaranteed for a minimum term regardless of survival. Annuities may also continue after death, in full or in part, to a surviving partner.

The main insurance risk associated with this product is longevity risk and in particular that improvements in medical reinsured. Under the reinsurance treaties, longevity risk is borne by the reinsurance companies. Assets are held by the 57% of the in force portfolio of annuity contracts. All new annuity business written between 2002 and 2009 was 100% science and social conditions would increase longevity. In recognition of this risk, in 2002 the group decided to reinsure reinsurance companies in charged accounts, all withdrawals from which have to be authorised by Irish Life. Assets are managed in accordance with a mandate which matches the asset and liabilities.

Since 2009 the longevity risk on new annuity business is 85% reinsured, with 15% retained by Irish Life. The backing assets are held by Irish Life and are not transferred to the reinsurance company.

The reserves held for annuity contracts are as follows:

	2010	2009
	€m	€m
Gross	2,266	2,059
Reinsurer's share	(1,353)	(1,353)
	913	706

36. Financial risk management (continued)

Insurance contracts with a discretionary participation feature

The group has a closed book of with-profit business where the policyholder benefits from a discretionary annual bonus and a discretionary final bonus. There has been no new business written since it was set up as a closed fund in 1990. The shareholder does not participate in the with-profit fund.

The assets of the fund are invested in a fund which invests in a mixture of equities and fixed-interest securities.

The group has discretion on the level of bonuses declared.

flow basis are sufficient to meet fund liabilities. The total guaranteed sums assured in the future and bonuses payable on death as at 31 December 2010 are €43m (2009: €62m). Technical provisions as at 31 December 2010 are €36m (2009: €52m) which on a discounted cash

Operational risk

Operational risk at Irish Life & Permanent Group Holdings plc is defined as the risk of loss resulting from inadequate or failed internal processes, people and systems or from external events.

Operational risk management within the group also addresses regulatory risk which is defined as the risk of uncertainty in profits due to unforeseen changes in regulation. Regulatory risk is not the failure to meet regulations (that is compliance risk), rather it is the risk that the group is not sufficiently aware of the changing regulatory environment, increasing the cost of compliance and reducing the effectiveness of risk management processes.

more broadly because of reputational or regulatory impacts). monitoring of both operational and regulatory risk. The aim of this framework is to help focus management attention on the subset of operational risks which are material at each level of the organisation (either in terms of financial impact, or The group operates an industry best practice operational risk framework which includes the measurement and

each business unit is responsible for reviewing and authorising the register of main operational risks for each business unit on an annual basis. which they are exposed. The identification process is based on a detailed review of business activities, supplemented by reference to external industry information. Each business unit has a designated operational risk manager who is responsible for coordinating operational risk management within that business unit. The local management team of Central group management, and each of the business units within the group, identify the material operational risks to

reference to its likelihood of incidence and potential impact. These material operational risks are regularly reported to the Group Operational Risk Committee and the Board Risk and Compliance Committee. The Group Operational Risk The group operational risk framework utilises the business unit operational risk registers to identify the group's material operational risks. Materiality is determined by a quantitative and qualitative assessment of each risk by Committee is responsible for steering progress on the measurement and mitigation of these risks. Key risk indicators are used to carry out this monitoring process.

Each of the operational risks considered material for the group is the subject of a documented, in depth analysis of the cause and impact of the risk. An appropriate control environment is established to protect against the risk.

A sub-register of significant operational risks at business unit level is also maintained by the group. Each of the business units (or group function as appropriate) manages and monitors these operational risks to group requirements.

approved by the board. Irish Life & Permanent Group Holdings plc has a formal, documented Operational Risk Policy which has been

Operational risk recording

register. Group Operational Risk function and records all operational risk (including regulatory risk and reputational risk) events and near misses across the group. Risk events and their associated impact are analysed in accordance with the group's operational risk categories which also comply with Basel II requirements. All loss events are recorded in the The group operates an industry best practice risk and event recording database. The database is managed by the

report details the number of operational risk loss events and near misses by business unit for the period. The operational risk database generates risk reports for review at the Operational Risk Committee meetings. Each

36. Financial risk management (continued)

Operational risk economic capital

multipliers are drawn from Basel II benchmark values and are differentiated by business line. Irish Life & Permanent Group Holdings plc employs the Basel II standardised approach as the basis for calculating economic operational risk in the banking business. This approach utilises an established multiplier ("beta" factor) against a threeyear average "risk-weighted relevant indicator" measure of net income to derive a capital requirement. The beta

Operational risk mitigation

Operational risk cannot be entirely eliminated from an entity's business operations without the cessation of business. Acknowledging this fact, the group has implemented risk mitigation techniques (such as business continuity planning for example) to reduce the level of this risk where possible.

possible. Aligned closely to the operational risk event types established by Basel II, insurance cover includes: The group maintains a comprehensive suite of insurance cover in order to mitigate against operational risk to the extent

Theft and fraud (internal and external);
Civil liability;
Employer's liability;
Business interruption;
Directors' and officers' liability; and
Natural catastrophe cover (business continuity planning).

37. Fair value of financial instruments

The fair value of financial instruments held by the group is set out below:

	2010		2009
	Carrying		Carrying
	amount	Fair value	amount	Fair value
	€m	€m	€m	€m
Financial assets:
Cash and balances with central banks (note 5)	312	312	218	218
Items in course of collection (note 5)	124	124	108	108
Debt securities* (note 6)	12,104	11,957	15,799	15,771
Equity shares and units in unit trusts (note 7)	13,777	13,777	13,510	13,510
Derivative assets (note 8)	1,255	1,255	1,169	1,169
Loans and receivables to customers (note 9)	36,581	31,975	38,592	33,200
Loans and receivables to banks (note 11)	3,565	3,562	4,925	4,925
Assets classified as held for sale (note 21)	2,027	2,027	-	-
Financial liabilities:
Deposits by banks (including central banks) (note 22)	17,146	17,131	18,713	17,930
Customer accounts (note 23)	13,382	13,382	14,562	14,562
Debt securities in issue (note 24)	10,034	8,413	13,262	13,209
Derivative liabilities (note 8)	503	503	665	665
Investment contract liabilities (note 25)	24,067	24,067	24,032	24,032
Subordinated liabilities (note 32)	1,686	944	1,644	1,805
Liabilities classified as held for sale (note 21)	1,980	1,980	-	-

* Comparatives are presented in a similar format as current year.

The volatility in financial markets and the illiquidity that is evident in these markets creates a difficulty in determining the fair value of certain assets and liabilities.

The valuation methodologies for calculating the fair value of financial instruments are set out below.

Deposits by banks / customer accounts

The estimated fair value of current accounts and deposits with no stated maturity, which includes non-interest bearing deposits, is the amount repayable on demand. The estimated fair value of fixed-interest bearing deposits and other borrowings not quoted in an active market is based on discounted cash flows using interest rates for new debts with similar remaining maturities.

Cash and balances with central bank / Items in course of collection

on demand and short-term in nature. The fair value of these financial instruments is equal to their carrying value due to these instruments being repayable

Loans and receivables

and receivables to customers. The absence of market data leads to difficulties in calibrating the model used. The model used at 31 December 2010 has discounted the carrying value of the loans and receivables to customers by 1% per annum for the expected future lifetime of these loans, plus an additional 0.5% per annum for the five year period to 31 December 2015. If these assets were discounted by an additional 0.25% per annum for the five year period to 31 December 2015 the fair value would reduce by approximately €400m. The group has used a discounted cash flow valuation methodology to arrive at a fair value for the loans

Debt securities - available for sale (AFS)

At 31 December 2010, €2,555m (2009: €5,576m) of these debt securities have been classified as level 1, €823m (2009: €280m) have been classified as level 2 and €22m (2009:€nil) has been classified as level 3 in the fair value hierarchy below. The fair value of such instruments is based on an external asset pricing tool from a recognised market source. This tool incorporates both market observable and unobservable data. Significant inputs include current and historical market prices of these instruments, the current and historical prices of similar instruments and price estimates from indirect pricing models. Debt securities of €823m (2009: €280m) are classified as level 2 in the fair value hierarchy below due to less liquidity in the market for these instruments and a greater reliance on inputs derived from indirect market observable data while debt securities of €22m have been classified as Level 3 because of the reliance on non-market observable data in the valuations.

Debt securities at fair value through profit or loss (FVTPL)

spreads and forward foreign exchange rates. markets are determined using broker valuations and / or valuation techniques such as discounted cash flow models which are subject to internal management review. Such models incorporate inputs such as current interest rate, credit The fair values of debt securities in an active market are based on quoted market prices. Debt securities in inactive

The bulk of debt securities are sourced from quoted market prices. Management review the source of the market valuations. prices, the liquidity of the security, the credit risk and recent market history to assess the reasonableness of the

The significant categories of debt securities where fair value valuations are not obtained using quoted market prices are as follows:

(a) Zero coupon bonds amounted to €218m (2009: €361m). As at 31 December 2010, such bonds are classified as level 2 in the fair value hierarchy below. Valuations are determined by a discounted cash flow model produced by a third party system. Model inputs include bond cash flows, interest rates and term to maturity, all of which are market observable data.
(b) French government strip bonds amounted to €603m (2009: €638m). obtained from a third party broker who extracts the valuation from their proprietary model. Model inputs include bond cash flow, interest rates and credit spreads which are market observable data. As at 31 December 2010, such bonds are classified as level 2 in the fair value hierarchy below. Valuations are
(c) Housing finance agency inflation-linked bond amounted to €62m (2009: €84m). obtained from a third party broker market maker. The broker considers interest rates, credit spreads and inflation expectations in arriving at their quote. As at 31 December 2010, such bonds are classified as level 2 in the fair value hierarchy below. Valuations are
(d) European investment bank inflation-linked notes amounted to €452m (2009: €528m). As at 31 December 2010, these notes are classified as level 3 in the fair value hierarchy below. Valuations are obtained from an external broker using a valuation technique incorporating significant inputs, some of which are market unobservable data. Such inputs include a discount to reflect the lack of liquidity in the market for these instruments.

During the year ended 31 December 2008 the group availed of the amendment to IAS 39 and IFRS 7 which permitted broker quotes for securities with similar terms and features and unobservable data. financial assets classified as available for sale ("AFS") to be reclassified out of the AFS category to the loans and receivables category. Such securities are carried at amortised cost in accordance with loans and receivables accounting policy. The fair value of such securities is determined by using valuation models incorporating a mix of

Equity shares and units in unit trusts

The fair value of quoted equities are based on quoted market price sourced from external pricing services where €13,519m (2009:€13,140m) out of a total balance of €13,777m (2009: €13,510m) as at 31 December 2010. securities are traded on a recognised exchange. Equity investments valued using quoted market prices totalled

in units trusts and funds. The net asset value ("NAV") based on the underlying fair value of the investments of the unit trusts and funds, as reported by the investment managers has been used as the basis for determining the fair value of the group's interest

issued by unit trust and fund managers. Each unit trust price is reviewed by management to assess the restrictions on redemptions put in place by the unit trust and fund managers and evidence of trading taking place at the Therefore units in unlisted unit trusts and unlisted investment funds are valued using the latest price or valuation reasonableness of the price. Management considers the illiquidity and pricing basis of any underlying assets, any issued price. If appropriate the latest price or valuation issued by the unit trust and fund managers is adjusted to reflect the illiquidity or latest valuations of underlying assets.

quoted market prices are as follows: The significant categories of equity shares and units in unit trusts where fair value valuations are not obtained using

(a) Units in unit trusts that are not priced or traded on a daily basis amounted to €24m (2009: €100m). liquidity in the market. As at 31 December 2010, these units are classified as level 2 in the fair value hierarchy below due to a lack of
(b) Units held in a property unit trust amounted to €185m (2009: €195m). As at 31 December 2010, these units are classified as level 2 in the fair value hierarchy below since the units are priced and traded by the investment manager on a monthly basis. At 31 December 2009, these units were classified as level 3 since they were valued by an independent external property valuer as the unit fund manager had suspended publication of the unit price. During 2010 the unit fund manager recommenced unit trading and pricing within the fund. As the unit price is now available these units have been transferred from level 3 into level 2.
(c) Unlisted shares held in private companies amounted to €93m (2009: €68m). are prepared internally using the most recent financial statements of the companies, which are market At 31 December 2010, these shares are classified as level 3 in the fair value hierarchy below. These valuations unobservable data. The unlisted shares includes the group's shareholding in National Asset Management Agency Investment Limited ("NAMAIL"). The valuation of these shares was prepared by an external valuer. Further details of this shareholding are included in Note 55, Related parties.

Derivative assets and liabilities

The fair values for derivatives traded in active markets are obtained from prevailing quoted prices. Active markets would include all exchange traded equity, currency and commodity futures, quoted on recognised futures and derivative exchanges.

usually available in the market for exchange-traded derivatives (primarily options) and simple over the counter discounted cash flow models which are subject to internal management review. Such models incorporate inputs such as current interest rate, time to maturity and forward foreign exchange rates. Observable prices model inputs are Derivatives in inactive markets are determined using broker valuations and / or valuation techniques such as derivatives such as interest rate swaps.

The significant categories of derivatives where fair value valuations are not obtained using quoted market prices are as follows:

(a) €778m (2009: €822m). Derivative instruments relating to CPPI products (as described in Note 8, Derivative Instruments) amounted to

As at 31 December 2010, these instruments are classified as level 2 in the fair value hierarchy below. Valuations option pricing model comprising Monte-Carlo simulation and discounted cash flows. Significant inputs include are obtained from a third party broker who extracts the valuation from their proprietary model. This uses a standard volatility of returns, risk-free discount rate and expected returns.

