CGNU plc 2000 Results - Pt 4

CGNU PLC 27 February 2001 CGNU plc 2000 Results CGNU plc Preliminary Announcement PART 4 -------------------------------------------------------------------- 13. Earnings per share a) Basic earnings per share 2000 1999 ----------------------- ----------------------- Net of Net of tax, tax, minorities minorities and and Before preference Per Before preference Per tax dividend share tax dividend share £m £m p £m £m p Operating profit - ongoing business before amortisation of goodwill, amortisation of acquired additional value of in-force long-term business and exceptional items 1,028 636 28.3 1,299 877 39.2 Adjusted for the following items: - operating (loss)/profit on business to be discontinued (550) (420) (18.7) 176 197 8.8 - operating (loss)/profit on discontinued businesses (4) (3) (0.1) 25 17 0.8 - amortisation of goodwill (92) (92) (4.1) (34) (34) (1.5) - amortisation of acquired additional value of in-force long-term business (29) (22) (1.0) (22) (15) (0.7) - exceptional items (425) (352) (15.7) (163) (124) (5.5) - short-term fluctuation in investment returns 258 (117) (5.2) 250 133 5.9 - change in the equalisation provision (27) (19) (0.8) (55) (40) (1.8) - net profit/(loss) arising on the sale of subsidiary undertakings 12 12 0.5 (8) (8) (0.4) - provision for loss on business to be discontinued (1,070) (989) (44.0) - - - - loss on withdrawal from London Market operations (448) (314) (14.0) - - - - merger transaction costs (59) (50) (2.2) - - - ------- ------- ------- ------- ------- ------- (Loss)/profit attributable to equity shareholders (1,406) (1,730) (77.0) 1,468 1,003 44.8 ======= ======= ======= ======= ======= ======= Earnings per share has been calculated based on the operating profit from ongoing business before amortisation of goodwill, amortisation of acquired additional value of in-force long-term business and exceptional items, after taxation, attributable to equity shareholders, as well as on the profit attributable to equity shareholders, as the directors believe the former earnings per share figure provides a better indication of operating performance. The calculation of basic earnings per share uses a weighted average of 2,247 million (1999: 2,237 million) ordinary shares in issue. The actual number of shares in issue at 31 December 2000 was 2,251 million (1999: 2,242 million). b) Diluted earnings per share 2000 1999 ---------------------- ----------------------- Weighted Weighted average average number Per number Per Total of shares share Total of shares share £m m p £m m p (Loss)/profit attributable to equity shareholders (1,730) 2,247 (77.0) 1,003 2,237 44.8 Dilutive effect of options - 4 0.1 - 5 (0.1) ------- ------- ------- ------- ------- ------- Diluted earnings per share (1,730) 2,251 (76.9) 1,003 2,242 44.7 ======= ======= ======= ======= ======= ======= -------------------------------------------------------------------- 14. Longer-term investment return The longer-term investment return is calculated separately for each principal general insurance business and certain long-term operations. 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 year, 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 interest income receivable for the year. The principal assumptions underlying the calculation of the longer-term investment return are: Longer-term rates of return Equities Properties 2000 1999 2000 1999 % % % % United Kingdom 8.1% 6.9% 6.6% 5.4% France 7.5% 5.9% 6.5% 4.9% Ireland 8.7% 7.0% 6.7% 5.0% Netherlands 8.4% 6.8% 6.5% 4.9% Australia and New Zealand 10.0% 8.0% 8.0% 6.0% Canada 9.3% 7.9% 7.3% 5.9% United States 9.3% 7.7% 7.3% 5.7% Statistical Supplement Segmental analysis of Group operating profit at constant currency Ongoing business 1999 at 2000 exchange 2000 rates 1999 £m £m £m Life achieved operating profit United Kingdom 938 837 837 France 204 122 131 Ireland 68 49 53 Netherlands 174 155 168 Poland life and pensions 95 114 117 Spain 42 12 13 Other Europe 19 31 32 International 29 55 56 ------- ------- ------- 1,569 1,375 1,407 ======= ======= ======= Health United Kingdom 6 - - France 12 12 13 