Aviva plc FY 2007 Part 3

Aviva PLC 28 February 2008 Aviva plc FY07 Part 3 Part 3 of 5 ---------------------------------------------------------------------------------------------------------------------- Page 42 IFRS basis ---------------------------------------------------------------------------------------------------------------------- Page 43 Summarised consolidated income statement - IFRS basis For the year ended 31 December 2007 Restated Page 2007 2007 2006 â‚¬m Â£m Â£m Income 62,64 43,137 Premiums written net of reinsurance 29,333 27,234 (31) Net change in provision for unearned premiums (21) 93 ---------------------------------------------------------------------------------------------------------------------- 43,106 Net earned premiums 29,312 27,327 2,588 Fee and commission income 1,760 1,870 14,453 Net investment income 9,828 15,490 (447) Share of (loss)/profit after tax of joint ventures and associates (304) 485 72 Profit on the disposal of subsidiaries and associates 49 222 ---------------------------------------------------------------------------------------------------------------------- 59,772 40,645 45,394 ---------------------------------------------------------------------------------------------------------------------- Expenses (39,884) Claims and benefits paid, net of recoveries from reinsurers (27,121) (23,444) (5,157) Change in insurance liabilities, net of reinsurance (3,507) (2,620) (2,968) Change in investment contract provisions (2,018) (6,002) 4,297 Change in unallocated divisible surplus 2,922 (558) (6,446) Fee and commission expense (4,383) (5,043) (5,107) Other expenses (3,473) (3,557) (1,776) Finance costs (1,208) (847) ---------------------------------------------------------------------------------------------------------------------- (57,041) (38,788) (42,071) ---------------------------------------------------------------------------------------------------------------------- 2,731 Profit before tax 1,857 3,323 (22) Tax attributable to policyholders' returns (15) (346) ---------------------------------------------------------------------------------------------------------------------- 2,709 Profit before tax attributable to shareholders' profits 1,842 2,977 Tax expense (143) United Kingdom tax (97) (479) (375) Overseas tax (255) (455) ------- ---------------- (518) (352) (934) 22 Less: tax attributable to policyholders' returns 15 346 ------- ---------------- (496) Tax attributable to shareholders' profits (337) (588) ---------------------------------------------------------------------------------------------------------------------- 2,213 Profit for the year 1,505 2,389 ====================================================================================================================== Attributable to: 1,951 Equity shareholders of Aviva plc 1,327 2,215 262 Minority interests 178 174 ---------------------------------------------------------------------------------------------------------------------- 2,213 1,505 2,389 ====================================================================================================================== All profit is from continuing operations. Page 2007 2007 2006 Earnings per share - IFRS basis 59 72.4c Basic (pence per share) 49.2p 87.5p 59 71.6c Diluted (pence per share) 48.7p 86.6p Subsequent to 31 December 2007, the directors proposed a final dividend for 2007 of 21.10p (final 2006: 19.18p) per ordinary share, amounting to Â£553 million (final 2006: Â£492 million) in total. Subject to the approval by shareholders at the AGM the dividend will be paid on 16 May 2008 and will be accounted for as an appropriation of retained earnings in the year ending 31 December 2008. During 2007 the directors declared a final dividend for 2006 of 19.18p per ordinary share (final 2005: 17.44p) and an interim dividend for 2007 of 11.90p per ordinary share (interim 2006: 10.82p) totalling Â£492 million (2006: Â£418 million) and Â£309 million (2005: Â£275 million) respectively. ---------------------------------------------------------------------------------------------------------------------- Page 44 Pro forma reconciliation of Group operating profit to profit before tax - IFRS basis For the year ended 31 December 2007 Restated Page 2007 2007 2006 â‚¬m Â£m Â£m IFRS operating profit before tax attributable to shareholders' profits 53 2,403 Long-term business 1,634 1,334 54 228 Fund management 155 155 54 1,519 General insurance and health 1,033 1,686 Other: 57 (109) Other operations and regional costs (74) (25) 57 (231) Corporate centre (157) (160) 58 (534) Group debt costs and other interest (363) (381) ---------------------------------------------------------------------------------------------------------------------- 3,276 IFRS operating profit before adjusting items and tax attributable to shareholders' profits 2,228 2,609 Adjusted for the following: 22 Investment return variances and economic assumption changes on long-term business 15 401 (15) Impairment of goodwill (10) (94) (151) Amortisation and impairment of intangibles (103) (64) (271) Short-term fluctuation in return on investments backing general insurance and health business (184) 149 52 73 Profit on the disposal of subsidiaries and associates 49 222 53 (225) Integration and restructuring costs (153) (246) ---------------------------------------------------------------------------------------------------------------------- 2,709 Profit before tax attributable to shareholders' profits 1,842 2,977 Tax attributable to shareholders' profits 58 (893) Operating profit (607) (645) 58 397 Other activities 270 57 ------- ---------------- (496) (337) (588) ---------------------------------------------------------------------------------------------------------------------- 2,213 Profit for the year 1,505 2,389 ====================================================================================================================== 2006 has been restated to reflect the change in the definition of group operating profit on an International Financial Reporting Standards ('IFRS') basis. See the Basis of preparation note on page 48. Restated Page 2007 2007 2006 Earnings per share - IFRS operating profit basis 59 72.4c Basic (pence per share) 53.2p 70.1p 59 71.6c Diluted (pence per share) 52.7p 69.4p ---------------------------------------------------------------------------------------------------------------------- Page 45 Consolidated statement of recognised income and expense - IFRS basis For the year ended 31 December 2007 2007 2007 2006 â‚¬m Â£m Â£m 253 Fair value gains/(losses) on AFS securities, owner-occupied properties and hedging instruments 172 374 (575) Fair value (gains) transferred to profit (391) (162) - Impairment losses on revalued assets - (2) 13 Share of fair value changes in joint ventures and associates taken to equity 9 - 953 Actuarial gains/(losses) on pension schemes (note 17c) 648 (117) Actuarial (gains)/losses on pension schemes (61) 3 (90) transferred to unallocated divisible surplus and other movements 1,087 Foreign exchange rate movements 739 (346) - Aggregate tax effect - policyholder tax - - (263) Aggregate tax effect - shareholder tax (179) (5) ---------------------------------------------------------------------------------------------------------------------- 1,378 Net income recognised directly in equity 937 (255) 2,213 Profit for the year 1,505 2,389 ---------------------------------------------------------------------------------------------------------------------- 3,591 Total recognised income and expense for the year 2,442 2,134 ====================================================================================================================== Attributable to: 3,154 Equity shareholders of Aviva plc 2,145 1,978 437 Minority interests 297 156 --------------------------------------------------------------------------------------------------------------------- 3,591 2,442 2,134 ===================================================================================================================== Reconciliation of movements in consolidated shareholders' equity - IFRS basis For the year ended 31 December 2007 2007 2007 2006 â‚¬m Â£m Â£m 19,266 Balance at 1 January 14,064 11,092 3,345 Total recognised income and expense for the year 2,442 2,134 (1,193) Dividends and appropriations (note 15) (871) (762) Issue of share capital for the acquisition of - 892 - AmerUs in 2006, net of transaction costs - 892 66 Other issues of share capital, net of transaction costs 48 43 412 Shares issued in lieu of dividends 301 203 421 Capital contributions from minority shareholders 307 397 (90) Minority share of dividends declared in the year (66) (75) 434 Minority interest in acquired/(disposed) subsidiaries 317 92 68 Reserves credit for equity compensation plans 50 48 ---------------------------------------------------------------------------------------------------------------------- 22,729 Total equity 16,592 14,064 (3,498) Minority interests (2,553) (1,698) ---------------------------------------------------------------------------------------------------------------------- 19,231 Balance at 31 December 14,039 12,366 ====================================================================================================================== ---------------------------------------------------------------------------------------------------------------------- Page 46 Summarised consolidated balance sheet - IFRS basis As at 31 December 2007 Restated 2007 2007 2006 â‚¬m Â£m Â£m Assets 4,222 Goodwill 3,082 2,910 4,379 Acquired value of in-force business and intangible assets 3,197 2,728 3,529 Interests in, and loans to, joint ventures 2,576 2,795 1,652 Interests in, and loans to, associates 1,206 895 1,290 Property and equipment 942 904 20,653 Investment property 15,077 15,123 49,579 Loans 36,193 28,574 Financial investments 162,928 Debt securities 118,937 114,466 76,737 Equity securities 56,018 56,762 55,360 Other investments 40,413 33,050 11,108 Reinsurance assets 8,109 7,825 808 Deferred tax assets 590 1,199 515 Current tax assets 376 344 11,823 Receivables and other financial assets 8,629 8,098 6,147 Deferred acquisition costs and other assets 4,487 3,476 4,090 Prepayments and accrued income 2,986 2,585 21,608 Cash and cash equivalents 15,774 13,117 1,545 Assets of operations classified as held for sale 1,128 - --------------------------------------------------------------------------------------------------------------------- 437,973 Total assets 319,720 294,851 ====================================================================================================================== Equity 897 Ordinary share capital 655 641 6,156 Capital reserves 4,494 4,460 2,010 Other reserves 1,467 993 8,538 Retained earnings 6,233 5,082 ---------------------------------------------------------------------------------------------------------------------- 17,601 Equity attributable to ordinary shareholders of Aviva plc 12,849 11,176 1,630 Preference share capital and direct capital instrument 1,190 1,190 3,498 Minority interests 2,553 1,698 ---------------------------------------------------------------------------------------------------------------------- 22,729 Total equity 16,592 14,064 ====================================================================================================================== Liabilities 209,644 Gross insurance liabilities 153,040 144,230 134,581 Gross liabilities for investment contracts 98,244 88,358 9,295 Unallocated divisible surplus 6,785 9,465 5,452 Net asset value attributable to unitholders 3,980 3,810 2,653 Provisions 1,937 2,850 3,464 Deferred tax liabilities 2,529 3,077 1,629 Current tax liabilities 1,189 1,262 17,338 Borrowings 12,657 12,137 24,740 Payables and other financial liabilities 18,060 11,364 5,158 Other liabilities 3,765 4,234 1,290 Liabilities of operations classified as held for sale 942 - ---------------------------------------------------------------------------------------------------------------------- 415,244 Total liabilities 303,128 280,787 ====================================================================================================================== 437,973 Total equity and liabilities 319,720 294,851 ====================================================================================================================== ---------------------------------------------------------------------------------------------------------------------- Page 47 Summarised consolidated cash flow statement - IFRS basis For the year ended 31 December 2007 The cash flows presented in this statement cover all the Group's activities and include flows from policyholder and shareholder activities. 