(b) Options used in tracker products amounted to €56m (2009: €38m). are valued by a third party broker based on a valuation model incorporating proprietary inputs, some of which are As at 31 December 2010, these options are classified as level 3 in the fair value hierarchy below. These options market unobservable data.
(c) in respect of the bank operations. Derivative assets of €360m (2009: €270m) and derivative liabilities of €273m (2009: €411m) related to derivatives

models and pricing models. Model inputs include yield curves and volatility measurements which are market observable data. As at 31 December 2010, these derivative instruments have been classified as level 2 in the fair value hierarchy below. Valuations are obtained from third party brokers who extract valuation from a mix of discounted cash flow

Debt securities in issue / subordinated liabilities

value of these liabilities. Where market prices are not available for these instruments, market prices of instruments that are substantially the same have been used. The group has used market prices of the debt securities in issue and the subordinated liabilities to calculate a fair

Fair value measurements recognised in the statement of financial position

In accordance with IFRS 7, Financial Instruments: Disclosures, the group has adopted the fair value hierarchy instruments. The three levels of the fair value hierarchy as defined by the accounting standard are outlined below: classification of financial instruments. This requires the group to classify its financial instruments held at fair value according to a hierarchy based on the significance of the inputs used to arrive at the overall fair value of these

Level 1: fair value measurements derived from quoted market prices (unadjusted) in active markets for identical assets or liabilities.

observable for the asset or liability either directly (i.e. as prices) or indirectly (i.e. derived from prices). Level 2: fair value measurements derived from inputs other than quoted prices included within level 1 that are

Level 3: fair value measurements derived from valuation techniques that include inputs for the asset and liability that are based on unobservable market data.

statement of financial position. Categorisation of these financial instruments according to the fair value hierarchy is included below as at year end: This fair value hierarchy has been applied to all of the financial instruments that are measured at fair value in the

	2010
		Valuation	Valuation
	Quoted	techniques using	techniques using
	market	observable	unobservable
	prices	market data	market data
	Level 1	Level 2	Level 3	Total
Financial instruments measured at fair value	€m	€m	€m	€m
Financial assets
Debt securities
Available for sale (note 6)	2,555	823	22	3,400
At fair value through profit and loss ("FVTPL")(note 6)	6,032	941	452	7,425
Equity shares and units in unit trusts (note 7)	13,519	222	36	13,777
Derivative assets (note 8)	23	1,176	56	1,255
Assets classified as held for sale (note 21)
Debt securities	12	385	-	397
Equity shares and units in unit trusts	612	794	64	1,470
Financial liabilities
Derivative liabilities (note 8)	8	495	-	503
Investment contract liabilities * (note 25)	-	24,067	-	24,067
Liabilities classified as held for sale (note 21)
Derivative liabilities	-	2	-	2
Investment contracts	-	1,978	-	1,978

	2009
		Valuation	Valuation
	Quoted	techniques using	techniques using
	market	observable	unobservable
	prices	market data	market data
	Level 1	Level 2	Level 3	Total
Financial instruments measured at fair value	€m	€m	€m	€m
Financial assets
Debt securities
Available for sale (note 6)	5,576	280	-	5,856
At fair value through profit and loss ("FVTPL")(note 6)	6,745	1,100	528	8,373
Equity shares and units in unit trusts (note 7)	13,140	100	270	13,510
Derivative assets (note 8)	39	1,092	38	1,169
Financial liabilities
Derivative liabilities (note 8)	25	640	-	665
Investment contract liabilities * (note 25)	-	24,032	-	24,032

data. * Investment contract liabilities are backed by assets attributable to the life operations including assets which are carried at FVTPL which are measured at quoted market prices and valuation techniques using observable market

Reconciliation of level 3 fair value measurements of financial assets

				2010
				Assets held for
				sale - Equity
	Debt	Debt	Equity shares	shares
	securities	securities	and units in	and units in	Derivative
	AFS	at FVTPL	unit trusts	unit trusts	assets	Total
	€m	€m	€m	€m	€m	€m
Opening balance	-	528	270	-	38	836
Total gains or losses - in profit or loss
- Investment return	-	(9)	69	-	(9)	51
- Other comprehensive income	(1)	-	-	-	-	(1)
Transfers into level 3	23	-	-	64	-	87
Transfers out of level 3	-	-	(356)	-	-	(356)
Sales	-	(138)	(7)	-	(8)	(153)
Purchases	-	71	60	-	35	166
	22	452	36	64	56	630

Total gains or losses for the period included in profit or loss for assets held at the end of
the reporting year.
- Net interest income	1	-	-	-	-	1
- Investment return	-	(14)	(3)	-	(12)	(29)

				2009
				Assets held for
				sale - Equity
	Debt	Debt	Equity shares	shares
	securities	securities	and units in	and units in	Derivative
	AFS	at FVTPL	unit trusts	unit trusts	assets	Total
	€m	€m	€m	€m	€m	€m
Opening balance	-	-	-	-	-	-
Total gains or losses - in profit or loss
- Investment return	-	20	(350)	-	7	(323)
Transfers into level 3	-	508	607	-	24	1,139
Sales	-	-	(1)	-	(17)	(18)
Purchases	-	-	14	-	24	38
	-	528	270	-	38	836

Total gains or losses for the year included in
profit or loss for assets held at the end of the
reporting year.
- Investment return	-	21	(340)	-	9	(310)

instruments have been transferred into level 3 per the fair value hierarchy classification. Transfers into level 3 occurred for instruments are classified as level 3 have been outlined in detail above. these instruments due to inputs of the underlying valuation techniques becoming unobservable. The majority of such Following a review and an in-depth analysis of valuation techniques adopted by the group as at 31 December 2009, certain

Sensitivity analysis of level 3 fair value measurements (non unit-linked funds)

Financial instruments classified as level 3 amounting to €48m (2009: €27m) of a total balance of €630m (2009: €836m) include debt securities which are not held within unit-linked funds in respect of the group's life operations.

Debt securities - available for sale (AFS)

Zero-coupon corporate bonds of €22m (2009: €nil) classified as level 3 are held to match certain zero coupon deposits, the fair value of these debt securities are sensitive to changes in the underlying assumptions (nominal yields and credit spreads). The following table shows the sensitivity of the fair value of these debt securities to a +1% / -1% movement in the assumptions respectively as at year end:

	2010
		Reflected in other comprehensive income
	Favourable	Unfavourable
	change	change
	€m	€m
Debt securities at FVTPL
- Nominal yields	0.2	(0.3)
- Credit spreads	0.2	(0.3)

Debt securities at fair value through profit or loss (FVTPL)

For European investment bank inflation-linked notes not held within unit-linked funds of €26m (2009: €27m), the fair value of such notes are sensitive to changes in the underlying assumptions (inflation expectations, nominal yields and credit spreads). The following table shows the sensitivity of the fair value of these notes to a +1% / -1% movement in the assumptions respectively as at year end:

	2010
		Reflected in income statement
	Favourable	Unfavourable
	change	change
	€m	€m
Debt securities at FVTPL
- Inflation expectations	7	(5)
- Nominal yields	5	(4)
- Credit spreads	5	(4)

	2009 Reflected in income statement

	Favourable	Unfavourable
	change	change
	€m	€m
Debt securities at FVTPL
- Inflation expectations	7	(5)
- Nominal yields	6	(5)
- Credit spreads	6	(5)

Sensitivity analysis of level 3 fair value measurements (unit-linked funds)

Financial instruments classified as level 3 include €582m (2009: €809m) of a total balance of €630m (2009: €836m) include debt securities, equity shares and units in unit trust and derivative assets, which are held within unit-linked funds in respect of the group's life operations. For unit-linked funds, any fair value changes in unit-linked assets are matched by changes in unit-linked liabilities.

Debt securities at fair value through profit or loss (FVTPL)

For European investment bank inflation-linked notes held within the unit-linked funds of €426m (2009: €501m) the valuations were obtained from the external broker who is the principal market maker for these instruments. Inputs included discounts for lack of liquidity in the market. All other inputs to the valuation are market observable. Hence the fair value of such notes are sensitive to changes in the underlying assumptions (inflation expectations, nominal yields and credit spreads). The details of the sensitivity are set out below. As these are unitlinked assets there is no impact on the income statement for the overall group for a change in the underlying assumptions.

A 1% favourable / unfavourable move in the inflation expectations would have a valuation effect of €156m / (€113m) (2009: €184m / (€134m)) on unit-linked assets and liabilities and no impact on shareholder values.
A 1% favourable /unfavourable move in credit spreads would have a valuation effect of €133m / (€97m) (2009: €163m / (€120m))on unit-linked assets and liabilities and no impact on shareholder values.
A 1% favourable / unfavourable move in nominal yields would have a valuation effect of €133m / (€97m) (2009: €163m / (€120m)) on unit-linked assets and liabilities and no impact on shareholder values.

Equity shares and units in unit trusts and equity shares classified as held for sale

The equity shares classified as level 3 include €36m (2009: €68m) and equity shares classified as held for sale include €57m that consist of a number of unquoted companies held in unit-linked wrapper funds. Valuations were based on the most recent company financial statements and possible alternative assumptions would not have had a material impact on the valuations.

Derivative assets

equity growth would impact the value of the derivatives. obtained from a third party broker who values the options using a model with proprietary inputs. The brokers provide regular valuations through out the year . Historically trades have been executed at values very close to the most recent valuation quote. Therefore the directors do not believe that alternative assumptions give a reasonable alternative valuation, although future Derivatives classified in level 3 of €56m (2009: €38m) were in respect of options used in tracker products. The valuations were

38. Measurement basis of financial assets and liabilities

The table below analyses the carrying amounts of the financial assets and liabilities by accounting treatment and by statement of financial position classification.

2010

	At fa ir v lue hro h p f it o los t a ug ro r s		hro h e ity t ug q u
	iva ive De t r s de ig d te s na fa ir v lue as a he dg es €m	He l d for d ing tra €m	De ig te d s na in it ia l up on it ion rec og n €m	Av i la b le a for le sa €m	Em be d de d de iva ive t r s €m	Lo d an s a n / iva b les rec e ise d ort am st co €m	Fa ir v lue a d j tm t o a us en n he dg d a ets e ss d l ia b i l it ies ** an €m	Inv tm t es en ntr t co ac l ia b i l it ies *** €m	To l ta €m
F ina ia l a ets nc ss :
Ca ( ) h a d ba lan it h c l ba ks 5 tra te s n ce s w en n no		- -	-	-	-	3 1 2	-	-	2 3 1
f c ( ) Ite in l lec t ion te 5 ms co urs e o o no		- -	-		-	1 2 4	-	-	4 1 2
De bt it ies ( ) te 6 se cu r no		- -	7, 4 2 5	3, 3 4 6	-	1, 27 9	4 8	-	8 1 2, 0 9
Eq ity ha d u its in it t ( ) ts te 7 s res an n un rus no u	-	-	1 3, 77 7	-	-	-	-	-	7 1 3, 77
De iva ive * ( 8 ) t ts te r as se no	27 3	0 9 7	-	-	1 2	-	-	-	5 1, 2 5
Lo d r iva b les ( 9 ) to sto te an s a n ec e cu me rs no		- -	-	-	-	3 6, 47 2	1 0 9	-	1 3 6, 5 8
( ) Lo d r iva b les to ba ks te 11 an s a n ec e n no	-	-	2, 5 9 4	-	-	9 7 1	-	-	5 5 3, 6
As he l d for le ( ) ts te 21 se sa no		- -	2, 0 1 3	-	-	1 4	-	-	27 2, 0
To ta l f ina ia l a ets nc ss	27 3	0 9 7	2 5, 8 0 9	3, 3 4 6	1 2	3 9, 17 2	1 5 7	-	9 6 9, 7 3
F ina ia l l ia b i l it ies nc :
De its by ba ks ( inc lu d ing l ba ks ) ( ntr te p os n ce a n no ) 22		- -	-	-	-	17 1 4 6 ,	-	-	6 17 1 4 ,
Cu ( 23 ) sto ts te me r a cco un no		- -	-	-	-	1 3, 3 8 2	-	-	2 1 3, 3 8
De bt it ies in iss ( 24 ) te se cu r ue no		- -	-	-	-	9, 9 2 6	1 0 8	-	4 1 0, 0 3
( ) De iva ive l ia b i l it ies 8 t te r no	1 9 6	6 2 5	-	-	5 1	-	-	-	5 3 0
Inv l ia b i l it ies *** ( ) tm t c tra ct te 25 es en on no		- -	-	-	-	-	-	2 4, 0 6 7	2 4, 0 6 7
Su bo d ina d l ia b i l it ies ( ) te te 3 2 r no		- -	-	-	-	1, 6 8 3	3	-	6 1, 6 8
L ia b i l it ies he l d for le ( 21 ) te sa no		2 -	-	-	-	-		8 - 1, 9 7	0 1, 9 8
To l f ina ia l l ia b i l it ies ta nc	1 9 6	5 8 2	-	-	5 1	4 2, 1 3 7	1 1 1	5 2 6, 0 4	8 6 8, 7 9

At fair value

38. Measurement basis of financial assets and liabilities (continued)

2009

				At fa ir v lue a
	At fa ir v lue a	hro h p t ug	f it o los ro r s	hro h e ity t ug q u
	De iva ive t r s					Lo d an s a n	Fa ir v lue a
	de ig d te s na	He l d	De ig d te s na			iva b les / rec e	d j ust nt a me on	Inv tm t es en
	fa ir v lue as a	for	in it ia l up on	Av i la b le a	Em be d de d	ise d ort am	he dg d a ets e ss	ntr t co ac
	he dg es	d ing tra	it ion rec og n	for le sa	de iva ive t r s	st co	d l ia b i l it ies ** an	l ia b i l it ies ***	To l ta
	€m	€m	€m	€m	€m	€m	€m	€m	€m
F ina ia l a ets nc ss :
Ca ( ) h a d ba lan it h c tra l ba ks te 5 s n ce s w en n no		- -	-	-	-	21 8	-	-	8 21
Ite in f c l lec ion ( ) t te 5 ms co urs e o o no		- -	-	-	-	10 8	-	-	8 10
De bt it ies ( 6 ) te se cu r no		- -	8, 37 3	8 37 5,	-	1, 42 5	28	-	0 15 78 ,
Eq ity ha d u its in it t ( ) ts te 7 u s res an n un rus no	-	-	13 10 5 ,	-	-	-	-	-	10 13 5 ,
De iva ive * ( 8 ) t ts te r as se no	7	22 24 9	-	-	-	-	-	-	9 1, 16
( ) Lo d r iva b les to sto te 9 an s a n ec e cu me rs no		- -	-	-	-	3 8, 3 8 9	20 3	-	2 3 8, 5 9
Lo d r iva b les ba ks ( ) to te 11 an s a n ec e n no		- -	2, 3 21	-	-	2, 6 0 4	-	-	25 4, 9
To l f ina ia l a ta ets nc ss	7	22 24 9	24 20 4 ,	8 37 5,	-	42 8 6 1 ,	23 1	-	2 74 3 0 ,
F ina ia l l ia b i l it ies nc :
De its by ba ks ( inc lu d ing l ba ks ) ( ntr te p os n ce a n no ) 22		- -	-	-	-	18 71 3 ,	-	-	3 18 71 ,
Cu ( ) sto ts te 23 me r a cco un no		- -	-	-	-	14 5 6 2 ,	-	-	2 14 5 6 ,
De bt it ies in iss ( ) te 24 se cu r ue no		- -	-	-	-	13 17 2 ,	9 0	-	2 13 26 ,
De iva ive l ia b i l it ies ( 8 ) t te r no	37 6	9 28	-	-	-	-	-	-	65 6
Inv l ia b i l it ies *** ( 25 ) tm t c tra ct te es en on no		- -	-	-	-	-		2 - 24 0 3 ,	2 24 0 3 ,
Su ( ) bo d ina d l ia b i l it ies 3 2 te te r no		- -	-	-	-	1, 5 9 8	46	-	44 1, 6
f To ta l ina ia l l ia b i l it ies nc	37 6	9 28	-	-	-	48 0 45 ,	13 6	2 24 0 3 ,	8 72 87 ,

liabilities.*Included in held-for-trading assets category of €970m (2009: €922m) is €878m (2009: €886m) held for the benefit of policyholders and to match tracker bond

**Financial assets and liabilities that are part of a hedging relationship are carried at amortised cost adjusted for changes in the fair value of the hedged risk.