Netherlands 50 10 11 ------- ------- ------- 68 22 24 ======= ======= ======= Fund management United Kingdom 16 37 37 France 9 5 5 Netherlands 13 4 4 Other Europe 2 1 2 Australia and New Zealand 16 15 16 United States 5 2 2 ------- ------- ------- 61 64 66 ======= ======= ======= General insurance United Kingdom 296 290 290 France (115) (8) (8) Ireland 21 14 15 Netherlands (4) 6 7 Other Europe 20 20 22 Australia and New Zealand 82 13 15 Canada 78 99 93 Other 34 24 25 ------- ------- ------- 412 458 459 ======= ======= ======= Non-insurance operations (25) (31) (30) Associated undertakings 1 9 10 Corporate costs (185) (159) (162) Unallocated interest charges - external (151) (94) (97) - intra-group (210) (144) (143) ------- ------- ------- 1,540 1,500 1,534 Wealth management (133) - - ------- ------- ------- Group operating profit before tax*-ongoing business 1,407 1,500 1,534 ======= ======= ======= * Group operating profit before tax, change in risk margin, amortisation of goodwill and exceptional items. Restating 1999 modified statutory life profits to account for the impact of exchange rate movements in 2000 would result in modified statutory life profits being restated from £1,172 million to £1,149 million. -------------------------------------------------------------------- Supplementary analyses a) New business contribution - after the effect of solvency margin 1999 at 2000 2000 assumptions* 1999 £m £m £m United Kingdom 283 238 227 Europe (excluding UK) France 38 43 36 Ireland 20 14 15 Netherlands 3 16 5 Poland - Life 3 28 28 - Pensions 22 55 54 Spain 15 (1) - Other 11 28 25 International (3) 13 13 ------- ------- ------- 392 434 403 ======= ======= ======= * 1999 new business contribution has been shown using the application of the 2000 economic assumptions. b) Non-insurance operations - operating profit 2000 1999 £m £m United Kingdom Hill House Hammond 12 13 Norwich Union Direct Financial Services (7) (12) Norwich Union Equity Release and other personal finance subsidiaries (7) (23) Your Move (39) (13) Other (4) (1) Europe (excluding UK) 20 6 ------- ------- (25) (30) ======= ======= c) Corporate costs 2000 1999 £m £m Staff profit share scheme costs (57) (34) Other corporate costs (128) (128) ------- ------- (185) (162) ======= ======= d) Wealth management - operating result 2000 1999 £m £m United Kingdom asserta home (23) - Other wealth management (110) - ------- ------- (133) - ======= ======= -------------------------------------------------------------------- Supplementary analyses (continued) e) General business information - adverse weather/catastrophe claims costs 2000 1999 £m £m United Kingdom* 195 18 Europe (excluding UK) France 95 38 Ireland 4 - Other - 4 International Australia and New Zealand 4 24 Canada 15 9 Other 18 45 ------- ------- 331 138 ======= ======= * Adverse weather/catastrophe claims costs are the costs above the 10- year average weather pattern. f) General business - investment return information Actual Longer-term investment investment return return 2000 1999 2000 1999 £m £m £m £m United Kingdom 489 486 683 574 Europe (excluding UK) France 52 43 93 72 Ireland 41 17 51 20 Netherlands 14 22 36 39 Other 53 58 75 74 International Australia and New Zealand 73 69 89 72 Canada 110 104 131 118 Other 61 72 75 83 ------- ------- ------- ------- Total longer-term investment return - ongoing business 1,233 1,052 Total actual investment income 893 871 Realised gains 507 371 Unrealised gains 82 293 ------- ------- Total actual investment return - 1,482 1,535 ongoing business Businesses discontinued and to be discontinued United States 483 143 417 380 London Market 45 59 55 69 ------- ------- ------- ------- 2,010 1,737 1,705 1,501 ======= ======= ======= ======= -------------------------------------------------------------------- Supplementary analyses (continued) g) Acquisitions and disposals - impact on operating profit The Group's operating profit from ongoing business excludes the result from the United States general insurance business and London Market operations. All other acquisitions, disposals and businesses in the process of being sold are