2007 2006 -------------------------------------------- Long-term Non-long-term business business Restated operations operations Group Group Â£m Â£m Â£m Â£m Cash flows from operating activities Cash generated from operations 3,215 1,618 4,833 2,474 Tax paid (423) (378) (801) (595) ---------------------------------------------------------------------------------------------------------------------- Net cash from operating activities 2,792 1,240 4,032 1,879 ---------------------------------------------------------------------------------------------------------------------- Cash flows from investing activities: Acquisition of subsidiaries, joint ventures and associates, net of cash acquired (661) (108) (769) (1,889) Disposal of subsidiaries, joint ventures and associates, net of cash transferred 256 27 283 616 Loans to joint ventures and associates 33 - 33 (104) Purchases of property and equipment (46) (181) (227) (295) Proceeds on sale of property and equipment 28 65 93 156 Purchases of intangible assets (17) (31) (48) (58) ---------------------------------------------------------------------------------------------------------------------- Net cash (used in)/from investing activities (407) (228) (635) (1,574) ---------------------------------------------------------------------------------------------------------------------- Cash flows from financing activities: Proceeds from issue of ordinary shares, net of transaction costs - 48 48 935 Net drawdown of borrowings 286 36 322 901 Interest paid on borrowings (608) (600) (1,208) (825) Preference dividends paid - (17) (17) (17) Ordinary dividends paid - (500) (500) (490) Coupon payments on direct capital instrument - (53) (53) (52) Finance lease payments - (7) (7) (22) Capital contributions from minority shareholders 278 29 307 304 Dividends paid to minority interests of subsidiaries (48) (18) (66) (75) Non-trading cash flows between operations (444) 444 - - ---------------------------------------------------------------------------------------------------------------------- Net cash from/(used in)financing activities (536) (638) (1,174) 659 ---------------------------------------------------------------------------------------------------------------------- Net increase in cash and cash equivalents 1,849 374 2,223 964 Cash and cash equivalents at 1 January 9,388 3,033 12,421 11,623 Effect of exchange rate changes on cash and cash equivalents 464 141 605 (166) ---------------------------------------------------------------------------------------------------------------------- Cash and cash equivalents at 31 December 11,701 3,548 15,249 12,421 ====================================================================================================================== Cash and cash equivalents at 31 December comprised: Cash at bank and in hand 2,740 1,264 4,004 4,087 Cash equivalents 9,144 2,722 11,866 9,030 ---------------------------------------------------------------------------------------------------------------------- 11,884 3,986 15,870 13,117 Bank overdrafts (183) (438) (621) (696) ---------------------------------------------------------------------------------------------------------------------- 11,701 3,548 15,249 12,421 ====================================================================================================================== Of the total cash and cash equivalents shown above Â£96 million has been classified as held for sale (full year 2006: nil). See the Basis of preparation note on page 48 for an explanation of the 2006 restatement of cash and cash equivalents. ---------------------------------------------------------------------------------------------------------------------- Page 48 1. Basis of preparation - IFRS a) From 2005, all European Union listed companies were required to prepare consolidated financial statements using International Financial Reporting Standards (IFRS) issued by the International Accounting Standards Board (IASB) and endorsed by the European Union. The results in this preliminary announcement have been prepared in accordance with IFRS applicable at 31 December 2007 and have been taken from the Group's Annual Report and Accounts which will be published on 26 March 2008. The preliminary announcement for the year ended 31 December 2007 does not constitute statutory accounts as defined in section 240 of the Companies Act 1985. The results on an IFRS basis for the full years 2007 and 2006 have been audited by Ernst & Young LLP. The auditors have reported on the 2006 and 2007 accounts and their reports were unqualified and did not contain a statement under section 237(2) or (3) of the Companies Act 1985. The Group's 2006 Report and Accounts have been filed with the Registrar of Companies. b) Change to definition of operating profit The adoption of IFRS accounting policies in 2005 led to increased volatility in the results of the Group's long-term savings businesses, due primarily to investment market performance and fiscal policy changes. IFRS operating profit is one of the key indicators of performance for the Group and we have therefore changed its definition to disclose the results reflecting longer-term investment performance and reflect certain other changes described below: The key changes to our definition of IFRS operating profit are: (i) Operating profit is now based on the investment returns that the Group expects to make on the financial investments that back the shareholder and policyholder funds of its long-term business over the reporting period, rather than the actual returns on these investments. The difference between the expected return and the actual return on investments, and the corresponding impact on liabilities, is shown below the operating profit line. (ii) The amortisation of acquired value of in-force business (AVIF) on both insurance and investment contracts is now included within operating profit. This change matches the emergence of benefit from the acquired book with the associated amortisation expense. (iii)The criteria for treating an item as exceptional, outside operating profit, have been refined to limit these to significant items only. Accordingly, the 2006 Financial Services Compensation Scheme is now included in operating profit. (iv)The result for Norwich Union Life Services has been reclassified as long-term business instead of other operations, to match its treatment under EEV. c) Restatement of prior year figures i) Gross up for cash collateral received During 2007 we identified that certain cash collateral transactions should have been historically recognised on the balance sheet, with a corresponding obligation to return this collateral, instead of showing a net nil position. As a result, the figures for loan assets and payables and other financial liabilities as at 31 December 2006 have been restated by increasing them both by Â£2,129 million. In addition, we identified that the interest paid on cash collateral received and the interest earned from on-lending this cash had previously been offset and reported as net interest income. The 2006 comparative figures have therefore been restated in order to report this interest expense and interest income separately, by increasing both by Â£17 million. Neither of these adjustments has any impact on profit for the year, operating profit or earnings per share in 2006, nor retained earnings, net assets or total equity at 31 December 2006. ii) Restatement of cash equivalents During the year, we have reviewed the policy for cash and cash equivalents and have determined that certain investments, previously classified as cash equivalents, would be more appropriately classified as financial investments. The application of this review to prior year balances has led to a reduction of the cash equivalents balance at 31 December 2006 by Â£1,425 million, with a corresponding increase in the debt securities total of the same amount. This restatement has no impact on net assets or total equity. The effect on the opening balances in the prior year is to reduce cash equivalents and increase debt securities by Â£1,444 million. The effect on the cash flow statement is therefore to reduct the prior year cash flows from operating activities by Â£19 million. d) Items included in the financial statements of each of the Group's entities are measured in the currency of the primary economic environment in which that entity operates (the 'functional currency'). The consolidated financial statements are stated in sterling, which is the Company's functional and presentation currency. Unless otherwise noted, the amounts shown in the financial statements are in millions of pounds sterling (Â£m). As supplementary information, consolidated financial information is also presented in euros. ---------------------------------------------------------------------------------------------------------------------- Page 49 e) The results for the year to 31 December 2007 are presented on a regional basis: United Kingdom, Europe, North America and Asia Pacific. i) The UK region includes the UK life and general insurance businesses, all of the business of Morley as well as the results of Aviva Re, the Group's captive reinsurance business; ii) Europe incorporates all European operations excluding the UK as set out above; iii) North America is made up of our life business in the United States and general insurance and fund management businesses in Canada; and iv) Asia Pacific includes all our Asian and Australian businesses. f) The Group enters into stock lending transactions and received cash or non-cash collateral to reduce the Group's exposure to counterparty credit risk. Collateral received in the form of cash is then lent out at market rates of interest. During 2007, we identified that certain cash collateral transactions should have been historically recognised on the balance sheet, with a corresponding obligation to return this collateral, instead of showing a net nil position. As a result, the figures for loan assets and payables and other financial liabilities as at 31 December 2006 have been restated by increasing them both by Â£2,129 million. The equivalent adjustment at 1 January 2006, the start of the comparative period, would have been to increase both loan assets and payables and other financial liabilities by Â£120 million. In addition we identified that the interest paid on cash collateral received and the interest earned from on-lending this cash had previously been offset and reported as net interest income. The 2006 comparative figures have therefore been restated in order to report this interest expense and interest income separately, by increasing both by Â£17 million. Neither of these adjustments has any impact on profit for the year, operating profit or earnings per share in 2006, nor on retained earnings, net assets or total equity at either 1 January 2006 or 31 December 2006. 2. Exchange rates The Group's principal overseas operations during the year were located within the Eurozone and the United States. The results and cash flows of these operations have been translated into sterling at an average rate for the year of â‚¬1 = Â£0.68 (2006: â‚¬1 = Â£0.68) and Â£1 = US$2.00 (2006: Â£1 = US$1.84). Assets and liabilities have been translated at the year end rate of â‚¬1 = Â£0.73 (2006: â‚¬1 = Â£0.67) and Â£1 = US$1.99 (2006: Â£1 = US$1.96). Total foreign currency movements during 2007 resulted in a gain recognised in the income statement of Â£45 million (2006: Â£99 million gain). 