***Investment contract liabilities are backed by assets attributable to the life operations including assets which are carried at FVTPL.

Following the sale of the held-to-maturity portfolio in February 2008, the group does not hold any held-to-maturity securities.

39. Current / non-current assets and liabilities

The following tables provide an analysis of certain asset and liability line items that include amounts expected to be recovered or settled no more than twelve months after the financial position date (current) and more than twelve months after the financial position date (non-current).

	Current €m	2010 Non-current €m	Total €m	Current €m	2009 Non-current €m	Total €m
Assets
Cash and balances at central banks (note 5)	312	-	312	218	-	218
Items in the course of collection (note 5)	124	-	124	108	-	108
Debt securities (note 6)	2,038	10,060	12,098	3,281	12,499	15,780
Equity shares and units in unit trusts (note 7)	13,777	-	13,777	13,510	-	13,510
Derivative assets (note 8)	165	1,090	1,255	68	1,101	1,169
Loans and receivables to customers (note 9)	3,348	33,233	36,581	6,967	31,625	38,592
Loans and receivables to banks (note 11)	3,557	8	3,565	4,925	-	4,925
Assets held for sale (note 21)	2,089	-	2,089	-	-	-
Liabilities Deposits by banks including central banks (note
22)	16,885	261	17,146	18,302	411	18,713
Customer accounts (note 23)	13,094	288	13,382	14,290	272	14,562
Debt securities in issue (note 24)	1,501	8,533	10,034	8,204	5,058	13,262
Derivative liabilities (note 8)	270	233	503	308	357	665
Subordinated liabilities (note 32)	278	1,408	1,686	-	1,644	1,644
Liabilities held for sale (note 21)	2,041	-	2,041	-	-	-

40. Assets held in unit-linked funds

	2010	2009
	€m	€m
Designated as FVTPL
- Debt securities	5,831	6,728
- Equities and units in unit trusts	13,758	13,442
- Loans and receivables to and from banks	2,396	1,923
- Derivative assets and liabilities	845	862
- Cash / other assets / other liabilities	143	116
- Assets and liabilities held for sale	1,989	-
Total designated at FVTPL	24,962	23,071
- Investment properties	1,679	1,751
As at 31 December	26,641	24,822

The balances are the total assets held in unit-linked policyholder funds and include tracker products and funds managed by external fund managers. The balances are gross of consolidation adjustments which eliminate inter-group balances and holdings of Irish Life & Permanent Group Holdings plc shares.

41. Net interest income

	2010	2009
	€m	€m
Interest receivable
Loans and receivables to customers	911	1,051
Loans and receivables to banks	12	59
Debt securities and other fixed-income securities
- Available for sale ("AFS")	124	67
- Loans and receivables	32	40
- Amortisation of AFS securities reclassified to
loans and receivables (note 6)	(15)	(15)
Lease and instalment finance	70	94
Losses on interest rate hedges on assets	(3)	(15)
	1,131	1,281
Interest payable
Deposits from banks (including central banks)	(136)	(313)
Due to customers	(323)	(335)
Interest on debt securities in issue	(213)	(205)
Interest on subordinated debt	(50)	(57)
Interest on other borrowed funds	(12)	(11)
Fees payable on ELG Scheme	(97)	-
Gains on interest rate hedges on liabilities	9	3
	(822)	(918)
Net interest income	309	363

Interest income accrued on non performing loans was €92m (2009: €56m).

Net gains / (net losses) on interest rate hedges include (losses) / gains on hedging instruments of (€491m) (2009: €111m) and gains / (losses) on hedged items attributable to hedged risk of €497m (2009: (€123m)).

Net interest income includes the movement in deferred acquisition costs of €24m debit (2009: €7m credit). The net interest income for the year ended 31 December 2009 includes the circa €30m negative impact of mismatches which arose between the fees charged on fixed-rate mortgage switches and the cost of closing fixed-rate positions.

a result of callable securitised bond notes and subordinated liabilities not being called. Interest payable includes a charge of €4m (2009: €nil) in relation to the effect of an interest rate step up arising as

42. Net fees and commission expenses

	2010	2009
	€m	€m
Fees and commission income
Fees and commission earned on banking services	54	55
Commission earned on insurance and investment contracts	25	22
	79	77
Fees and commission expenses
Fees and commission payable on banking services	(12)	(10)
Fees in respect of government guarantee scheme	(13)	(29)
Commission payable on life and investment contracts	(95)	(107)
Deferral of acquisition costs on investment contracts (note 19)	40	45
Amortisation of deferred acquisition costs on investment contracts (note 19)	(46)	(56)
	(126)	(157)
Net fees and commission expenses	(47)	(80)

43. Trading income

	2010	2009
	€m	€m
Designated held-for-trading
Interest rate instruments	(1)	(4)
Foreign exchange instruments	(2)	-
	(3)	(4)

44. Premiums on insurance contracts

	2010	2009
	€m	€m
Individual premiums
Recurring	325	329
Single	95	115
	420	444
Premiums under group contracts
Recurring	158	179
Single	141	86
	299	265
	719	709

45. Investment return

Financial assets designated at FVTPL €m €m Equity shares Dividends 344 275 Fair value gains 1,594 2,553 1,938 2,828 Debt securities Interest 256 236 Profit on buy back of debt securities in issue - 8 Fair value losses (266) (18) (10) 226 Exchange gains / (losses) on debt securities / equity shares 7 (115) Total investment return on financial assets designated at FVTPL 1,935 2,939 Derivatives designated as held-for-trading ("HFT") Income (1) - Exchange gains 58 - Fair value gains / (losses) 11 (3) 68 (3) Property market / money market Income from investment properties 153 160 Interest 59 78 Exchange losses (27) (29) Fair value losses on investment property (90) (517) Provision on onerous contract** 33 (33) 128 (341)



























Consolidation adjustments (note 4) * 21 (10)
Total investment return 2,152 2,585

Total investment return
Income from investment properties 153 160
Dividends 344 275
Interest 315 314
Income from derivatives (1) -
Profit on buy back of debt securities in issue - 8
Exchange gains / (losses) 38 (144)
Unrealised gains 1,249 2,015
Provision on onerous contract 33 (33)
Consolidation adjustments (note 4) * 21 (10)
Total investment return 2,152 2,585

financed by non-recourse inter-group loans. *€26m credit (2009: €2m charge) arises due to different accounting treatment between the bank and the life company. The bank carries the liabilities at amortised cost; however, the corresponding assets in the life company are carried at FVTPL. €5m charge (2009: €8m charge) arises on the consolidation of the movement in the value of properties

after the purchase of the property in 2010 (see Note 29, Provisions). was utilised against a loss of €39m recognised in fair value losses on investment property which was incurred where the market value had reduced. During the year the onerous contract was subject to arbitration. The provision **Irish Life Assurance plc had an onerous contract in respect of a commitment to purchase an investment property,

46. Claims on insurance contracts

	2010	2009
	€m	€m
Death and disability benefit	220	225
Maturities and encashments	96	117
Annuities	157	147
	473	489

47. Investment expenses

	2010	2009
	€m	€m
Expenses relating to investment properties	30	14
Other investment expenses	19	21
	49	35

Investment property expenses include €6m (2009: €3m) in respect of vacant properties.

48. Administrative and other expenses

	2010	2009
	€m	€m
Administrative expenses	464	518
Depreciation	27	30
Amortisation of intangible assets	16	20
	507	568
Expenses are after charging the following:
	2010	2009
	€m	€m
Auditor's remuneration (including VAT)
- Audit of individual and group financial statements	1.6	1.6
- Other assurance services	0.6	1.3
- Tax advisory services	0.9	0.2
- Other non-audit services	0.3	0.2
Operating lease rentals - land and buildings	11.1	11.4

49. Employment costs

Staff costs (including executive directors) for the year were:

	2010	2009
	€m	€m
Wages and salaries*	257	243
Social insurance	26	25
Pension costs
- Payments to defined contribution pension schemes	3	3
- Charge in respect of defined benefit pension schemes (note 20)	24	53
Equity-settled transactions	1	1
Charged to income statement	311	325
Unrecognised actuarial (gains) / losses on defined benefit pension schemes arising in the
year	31	(117)
	342	208

*Including commission paid to sales staff

Average number of staff (including executive directors) employed during the year:

	2010	2009
Ireland	4,174	4,527
UK	164	167
	4,338	4,694

Life assurance	1,615	1,733
Banking	2,141	2,354
Investment management	133	141
Other	449	466
	4,338	4,694

Remuneration. Information concerning individual directors' emoluments is disclosed in the audited section of the Directors' Report on

50. Share-based payments

Share option schemes

statements. The group has three share option schemes in which management and staff of the group participate. Full details of the share option schemes are set out in the directors' report on remuneration, which has been audited and forms part of the financial

In accordance with the IFRS transitional arrangements included in IFRS 1 and IFRS 2, IFRS 2 measurement requirements have not been applied to options granted before 7 November 2002.

The total number of options outstanding at 31 December is as follows:

		Number of options
		Other	Key
Grant date	Exercise price	employees	management	Total
2000	€9.20	-	-	-
2001	€13.85	888,422	85,072	973,494
2002	€11.99 and €14.85	1,213,761	92,720	1,306,481
2003	€9.68	1,454,529	159,718	1,614,247
2004	€13.21	1,534,382	97,014	1,631,396
2008	€10.38	320,454	234,160	554,614
		5,411,548	668,684	6,080,232

2010

		2009
			Number of options
		Other	Key
Grant date	Exercise price	employees	management	Total
2000	€9.20	192,079	132,498	324,577
2001	€13.85	967,600	98,823	1,066,423
2002	€11.99 and €14.85	1,366,562	96,128	1,462,690
2003	€9.68	1,587,299	170,594	1,757,893
2004	€13.21	1,630,168	113,584	1,743,752
2008	€10.38	325,030	252,640	577,670
		6,068,738	864,267	6,933,005

Options are normally exercisable between three and ten years from grant and expire ten years after the date of grant. The total number of options outstanding at 31 December 2010 is equivalent to 2.2% of the issued share capital (2009: 2.5%). Should the outstanding options be exercised at 31 December, the total amount receivable on those options would be €75m (2009: €78m).

All options granted prior to 2008 have met their vesting conditions and are available to be exercised.

	Number of options		Weighted average exercise price
	2010	2009	2010	2009
Outstanding at 1 January	6,933,005	8,371,105	12.13	12.08
Granted during the year	-	-	-	-
Exercised during the year	-	-	-	-
Lapsed during the year	(324,577)	(278,931)	9.20	10.90
Forfeited during the year	(528,196)	(1,159,169)	12.36	12.03
Outstanding as at 31 December	6,080,232	6,933,005	12.27	12.13

Exercisable as at 31 December 6,080,232 6,355,335

The 1994 scheme is closed and no further options can be issued under it.

The average share price during the year was €2.08 (2009: €3.14). The share price during the year ranged from €0.51 to €3.94 (2009: €0.63 to €5.90).

50. Share-based payments (continued)

The weighted average contractual life of options outstanding at 31 December 2010 is 2.7 years (2009: 3.5 years).

The range of exercise prices for outstanding options at 31 December 2010 is €9.68 to €14.85 (2009: €9.20 to €14.85).

between actual share price at 31 December 2010 €1.08 (2009: €3.30) and the option price. The intrinsic value of options exercisable at 31 December 2010 is nil (2009: nil) where the intrinsic value is the difference

The charge in the income statement in respect of equity-settled transactions is set out in Note 49, Employment costs.

granted. The value is estimated based on the Black-Scholes model adjusted for dividends. The fair value of service received for share options granted is measured by reference to the fair value of share options

There were no options issued in 2010 (2009: nil).

In calculating the number of options which are expected to vest, the group takes into account the service condition attaching to the options. Share options are granted under a non-market performance condition which is not taken into account in calculating the fair value at date of grant.

As a result of the corporate restructure to create Irish Life & Permanent Group Holdings plc, the vesting conditions in respect for 2010 amounts to €0.3m. of share options issued in 2008 were dissolved and as such the cost accruing in 2010 has been accelerated. The total cost

Long-term incentive plan

at no cost. The plan was approved by shareholders at the AGM held in May 2006. As a result of the corporate restructure to create Irish Life & Permanent Group Holdings plc, there was no subsequent impact on the number of the plan shares outstanding or on the terms and conditions of these plan shares. The group has a long-term incentive plan ("the plan") which provides for the delivery of conditional fully paid ordinary shares in Irish Life & Permanent Group Holdings plc ("the company") to selected senior executives of the company or its subsidiaries

Under the plan, shares granted in 2006 vest for participants on the attainment of the following performance criteria:

Cumulative growth in earnings per share ("EPS") on an embedded value basis over the three years from grant must exceed the increase in the consumer price index ("CPI") over the same period plus 5% p.a. before any shares can vest;
25% of the share awards vest if the total shareholder return ("TSR") for the group at least matches the weighted average TSR of the FTS Eurofirst 300 Banking and Insurance indices; and
100% of the share awards will vest if the TSR for the group exceeds the weighted average TSR of the FTS Eurofirst 300 Banking and Insurance indices plus 8% p.a.. Awards will vest on a linear scale between 25% and 100% for TSR between the two levels specified.

Conditional shares granted in 2006 lapsed in 2009 and conditional shares granted in 2007 lapsed in 2010.

Following a review of remuneration policy, the performance conditions for plan awards granted from 2007 onwards were amended, the revised performance conditions were approved by the shareholders at the AGM held in May 2007.

Under the plan, awards granted have a three year performance period. Shares granted after 2007 vest for participant on the attainment of the following performance criteria:

50% of the award vests if and only if the Return on Capital ("ROC") target set by the Remuneration and Compensation Committee of the Board ("the Committee") at the date of grant is met (the "ROC 50%").
For awards granted in 2007, all of the ROC 50% (50% of an award) vests for cumulative ROC over the performance period of 60%. One quarter of the ROC 50% (or 12.5% of an award) vests for cumulative ROC over the performance period of 48%. For ROC performance between 48% and 60% the awards vest on a linear scale.
The Return on Capital is measured on an EEV ("European Embedded Value") basis taking the post-tax EV operating profits of the group (excluding Allianz) and dividing by the opening shareholders' equity attributable to the group's insurance, banking and other activities.