3. Acquisitions Total Net Date of % share Asset Cash Total Country acquisition acquired acquired paid Costs Consideration Goodwill Â£m Â£m Â£m Â£m Â£m Name Erasmus Group Netherlands 26/03/2007 100% 54 53 1 54 - Cajamurcia Vida Spain 06/06/2007 5% 7 8 1 9 2 Area Life Italy 26/09/2007 55% 7 7 - 7 - Avipop Assicurazioni Italy 14/12/2007 50% 136 184 4 188 52 Cyrte Investments Netherlands 27/09/2007 85% - 37 - 37 37 Hamilton Insurance UK 01/11/2007 100% 55 55 2 57 2 Hamilton Life Assurance UK 01/11/2007 100% 24 44 1 45 21 ---------------------------------------------------------------------------------------------------------------------- Total 283 388 9 397 114 ====================================================================================================================== Other: Smaller acquisitions giving rise to additional goodwill 1 ---------------------------------------------------------------------------------------------------------------------- Total goodwill arising in the year 115 ====================================================================================================================== (i) Erasmus Group On 26 March 2007, the Group's Dutch subsidiary, Delta Lloyd, acquired 100% of the shares in Erasmus Groep BV ('Erasmus') in the Netherlands. Erasmus writes both general insurance and long-term business, and the acquisition has further strengthened Delta Lloyd's position in the Dutch insurance market. The value of Erasmus's distribution channels has been identified as a separate intangible asset and valued by an independent third party at Â£8 million, using estimated post-tax cash flows and discount rates. It has been assessed as having a life of 20 years and is being amortised on a straight line basis over that period. As permitted by IFRS 4, Insurance Contracts, an intangible asset of Â£12 million has also been recognised for the impact of discounting the non-life insurance liabilities, to bring them to fair value. This intangible asset will be amortised over the life of the relevant non-life insurance contracts. ---------------------------------------------------------------------------------------------------------------------- Page 50 The net assets as at the acquisition date in the table above are stated at their provisional values, and may be amended in 2008, in accordance with paragraph 62 of IFRS 3, Business Combinations. The results of Erasmus have been included in the consolidated financial statements of the Group with effect from 26 March 2007, and have contributed Â£5 million to the consolidated profit before tax. (ii) Bancassurance partnership with Cajamurcia On 6 June 2007, the Group announced that it had entered into a long-term bancassurance agreement with Spanish savings bank Caja de Ahorros de Murcia (Cajamurcia) that will enhance the Group's leading position in the Spanish life market. Cajamurcia will provide exclusive access to its network of branches to Cajamurcia Vida y Pensiones de Seguros y Reaseguros SA (Cajamurcia Vida), the newly-created life insurance company jointly-owned by the Group and Cajamurcia, to sell insurance and pension products. Regulatory approval to write new business was received on 21 November 2007 and the new company began trading on 30 November 2007. On signing the agreement, the Group acquired 5% of the share capital of Cajamurcia Vida and Cajamurcia granted the Group a call option over a further 45% of the shares in this company which may be exercised in the two month period following the first anniversary of the agreement being signed. Further consideration of Â£69 million would be payable on exercising the option, with additional amounts of up to Â£187 million payable, dependent on the performance of the new company. If it does not exercise this option during this period, the Group has granted a call option over its 5% holding to Cajamurcia. The Group paid Â£8 million for the initial 5% holding on completion on 6 June 2007. The Group has the power to control the financial and operating policies of Cajamurcia Vida through having the majority vote at meetings of the company's board of directors. We have therefore consolidated its results and balance sheet since that date. The value of the agreement to distribute through Cajamurcia's branch network has been identified as a separate intangible asset with a value of Â£202 million, using estimated post-tax cash flows and discount rates. As noted above, the results of Cajamurcia Vida have been included in the consolidated financial statements of the Group and have contributed Â£nil to the consolidated profit before tax since it began trading on 30 November 2007. (iii) Italian transactions with Banco Popolare During the year, the Group's Italian holding company has entered into three sets of transactions with an Italian bank, Banco Popolare Societa Cooperativa (Banco Popolare). Details of these transactions are as follows: (a) Petunia and Banca Network On 26 September 2007, the Group acquired a 40.62% stake in Petunia SpA (Petunia), a newly-formed investment holding company for Â£19 million. The Group has the majority of voting rights and management control of Petunia and so has consolidated this company as a subsidiary. The total capitalisation of the company at the completion date was Â£47 million, which was used to purchase a 49.75% stake in Banca Bipielle Network SpA (Bipielle Net), an Italian distribution network, from Banco Popolare. The acquired company has since been renamed Banca Network Investimenti SpA (Banca Network). The Group does not have management control of Banca Network and so accounts for it as an investment in an associate. The total consideration was Â£49 million, comprising cash consideration of Â£46 million and contingent consideration of Â£3 million (representing the present value of future expected performance-related consideration). The fair value of the Group's share of Banca Network's identifiable net assets at the date of acquisition was Â£27 million. The residual goodwill of Â£22 million has been included in the carrying value of the investment in associate (see note 19). The fair value of the Group's share of Banca Network's identifiable net assets at the date of acquisition was Â£27 million. The residual goodwill of Â£22 million has been included in the carrying value of the investment in associate. This residual goodwill has been calculated based on the provisional fair values of the net assets and liabilities of Banca Network and may be restated in 2008, in accordance with paragraph 62 of IFRS 3, Business Combinations. (b) Area Life As part of the above transaction, on 26 September 2007, the Group acquired a 55% stake in Area Life International Assurance Limited (Area Life), a life assurance company based in Ireland selling exclusively to Italian residents, from Banco Popolare for Â£7 million. The net assets above have been stated at their provisional fair values and may be amended in 2008, in accordance with paragraph 62 of IFRS 3, Business Combinations. The results of Petunia, Banca Network and Area Life have been included in the consolidated financial statements of the Group with effect from 26 September 2007 and have contributed Â£nil to the consolidated profit before tax. ---------------------------------------------------------------------------------------------------------------------- Page 51 (c) Bancassurance agreement via Avipop Assicurazioni and Avipop Vita On 14 December 2007, the Group entered a long-term bancassurance partnership in protection and non-life insurance with Banco Popolare that will further strengthen the Group's bancassurance presence in Italy and creates a new opportunity in the fast-growing protection sector. The Group paid Â£184 million to secure the long-term bancassurance agreement with Banco Popolare and to acquire 50% plus one share of Avipop Assicurazioni SpA., a non-life subsidiary of the bank. Life protection business will be written in a newly-incorporated life company, Avipop Vita SpA, which will begin trading later in 2008, subject to regulatory approval. The Group currently owns all the shares in this life company but, once regulatory approval has been obtained, will reduce its holding to 50% plus one share. The Group has management control of both companies and has therefore fully consolidated them as subsidiaries. The value of the agreement to distribute through Banco Popolare's branch network has been identified as a separate intangible asset and has been valued by an independent third party at Â£386 million (100% share), using estimated post-tax cash flows and discount rates. The intangible asset has been assessed as having an indefinite useful life, subject to annual tests for impairment. The residual goodwill represents the impact of recognising a deferred tax liability on the intangible asset. The net assets as at the acquisition date are stated at their provisional values, and may be amended in 2008, in accordance with paragraph 62 of IFRS 3, Business Combinations. The results of the Avipop companies have been included in the consolidated financial statements of the Group with effect from 14 December 2007, and have contributed Â£nil to the consolidated profit before tax. (iv) Cyrte Investments On 27 September 2007, the Group acquired an 85% stake in Cyrte Investments BV (Cyrte Investments), a Dutch fund management company, for Â£37 million. The net assets of Cyrte Investments at the date of acquisition were Â£nil, giving rise to residual goodwill of Â£37 million. The residual goodwill represents the value of the company's workforce and a premium paid for the investment concepts developed in the company, based on Cyrte's expertise in the telecommunications, media and technology sectors. No material intangible assets were identified. The net assets as at the acquisition date are stated at their provisional values, and may be amended in 2008, in accordance with paragraph 62 of IFRS 3, Business Combinations. The results of Cyrte Investments have been included in the consolidated financial statements of the Group with effect from 27 September 2007, and have contributed Â£2 million to the consolidated profit before tax. The Group has also invested Â£209 million in three funds, managed by Cyrte investments, giving it an ownership interest in the three funds of between 13% and 18%. These funds have been accounted for as investments in associates, as Cyrte Investments is the general partner of the funds and the Group's holding gives it significant influence on the investment committee, the management board of the funds. The Group's investment of Â£209 million has been included in investments in associates. (v) Hamilton Insurance Company Limited and Hamilton Life Assurance Company Limited On 1 November 2007, the Group completed the acquisition of Hamilton Insurance Company Limited and Hamilton Life Assurance Company Limited (the Hamilton companies) from HFC Bank Limited, a subsidiary of HSBC Finance Corporation. In addition, the Group's UK general insurance businesses signed a number of five-year agreements to underwrite creditor business for HFC Bank and some of its subsidiaries, and to provide home, protection and travel insurance products to 10.2 million of HSBC Bank's UK customers. Included in the consideration paid and goodwill arising on the Hamilton Life acquisition is Â£20 million in respect of unrecognised deferred tax assets which, the Group may be able to utilise in future years but cannot recognise now. The results of the Hamilton companies have been included in the consolidated financial statements of the Group with effect from 1 November 2007 and have contributed Â£1 million to the consolidated profit before tax. (vi) Unaudited pro forma combined revenues and profit Shown below are unaudited pro forma figures for combined revenues and profit as though the acquisition date for all business combinations effected during the year had been 1 January 2007, after giving effect to purchase accounting adjustments and the elimination of intercompany transactions. The pro forma financial information is not necessarily indicative of the combined results that would have been attained had the acquisitions taken place at 1 January 2007, nor is it necessarily indicative of future results. --------------------------------------------------------------------------------------------------------------------- Page 52 2007 Â£m Revenues (net earned premiums and fee income) 31,390 --------------------------------------------------------------------------------------------------------------------- Profit before tax attributable to shareholders 1,862 --------------------------------------------------------------------------------------------------------------------- Of the above pre-tax profit, Â£17 million has arisen since acquisition. (vii) Non-adjusting