50. Share-based payments (continued)

50% of an award vests if and only if the total shareholder return ("TSR") for the group at least matches the weighted average TSR of the FTS Eurofirst 300 Banking and Insurance indices (the TSR 50%).
All of the TSR 50% (or 50% of an award) vests if the TSR for the group exceeds the weighted average TSR of the FTS Eurofirst 300 Banking and Insurance indices plus 8% p.a.. One quarter of the TSR 50% (or 12.5% of an award) vests for TSR performance equal to average TSR of the FTS Eurofirst 300 Banking and Insurance indices. Awards vest on a linear scale between 12.5% of an award and 50% of an award for TSR exceeding the average up to 8% p.a..

Long-term incentive plan

		Number of conditional shares
	Key	Other
	management	employees	Total
Outstanding at 1 January	332,439	639,528	971,967
Forfeited during the year	(18,480)	(4,576)	(23,056)
Lapsed during the year	(108,625)	(285,672)	(394,297)
Balance as at 31 December	205,334	349,280	554,614

2009 Number of conditional shares

2010

	Key	Other
	management	employees	Total
Outstanding at 1 January	736,866	752,469	1,489,335
Forfeited during the year	(319,728)	(74,670)	(394,398)
Lapsed during the year	(84,699)	(38,271)	(122,970)
Balance as at 31 December	332,439	639,528	971,967

The fair value of service received for share grants is measured by reference to the fair value of conditional shares granted. The value is estimated using a standard Monte-Carlo approach, a Cox-Ingersoll-Ross model to calculate stochastic behaviour and log normal distributions for volatility.

There were no conditional shares granted in 2010 (2009: nil). The balance outstanding at 31 December 2010 was granted in 2008 and lapsed on 4 March 2011.

participated prior to the acquisition of that company by Irish Life & Permanent Group Holdings plc. These included: Irish Life & Permanent plc had a number of share option and share award schemes in which employees of the company

- Vested share options	6,355,335
- Unvested share options	577,670
- Vested share awards	-
- Unvested share awards	971,967

Payments as a modification. The vesting conditions in respect of share options issued in 2008 were dissolved and as awards with the same number of share options and share awards on equivalent terms. 577,670 unvested share options were also replaced on equivalent terms with the exception that performance conditions attached to these options fell away pursuant to a "change in control" clause in their terms. This has been accounted for in line with IFRS 2 Share-based On 18 January 2010 Irish Life & Permanent Group Holdings plc replaced all existing vested share options and all share such the costs accruing in 2010 have been accelerated. The total cost for 2010 amounted to €0.3m.

As a result of the corporate restructure to create Irish Life & Permanent Group Holdings plc, there was no subsequent impact on the number of the plan shares outstanding or on the terms and conditions of these plan shares.

51. Taxation

(A) Analysis of taxation (credit) / charge

Taxation (credited) / charged to income statement

	2010	2009
	€m	€m
Current taxation
Charge for current year	3	4
Adjustments for prior periods	(4)	(1)
	(1)	3
Deferred taxation
Origination and reversal of differences	(31)	-
Adjustment for prior periods	3	-
Taxation (credited) / charged to income statement	(29)	3

(B) Reconciliation of standard to effective tax rate
	2010	2009
	€m	€m
Operating loss	(157)	(310)
Less share of profits / (loss) of associate undertaking	(9)	2
Loss on continuing activities before tax	(166)	(308)
Tax calculated at standard ROI corporation tax rate of 12.5% (2009:
12.5%)	(21)	(39)

Different basis of tax for ROI life assurance	(1)	25
Non-taxable own share adjustment	(2)	2
Local basis of taxation on overseas profits	-	(1)
Non-deductible expenses	3	2
Capital allowance release	(2)	-
Other	(6)	14
	(29)	3

(C) Tax effects of each component of other comprehensive income

	2010
	Gross	Tax	Net
	€m	€m	€m
Revaluation of property	(14)	5	(9)
Change in AFS securities	(320)	41	(279)
Impairment of AFS securities recycled to income statement	9	(1)	8
Amortisation of AFS securities reclassified to loans and receivables	15	(2)	13
	(310)	43	(267)
		2009
	Gross	Tax	Net
	€m	€m	€m
Revaluation of property	(97)	8	(89)
Change in currency translation adjustment reserve	1	-	1
Change in AFS securities	42	(5)	37
Amortisation of AFS securities reclassified to loans and receivables	15	(2)	13
	(39)	1	(38)

52. Earnings per share

(A) Basic earnings per share ("EPS")

	IL&PGH	IL&P
	2010	2009
Weighted average number of ordinary shares in issue and ranking
for dividend excluding own shares held for the benefit of life
assurance policyholders and treasury shares*	270,309,521	267,990,308
Loss for the year attributable to equityholders	(€128m)	(€313m)
EPS (cent)	(47.4)	(116.8)

(B) Fully diluted EPS
	ILPGH	IL&P
	2010	2009
Weighted average number of potential dilutive ordinary shares
arising from the group's share option schemes	-	-
Weighted average number of ordinary shares excluding own shares
and treasury shares held for the benefit of policyholders used in the
calculation of fully diluted EPS	270,309,521	267,990,308
Fully diluted EPS (cent)	(47.4)	(116.8)

Diluted EPS is calculated by adjusting the weighted average number of ordinary shares outstanding to assume conversion of all dilutive potential ordinary shares. The group's share options are the only category of dilutive potential ordinary shares.

The adjustment calculation to the weighted average number of ordinary shares for the effects of dilutive potential ordinary shares was nil (2009: nil) as the share option exercise prices were all higher than the average share price for the year.

*Weighted average number of shares

	IL&PGH	IL&P
	2010	2009
At 1 January
Number of shares in issue	276,782,351	276,782,351
Own shares held for the benefit of life assurance policyholders	(7,108,182)	(8,933,798)
Treasury shares held	(457,914)	(457,914)
Net movement during the year	(7,566,096)	(9,391,712)
During the year
Weighted average shares sold	1,284,521	1,929,182
Weighted average shares purchased	(191,255)	(1,329,513)
Weighted average number of shares	270,309,521	267,990,308

53. Commitments and contingencies

(A) Capital commitments

In the normal course of its banking business the group has entered into commitments to lend money as follows:

	2010 €m	2009 €m
Guarantees and irrevocable letters of credit	10	6
Commitments to extend credit
- less than 1 year	382	402
- 1 year and over	114	157
Total commitments to extend credit	496	559

unit-linked policyholder funds. As a result of a reduction in the market value of investment properties included in the capital commitments, an onerous The group has entered into commitments to purchase/redevelop investment properties totalling €0.4m (2009: €224m). As a provision of €33m recognised in 2009 with the additional loss of €6m recognised in investment return. The group has also entered into commitments to purchase units in external property funds of €11m (2009: €21m) for the inclusion in contract was recognised at 31 December 2009 (Note 29, Provisions), resulting in a negative investment return of €33m (Note 45, Investment return). During the year ended 31 December 2010 a settlement was agreed, fully utilising the

Commitments to extend credit do not expose the group or company to significant interest rate risk.

(B) Contingencies

The group like all other banks and insurance companies is subject to litigation in the normal course of its business. Based on legal advice, the group does not believe that any such litigation will have a material effect on its profit or loss and financial position.

As part of the agreement in 2001 to dispose of Interstate Life Assurance Company Limited, its wholly owned US subsidiary, the group provided certain guarantees in regard to persistency experience on a block of business held by Interstate. The maximum amount payable on foot of these guarantees is €8m (2009: €7.8m). The group believes that the crystallisation of this amount is unlikely.

Financial Regulator (Insurance Section) into deposits placed by Irish Life Assurance plc with Anglo Irish Bank (on 31 March 2008, 26 September 2008, 29 September 2008 and 30 September 2008). As at 31 December 2010, these investigations were ongoing. Since 31 December 2008, the group has been subject to investigations by a number of statutory bodies including the

during 2010 these additional reserves were provided. are rated below A3 by Moody's or the short-term, unsecured, unsubordinated and unguaranteed debt obligations of Irish Life & Permanent plc are rated below P-1 by Moody's or A-1 by S&P (unless the rating agencies confirm that the rating of the special purpose subsidiaries will not be adversely affected as a consequence of such rating of Irish Life & Permanent plc). As at 31 December 2009 this commitment amounted to €853m. Following the downgrade of IL&P rating event occurs it would provide additional reserves to each of the special purpose subsidiaries. The bonds At the 31st December 2009 Irish Life & Permanent plc had given a commitment to Fastnet 4 Limited, Fastnet 5 Limited, issued by these special purpose subsidiaries are principally held by Irish Life & Permanent plc. A rating event is defined as the long-term, unsecured, unsubordinated and unguaranteed debt obligations of Irish Life & Permanent plc Fastnet 6 Limited and Fastnet 7 Limited which are special purpose subsidiaries of the group, that in the event that a

with a maturity date beyond August 2041. IL&P investigated the breach and agreed with the lenders to repurchase the loans from Fastnet Securities 2 plc. No gain or loss was recognised in the repurchase of the loans which occurred in June 2010. Securities 2 plc special purpose vehicle. Per the agreement the mortgage manager, Irish Life & Permanent plc ("IL&P") cannot substitute loans into the pool of residential mortgages that have a final maturity date falling two years prior to At 31 December 2009 there did exist a breach of a warranties in relation to the mortgage sale agreement for Fastnet the final maturity of the Notes (final maturity of Notes being August 2043). However IL&P substituted €99m of loans

53. Commitments and contingencies (continued)

(C) Operating lease commitments

The group leases various offices under non-cancellable operating leases. The future aggregate minimum lease payments under these leases are as follows:

	2010	2009
	€m	€m
Less than 1 year	14	11
Greater than 1 year and less than 5 years	42	40
Greater than 5 years	62	81
	118	132

These leases typically run for a period of twenty five years, with an option to renew the lease after that date. Lease payments may be increased every five years to reflect market rentals. None of these leases include contingent rentals.

54. Principal subsidiary and associated undertakings

(A) Principal subsidiary undertakings

Name and registered office	Incorporated in	% of ordinary shares held
Banking: Irish Life & Permanent plc Irish Life Centre, Lower Abbey Street, Dublin 1	Ireland	100
permanent tsb Finance Limited 56-59 St. Stephens Green, Dublin 2	Ireland	100
Capital Home Loans Limited Admiral House, Harlington Way, Fleet, Hampshire, GU13 8YA	UK	100
Springboard Mortgages Limited 100 Lower Mount Street, Dublin 2	Ireland	100
Life assurance: Irish Life Assurance plc Irish Life Centre, Lower Abbey Street, Dublin 1	Ireland	100
Irish Life International Limited Irish Life Centre, Lower Abbey Street, Dublin 1	Ireland	100
Other: Irish Progressive Services International Limited 100 Lower Mount Street, Dublin 2	Ireland	100
Cornmarket Group Financial Services Limited Liberties House, Christchurch Square, Dublin 8	Ireland	100
Investment management: Irish Life Investment Managers Limited Beresford Court, Beresford Place, Dublin 1	Ireland	100
The principal country of operation of each company is the country in which it is incorporated with the exception of Irish Life International Limited which operates internationally.
The registered office of Irish Life & Permanent Group Holdings plc is: Irish Life Centre, Lower Abbey Street, Dublin 1.
(B) Principal associated undertaking Total issued equity / debt capital		% holding

Allianz - Irish Life Holdings plc Incorporated, registered and operating as a general 23,053,408 ordinary €1.25 shares 30.4 insurance company in Ireland (Held by a subsidiary undertaking)

55. Related parties

The group has a related party relationship with its directors and senior management, its associate and the group's pension schemes. As a result of the group's participation in Government Guarantee Schemes as described below, the group also has a related party relationship with the Irish Government and Government related entities.

(A) Directors' shareholdings

The interests of the directors and the company secretary, including interests of their spouses and minor children, in the share capital of Irish Life & Permanent Group Holdings plc are as follows:

	Number of beneficial ordinary shares held
		At 31 December 2010		At 31 December 2009
	Ordinary		Share	Ordinary		Share
	shares	Options	awards	shares	Options	awards
Gillian Bowler	30,259	-	-	30,259	-	-
Kevin Murphy	137,966	135,014	48,182	137,966	157,926	74,777
David McCarthy	39,479	157,084	30,644	39,479	188,830	47,558
Breffni Byrne	10,000	-	-	10,000	-	-
Bernard Collins	-	-	-	-	-	-
Danuta Gray	4,600	-	-	4,600	-	-
Margaret Hayes	-	-	-	-	-	-
Roy Keenan	5,000	-	-	5,000	-	-
Sandy Kinney	-	-	-	-	-	-
Ray MacSharry	-	-	-	-	-	-
Pat Ryan	-	-	-	-	-	-
Ciarán Long (Company Secretary)	16,629	53,981	12,648	16,629	65,925	17,967

the long-term incentive plan have a non-beneficial interest in 457,914 shares held in the plan (2009: 457,914). David McCarthy, Kevin Murphy and Ciarán Long as trustees of the employee benefit trust set up under the terms of

(B) Transactions with key management personnel

Group senior management and executive directors as at 31 December 2010 includes: Key management personnel include non-executive directors, executive directors and group senior management.

Kevin Murphy	Group Chief Executive
David McCarthy	Group Finance Director
David Guinane	Chief Executive – permanent tsb
Bill Hannan	Group Head of Risk and Compliance
David Harney	Chief Executive – Corporate Business
Gerry Hassett	Chief Executive – Irish Life Retail
Tony Hession	Group Head of Human Resources and Organisational Development
Gerry Keenan	Chief Executive – Irish Life Investment Managers
Brendan Healy	Group Chief Information Officer

group senior management comprises salary and other benefits together with pension benefits. In addition they participate in the group's profit-sharing, share option schemes and long-term incentive plans. Non-executive directors are compensated by way of fees only. The compensation of executive directors and other

Total compensation to key management personnel is as follows:

	2010	2009
€'000		€'000
Fees	723	812
Salary and other benefits	3,586	4,107
Costs associated with departing executives
- payment in lieu of notice	-	1,789
- pension*	-	2,876
Pension benefits - defined benefit	1,394	1,432
- defined contributions	30	30
Equity-settled benefits	291	83
	6,024	11,129

for departing executives. *Actuarial value of the pension arising as the result of early resignation (based on past normal custom and practice)

Number of key management personnel as at year end is as follows:

	2010	2009
Non-executive directors	9	9
Executive directors and senior management	9	10
	18	19

increase in transfer value during the year. For defined contribution schemes it is the contributions made by the group to the scheme. For key management who are members of a defined benefit scheme, the pension benefit included above is the

and connected persons as follows: In the normal course of its business the group had loan balances and transactions with key management personnel

	2010	2009*
	€'000	€'000
As at 31 December
Loans	430	612
Unsecured credit card balances and overdrafts	4	3
Deposits	2,721	3,564
Life assurance	9,648	6,797
Pension policies	6,913	4,594
	2010 €'000	2009 €'000
Transactions during the year
Loan advances	80	-
Loan repayments	241	270
Interest on loans	13	24
Interest on deposits	(80)	(51)
Life assurance and pension premiums	880	1,441
Life assurance claims	203	1,267

* The 2009 information contains the balances and transactions of Bruce Maxwell who was a member of key management personnel until he retired from the group during 2010.

serious illness cover amounted to €3,630,653 (2009: €4,412,352). protection products. In addition some policies carry serious illness insurance cover. At 31 December 2010 total where executive directors and senior management may avail of subsidised loans on the same terms as other eligible management of the group. All of the loans are secured. All interest and principal due at the statement of financial position date on loans has been repaid on schedule and no provision for loan impairment is required. Life policies represent values for investment contracts (including pension policies) and sum assured for The loans are granted on normal commercial terms and conditions with the exception of certain house loans

Loans to directors

Loans are analysed individually as follows:

	2010
	Balance 1	Principal Balance 31			Maximum
	Jan	repaid Dec		Interest paid	balance
	€'000	€'000	€'000	€'000	€'000
David McCarthy 2	146	(10)	136	(3)	146
	146	(10)	136	(3)	146

	2009
	Balance 1 Jan	Principal Balance 31 repaid Dec		Interest paid	Maximum balance
	€'000	€'000	€'000	€'000	€'000
Denis Casey 1	228	(228)	-	(5)	228
Peter Fitzpatrick 1	31	(8)	23	(1)	31
David McCarthy 2	155	(9)	146	(3)	155
	414	(245)	169	(9)	414

resigned in 2009. 1 Loans to Denis Casey and Peter Fitzpatrick were secured on their principal private residence. Both of these directors

2 The loan to David McCarthy is secured on a residential investment property.

directors was €nil (2009: €nil). As at 31 December 2010, the total interest outstanding and the total provisions on loans by the directors / former

(C) Associate

Irish Life Holdings Limited ("Allianz"). Under this agreement, Irish Life & Permanent Group plc is paid commission for general insurance business written with Allianz through Irish Life & Permanent plc. Commission earned was €7m (2009: €8m). In addition, a subsidiary of the group, Irish Life Investment Managers Limited has an investment agreement with Allianz. Fees earned under this agreement were €0.5m (2009: €0.5m). Included within the group accounts is a net balance due to Allianz of €1.2m (2009: €1.2m). All transactions with Allianz are priced on an arms-length basis. A group company, Irish Life & Permanent plc has a commission agreement with its associated company, Allianz –

(D) Other

Fees earned under these agreements were €3.2m (2009: €2.6m). In the normal course of business the group provides investment management to the group's pension schemes.

(E) Irish Government and Government related entities

The following subsidiaries, Irish Life & Permanent plc and Irish Permanent (IOM) Limited are both participating Bank arising from Eurosystem monetary operations. Under the terms of the scheme the Central Bank in consultation with the Minister may regulate the commercial conduct of covered institutions strictly in order to achieve the objectives of this scheme. covered institutions under the Government's Credit Institutions (Financial Support) Scheme 2008 (the "scheme") which guarantees covered liabilities raised by covered institutions up to September 2010. Covered liabilities are those liabilities in respect of retail and corporate deposits (to the extent not covered by existing deposit protection scheme in Ireland or any other jurisdiction), inter-bank deposits, senior unsecured debt, covered bonds and dated subordinated debt (Lower Tier 2) excluding any intra-group borrowing and any debt due to the European Central

The total amount of guaranteed deposits, senior unsecured debt, covered bonds and dated subordinated debt raised by Irish Life & Permanent plc and Irish Permanent (IOM) Limited as covered institutions of the scheme as at 31 December 2010 amounted to €13,333m (2009: €21,274m). The charge to the income statement in respect of the scheme for the year ended 31 December 2010 was €13m (2009: €29m).

Irish Life & Permanent plc and Irish Permanent (IOM) Limited are also a participating covered institution under the Government's Credit Institutions (Eligible Liabilities Guarantee) Scheme 2009 (the "ELG scheme") which guarantees certain eligible liabilities (including deposits) of up to five years in maturity. The group issued a 3 year \$1.75bln bond in January 2010, a 5 year €2bln bond in March 2010 and a 3 year €1.25bln bond in April 2010, all of which are guaranteed by the ELG Scheme. The charge to the income statement in respect of the ELG scheme for the period ended 31 December 2010 was €97m (2009: €nil).

The Act provides broad powers to the Minister for Finance (in consultation with the Governor of the Central Bank of Ireland) to act on financial stability grounds to effect the restructuring action and recapitalisation measures envisaged in the programme. This allows the Minister to take the actions required to bring about a domestic retail bank system that is proportionate to and focused, on the Irish economy.

As a result of the group's participation in the schemes and the Act described above, the Government is recognised as a related party as the Government is deemed to have significant influence over the group as defined by the accounting standards. The group early applied the partial exemption in IAS 24 Related Party Disclosures, that exempts an entity from the related party disclosure requirements in respect of the Government and Government related entities unless transactions are individually significant or collectively significant. In the normal course of business the group has entered into transactions with the Government and Government related entities involving deposits, senior debt, commercial paper and dated subordinated debt. The following are transactions between the group and the Government and Government related entities that are collectively significant.

The group holds securities issued by the Government and Government related entities of €2,643m (2009: €2,586m).

Deposits by banks include deposits of €200m (2009: €450m) placed by the National Treasury Management Agency (NTMA). These deposits are collateralised on notes issued by special purpose vehicles controlled by the group. The notes are secured by a first fixed charge over residential mortgages held by the special purpose vehicles, which form part of the group's consolidated financial statements.

Included in the investment property portfolio are properties for which the Office of Public Works (OPW), on behalf of Government departments, is a tenant. These property investments are held in unit-linked funds. The total annual unit-linked rental income earned from these leases is €12.4m (2009: €11.3m) out of a total annual rental income of €144m (2009: €150m). Some other investment properties may include tenants who are agencies financed by the Government.

("NAMA"). As a result, the group holds 17% of the total ordinary share capital of NAMAIL which cost the group €17m in acquiring these B shares. NAMAIL was established by NAMA for the purpose of performing certain of NAMA's functions. shares in National Asset Management Agency Investment Limited ("NAMAIL"), corresponding to one-third of the 51m million B shares issued by NAMAIL. NAMAIL also issued 49 million A shares to National Asset Management Agency On 29 March 2010, the group through its wholly owned subsidiary Irish Life Assurance plc, acquired 17 million B

NAMAIL. NAMA may appoint up to six directors to the board of NAMAIL. The B shareholders may also jointly appoint up The A shares and B shares generally rank equally, except as otherwise provided in the Articles of Association of to six directors. NAMAIL requires the prior written consent of NAMA in relation to issues such as: the disposal or transfer of B shares; the reduction of its share capital; any capital redemption reserve fund or share premium account; the declaration of dividends; the appointment or removal of directors and the selection of a chairman to the board. In addition NAMA can veto any actions by NAMAIL, which NAMA considers not to be in accordance with its objectives as specified under the NAMA Act.

up multiplied by a relevant rate. The relevant rate is capped at the ten-year Irish Government Bond Yield. On a liquidity event, the return on the B shares is equal to 110% of the capital invested. The dividend on any share of NAMAIL in respect of any financial year is limited to an amount equal to the amount paid

participation in the Government's scheme outlined above, balances between these five financial institutions and the group are considered related party transactions in accordance with the accounting standards. Building Society, Allied Irish Banks plc and has a significant influence over Bank of Ireland. Due to the group's Irish Bank). During 2010 the Government took a controlling interest in Educational Building Society, Irish Nationwide During 2009 and 2010 the Government held a 100% shareholding in Anglo Irish Bank Corporation Limited (Anglo

The following table summarises the balances between the group and these financial institutions:

As at 31 December:					Deposits by
		Debt securities assets	Derivative assets	Loans and receivables to bank	bank (including central banks)	Derivative liabilities
		€m	€m	€m	€m	€m
Anglo Irish Bank
	2010	94	2	1	-	3
	2009	701	-	377	1,901	2
Educational Building Society
	2010	125	-	247	-	-
	2009	504	1	1,369	650	-
Irish Nationwide Building Society
	2010	-	-	-	81	-
	2009	513	-	-	-	-
Allied Irish Bank plc
	2010	250	1	41	-	35
	2009	468	3	862	-	50
Bank of Ireland
	2010	182	2	34	92	1
	2009	623	0	362	101	3

As at 31 December 2010, subordinated liabilities includes €25m (2009: €25m) issued to Educational Building Society.

56. Reporting currency and exchange rates

The consolidated financial statements are presented in millions of euro.

The following table shows the average and closing rates used by the group for the years ended 31 December 2010 and 31 December 2009:

	2010	2009
Closing exchange rate € / Stg£	0.8607	0.8881
Average exchange rate € / Stg£	0.8558	0.8899

Closing exchange rate € / US\$	1.3362	1.4406
Average exchange rate € / US\$	1.3205	1.3971

57. Events after the reporting period

The following non-adjusting events occurred between the reporting date and the date when the financial statements were authorised for issue:

On 4 February 2011, the group's Irish banking operations (trading as permanent tsb), announced its intention to implement a transformation programme incorporating a revenue generation plan along with a voluntary severance scheme. This is part of the group's Irish banking operation plans to return the bank to profitability by reconfiguring its operations in light of current market conditions. It is currently expected that the cost of this severance scheme will amount to €45m in 2011.

The downgrade in credit ratings and the risk for a further sovereign or group downgrade has limited the group's access to capital markets; as a result the group has increased its recourse to Eurosystem financing facilities. At 31 December 2010, the group had €13.8bln of deposits placed by the European Central Bank. In 2011 the group used collateral to access special liquidity facilities from the Central Bank of Ireland. The group has sufficient collateral to access these facilities to meet its immediate and expected funding requirements.

On the 23 February 2011 the board signed an agreement outlining the terms with which Irish Life International Limited would be sold to SEB Trygg Liv Holding AB for a consideration of €26m. Further details can be found in Note 21, Assets and liabilities classified as held for sale.

The group announced on 24 February 2011, pursuant to the Transfer Order (under the Credit Institutions (Stabilisation) Act 2010) issued by the High Court, Irish Nationwide Building Society ("INBS") has transferred selected assets and liabilities into the group's banking business, which comprise €3.6bln of INBS deposits and the shares in INBS Isle of Man subsidiary.

Additional Information

Funds under management

	2010 €m	2009 €m
Funds managed on behalf of unit-linked policyholders*	26,637	24,536
Funds managed on behalf of non-linked policyholders	2,372	2,296
	29,009	26,832
Segregated funds	4,491	3,945
	33,500	30,777

*Amounts of €2,010m relate to Irish Life International.

The Annual Report and Financial Statements 2010 for Irish Life & Permanent Group Holdings plc are available to view online at www.irishlifepermanent.ie. This website also provides further information to shareholders including contact details and links to our other group websites.

Analysis of holdings of ordinary shares at 04 March 2011

	Shareholders		Shares
	Number	Percent	Number	Percent
Size of shareholding
1-1,000	125,484	92.68%	41,190,699	14.88%
1,001-5,000	8,147	6.02%	16,858,274	6.09%
5,001-10,000	1,014	0.75%	7,149,561	2.58%
10,001-50,000	506	0.37%	10,570,669	3.82%
50,001-100,000	73	0.05%	5,291,989	1.91%
100,001-1,000,000	134	0.10%	43,986,926	15.89%
Over 1,000,000	43	0.03%	151,734,233	54.83%
	135,401	100.00%	276,782,351	100.00%

Shareholder enquiries

A full range of online services is available to the shareholders of Irish Life & Permanent Group Holdings plc. These services are provided by Capita Registrars who administer the company's share register. To use these services please log onto our group website www.irishlifepermanent.ie and click on Investor relations / Shareholders / My shareholding.

Shareholder helpline

If you have any difficulty accessing your shareholding online, or have any queries regarding your shareholding in general, you should contact Capita at:

Telephone: +353 (0) 1 810 2400 Post: Po Box 7117, Dublin 2. Email: [email protected]

Registered Office

Irish Life & Permanent Group Holdings plc, Irish Life Centre, Lower Abbey Street, Dublin 1.

Embedded Value Basis - Supplementary Information

Statement of Directors' Responsibilities	220
Consolidated Statement of Financial Position	221
Consolidated Income Statement	222
Consolidated Statement of Comprehensive Income	223
Consolidated Reconciliation of Shareholders's Equity - Embedded Value Basis	223
Notes to the EV Basis Supplementary Information	224
Independent Auditor's Report	241

Statement of Directors' Responsibilities in relation to Embedded Value Basis – Supplementary Information

The directors of Irish Life & Permanent Group Holdings plc have chosen to prepare supplementary information in accordance with the European Embedded Value ("EEV") Principles issued in May 2004 by the European Chief Financial Officers' Forum. When compliance with the EEV principles is stated, those principles require the directors to prepare supplementary information in accordance with the embedded value methodology contained in the EEV principles and to disclose and explain any noncompliance with the EEV guidance included in the EEV principles.

In preparing the embedded value ("EV") basis information the directors have:

Prepared the EV information in accordance with the EEV principles;
Identified and described the business covered by embedded value methodology;
Applied the embedded value methodology consistently to the covered business;
Determined assumptions on a realistic basis, having regard to past, current and expected future experience and to any relevant external data, and then applied them consistently and made estimates that are reasonable and consistent; and
For businesses other than those to which the embedded value methodology has been applied the results have been prepared based on the requirements of the IFRS issued by the IASB and adopted by the EU as set out in the group's accounting policies.