post-balance sheet events (a) Acquisition of UBI Assicurazioni Vita On 17 January 2008, the Group announced that it had reached an agreement with Unione di Banche Italiane Scpa (UBI Banca) for the acquisition of 50% plus one share in UBI Assicurazioni Vita SpA., an Italian life insurance company wholly-owned by UBI Banca, for a consideration of Â£49 million. Completion of the transaction is subject to certain conditions and the approval of the relevant regulatory authorities and is expected to take place in the first half of 2008. (b) Acquisition of Swiss Life Belgium On 21 January 2008, the Group announced that it had signed a memorandum of understanding with SNS REAAL to buy Swiss Life Belgium, a multi-line insurer, for â‚¬135 million. By combining Swiss Life Belgium with its Belgian insurance operation, managed through its Dutch subsidiary Delta Lloyd, the Group would further strengthen its position in the Belgian group life insurance market. The transaction is conditional upon completion of SNS REAAL's acquisition of the Dutch and Belgian activities of Swiss Life Holding, which was announced on 19 November 2007. The completion of Delta Lloyd's acquisition of Swiss Life Belgium will be subject to approval from the relevant regulators and works council, and is expected to take place in the second quarter of 2008. (c) Investment in LIG Life Insurance Co. Ltd. On 31 January 2008, the Group announced that it would be entering the South Korea life insurance market by agreeing to acquire jointly with Woori Finance Holdings Company Ltd ('Woori') a 91.65% stake in LIG Life Insurance Co. Ltd ('LIG Life'), a South Korean life insurance company, for KRW 137.2 billion (Â£73 million). After completion, the Group will hold 40.65% of LIG Life. Aviva and Woori plan to develop LIG Life's business distribution, predominantly through bancassurance via Woori's banking network and independent financial advisors. 4. Profit on the disposal of subsidiaries and associates The profit on the disposal of subsidiaries, joint ventures and associates comprises: 2007 2006 Â£m Â£m United Kingdom (see below) (7) 69 Turkey 71 - Ireland - 86 France - 79 Other small operations (15) (12) --------------------------------------------------------------------------------------------------------------------- Profit on disposal before tax 49 222 Tax on profit on disposal 3 13 --------------------------------------------------------------------------------------------------------------------- Profit on disposal after tax 52 235 ===================================================================================================================== In June 2007, the Group sold its holding in its associate, the British Aviation Insurance Company Limited to Berkshire Hathaway for Â£15 million, resulting in a loss on disposal of Â£7 million. On 31 October 2007, the Group entered into a joint venture agreement with Aksigorta AS ('Aksigorta'), the insurance company of the Sabanci Holding Group, to form a new Turkish life and pensions joint venture. Under the terms of the agreement, the Group's Turkish life and pensions business, Aviva Hayat ve Emeklilik A.S ('Aviva HE') merged with Ak Emeklilik A.S ('Ak E'), Aksigorta's life and pensions business. The joint venture entered into an exclusive long-term bancassurance agreement with Akbank TAS, Turkey's second-largest privately-owned bank. The Group and Sabanci jointly control the joint venture through equal shareholdings of 49.7%, with the remaining 0.6% being held by individual shareholders. The new company, AvivaSA Emeklilik ve Hayat A.S began trading on 1 November 2007. As consideration for its shareholding, the Group contributed the business of Aviva HE to the joint venture and paid Â£49 million to Aksigorta. The transaction has been accounted for as an acquisition of a 49.7% joint venture and the disposal of 50.3% of Aviva HE. The disposal consideration was Â£83 million, net of transaction costs, giving rise to a profit on disposal of Â£71 million. On an EEV basis, the profit on disposal before tax falls to Â£20 million (Â£161 million) due to the inclusion of in-force business in the assets disposed of. ---------------------------------------------------------------------------------------------------------------------- Page 53 5. Integration and restructuring costs Â£153 million of integration and restructuring costs have been included in the results to 31 December 2007 (2006: Â£246 million). These include Â£45 million relating to the UK cost and efficiency programme announced back in 2006. This initiative has now been completed at a total cost of Â£250 million. The costs also include Â£82 million relating to the new savings targets announced in October 2007; further costs of this programme are expected to be Â£248 million spread over the next two years. The balance of Â£26 million relates to the completion of integration activity on Ark Life in Ireland and the former AmerUs business in the United States, which were both acquired in 2006. 6. Operations classified as held for sale (i) Assets and liabilities of operations classified as held for sale The assets and liabilities of operations classified as held for sale as at 31 December 2007 relate to our Dutch health insurance business, and were as follows: 2007 2006 Â£m Â£m Financial investments 316 - Receivables and other financial assets 554 - Prepayments and accrued income 145 - Tax assets 17 - Cash and cash equivalents 96 - ----------------------------------------------------------------------------------------------------------------------- Total assets 1,128 - ----------------------------------------------------------------------------------------------------------------------- Gross insurance liabilities (627) - Borrowings (12) - Payables and financial liabilities (72) - Other liabilities (220) - Tax liabilities and other provisions (11) - ----------------------------------------------------------------------------------------------------------------------- Total liabilities (942) - ----------------------------------------------------------------------------------------------------------------------- Net assets 186 - ======================================================================================================================= (ii) Dutch health insurance business On 16 July 2007, the Group announced that its Dutch subsidiary, Delta Lloyd Group ('DL'), had reached an agreement to sell its health insurance business to OWM CZ Groep Zorgverkeraar UA ('CZ'), a mutual health insurer, and create a long-term alliance for the cross-selling of insurance products. Under the terms of the agreement, CZ will purchase the DL health insurance business and take on its underwriting risk and policy administration. DL will continue to market and distribute health insurance products from CZ to its existing customers and continue to provide asset management for the transferred business. DL will also have exclusive rights to market life, general insurance and income protection products to CZ's customers. The transaction is expected to take effect on 1 January 2009, subject to regulatory, competition and other relevant approvals. The relevant assets and liabilities of the DL health insurance business have been classified as held for sale, at their carrying values, in the consolidated balance sheet as at 31 December 2007. 7. Geographical analysis of long-term business IFRS operating profit* Restated 2007 2006 Â£m Â£m With-profit 178 147 Non-profit** 545 482 United Kingdom 723 629 France 243 224 Ireland 73 49 Italy 78 81 Netherlands (including Belgium and Germany) 181 102 Poland 110 95 Spain 119 113 Other Europe (27) (16) Europe 777 648 North America 103 13 Asia (6) 7 Australia 37 37 Asia Pacific 31 44 --------------------------------------------------------------------------------------------------------------------- Total 1,634 1,334 ===================================================================================================================== * See page 48 for details of the change in the long-term business operating profit definition ** Includes covered business from Norwich Union Life Services which has been reclassified from other operations ---------------------------------------------------------------------------------------------------------------------- Page 54 8. Geographical analysis of fund management operating profit 2007 2006 Â£m Â£m UK business 70 62 International business 17 14 -------------------------------------------------------------------------------------------------------------------- Morley 87 76 The Royal Bank of Scotland Group (9) (7) Norwich Union investment funds (1) 1 -------------------------------------------------------------------------------------------------------------------- United Kingdom 77 70 France 33 33 Netherlands 23 37 Other Europe 4 3 Europe 60 73 North America 3 3 Asia Pacific 15 9 -------------------------------------------------------------------------------------------------------------------- Total 155 155 ==================================================================================================================== 9. Geographical analysis of general insurance and health (a) Operating result Operating profit Underwriting result ---------------- ------------------- Restated Restated 2007 2006 2007 2006 Â£m Â£m Â£m Â£m United Kingdom* 433 1,118 (214) 394 France 70 63 11 6 Ireland 162 172 101 121 Netherlands 169 139 75 50 Other 41 43 10 12 Europe 442 417 197 189 North America 154 148 18 27 Asia Pacific 4 3 3 3 --------------------------------------------------------------------------------------------------------------------- Total 1,033 1,686 4 613 ===================================================================================================================== Analysed by: General insurance 1,037 1,658 47 645 Health (4) 28 (43) (32) --------------------------------------------------------------------------------------------------------------------- Total 1,033 1,686 4 613 ===================================================================================================================== * The United Kingdom includes the operating profit of Aviva Re, previously shown in the 'International' segment which no longer exists. Comparatives have been restated accordingly. See page 48. ---------------------------------------------------------------------------------------------------------------------- Page 55 (b) Investment return information Actual investment return credited Longer-term to income investment return ----------------- ----------------- 2007 2006 2007 2006 Â£m Â£m Â£m Â£m United Kingdom 575 651 647 724 France 42 35 59 57 Ireland 52 41 61 51 Netherlands 79 72 94 89 Other 23 17 31 31 Europe 196 165 245 228 North America 120 98 136 121 Asia Pacific - 1 1 - --------------------------------------------------------------------------------------------------------------------- Total longer-term investment return 1,029 1,073 ================= Total actual investment income 891 915 Realised gains 579 281 Unrealised (losses)/gains (625) 26 ------------------------------------------------------------------------------------------- Total actual investment return 845 1,222 =========================================================================================== The total short-term adverse fluctuation in investment return of Â£184 million (2006: Â£149 million favourable) is the difference between the total actual investment return of Â£845 million (2006: Â£1,222 million) and the total longer-term investment return of Â£1,029 million (2006: Â£1,073 million). Actual income and longer-term investment return both contain the amortisation of the discount/premium arising on the acquisition of fixed income securities. The longer-term investment return is calculated separately for each principal general insurance and health business unit. In respect of equities and properties, the return is calculated by multiplying the opening market value of the investments, adjusted for sales and purchases during the period, by the longer-term rate of investment return. The longer-term rate of investment return is determined using consistent assumptions between operations, having regard to local economic and market forecasts of investment return. The allocated longer-term return for other