Consolidated Statement of Financial Position -

Embedded Value Basis

as at 31 December 2010

		2010	2009
	Notes	€m	€m
Assets
Cash and other receivables		436	326
Investments		28,955	32,228
Assets classified as held for sale	8	2,036	-
Loans and receivables to customers	7	36,581	38,592
Loans and receivables to banks		3,565	4,925
Reinsurance assets		2,202	2,126
Interest in associated undertaking		124	122
Property and equipment		200	238
Shareholder value of in-force business		865	1,076
Intangible assets		30	42
Goodwill		70	70
Deferred tax assets		112	29
Other debtors and prepayments		513	427
Retirement benefit assets		104	96
Total assets		75,793	80,297

Liabilities
Deposits by banks (including central banks)*		17,046	18,713
Liabilities classified as held for sale	8	1,980	-
Customer accounts		13,382	14,562
Debt securities in issue		10,034	13,262
Derivative liabilities		503	665
Investment contract liabilities		24,099	24,060
Insurance contract liabilities		4,238	4,034
Outstanding insurance and investment claims		108	115
Other liabilities and accruals		505	598
Deferred tax liabilities		14	-
Retirement benefit liabilities		153	159
Subordinated liabilities		1,686	1,644
Total liabilities		73,748	77,812

Equity
Share capital		89	89
Share premium		364	135
Other reserves		(1,048)	87
Retained earnings		2,640	2,174
Total equity	5,11	2,045	2,485
Total liabilities and equity		75,793	80,297

*Deposits by banks (including central banks) includes €13.8bln (2009: €9.8bln) of ECB funding.

Consolidated Income Statement - Embedded Value Basis

for the year ended 31 December 2010

		2010	2009
	Notes	€m	€m
Operating profit
Life assurance and fund management business		160	102
Banking		(364)	(270)
Other		(2)	(26)
		(206)	(194)
Share of associate		9	(2)
Operating loss before tax	1	(197)	(196)
Short-term investment fluctuations			(68)
Effect of economic assumption changes	4	49 (51)	(38)
VIF loan (financing costs)	4	(22)
Impairment of assets held for disposal	4 4	(11)	- -
Adjustment on inter-operating segments	4	(5)	(17)
Loss before tax		(237)	(319)

Taxation	3	39	40
Loss for the year		(198)	(279)

Attributable to:
Owners of the parent		(198)	(279)

Earnings per share including own shares held for the benefit of
life assurance policyholders (cent)	10	(71.7)	(101.0)
Operating earnings per share including own shares held for the

benefit of life assurance policyholders (cent) 10 (60.4) (65.9)

Consolidated Statement of Comprehensive Income -

Embedded Value Basis

for the year ended 31 December 2010

Notes 4	€m (198)	€m (279)



	(6)	(57)

		2
		1
	(2)	(2)
		1

		42
		-
		42
		15
		-
	(302)	1
		(4)
	(260)	(3)
	(458)	(282)

		(282)
		(282)
		2 - - (320) 9 (311) 15 - 42 (458) (458)

Embedded Value Basis

for the year ended 31 December 2010

	2010	2009
Shareholders' equity (excluding non-controlling interest) as at 1 January	2,485	2,775
Total comprehensive income attributable to owners of the parent Marked to market movement of policyholder liabilities in respect of own shares	(458) 13	(282) (18)
Change in own shares at cost	4	9
Change in share-based payment reserves	1	1
Shareholders' equity as at the end of the year	2,045	2,485

Year ended 31 December 2010

Basis of preparation

Earnings generated by the group's life assurance operations are prepared in accordance with the European Embedded Value ("EEV") Principles issued in May 2004 (with additional guidance on EEV disclosures issued in October 2005) by the European Chief Financial Officers' ("CFO") Forum. For businesses other than life assurance the results have been prepared based on the recognition and measurement principles of IFRS issued by the International Accounting Standards Board ("IASB") and adopted by the EU which were effective at 31 December 2010.

IFRS 4 brings into force phase 1 of the IASB insurance accounting project. In view of the phased implementation of IFRS for insurance business, the group believes that shareholders will continue to place considerable reliance on embedded value information relating to the life assurance business as a whole. The IFRS financial information includes insurance contracts written in the life assurance business based on embedded value earnings calculated using the EEV principles developed by the European CFO Forum. The methodology produces an Embedded Value ("EV") as a measure of the consolidated value of shareholders' interests in the business covered by the EEV Principles. The EV basis financial information extends these principles to investment contracts written in the life assurance business. The IFRS financial information treats tax deducted from policyholder funds as an income item while the EV basis financial information show these deductions as a tax item.

The own share adjustment in EV basis partially reversed the mismatch which arises under IFRS financial information where own shares held on behalf of policyholders are required to be marked to market in policyholder liabilities but the matching assets are not recorded as assets on the statement of financial position. The EV basis restates the policyholder liability relating to own shares to the lower of market value or the book cost of the shares. In the year to December 2010, the EV basis has not reversed the mismatch as market value was lower than book cost. In the EV basis the marked to market movement on the liabilities is shown as a movement in shareholder equity, in IFRS this mismatch is included in the movement on the income statement.

For all business other than "covered business", the EV financial information incorporates the same values and earnings included in the IFRS financial information, determined using the IFRS basis except that impairment of goodwill which is shown in the IFRS income statement under operating profit is shown in non-operating profit in the EV basis. The IFRS based financial information brings any change to the value of owner occupied property held in covered business through the Statement of Comprehensive Income, and allows for a depreciation charge in the income statement. The EV financial information shows any change in the value of owner occupied property for covered business in the income statement. The EV financial information reclassifies and summarises the information included in the IFRS financial information.

The methodology applied to produce the EV information for the year ended 31 December 2010 is consistent with the methodology used to produce the EV information for the year ended 31 December 2009, other than as described in Note 12, EV assumptions relating to the derivation of various economic assumptions.

The directors acknowledge their responsibility for the preparation of the supplementary EV basis information.

Going concern

Year ended 31 December 2010

Going concern (continued)

The directors, having regard to these uncertainties and the terms of the EU/IMF memorandum of understanding (which indicates that the Irish Authorities will ensure that the Irish Life & Permanent Group Holdings plc is capitalised to a level of 12% core tier1 capital by end May 2011) are satisfied that it continues to be appropriate to prepare the financial statements of the group on a going concern basis as:

that it will continue to support the Irish financial system given its importance to the continued functioning of the Irish economy generally. - the Government has acknowledged the group's systemic importance and the actions of the Government to date indicate
the group's access to liquidity and funding in particular the availability of Eurosystem funding and Central Bank liquidity facilities will enable it to meet its immediate and estimated funding requirements for the coming year.
the Government has indicated that it will ensure the group is capitalised to a level of 12% tier1 capital if required.
it is expected that the group will continue to meet its current regulatory capital requirements (including the additional capital requirements identified by the Central Bank in 2010) over the relevant period.

The downgrading of the group and sovereign credit ratings, the withdrawal of the Irish Government from the funding markets, the EU/IMF Programme of Financial Support for Ireland and the consequent withdrawal of funds from Irish banks have affected the group's funding plans in 2010. There is a significant ongoing liquidity challenge for the group and for the Irish banking system generally. These challenges have given rise to breaches of regulatory liquidity requirements in the later part of 2010 and ongoing breaches in 2011. The downgrade in credit ratings and the risk of a further sovereign or group downgrade has limited the group's access to capital markets; as a result the group has increased its recourse to Eurosystem financing facilities. At 31 December 2010, the group had €13.8bn of collateralised funding from the European Central Bank. In 2011 the group used collateral to access special liquidity facilities from the Central Bank of Ireland. The group expects to have sufficient collateral to enable it to access these facilities to meet its immediate and estimated funding requirements for the coming year.

The group is participating in the Central Bank's latest Prudential Capital Assessment Review (PCAR) and Prudential Liquidity Assessment Review (PLAR), the results of which are expected at the end of March. As a result there is a significant uncertainty as to the outcome and any additional capital or liquidity requirements that may arise.

The Credit Institutions (Stabilisation) Act 2010 was passed in the Irish law on 21 December 2010. The Act provides the legislative basis for the reorganisation and restructuring of the Irish Banking system agreed in the joint EU/IMF programme for Ireland. The Act applies to banks who have received financial support from the State, Building Societies and Credit Unions. The group by way of the Government Guarantee has received such support. The Act provides broad powers to the Minister for Finance (in consultation with the Governor of the Central Bank of Ireland) to act on financial stability grounds to effect the restructuring action and recapitalisation measures envisaged in the programme. This allows the Minister to take the actions required to bring about a domestic retail bank system that is proportionate to and focused on the Irish economy.

Year ended 31 December 2010

Going concern (continued)

The Board's assessment of the appropriateness of preparing the financial statements on the going concern basis has considered the group's business and funding plans taking into account:

the period over which the Irish economy is expected to recover from the current crisis,
the implementation of joint EU/IMF programme for Ireland,
the group's schedule of long-term debt repayments,
the group's ability to continue to access liquidity and funding, in particular from the Eurosystem funding and the Irish Central Bank liquidity facilities
to meet its required regulatory capital ratios. - the ability of the group to raise additional required capital in the financial markets or failing that from the Irish Authorities
the ability of the group to dispose of assets and/or increase its deposit base to meet the PLAR targets set by the Central Bank of Ireland

Covered business

The EEV Principles are applied to value "covered business" as defined by the Principles. This includes individual and group life assurance and investment contracts, pensions and annuity business written in Irish Life Assurance plc and Irish Life International Limited, and the fund management business written in Irish Life Investment Managers Limited. In the EV financial information, the same valuation approach is applied to both insurance and investment contracts within the covered business.

Embedded Value

Embedded Value ("EV") is the present value of shareholders' interests in the earnings distributable from assets allocated to the covered business after sufficient allowance is made according to the EEV Principles for the aggregate risks in the covered business. The EV consists of the following components:

free surplus allocated to the covered business;
required capital, less the cost of holding required capital; and
present value of future shareholder cash flows from in-force covered business ("PVIF"), including an appropriate deduction for the time value of financial options and guarantees.

The value of future new business is excluded from the EV.

The cost of holding required capital is defined as the difference between the amount of the required capital and the present value of future releases, allowing for future investment returns, of that capital.

Free surplus and required capital

Free surplus is defined as the market value of assets in the covered business less supervisory liabilities less required capital. It is the market value of any capital and surplus allocated to, but not required to support, the in-force covered business at the valuation date. The free surplus is shown net of the accounting value of the subordinated debt. The stop-loss reinsurance treaty remains in place, and during 2010 a new loan arrangement was also put in place. The repayment of this loan is contingent on the positive cash flows underlying a defined portion of the PVIF emerging in the future. See Note 35, Analysis of equity and capital for further details. Both of these arrangements increase the regulatory capital due to the contingent nature of their repayment. Hence, the free surplus shown includes this additional regulatory capital generated, and the PVIF is reduced to allow for the repayment of the liability and the associated costs.

The level of required capital in the EV models reflects the amount of assets attributed to the covered business in excess of that required to back regulatory liabilities whose distribution to shareholders is restricted. The EEV Principles require this level to be at least the level of solvency capital at which the local supervisory authority is empowered to take action and any further amount that may be encumbered by local supervisory restrictions.

In light of this, the directors have set the level of required capital for the EV models to be 150% of the regulatory minimum solvency margin requirement at the valuation date, including the additional margin required under the Solvency I rules. The directors consider this to be a conservative level of capital to manage the covered business, allowing for the supervisory basis for calculating liabilities, the insurance and operational risks inherent in the underlying products and the methods used to value financial options and guarantees included in those products.

Year ended 31 December 2010

New business

New business premiums reflect income arising from the sale of new contracts during the reporting year. Increases to premiums that are generated by policyholders at their discretion are included in new business as they occur. Increases to renewal premiums on group pension contracts are treated as new business premiums.

The new business contribution is the present value of future shareholder cash flows arising from the new business premiums written in the year less a deduction, if relevant, for the time value of financial options and guarantees. The contribution makes full allowance for the associated amount of required capital and includes the value of expected renewals on new contracts.

The EEV Principles require a measure of the present value of new business premiums ("PVNBP") to be calculated and expressed at the point of sale. The PVNBP is equivalent to the total single premiums plus the discounted value of regular premiums expected to be received over the term of the contracts using the same economic and operating assumptions used for calculating the new business contribution. The new business margin reported under EEV is defined as the ratio of the new business contribution to PVNBP.

Projection assumptions

Projections of future shareholder cash flows expected to emerge from covered business are determined using realistic assumptions for each component of cash flow and for each policy group. Future economic and investment return assumptions are based on conditions at 31 December 2010. The projected shareholder cash flows make no explicit allowance for any potential losses from a future default of EU government guaranteed bonds and EU sovereign debt held. The assumed discount and inflation rates are consistent with the investment return assumptions.

The assumptions for demographic elements, including mortality, morbidity, persistency and expense experiences, reflect recent operating experiences and are reviewed annually. Allowance is made for future improvements in annuitant mortality based on experience and externally published data. Favourable changes in operating experience are not anticipated until the improvement in experience has been observed. Further comments on the assumptions are given in Note 12, EV assumptions, below.

All costs relating to the covered business are allocated to that business. The expense assumptions used for the projections therefore include the full cost of servicing the business. The costs include future depreciation charges in respect of certain property and equipment included in the free surplus. The PVIF makes no allowance for future planned development expenses where such expenses are expected to give rise to future improvements in efficiency. Certain group costs allocated to the life company are not included within the cash flow projections and are accounted for on an annual basis in the other group results.

Risk discount rate

The risk discount rate is a combination of a base interest rate and a risk margin, which reflects the residual risks inherent in the covered business, after taking account of prudential margins in the supervisory liabilities, the required capital and the specific allowance for financial options and guarantees. The base interest rate is determined as the European swap interest rate at a duration consistent with the duration of the PVIF cash flows, plus a margin.

The group has adopted a bottom-up approach to the determination of the risk discount rate. Each element of risk is assessed in turn and a cost is reflected as an addition to the base interest rate. The risk discount rate derived in this way reflects the risk of volatility associated with the cash flows in the embedded value model.

The key assumptions are set out in Note 12, EV assumptions.

The market risk margin neutralises the effect of assuming future investment returns, for equity and property assets held, in excess of the base interest rate.

The non-market risk margin is based on an estimate of the impact of each of the following risks: mismatch risk, credit risk, demographic risks including mortality, morbidity, persistency and expense risks, operational risk and liquidity risk.

An allowance is made for the diversification effect in that each of the risks is not expected to occur simultaneously. Financial options and guarantees are explicitly valued using a stochastic model approach and no further risk allowance is included for these in the risk discount rate. The non-market risk margin was determined by the directors following a review of the estimates emerging from the above exercise.

Financial options and guarantees

Under the EEV Principles an allowance for the time value of financial options and guarantees ("FOG") is required where a financial option exists which is exercisable at the discretion of the policyholder. The time value of an option reflects the additional value inherent in the option due to the potential for the option to increase in value prior to its expiry date, usually due to movements in the market value of assets. The value of an option based on market conditions at the date of the valuation is referred to as the intrinsic value.