investments is the actual income receivable for the period. The Group has calculated the longer-term investment return for its general insurance and health business using the same start of year economic assumptions for equities and properties as those used for EEV reporting as shown on page 37 of this announcement. The total assets supporting the general insurance and health business, which contribute towards the longer term return, were Â£18,291 million (2006: Â£19,718 million). Total assets comprise debt securities Â£10,757 million (2006: Â£9,112 million), equity securities Â£1,195 million (2006: Â£3,417 million), properties Â£360 million (2006: Â£384 milliion), cash and cash equivalents Â£3,178 million (2006: Â£2,823 million) and other assets Â£2,801 million (2006: Â£3,982 million). The principal assumptions underlying the calculation of the longer-term investment return are: Longer-term rates of return Longer-term rates of return Equities Properties --------------------------- --------------------------- 2007 2006 2007 2006 % % % % United Kingdom 7.6% 7.1% 6.6% 6.1% France 7.0% 6.3% 6.0% 5.3% Ireland 7.0% 6.3% 6.0% 5.3% Netherlands 7.0% 6.3% 6.0% 5.3% Canada 7.1% 7.0% 6.1% 6.0% ---------------------------------------------------------------------------------------------------------------------- Page 56 General insurance business only: geographical analysis (c) Analysis of operating profit Longer-term Operating profit investment return Underwriting result ---------------------- -------------------- --------------------- 2007 2006 2007 2006 2007 2006 Â£m Â£m Â£m Â£m Â£m Â£m United Kingdom 433 1,117 642 720 (209) 397 France 54 47 47 45 7 2 Ireland 162 172 61 51 101 121 Netherlands 193 128 73 45 120 83 Other Europe 41 43 31 31 10 12 Europe 450 390 212 172 238 218 North America 154 148 136 121 18 27 Asia Pacific - 3 - - - 3 -------------------------------------------------------------------------------------------------------------------- Total 1,037 1,658 990 1,013 47 645 ==================================================================================================================== (d) Combined operating ratio analysis - geographical basis - general insurance business only Combined Claims ratio Expense ratio operating raio ---------------------- -------------------- --------------------- 2007 2006 2007 2006 2007 2006 % % % % % % United Kingdom 65.9% 58.7% 13.9% 13.9% 106% 95% France 72.7% 73.0% 10.2% 10.4% 99% 99% Ireland 54.2% 55.8% 14.3% 11.2% 80% 77% Netherlands 45.1% 51.5% 18.8% 17.8% 85% 89% Canada 65.9% 66.7% 13.6% 12.4% 98% 98% -------------------------------------------------------------------------------------------------------------------- Total 63.7% 60.3% 13.9% 13.7% 100% 94% ==================================================================================================================== Ratios are measured in local currency. The total Group ratios are based on average exchange rates applying to the respective periods. Definitions: Claims ratio - Incurred claims expressed as a percentage of net earned premiums. Expense ratio - Written expenses excluding commissions expressed as a percentage of net written premiums. Commission ratio - Written commissions expressed as a percentage of net written premiums. Combined operating ratio - Aggregate of claims ratio, expense ratio and commission ratio. 9. Geographical analysis of general insurance and health (continued) (e) General insurance business only: class of business analyses (i) United Kingdom (excluding Group reinsurance) Combined Net written premiums Underwriting result operating raio ---------------------- -------------------- --------------------- 2007 2006 2007 2006 2007 2006 Â£m Â£m Â£m Â£m % % Personal Motor 1,431 1,631 (25) (39) 102% 104% Homeowner 1,223 1,262 (296) 23 124% 98% Other 797 694 10 56 100% 100% -------------------------------------------------------------------------------------------------------------------- 3,451 3,587 (311) 40 110% 102% -------------------------------------------------------------------------------------------------------------------- Commercial Motor 636 638 61 40 91% 94% Property 807 826 (175) 194 124% 79% Other 546 532 192 115 68% 78% -------------------------------------------------------------------------------------------------------------------- 1,989 1,996 78 349 98% 83% -------------------------------------------------------------------------------------------------------------------- Total 5,440 5,583 (233) 389 106% 95% ==================================================================================================================== During the year to 31 December 2007, annualised rating increases were as follows: personal motor 6%; homeowner 7% (including indexation); commercial motor 1% decrease; commercial property 2% decrease; commercial liability 4% decrease. ---------------------------------------------------------------------------------------------------------------------- Page 57 (ii) France Combined Net written premiums Underwriting result operating raio ---------------------- -------------------- --------------------- 2007 2006 2007 2006 2007 2006 Â£m Â£m Â£m Â£m % % Motor 254 256 (2) - 101% 99% Property and other 320 308 9 2 97% 97% -------------------------------------------------------------------------------------------------------------------- Total 574 564 7 2 99% 99% ==================================================================================================================== (iii) Netherlands Combined Net written premiums Underwriting result operating raio ---------------------- -------------------- --------------------- 2007 2006 2007 2006 2007 2006 Â£m Â£m Â£m Â£m % % Motor 267 238 42 13 84% 96% Property 249 252 19 29 93% 88% Liability 61 67 13 2 79% 97% Other 211 176 46 39 77% 76% -------------------------------------------------------------------------------------------------------------------- Total 788 733 120 83 85% 89% ==================================================================================================================== (iv) Canada Combined Net written premiums Underwriting result operating raio ---------------------- -------------------- --------------------- 2007 2006 2007 2006 2007 2006 Â£m Â£m Â£m Â£m % % Motor 795 821 7 11 99% 99% Property 450 413 10 6 96% 98% Liability 143 133 (5) 3 103% 98% Other 24 22 6 7 68% 60% -------------------------------------------------------------------------------------------------------------------- Total 1,412 1,389 18 27 98% 98% ==================================================================================================================== 10. Analysis of other operations and regional costs Restated 2007 2006 Â£m Â£m United Kingdom (8) 36 Europe (49) (55) North America (4) - Asia Pacific (13) (6) --------------------------------------------------------------------------------------------------------------------- Total (74) (25) ===================================================================================================================== The 2006 results have been restated to remove the covered business element of the NULS result (previously included in the UK line) to the life segment. 11. Corporate Centre 2007 2006 Â£m Â£m Project spend (26) (17) Share awards and other incentive schemes (17) (17) Central spend (114) (126) --------------------------------------------------------------------------------------------------------------------- Total (157) (160) ===================================================================================================================== ---------------------------------------------------------------------------------------------------------------------- Page 58 12. Group debt costs and other interest 2007 2006 Â£m Â£m External Subordinated debt (179) (169) Other (80) (61) Internal (179) (228) Net finance income on pension schemes 75 77 --------------------------------------------------------------------------------------------------------------------- Total (363) (381) ===================================================================================================================== 13. Tax (a) Tax charged to the income statement 2007 2006 Â£m Â£m Current tax: For the year 888 1,022 Prior year adjustments (94) (287) --------------------------------------------------------------------------------------------------------------------- Total current tax 794 735 --------------------------------------------------------------------------------------------------------------------- Deferred tax: Origination and reversal of temporary differences (348) 221 Changes in tax rates or tax laws (88) (7) Write down of deferred tax assets (6) (15) --------------------------------------------------------------------------------------------------------------------- Total deferred tax (442) 199 --------------------------------------------------------------------------------------------------------------------- Total tax charged to income statement 352 934 ===================================================================================================================== Analysed between: Tax charge attributable to policyholders' returns 15 346 Tax charge on IFRS operating profit before tax attributable to shareholders' profits from continuing operations 607 645 Tax credit on profit on other activities (270) (57) --------------------------------------------------------------------------------------------------------------------- 352 934 ===================================================================================================================== The Group, as a proxy for policyholders in the UK, Ireland and Australia, is required to record taxes on investment income and gains each year. Accordingly, the tax benefit or expense attributable to UK, Irish and Australian life insurance policyholder returns is included in the tax charge. (b) Tax charged to equity (i) The total tax charge/(credit) comprises: 2007 2006 Â£m Â£m Current tax credit (19) (9) Deferred tax charge 198 14 --------------------------------------------------------------------------------------------------------------------- Total tax charged to equity 179 5 ===================================================================================================================== (ii) The tax expense attributable to policyholders' returns included in the charge above is Â£nil million (2006: nil). ---------------------------------------------------------------------------------------------------------------------- Page 59 (c) Tax reconciliation The tax on the Group's profit before tax differs from the theoretical amount that would arise using the tax rate of the home country of the Company as follows: 2007 2006 Â£m Â£m Profit before tax 1,857 3,323 --------------------------------------------------------------------------------------------------------------------- Tax calculated at standard UK corporation tax rate of 30% (2006: 30%) 557 997 Different basis of tax for UK life insurance 5 209 Adjustment to tax charge in respect of prior years (49) (287) Non-assessable dividends (124) (55) Non-taxable profit on sale of subsidiaries and associates (18) (80) Disallowable expenses 7 46 Different local basis of tax on overseas profits 56 201 Reduction in future UK tax rate (net of movement in unallocated divisible surplus) (64) - Deferred tax valuation difference 1 (60) Other (19) (37) --------------------------------------------------------------------------------------------------------------------- Tax charged to the income statement 352 934 ===================================================================================================================== 14. Earnings per share (a) Basic earnings per share (i) The profit attributable to ordinary shareholders is: 2007 2006 Â£m Â£m Profit for the year 1,505 2,389 Amount attributable to minority interests (178) (174) Cumulative preference dividends for the year (17) (17) Coupon payments in respect of direct capital instruments (net of tax) (37) (37) --------------------------------------------------------------------------------------------------------------------- Profit attributable to ordinary shareholders 1,273 2,161 ===================================================================================================================== 14. Earnings per share (continued) (a) Basic earnings per share (continued) (ii) Basic earnings per share is calculated as follows: 2007 2006 --------------------------------- ------------------------------ Net of tax, Net of tax, minorities, minorities, preference preference Before dividends and Per Before dividends and Per tax DCI share tax DCI share Â£m Â£m p Â£m Â£m p Operating profit attributable to ordinary shareholders 2,228 1,376 53.2 2,609 1,731 70.1 Adjusted for the following: - Investment return variances and economic assumption changes on long-term business 15 79 3.1 401 336 13.6 - Impairment of goodwill (10) (10) (0.4) (94) (94) (3.8) - Amortisation and net impairment of intangibles (103) (72) (2.8) (64) (48) (1.9) - Short-term fluctuation in return on (184) (38) (1.5) 149 189 7.7 investments backing general insurance and health business - Profit on the disposal of subsidiaries and associates 49 52 2.0 222 235 9.5 - Integration and restructuring costs (153) (114) (4.4) (246) (188) (7.7) --------------------------------------------------------------------------------------------------------------------- Profit attributable to ordinary shareholders 1,842 1,273 49.2 2,977 2,161 87.5 ===================================================================================================================== ---------------------------------------------------------------------------------------------------------------------- Page 60 Earnings per share has been calculated based on the operating profit before impairment of goodwill and other non-operating items, after tax, attributable to ordinary shareholders, as well as on the profit attributable to ordinary shareholders. The directors believe the former earnings per share figures provide a better indication of operating performance. The calculation of basic earnings per share uses a weighted average of 2,588 million (2006: 2,469 million) ordinary shares in issue, after deducting shares owned by the employee share trusts. The actual number of shares in issue at 31 December 2007 was 2,622 million (31 December 2006: 2,566 million). (b) Diluted earnings per share (i) Diluted earnings per share is calculated as follows: 2007 2006 -------------------------- ------------------------- Weighted Weighted average average number of Per number of Per Total shares share Total shares share Â£m m p Â£m m p Profit attributable to ordinary shareholders 1,273 2,588 49.2 2,161 2,469 87.5 Dilutive effect of share awards and options - 24 (0.5) - 27 (0.9) --------------------------------------------------------------------------------------------------------------------- Diluted earnings per share 1,273 2,612 48.7 2,161 2,496 86.6 ===================================================================================================================== (ii) Diluted earnings per share on operating profit attributable to ordinary shareholders is calculated as follows: 2007 2006 -------------------------- ------------------------- Weighted Weighted average average number of Per number of Per Total shares share Total shares share Â£m m p Â£m m p Profit attributable to ordinary shareholders 1,376 2,588 53.2 1,731 2,469 70.1 Dilutive effect of share awards and options - 24 (0.5) - 27 (0.7) --------------------------------------------------------------------------------------------------------------------- Diluted earnings per share 1,376 2,612 52.7 1,731 2,496 69.4 ===================================================================================================================== 15. Dividends and appropriations 2007 2006 Â£m Â£m Ordinary dividends declared and charged to equity in the year Final 2006 - 19.18 pence per share, paid on 18 May 2007 (Final 2005 - 17.44 pence per share, paid on 17 May 2006) 492 418 Interim 2007 - 11.90 pence per share, paid on 16 November 2007 (Interim 2006 - 10.82 pence per share, paid on 17 November 2006) 309 275 --------------------------------------------------------------------------------------------------------------------- 801 693 Preference dividends declared and charged to equity in the year 17 17 Coupon payments on direct capital instrument - gross of tax 53 52 --------------------------------------------------------------------------------------------------------------------- 871 762 ===================================================================================================================== Subsequent to 31 December 2007, the directors proposed a final dividend for 2007 of 21.10 pence per ordinary share (2006: 19.18 pence), amounting to Â£553 million (2006: Â£492 million) in total. Subject to approval by the shareholders at the AGM, the dividend will be paid on 16 May 2008 and will be accounted for as an appropriation of retained earnings in the year ending 31 December 2008. Interest on the direct capital instrument issued in November 2004 is treated as an appropriation of retained profits and, accordingly, is accounted for when paid. Tax relief will be obtained at a rate of 30%. Irish shareholders, who are due to be paid a dividend denominated in euros, will receive a payment at the exchange rate prevailing on 27 February 2008. ---------------------------------------------------------------------------------------------------------------------- Page 61 16. Segmental information (a) Segmental results - primary reporting format - business segments The principal activity of the Group is financial services, which is managed using the following reportable segments: long-term business, fund management, general insurance and health. Long-term business Our long-term business comprises life insurance, long-term health and accident insurance, savings, pensions and annuity business written by our life insurance subsidiaries including managed pension fund business and our share of the other life and related business written in our associates and joint ventures, as well as the lifetime mortgage business written in the United Kingdom. Fund management activities Our fund management business invests policyholders' and shareholders' funds, provides investment management services for institutional pension fund mandates and manages a range of retail investment products, including investment funds, unit trusts, OEICs and ISAs. Clients include Aviva Group businesses and third-party financial institutions, pension funds, public sector organisations, investment professionals and private investors. General insurance and health Our general insurance and health business provides insurance cover to individuals and mostly to small and medium-sized businesses, for risks associated mainly with motor vehicles, property and liability, such as employers' liability and professional indemnity liability, and medical expenses. Other Other activities not related to the core business segments or which are not reportable segments due to their immateriality, such as the RAC non-insurance operations, our banking businesses and service companies are included as 'Other' in the following tables. Head office expenses, such as Group treasury and finance functions are also reported as 'Other', together with eliminations and any other reconciling items. This also includes certain financing costs and taxes which are not allocated among the segments. The accounting policies of the segments are the same as those for the Group as a whole. Any transactions between the business segments are on normal commercial terms and market conditions. Segment assets and liabilities comprise operating assets and liabilities, being the majority of the balance sheet but excluding items such as tax and certain borrowings. ---------------------------------------------------------------------------------------------------------------------- Page 62 16. Segmental information (continued) (b) Segmental results of the income statement - primary reporting format - business segments for the year ended 31 December 2007 General Long-term Fund insurance business management and health Other Total Â£m Â£m Â£m Â£m Â£m Segment income from external customers: Net written premiums 18,764 - 10,569 - 29,333 Net change in provision for unearned premiums - - (21) - (21) ---------------------------------------------------------------------------------------------------------------------- Net earned premiums 18,764 - 10,548 - 29,312 Fee and commission income 698 488 179 395 1,760 ---------------------------------------------------------------------------------------------------------------------- 19,462 488 10,727 395 31,072 Net investment income 8,529 45 827 427 9,828 Inter-segment revenue - 152 - - 152 (Loss)/profit on the disposal of subsidiaries and associates - - (7) 56 49 ---------------------------------------------------------------------------------------------------------------------- Segment income 27,991 685 11,547 878 41,101 ====================================================================================================================== Claims and benefits paid, net of recoveries from reinsurers (19,640) - (7,481) - (27,121) Change in insurance liabilities, net of reinsurance (3,900) - 393 - (3,507) Change in investment contract provisions (2,018) - - - (2,018) Change in unallocated divisible surplus 2,922 - - - 2,922 Fee and commission expense (1,281) (135) (2,907) (60) (4,383) Other operating expenses Depreciation (31) (2) (7) (89) (129) Amortisation of acquired value of in-force business (160) - - - (160) Amortisation and net impairment of intangible assets (62) (6) (25) (17) (110) Impairment of goodwill (1) (9) - - (10) Other impairment losses recognised in the income statement (45) - (10) (2) (57) Inter-segment expense (140) - (11) (1) (152) Other expenses (1,230) (361) (788) (628) (3,007) Finance costs (537) (24) 3 (391) (949) ---------------------------------------------------------------------------------------------------------------------- Segment expenses (26,123) (537) (10,833) (1,188) (38,681) ============================================================================================================== Segment result before share of profit/(loss) of joint ventures and associates 1,868 148 714 (310) 2,420 Share of profit/(loss) of joint ventures and associates (297) (9) 3 (1) (304) ---------------------------------------------------------------------------------------------------------------------- Segmental result before tax 1,571 139 717 (311) 2,116 -------------------------------------------------------------------------------------------------------------- Unallocated costs: Finance costs on central borrowings (259) Tax attributable to policyholders' returns (15) Tax attributable to shareholders' profits (337) ---------------------------------------------------------------------------------------------------------------------- Total unallocated expenses (611) ---------------------------------------------------------------------------------------------------------------------- Profit for the year 1,505 ====================================================================================================================== Finance costs on central borrowings comprise interest payable on borrowings by holding companies within the Group which are not allocated to operating companies. ---------------------------------------------------------------------------------------------------------------------- Page 63 16. Segmental information (continued) (b) Segmental results of the income statement - primary reporting format - business segments for the year ended 31 December 2007 (continued) Pro forma reconciliation to operating profit before tax attributable to shareholders' profits General Long-term Fund insurance business management and health Other Total Â£m Â£m Â£m Â£m Â£m Segment result before tax 1,571 139 717 (311) 2,116 Finance costs on central borrowings - - - (259) (259) Adjusted for the following: Investment return variances and economic assumption changes on long-term business (15) - - - (15) Impairment of goodwill 1 9 - - 10 Amortisation and impairment of intangibles 55 6 25 17 103 Short-term fluctuation in return on investments backing general insurance and health business - - 184 - 184 Profit on the disposal of subsidiaries and associates - - 7 (56) (49) Integration and restructuring costs 37 1 100 15 153 ---------------------------------------------------------------------------------------------------------------------- 1,649 155 1,033 (594) 2,243 Less: Tax attributable to policyholders' returns (15) - - - (15) ---------------------------------------------------------------------------------------------------------------------- Operating profit before tax attributable to shareholders' profits 1,634 155 1,033 (594) 2,228 ====================================================================================================================== ---------------------------------------------------------------------------------------------------------------------- Page 64 16. Segmental information (continued) (c) Segmental results of the income statement - primary reporting format - business segments for the year ended 31 December 2006 Restated General Long-term Fund insurance Restated business management and health Other Total Â£m Â£m Â£m Â£m Â£m Segment income from external customers: Net written premiums 16,532 - 10,702 - 27,234 Net change in provision for unearned premiums - - 93 - 93 ---------------------------------------------------------------------------------------------------------------------- Net earned premiums 16,532 - 10,795 - 27,327 Fee and commission income 704 452 172 542 1,870 ---------------------------------------------------------------------------------------------------------------------- 17,236 452 10,967 542 29,197 Net investment income 13,947 17 1,299 227 15,490 Inter-segment revenue - 199 - - 199 Profit on the disposal of subsidiaries and associates 11 - 88 123 222 ---------------------------------------------------------------------------------------------------------------------- Segment income 31,194 668 12,354 892 45,108 ====================================================================================================================== Claims and benefits paid, net of recoveries from reinsurers (16,523) - (6,921) - (23,444) Change in insurance liabilities, net of reinsurance (2,594) - (26) - (2,620) Change in investment contract provisions (6,002) - - - (6,002) Change in unallocated divisible surplus (558) - - - (558) Fee and commission expense (2,125) (111) (2,742) (65) (5,043) Other operating expenses Depreciation (22) (3) (19) (79) (123) Amortisation of acquired value of in-force business (58) - - - (58) Net impairment of acquired value of in-force business (28) - - - (28) Amortisation and net impairment of intangible assets (32) (1) (18) (19) (70) Impairment of goodwill - - - (94) (94) Other impairment losses recognised in the income statement 6 - (5) (1) - Inter-segment expense (191) - (8) - (199) Other expenses (1,109) (392) (806) (877) (3,184) Finance costs (384) - (3) (230) (617) ---------------------------------------------------------------------------------------------------------------------- Segment expenses (29,620) (507) (10,548) (1,365) (42,040) ====================================================================================================================== Segment result before share of profit/(loss) of joint ventures and associates 1,574 161 1,806 (473) 3,068 Share of profit/(loss) of joint ventures and associates 471 (7) 5 16 485 ---------------------------------------------------------------------------------------------------------------------- Segmental result before tax 2,045 154 1,811 (457) 3,553 -------------------------------------------------------------------------------------------------------------- Unallocated costs: Finance costs on central borrowings (230) Tax attributable to policyholders' returns (346) Tax attributable to shareholders' profits (588) ---------------------------------------------------------------------------------------------------------------------- Total unallocated costs (1,164) ---------------------------------------------------------------------------------------------------------------------- Profit for the year 2,389 ====================================================================================================================== Finance costs on central borrowings comprise interest payable on borrowings by holding companies within the Group which are not allocated to operating companies. ---------------------------------------------------------------------------------------------------------------------- Page 65 16. Segmental information (continued) (c) Segmental results of the income statement - primary reporting format - business segments for the year ended 31 December 2006 (continued) Pro forma reconciliation to operating profit before tax attributable to shareholders' profits Restated General Long-term Fund insurance Restated Restated business management and health Other Total Â£m Â£m Â£m Â£m Â£m Segment result before tax 2,045 154 1,811 (457) 3,553 Finance costs on central borrowings - - (2) (228) (230) Adjusted for the following items: Investment return variances and economic assumption changes on long-term business (401) - - - (401) Impairment of goodwill - - - 94 94 Amortisation and impairment of intangibles 26 1 18 19 64 Short-term fluctuation in return on investments backing general insurance and health business - - (149) - (149) Profit on the disposal of subsidiaries and associates (12) - (88) (122) (222) Integration and restructuring costs 21 - 95 130 246 Other interest and cost reallocation 1 - 1 (2) - ---------------------------------------------------------------------------------------------------------------------- 1,680 155 1,686 (566) 2,955 Less: Tax attributable to policyholders' returns (346) - - - (346) ---------------------------------------------------------------------------------------------------------------------- Operating profit before tax attributable to shareholders' profits 1,334 155 1,686 (566) 2,609 ====================================================================================================================== (d) Segmental balance sheet - primary reporting format - business segments as at 31 December 2007 General Long-term Fund insurance business management and health Other Total Â£m Â£m Â£m Â£m Â£m Goodwill 1,414 3 418 1,247 3,082 Acquired value of in-force business and intangible assets 2,628 12 424 133 3,197 Interests in, and loans to, joint ventures and associates 3,509 47 4 222 3,782 Property and equipment 435 9 70 428 942 Investment property 14,701 - 360 16 15,077 Loans 26,600 - 960 8,633 36,193 Financial investments 201,455 32 10,420 3,461 215,368 Other assets 28,202 630 11,688 593 41,113 ---------------------------------------------------------------------------------------------------------------------- Segment assets 278,944 733 24,344 14,733 318,754 -------------------------------------------------------------------------------------------------------------- Unallocated assets - tax assets 966 ---------------------------------------------------------------------------------------------------------------------- Total assets 319,720 ====================================================================================================================== Insurance liabilities 135,014 - 18,026 - 153,040 Liability for investment contracts 98,244 - - - 98,244 Unallocated divisible surplus 6,785 - - - 6,785 Net asset value attributable to unit holders 3,934 - 46 - 3,980 External borrowings 3,947 - - 4,399 8,346 Other liabilities, including inter-segment liabilities 13,714 348 212 10,430 24,704 ---------------------------------------------------------------------------------------------------------------------- Segment liabilities 261,638 348 18,284 14,829 295,099 -------------------------------------------------------------------------------------------------------------- Unallocated liabilities Central borrowings 4,311 Tax liabilities 3,718 ---------------------------------------------------------------------------------------------------------------------- Total liabilities 303,128 Total equity 16,592 ---------------------------------------------------------------------------------------------------------------------- Total equity and liabilities 319,720 ====================================================================================================================== Central borrowings are borrowings by holding companies within the Group which are not allocated to operating companies. ---------------------------------------------------------------------------------------------------------------------- Page 66 16. Segmental information (continued) (e) Segmental balance sheet - primary reporting format - business segments as at 31 December 2006 Restated General Long-term Fund insurance Restated Restated business management and health Other Total Â£m Â£m Â£m Â£m Â£m Goodwill 1,317 9 390 1,194 2,910 Acquired value of in-force business and intangible assets 2,301 18 287 122 2,728 Interests in, and loans to, joint ventures and associates 3,526 44 39 81 3,690 Property and equipment 460 4 94 346 904 Investment property 14,714 - 384 25 15,123 Loans 20,934 - 735 6,905 28,574 Financial investments 189,082 30 11,400 3,766 204,278 Other assets 23,558 534 9,603 1,406 35,101 ---------------------------------------------------------------------------------------------------------------------- Segment assets 255,892 639 22,932 13,845 293,308 ------------------------------------------------------------------------------------------------------------- Unallocated assets - tax assets 1,543 ---------------------------------------------------------------------------------------------------------------------- Total assets 294,851 ===================================================================================================================== Insurance liabilities 126,224 - 18,006 - 144,230 Liability for investment contracts 88,358 - - - 88,358 Unallocated divisible surplus 9,465 - - - 9,465 Net asset value attributable to unitholders 3,786 1 23 - 3,810 External borrowings 3,894 - 11 4,037 7,942 Other liabilities, including inter-segment liabilities 8,904 313 (712) 9,943 18,448 Segment liabilities 240,631 314 17,328 13,980 272,253 ------------------------------------------------------------------------------------------------------------- Unallocated liabilities Central borrowings 4,195 Tax liabilities 4,339 ---------------------------------------------------------------------------------------------------------------------- Total liabilities 280,787 Total equity 14,064 ---------------------------------------------------------------------------------------------------------------------- Total equity and liabilities 294,851 ====================================================================================================================== Central borrowings are borrowings by holding companies within the Group which are not allocated to operating companies. (f) Assets under management Life and related General business business and other 2007 2007 2007 2006 Â£m Â£m Â£m Â£m Total IFRS assets included in the balance sheet 279,719 40,001 319,720 294,851 Additional value of in-force long-term business 7,982 6,794 Total EEV assets included in the balance sheet 327,702 301,645 Third party funds under management: Unit trusts, OEICs, PEPs and ISAs 25,868 20,574 Segregated funds 54,422 43,672 ----------------- 407,992 365,891 Non-managed assets (44,074) (39,010) --------------------------------------------------------------------------------------------------------------------- Funds under management 363,918 326,881 Funds not managed by Aviva fund managers (48,017) (39,711) --------------------------------------------------------------------------------------------------------------------- Funds under management by Aviva fund managers 315,901 287,170 ===================================================================================================================== The Group this year has redefined its assets under management to reflect customer funds managed by Aviva entities and, separately, funds managed by Aviva fund management subsidiaries. ---------------------------------------------------------------------------------------------------------------------- Page 67 16. Segmental information (continued) (g) Goodwill allocation and impairment testing IFRS requires formal impairment testing to be carried out annually. For impairment testing, goodwill and intangibles with indefinite useful lives have been allocated to cash-generating units by geographical reporting unit and business segment. The carrying amount of goodwill and intangible assets with indefinite useful lives is reviewed at least annually or when circumstances or events indicate there may be uncertainty over this value. An impairment charge of Â£10 million (2006: Â£94 million) was booked in the year. (h) Long-term business summary analysis by geographical segment (i) Income statement Fee and Net written premiums commission income Profit before tax ---------------------- -------------------- --------------------- Restated Restated 2007 2006 2007 2006 2007 2006 Â£m Â£m Â£m Â£m Â£m Â£m United Kingdom 5,277 5,300 169 214 616 915 France 3,674 3,573 201 179 325 259 Ireland 371 397 72 64 45 52 Italy 966 1,919 84 69 79 76 Netherlands (including Belgium and Germany) 2,716 2,079 37 21 407 453 Poland 447 395 14 55 117 108 Spain 1,501 1,266 60 56 106 113 Other Europe 223 159 7 3 (27) (16) Europe 9,898 9,788 475 447 1,052 1,045 North America 3,015 932 12 4 (137) 17 Asia Pacific 574 512 42 39 40 68 -------------------------------------------------------------------------------------------------------------------- Total 18,764 16,532 698 704 1,571 2,045 ==================================================================================================================== The following analysis shows the net written premiums from associates and joint ventures on insurance and participating investment contracts which are not included in the analysis above. 