The supervisory liabilities allow on a prudent basis for both the intrinsic and time value of FOGs and the PVIF allows for the run-off of these liabilities. An explicit deduction is made to the PVIF to allow for the impact of future variability of investment returns on the cost of FOGs (time value) and the current in the money cost of the FOG (intrinsic value). The cost of FOGs is calculated using stochastic models. The main financial options and guarantees and the assumptions used to value them are described in Note 12, EV assumptions

Year ended 31 December 2010

Service companies

All services relating to the covered business are charged on a cost recovery basis.

Tax

The projections include on a discounted basis all tax that is expected to be paid under covered business under current legislation, including tax that would arise if surplus assets within the covered business were eventually to be distributed.

Analysis of profit / (loss)

The operating profit / (loss) from the covered business is analysed into three main components:

- New business contribution

The contribution from new business written during the reporting year is calculated as at the point of sale using assumptions applicable at the start of the year. This is then rolled forward to the end of the financial year using the risk discount rate applicable at the start of the reporting year.

- Profit/loss from existing in-force business

The contribution from existing business is calculated using opening assumptions and comprises:

Interest at the risk discount rate on the value of in-force business allowing for the timing of cash flows ("expected return").

Experience variances: when calculating embedded values it is necessary to make assumptions regarding future experiences including persistency (how long policies will stay in force), risk (mortality and morbidity), future expenses and taxation. Actual experience may differ from these assumptions. The impact of the difference between actual and assumed experience for the reporting year is reported as experience variances.
Operating assumption changes: the assumptions on which embedded values are calculated are reviewed regularly. Where it is considered appropriate in the light of current or expected experience to change any assumptions regarding expected future experience, the impact on total value of in-force business of any such change is reported as an "operating assumption change".

- Expected investment return

The expected investment earnings on the net assets attributable to shareholders are calculated using the future investment return assumed at the start of the year. The expected investment earnings allows for interest payable on subordinated debt and the fee payable in relation to the stop- loss reassurance treaty.

Three further items make up the total profit arising from the covered business:

- Short-term investment fluctuations

This is the impact on the EV of differences between the actual investment return and the expected investment return assumptions assumed at the start of the year.

- Effect of economic assumption changes

This is the impact on the EV of changes in external economic conditions including the effect changes in interest rates have on risk discount rates and future investment return assumptions.

- Exceptional items

This is the impact on the EV of exceptional items not included above.

1. Operating (loss) / profit before tax

	2010	2009
	€m	€m
Life assurance and fund management business New business contribution	52	51
Profit from existing business
- Expected return	117	108
- Experience variances	18	(70)
- Operating assumption changes	(41)	(1)
Expected investment return	14	14
Operating profit before tax	160	102

Banking
Net interest income (net of ELG guarantee charge) *	305	375
Non-interest income	42	44
Government guarantee	(13)	(29)
Trading income	(3)	(3)
	331	387
Administrative expenses including depreciation	(272)	(287)
Impairment losses on loans and receivables	(420)	(376)
Loss on sale of property	(1)	-
Impairment of other assets	(1)	(2)
	(363)	(278)
Investment return	(1)	8
Operating loss before tax	(364)	(270)

Other activities
Non-interest income	58	55
Administrative expenses including depreciation	(59)	(77)
Impairment of other assets	(1)	(4)
Operating profit / (loss) before tax	(2)	(26)
Share of associate	9	(2)
Total operating loss before tax	(197)	(196)

* Net interest income for the year includes a charge in respect of the ELG scheme of €97m.

2. Life assurance and fund management new business

Life business	2010	2009
Present value of new business premiums ("PVNBP")	€m	€m
Single premium	1,584	1,459
Regular premium	162	202
Regular premium capitalisation factor	4.3	4.6
PVNBP	2,288	2,398
Annual premium equivalent ("APE")	320	348
New business contribution	37	40
New business margin PVNBP	1.6%	1.6%
APE	11.5%	11.4%
Fund management	2010 €m	2009 €m
Present value of new business premiums ("PVNBP")	2,520	1,908
Annual premium equivalent ("APE")	252	191
New business contribution	15	11
New business margin PVNBP	0.6%	0.6%
APE	6.1%	5.9%
Total new business	2010 €m	2009 €m
Present value of new business premiums ("PVNBP")	4,808	4,306
Annual premium equivalent ("APE")	572	539
New business contribution	52	51
New business margin PVNBP	1.1%	1.2%
APE	9.1%	9.4%

3. Taxation

€m	€m
Life assurance and fund management
Operating profit (17)	(12)
Short-term investment fluctuations -	15
Effect of economic assumption changes 4	11
VIF loan (financing costs) 5	-
(8)	14
Banking Operations 47	24
Other operations -	2
39	40

4. Analysis of loss after tax

	2010
	Gross	Tax	Net
	€m	€m	€m
Operating loss
Life assurance and fund management business	160	(17)	143
Banking	(364)	47	(317)
Other	(2)	-	(2)
Share of associate	9	-	9
Operating loss	(197)	30	(167)
Short-term investment fluctuations	49	-	49
Effect of economic assumption changes	(51)	4	(47)
VIF loan (financing costs)	(22)	5	(17)
Impairment of assets held for disposal	(11)	-	(11)
Adjustment on inter-operating segments	(5)	-	(5)
	(237)	39	(198)

		2009
	Gross	Tax	Net
	€m	€m	€m
Operating loss
Life assurance and fund management business	102	(12)	90
Banking	(270)	24	(246)
Other	(26)	2	(24)
Share of associate	(2)	-	(2)
Operating loss	(196)	14	(182)
Short-term investment fluctuations	(68)	15	(53)
Effect of economic assumption changes	(38)	11	(27)
Adjustment on inter-operating segments	(17)	-	(17)
	(319)	40	(279)

5. Shareholders' equity

	2010 €m	2009 €m
Life assurance and fund management business	1,746	1,642
Banking	138	694
Other activities (including goodwill) *	65	67
Associate undertaking	124 2,073	122 2,525
Adjustment on inter-operating segments	(22)	(17)
Deduction in respect of own shares held for the benefit of life assurance policyholders	(6)	(23)
Shareholders' equity	2,045	2,485

* 2009 other activity has been restated to include loans held to finance the purchase of the underlying subsidiary companies. This balance was previously consolidated as part of the banking entity. The banking equity is analysed in Note 35, Analysis of equity and capital in the IFRS financial statements.

5. Shareholders' equity (continued)

Life assurance and fund management net assets are analysed as follows:

	2010	2009
	€m	€m
Property	234	163
Equities	30	13
Debt securities	27	69
Deposits	697	449
Other assets and liabilities	106	84
Subordinated debt	(216)	(212)
	878	566
Shareholder value of in-force business*	868	1,076
	1,746	1,642

*Includes €3m carried as an asset held for sale on the balance sheet.

At 31 December 2009 the group had outstanding commitments to purchase investment properties totalling €224m. This included a commitment to purchase a property for €54m, this contract was cancelled at a cost of €5m to the group. The balance of €170m was recognised as an onerous contract in 2009 and resulting in a €33m negative investment return in 2009. This property was purchased in 2010 and at 31 December 2010 was valued at €129m. Equities exposure at 31 December 2010 includes a €17m investment in NAMAIL (Note 55, Related parties).

Analysis of movement in shareholders' equity attributable to life assurance and fund management business

		2010
	Net worth	VIF	Total
	€m	€m	€m
Shareholders' equity as at 1 January	566	1,076	1,642
Operating profit after tax	252	(109)	143
Short-term investment fluctuations	21	28	49
Effect of economic assumption changes	(48)	1	(47)
VIF loan (financing costs)	100	(117)	(17)
Impairment of assets held for disposal	-	(11)	(11)
Capital movements	(13)	-	(13)
Shareholders' equity as at 31 December	878	868	1,746
		2009
	Net worth	VIF	Total
	€m	€m	€m
Shareholders' equity as at 1 January	569	1,080	1,649
Operating profit after tax	120	(30)	90
Short-term investment fluctuations	(109)	56	(53)

Effect of economic assumption changes 3 (30) (27) Capital movements (17) - (17) Shareholders' equity as at 31 December 1,076 566 1,642

The required capital at 31 December 2010 is €614m (2009: €634m). €201m (2009: €208m)

of the required capital is covered by the subordinated debt and the remainder is covered by the net worth. The shareholder value of in-force is net of a deduction of €146m (2009: €140m) in respect of the cost of maintaining the required capital and net of a deduction of €33m (2009: €46m) in respect of the time value of financial option and guarantee costs.

5. Shareholders' equity (continued)

Analysis of life assurance and fund management operating profit after tax

	2010
	Net worth	VIF	Total
	€m	€m	€m
New business contribution*	(75)	116	41
Profit from existing business
Expected return*	155	(48)	107
Experience variances*	89	(75)	14
Operating assumption changes	70	(102)	(32)
Expected investment return	13	-	13
Operating profit after tax	252	(109)	143

Analysis of life assurance and fund management operating profit after tax

	2009
	Net worth	VIF	Total
	€m	€m	€m
New business contribution*	(74)	112	38
Profit from existing business
Expected return*	161	(63)	98
Experience variances*	12	(70)	(58)
Operating assumption changes	9	(9)	-
Expected investment return	12	-	12
Operating profit after tax	120	(30)	90

* Figures in the table above include the effect of the stop-loss reassurance treaty signed in 2008. The effect of this treaty on the net worth column in the table above is outlined in Note 35, Analysis of equity and capital, in the IFRS financial statements.

6. Management expenses

	2010	2009
	€m	€m
Administrative expenses	468	522
Depreciation	27	30
Amortisation of intangible assets	16	20
	511	572
Analysed as follows:
Banking operations
Operational	260	274
Restructuring / non-operational costs	12	13
Life assurance and fund management operations
Operational	180	191
Restructuring / non-operational costs	-	17
Other operations (includes corporate costs)
Operational	59	62
Restructuring / non-operational costs	-	15
	511	572

Administration expenses include €4m (2009: €4m) for rent paid by the bank to the life company in respect of the bank headquarters. These expenses are eliminated on consolidation in the EU IFRS financial statements.

7. Loans and receivables to customers

	2010	2009
	€m	€m
Residential mortgage loans	33,867	34,740
Commercial mortgage loans	2,348	2,386
Finance lease, instalment finance and term loans	1,375	1,749
	37,590	38,875
Money market funds	-	211
Deferred fees, discounts and fair value adjustments	318	430
	37,908	39,516
Provision for impairment of loans and receivables	(883)	(477)
Inter-group loans and receivables	(444)	(447)
	36,581	38,592

8. Assets and liabilities classified as held for sale

	2010	2009
Assets classified as held for sale	€m	€m
(a) Assets of ILI	2,032	-
(b) Bank branches	4	-
	2,036	-
Liabilities classified as held for sale
(a) Liabilities of ILI	1,980	-
	1,980	-

(a) Assets and liabilities of ILI

The assets and liabilities related to Irish Life International Limited ("ILI") which form part of the life assurance reporting segment have been presented as held for sale. This follows the board entering negotiations with a potential purchaser during the latter stages of 2010, the subsequent approval in principle of a sale transaction by the board on 11 February 2011 and signing of the relevant agreements on 23 February 2011. The completion of the agreed sale of ILI is subject to regulatory approvals including that of the Central Bank of Ireland which is expected during 2011. The sale of ILI was not deemed a discontinued operation as it is not a material business operation within the life assurance segment.

The assets and liabilities of ILI are set out below:

	2010	2009
Assets	€m	€m
Cash and balances with central banks	14	-
Debt securities	397
Equity shares and units in unit trusts	1,470	-
Loans and receivables to banks	146	-
Property and equipment	1	-
Shareholders' value of in-force business	3	-
Intangible assets	1	-
Assets classified as held for sale*	2,032	-

Liabilities

Derivative liabilities	2	-
Investment contract liabilities Outstanding investment claims	1,963 2	- -
Accruals	2	-
Other liabilities	11	-
Liabilities classified as held for sale*	1,980	-

*The ILI assets and liabilities shown above exclude net €26m of inter-company liabilities, which are eliminated

in the consolidated accounts.

(b) Bank branches held for sale

Assets classified as held for sale include eight bank branches that were closed during 2009 as part of a restructuring programme, the sale of which is highly probable in the next twelve months. These branches are presented as held for sale within the Banking - Ireland segment.

On 30 June 2010, seven of the eight branches were remeasured with a fair value of €4m resulting in a release of €1m from the revaluation reserve which was recognised in the statement of changes in equity. On the same date the branches were reclassified from property and equipment to held for sale, with no further adjustment to the fair value of these branches.

9. Funds under management

	2010	2009
	€m	€m
Funds managed on behalf of unit-linked policyholders*	26,637	24,536
Funds managed on behalf of non-linked policyholders	2,372	2,296
	29,009	26,832
Off-balance sheet funds	4,491	3,945
	33,500	30,777

*Amounts of €2,010m relate to Irish Life International.

10. Earnings per share

As permitted under Irish Legislation the group's life assurance subsidiary holds shares in Irish Life & Permanent Group Holdings plc for the benefit of policyholders. Under accounting standards these are required to be deducted from the total number of shares in issue when calculating EPS. In view of the fact that the group does not hold the shares for its own benefit, EPS based on a weighted average number of shares in issue is disclosed. The calculation is set out below:

	ILPGH 2010	IL&P 2009
Weighted average ordinary shares in issue and ranking for dividend excluding treasury shares and own shares held for the benefit of life assurance policyholders	270,309,521	267,990,308

Weighted average ordinary shares held for the benefit of life assurance policyholders	6,014,916	8,334,129
Weighted average ordinary shares in issue and ranking for dividend including own shares held for the benefit of life assurance policyholders	276,324,437	276,324,437
Loss for the period attributable to equityholders	(€198m)	(€279m)
EPS including own shares held for the benefit of life assurance policyholders	(71.7 cent)	(101 cent)
Operating loss after tax for the year	(€167m)	(€182m)
Operating EPS including own shares held for the benefit of life assurance policyholders	(60.4 cent)	(65.9 cent)

11. Reconciliation of shareholders' equity on EU IFRS basis to EV basis

	2010
	Net worth	VIF	Total
	€m	€m	€m
Statutory shareholders' equity as at 31 December	917	699	1,616
Change insurance shareholder value of in-force to post tax basis	114	(114)	-
Shareholder value of in-force on investment contracts	-	635	635
Changes in presentation of cost of FOGs	31	(31)	-
Deferred front end fees on investment contracts	48	-	48
Deferred acquisition costs on investment contracts	(188)	-	(188)
Restatement of investment liabilities to regulatory basis	(63)	-	(63)
Assets and liabilities held for sale	5	3	8
VIF loan	100	(117)	(17)
Change in the basis of deferred tax provisioning	44	(16)	28
Impact of stop loss reinsurance treaty	191	(191)	-
Other	(22)	-	(22)
EV basis shareholders' equity as at 31 December	1,177	868	2,045

	2009
	Net worth	VIF	Total
	€m	€m	€m
Statutory shareholders' equity as at 31 December	1,276	730	2,006
Change insurance shareholder value of in-force to post tax basis	121	(121)	-
Shareholder value of in-force on investment contracts	-	663	663
Changes in presentation of cost of FOGs	44	(44)	-
Deferred front end fees on investment contracts	102	-	102
Deferred acquisition costs on investment contracts	(245)	-	(245)
Restatement of investment liabilities to regulatory basis	(72)	-	(72)
Goodwill reclassification on acquisition of non-controlling interest	(5)	5	-
Change in the basis of deferred tax provisioning	37	(10)	27
Impact of stop loss reinsurance treaty	147	(147)	-
Other	4	-	4
EV basis shareholders' equity as at 31 December	1,409	1,076	2,485

All of the above adjustments relate to the application of IFRS 4 Insurance Contracts including the tax implications.

The stop-loss reinsurance adjustment reflects that under the EU IFRS basis no net worth offset is accounted for whereas under the EV basis a regulatory offset is accounted for and is reflected in EV net worth but a corresponding opposite adjustment is reflected in EV VIF.

The VIF loan net worth adjustment reflects that under the EU IFRS basis a net worth liability is accounted for, whereas under the EV basis no net worth liability is accounted for. The EV treatment is consistent with the treatment on a regulatory basis, where no liability is accounted for since the repayment of the loan is contingent on the emergence of future regulatory surpluses. The EV basis recognises a liability for the VIF loan in the EV VIF, reflecting the total costs of the VIF loan including the costs of future capital repayments and interest charges net of tax over the expected future term of the loan.

Year ended 31 December 2010

12. EV assumptions

The assumed future pre-tax returns on fixed interest securities are set by reference to gross redemption yields available in the market at the end of the reporting period. The base interest rate used for the risk discount rate is based on European swap rates for the effective duration of the future cash flows underlying the PVIF, plus a margin of 1.3%. The base interest rate used at 31 December 2009 was based on the yield available from Irish Government bonds at that time, and was equal to the European swap rate at 31 December 2009 plus 1.3%. The corresponding return on equities and property is equal to the base interest rate assumption plus the appropriate risk premium. An asset mix based on the assets held at the valuation date within policyholder funds has been assumed within the projections.

	2010	2009	2008
Equity risk premium	3.0%	3.0%	3.0%
Property risk premium	2.0%	2.0%	2.0%
Irish Government bond yield	n/a*	4.6%	4.1%
European swap rate	3.1%	3.3%
Margin	1.3%	1.3%
Base interest rate	4.4%	4.6%	4.1%
Non-market risk margin	2.1%	2.1%	2.1%
Market risk margin	1.0%	0.8%	0.8%
Risk discount rate	7.5%	7.5%	7.0%
Investment return
- Fixed interest	0.8% - 7.4%	1.1% - 4.2%	2.7% - 4.3%
- Equities	7.4%	7.6%	7.1%
- Property	6.4%	6.6%	6.1%
Expense inflation	3.0%	3.0%	3.0%

*The Irish government bond yield at 31 December 2010 is higher than the base interest rate of 4.4% p.a., but is not believed to be a suitable representative base rate due to the dislocation of the market in these bonds at that date.

Other assumptions

The assumed future mortality and morbidity assumptions are based on published tables of rates, adjusted by analyses of recent operating experience. Persistency assumptions are set by reference to recent operating experience excluding the 2009 persistency experience which is regarded as an extreme event. The adverse persistency experience in 2009 and 2010 is expected to continue at a reduced level for a number of years. Therefore, the persistency assumptions within the PVIF model have reflected this by allowing for a more adverse persistency experience over the next three years, reducing to the long-term assumptions thereafter. Actual future persistency experience against the assumptions will continue to be monitored closely.

The management expenses attributable to life assurance business have been analysed between expenses relating to the acquisition of new business and the maintenance of business in-force. No allowance has been made for future productivity improvements in the expense assumptions.

Projected tax has been determined assuming current tax legislation and rates. Deferred tax on the release of the retained surplus in the life business is allowed for in the PVIF calculations.

EEV results are computed on a before and after tax basis.

Year ended 31 December 2010

12. EV assumptions (continued)

Treatment of financial options and guarantees ("FOG"s)

The main options and guarantees for which FOG costs have been determined are:

(a) Investment guarantees on certain unit-linked funds, where the unit returns to policyholders are smoothed subject to a minimum guaranteed return (in the majority of cases the minimum guaranteed change in unit price is 0%, usually representing a minimum return of the original premium). An additional management charge is levied on policyholders investing in these funds, compared to similar unit-linked funds without this investment guarantee. This extra charge is allowed for in calculating the FOG cost.
(b) Guaranteed annuity rates on a small number of products;
(c) Return of premium death guarantees on certain unit-linked single premium products; and
(d) Guaranteed benefits for policies in the closed with-profit fund.

The main asset classes relating to products with options and guarantees are European and International equities, property, and government bonds of various durations.

The Deloitte's TSM Streamline model is used to derive the cost of FOGs. The model is calibrated to the European swap curve plus a fixed margin of 1.3%. The yield curve used at 31 December 2009 was calibrated to the Irish Government yield curve and extrapolated at longer durations where no Irish Government bonds exist. The use of these yield curves to discount the negative cash flows in the FOG models is consistent with the yield curve used to discount the positive cash flows in the PVIF, as outlined above. The equity volatility rate used in the model is calibrated to the market implied equity volatility rate at 31 December 2010. Ten years of historical weekly data are used to derive the correlation between the returns on different asset classes.

The model uses the difference between two inverse Gaussian distributions to model the returns on each asset class. This allows the model to produce fat-tailed distributions, and provides a good fit to historical asset return distributions.

The statistics relating to the model used are set out in the following table:

As at 31 December 2010	10-Year return		20-Year return
	Mean1	StDev2	Mean1	StDev2
European assets (Euro)
Bonds	4.7%	3.5%	5.1%	7.7%
Equities, Property	4.7%	24.0%	5.1%	27.1%
UK assets (Sterling)
Bonds	3.8%	2.7%	4.4%	6.1%
Equities	3.8%	23.3%	4.4%	25.4%
As at 31 December 2009	10-Year Return			20-Year Return
	Mean1	StDev2	Mean1	StDev2
European assets (Euro)
Bonds	4.7%	3.3%	5.6%	7.3%
Equities, Property	4.7%	25.7%	5.6%	28.4%
UK assets (Sterling)
Bonds	4.3%	2.8%	4.8%	6.1%
Equities	4.3%	23.9%	4.8%	25.9%

The risk-neutral nature of the model means that all asset classes have the same expected return. No value is added by investing in riskier assets with a higher expected rate of return. The means quoted above reflect this.
Standard deviations are calculated by accumulating a unit investment for n years in each simulation, taking the natural logarithm of the result, calculating the variance of this statistic, dividing by n and taking the square root. The results are comparable to implied volatilities quoted in investment markets.

Year ended 31 December 2010

13. Sensitivity calculations

A number of sensitivities have been produced on alternative assumption sets to reflect the sensitivity of the continuing operations embedded value and the continuing operations new business contribution to changes in key assumptions. The details of each sensitivity are set out below:

1% variation in discount rate a one percentage point increase / decrease in the risk margin has been assumed in each case (meaning a 1% increase in the risk margin at end 2010 would result in a 4.1% risk margin and an 8.5% risk discount rate).
1% variation in interest rates a one percentage point increase / decrease in interest rates including any related changes to risk discount rates, valuation bases and non-linked assets (meaning a 1% increase in interest rates at end 2010 would increase investment returns by 1% for each year in the future and increase the risk discount rate to 8.5%). This sensitivity includes the effect on the life net worth.
1% increase in equity/property yields a one percentage point increase in the equity / property assumed investment returns, excluding any related changes to risk discount rates or valuation bases, has been assumed (meaning a 1% increase in equity returns would increase assumed total equity returns from 7.4% to 8.4%).
10% decrease in equity/property values a ten percentage point decrease in the market value of equity / property assets, including any related changes to valuation reserves and life shareholder net assets. Therefore this sensitivity includes the effect on the life net worth.
10% decrease in maintenance expenses including any related changes to valuation expense bases and excluding any potential change to reviewable policy fees (meaning a 10% reduction on a base assumption of €10 per annum would result in a €9 per annum expense assumption).
10% improvement in assumed persistency rates, incorporating a 10% reduction in lapse, surrender and premium cessation assumptions (meaning a 10% reduction on a base assumption of 7% would result in a 6.3% lapse assumption).
5% decrease in both mortality and morbidity rates including any related changes to valuation bases and excluding any potential change to reviewable risk charging bases (meaning if base experienced mortality is 90% of a standard mortality table then for this sensitivity the assumption is set to 85.5% of the standard table).

The sensitivities allow for any material impact on the cost of financial options and guarantees caused by the changed assumption.

(a) Economic assumptions

	As issued EV	Effect of 1% higher risk discount rate	Effect of 1% lower risk discount rate
	€m	€m	€m
Embedded value at 31 December 2010	1,746	(101)	115
2010 new business contribution	52	(9)	13

Year ended 31 December 2010

13. Sensitivity calculations (continued)

(b) Market sensitivities - equity / property and fixed interest yields

	As issued EV	Effect of 1% higher fixed interest yields	Effect of 1% lower fixed interest yields	Effect of 1% higher equity / property yields
	€m	€m	€m	€m
Embedded value at 31 December 2010	1,746	(4)	6	37
2010 new business contribution	52	(1)	-	4

(c) Market sensitivities - equity/property values

Effect of 10%
decrease in
equity/
property
values
€m
(94)

(d) Operational assumptions

	As issued EV	Effect of 10% decrease in maintenance expenses	Effect of 10% improvement in assumed persistency rates	Effect of 5% decrease in mortality & morbidity rates*
	€m	€m	€m	€m
Embedded value at 31 December 2010	1,746	45	51	17
2010 new business contribution	52	6	9	1

* The sensitivity results above for a 5% decrease in mortality and morbidity rates includes a €10m reduction in the embedded value at 31 December 2010 and a €nil effect on the 2010 new business contribution from the effect of a 5% reduction in the annuity mortality rate.

Independent Auditor's Report to Directors of Irish Life & Permanent Group Holdings plc on the Embedded Value Basis – Supplementary Information

We have audited the EV basis supplementary information ("the supplementary information") of Irish Life & Permanent Group Holdings plc for the year ended 31 December 2010 which comprise Consolidated Income Statement, Consolidated Statement of Financial Position, Consolidated Statement of Comprehensive Income, Consolidated Reconciliation of Shareholders' Equity and the related notes. The supplementary information has been prepared in accordance with the European Embedded Value Principles issued in May 2004 by the CFO Forum ("the EEV Principles") using the methodology and assumptions set out therein. The supplementary information should be read in conjunction with the group financial statements.

This report, including the opinion, has been prepared solely for the company in accordance with the terms of our engagement. Our audit work has been undertaken so that we might state to the company those matters we have been engaged to state in this report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the company for our audit work, for this report, or for the opinions we have formed.

Respective responsibilities of directors and independent auditor

As described in the statement of directors' responsibilities, the directors' responsibilities include preparing the supplementary information on the EEV basis in accordance with the EEV Principles. Our responsibility is to audit the supplementary information in accordance with International Standards on Auditing (UK and Ireland) and the terms of our engagement.

Under the terms of our engagement, we report to the company our opinion as to whether the supplementary information has been properly prepared in accordance with the EEV Principles using the methodology and assumptions set out therein. In addition, we state whether we have obtained all the information and explanations necessary for the purposes of our audit.

Basis of audit opinion

We conducted our audit having regard to International Standards on Auditing (UK and Ireland) issued by the Auditing Practices Board. An audit includes examination, on a test basis, of evidence relevant to the amounts and disclosures in the supplementary information. It also includes an assessment of the significant estimates and judgements made by the directors in the preparation of the supplementary information, and of whether the accounting policies applied in the preparation of the supplementary information are appropriate to the group's circumstances, consistently applied and adequately disclosed.

We planned and performed our audit so as to obtain all the information and explanations which we considered necessary in order to provide us with sufficient evidence to give reasonable assurance that the supplementary information is free from material misstatement, whether caused by fraud or other irregularity or error. In forming our opinion, we also evaluated the overall adequacy of the presentation of the supplementary information.

Opinion

In our opinion, the EV basis supplementary information for the year ended 31 December 2010 has been properly prepared in accordance with the EEV Principles using the methodology and assumptions set out therein.

Emphasis of matter – going concern

KPMG Chartered Accountants Registered Auditor 1 Harbourmaster Place IFSC Dublin 1

4 March 2011

AI assistant

Permanent TSB Group Holding — Annual Report 2010

1971_10-k_2010-12-31_63d16801-ba9f-4aab-b078-b1e014414923.pdf

Annual Report and Financial Statements 2010

Forward Looking Statements

Contents

Financial Performance Summary

The Group at a Glance

Group strategy

Life assurance

Fund management

Banking business

Chairman's Statement

Continuing challenges impact on dividend

Group unique in some key respects

Board pursuing three key priorities

Changes at board level

Chairman's Statement

Outlook

Background

Group performance

Group profitability – IFRS basis

Group profitability – Embedded Value basis

Group Chief Executive's Review

Life assurance and fund management

Bank funding and margins

Bank lending and credit quality

Group Chief Executive's Review

Costs

Capital

Corporate strategy and outlook

Group Chief Executive's Review

Summarised group income statement and key performance indicators

Results on continuing operations

Banking businesses' operating results

Life assurance and fund management operating profit

Brokerage and third party administration

Other

Associated undertakings

Summarised group statement of financial position

Loans and receivables to customers

Other financial assets and investment properties

(A) Debt securities

(B) Equity shares and units in unit trusts

Loans and receivables to banks

Assets classified as held for sale

Funding profile

Customer accounts and deposits

Short-term debt

Long-term debt

Investment and insurance contract liabilities

Credit ratings

Capital management

Bank capital

Life capital

Solvency II

Dividend

Bank operating review

Net interest income

Other income

Government guarantee charges

Costs

Portfolio analysis

(A) Residential lending – RoI

(B) Residential lending – UK

(C) Consumer finance

(D) Commercial lending

Retail customer account balances

Life assurance and fund management operating review

Retail Life

Corporate Life

Fund Management

Investment return

Change in shareholder value of in-force business

Net claims on insurance contracts

Net change in investment and insurance contract liabilities

Administration expenses, depreciation, amortisation and impairment

Life asset portfolio

Embedded value business review

Return on capital employed

Permanent TSB Group Holding Annual Report 2010