2007 2006 Â£m Â£m RBSG 274 236 India 51 31 China 116 38 Turkey 5 - Malaysia 53 - --------------------------------------------------------------------------------------------------------------------- 499 305 ===================================================================================================================== (ii) Balance sheet Segmental total assets Segmental net assets --------------------------- --------------------------- Restated Restated 2007 2006 2007 2006 Â£m Â£m Â£m Â£m United Kingdom 132,794 126,355 5,887 5,285 France 53,000 46,547 1,584 1,355 Ireland 11,611 10,951 972 1,040 Italy 13,520 11,828 1,032 613 Netherlands (including Belgium and Germany) 31,797 28,340 3,157 2,922 Poland 2,995 2,232 282 216 Spain 7,624 6,641 1,203 862 Other Europe 577 483 344 65 Europe 121,124 107,022 8,574 7,073 North America 20,436 18,828 2,291 2,470 Asia Pacific 4,590 3,687 554 433 --------------------------------------------------------------------------------------------------------------------- Total 278,944 255,892 17,306 15,261 ===================================================================================================================== ---------------------------------------------------------------------------------------------------------------------- Page 68 16. Segmental information (continued) (i)General insurance and health business summary analysis by geographical segment (i) Income statement Fee and Net written premiums commission income Profit before tax ---------------------- -------------------- --------------------- 2007 2006 2007 2006 2007 2006 Â£m Â£m Â£m Â£m Â£m Â£m United Kingdom 5,896 6,000 147 157 241 1,130 France 733 735 1 - 53 77 Ireland 474 519 1 1 151 297 Netherlands 1,717 1,755 11 - 105 107 Other Europe 309 278 8 3 16 26 Europe 3,233 3,287 21 4 325 507 North America 1,412 1,389 9 10 147 169 Asia Pacific 28 26 2 1 4 5 -------------------------------------------------------------------------------------------------------------------- Total 10,569 10,702 179 172 717 1,811 ==================================================================================================================== (ii) Balance sheet Segmental total assets Segmental net assets --------------------------- --------------------------- 2007 2006 2007 2006 Â£m Â£m Â£m Â£m United Kingdom 12,544 12,548 3,386 3,216 France 1,856 1,731 339 376 Ireland 1,812 1,765 430 444 Netherlands 3,174 2,775 760 630 Other Europe 1,102 803 459 266 Europe 7,944 7,074 1,988 1,716 North America 3,802 3,250 659 647 Asia Pacific 54 60 27 25 --------------------------------------------------------------------------------------------------------------------- Total 24,344 22,932 6,060 5,604 ===================================================================================================================== 17. Pension schemes (a) Pension scheme deficits in consolidated balance sheet On the consolidated balance sheet, the amount described as Provisions includes the pension scheme deficits and comprises: 2007 2006 Â£m Â£m Deficits in the staff pension schemes 205 1,029 Other obligations to staff pension schemes - Insurance policies issued by Group companies* 1,025 1,086 --------------------------------------------------------------------------------------------------------------------- Total IAS 19 obligations to staff pension schemes 1,230 2,115 Restructuring provisions 136 234 Other provisions 571 501 --------------------------------------------------------------------------------------------------------------------- Total provisions 1,937 2,850 ===================================================================================================================== * Pension assets in Delta Lloyd include insurance policies of Â£1,025 million (2006: Â£1,086 million) which are non-transferable under the terms of IAS19 so have been transferred as other obligations to staff pension scheme within provisions above. Of the total, Â£1,277 million (2006: Â£2,262 million) is expected to be settled more than one year after the balance sheet date. ---------------------------------------------------------------------------------------------------------------------- Page 69 (b) Movements in the pension schemes' deficits comprise: 2007 2006 Â£m Â£m Deficits in the schemes at 1 January (973) (1,471) Employer contributions 297 554 Charge to net operating expenses (see (c) below) (188) (160) Credit to investment income 99 77 Actuarial gains 612 3 Acquisitions (19) (1) Buy-outs and other transfers - 18 Exchange rate movements in foreign plans (6) 7 ---------------------------------------------------------------------------------------------------------------------- Deficits in the schemes at 31 December (178) (973) ====================================================================================================================== The current year surplus in the Irish schemes of Â£27 million (2006: Â£56 million) is included in Other assets whilst the deficits in the other schemes of Â£205 million (2006: Â£1,029 million) are included in provisions. (c) The pension expense for these schemes comprises: 2007 2006 Â£m Â£m Current service cost 173 196 Past service cost - 3 Loss/(gain) on curtailments 15 (39) --------------------------------------------------------------------------------------------------------------------- Total pension cost 188 160 --------------------------------------------------------------------------------------------------------------------- Charged to net operating expenses 188 196 Included in profit on disposal of subsidiaries and associates - (36) --------------------------------------------------------------------------------------------------------------------- Total pension cost as above 188 160 --------------------------------------------------------------------------------------------------------------------- Expected return on scheme assets (614) (530) Less: income accounted for elsewhere 49 40 --------------------------------------------------------------------------------------------------------------------- (565) (490) Interest charge on scheme liabilities 515 453 --------------------------------------------------------------------------------------------------------------------- Credit to investment income (50) (37) --------------------------------------------------------------------------------------------------------------------- Total charge to income 138 123 ===================================================================================================================== Expected return on scheme assets 614 530 Actual return on these assets (404) (800) --------------------------------------------------------------------------------------------------------------------- Actuarial (gains)/losses on scheme assets 210 (270) Less: (losses)/gains accounted for elsewhere (72) 19 Experience (gains)/losses arising on scheme liabilities 80 (63) Changes in assumptions underlying the present value of the scheme liabilities (902) 430 Loss on acquisitions 36 1 --------------------------------------------------------------------------------------------------------------------- Actuarial (gains)/losses recognised in the statement of recognised income and expense (648) 117 ===================================================================================================================== The cumulative amount of actuarial gains and losses on the pension schemes recognised in the statement of recognised income and expenses since 1 January 2004 (the date of transition to IFRS) is a loss of Â£161 million at 31 December 2007 (2006: loss of Â£809 million). ---------------------------------------------------------------------------------------------------------------------- Page 70 18. Special bonus declared by UK Life business On 5 February 2008, the Group's UK long-term business operation, Norwich Union Life, announced a one-off, special bonus worth an estimated Â£2.3 billion, benefiting around 1.1 million with-profit policyholders in its CGNU Life and CULAC with-profit funds. This special bonus has been made possible by the strength of these with-profit funds and a change to the investment strategy for supporting policy guarantees. This has enabled the business to free up a significant part of the inherited estate (included within the unallocated divisible surplus) for payment to policyholders. This change will not affect normal policy returns, nor will it impact on policyholders' security or alter the type of investments backing their policies. The bonus will be used to enhance policy values by around 10% in total, in three instalments, with the qualifying dates being 1 January 2008, 1 January 2009 and 1 January 2010. In accordance with the way the funds are managed, the bonus distribution is being split on a 90/10 basis between policyholders and shareholders. Over the three years, policyholders will receive a total currently estimated as Â£2,127 million and shareholders will receive a total currently estimated as Â£236 million. The Group's insurance and participating investment contract liabilities are measured in accordance with IFRS 4, Insurance Contracts, and FRS 27, Life Assurance. The latter requires liabilities for with-profit funds falling within the scope of the UK's Financial Services Authority's capital regime to be determined in accordance with this regime, adjusted to remove the shareholders' share of future bonuses. This requires us to recognise planned discretionary bonuses within policyholder liabilities at the balance sheet date, even if there was no constructive obligation at the time. As a result of the announcement made above, a transfer of Â£2,127 million has been made from the unallocated divisible surplus in order to increase insurance liabilities by Â£1,728 million and participating investment contract liabilities by Â£399 million. In compliance with paragraph 4(a) of FRS 27, the insurance liabilities on a realistic basis exclude any shareholders' interest in this bonus. Furthermore, no profit arising to shareholders has been accrued in these financial statements as the payment to them was not a constructive obligation at the balance sheet date. End of Part 3 of 5 ----------------------------------------------------------------------------------------------------------------------- This information is provided by RNS The company news service from the London Stock Exchange

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Aviva (AV.)

Thursday, 23rd May 2024

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HL. QQ. AJB

Another day and another round of takeover talk with Hargreaves Lansdown being eyed by private equity suitors. AJ Bell also advances on upbeat earnings news whilst QinetiQ upgrades its profit guidance, too.

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