not considered sufficiently material to merit separate disclosure in the Group results or do not meet the Financial Reporting Standard 3 'Reporting Financial Performance' definition of discontinued business. A summary of the contribution to the Group's operating profit from these operations is as follows: 2000 1999 £m £m Acquisitions Spain - life (achieved profit basis) 20 - Ireland - life (achieved profit basis) 13 - - general 16 - - fund management 1 - ------- ------- 50 - ======= ======= 2000 1999 £m £m Disposals Australia - fund management - - Poland - life (achieved profit basis) (6) - Other Europe - general 5 7 Other International - general 8 10 Businesses being disposed of United Kingdom - fund management 11 7 Other Europe - life (achieved profit basis) (10) (5) New Zealand - general 10 12 Other International - life (achieved profit basis) 19 10 ------- ------- 37 41 ======= ======= There was no impact on operating profit arising from the Group's 49.99% investment in RBS Life Investments Limited, the immediate holding company of Royal Scottish Assurance plc and National Westminister Life Assurance Limited, completed on 5 December 2000. -------------------------------------------------------------------- General insurance - geographical ratio analysis Claims ratio Expense ratio Combined (excluding operating commission) ratio 2000 1999 2000 1999 2000 1999 % % % % % % United Kingdom 77.9% 75.2% 10.7% 11.8% 108% 107% France 97.4% 77.9% 15.7% 15.6% 133% 112% Ireland 88.0% 81.8% 8.9% 11.4% 109% 103% Netherlands 73.4% 71.8% 18.2% 13.2% 108% 108% Australia and New Zealand 70.9% 80.1% 17.8% 17.5% 101% 110% Canada 76.5% 71.9% 11.8% 13.1% 106% 103% ------- ------- ------- ------- ------- ------- Group - ongoing business 78.6% 75.7% 12.6% 13.3% 109% 107% ======= ======= ======= ======= ======= ======= Ratios before the exceptional weather related costs are as follows: United Kingdom* 73.8% 75.2% 10.7% 11.8% 104% 107% France** 83.1% 72.0% 15.7% 15.6% 119% 106% * Exceptional weather related costs relate to the UK floods in 2000. ** Exceptional weather related costs relate to the impact of the December 1999 storms in France in both 2000 and 1999. 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 ratio - Aggregate of claims ratio, expense ratio and commission ratio. -------------------------------------------------------------------- General insurance - class of business analysis a) United Kingdom Net Underwriting Combined written result operating premiums ratio 2000 1999 2000 1999 2000 1999 £m £m £m £m % % Personal Motor 1,437 1,274 (70) (120) 106% 111% Homeowner 1,228 1,196 (48) 10 104% 100% Creditor 508 380 17 34 96% 101% Other 108 126 (3) (1) 97% 88% ------- ------- ------- ------- ------- ------- 3,281 2,976 (104) (77) 104%* 103% ------- ------- ------- ------- ------- ------- Commercial Motor 686 662 (90) (113) 113% 117% Property 636 674 (136) (32) 120% 105% Liability 223 221 (73) (80) 131% 134% Other 111 102 16 18 85% 84% ------- ------- ------- ------- ------- ------- 1,656 1,659 (283) (207) 116%* 112% ------- ------- ------- ------- ------- ------- Total- ongoing business 4,937 4,635 (387) (284) 108%* 107% ------- ------- ------- ------- ------- ------- * The personal lines, commercial lines and total UK combined operating ratios before the impact of the flood costs would be 100%, 111% and 104% respectively. Certain reclassifications have taken place since the publication of the CGU plc and Norwich Union plc 1999 Annual Report and Accounts and the joint merger announcement issued on 21 February 2000. Details of the reclassifications are: (i) Global Risks has been reclassified from the Commercial classes to London Market; (ii) London & Edinburgh marine business has been reclassified to London Market; (iii)Small business vehicles have been reclassified as Commercial; (iv) Part of Commercial Other has been reclassified to Commercial Property; and (v) Personal Accident has been reclassified as Personal Other. The 1999 figures have been restated for the above. b) France Net Underwriting Combined written result operating premiums ratio 2000 1999 2000 1999 2000 1999 Em Em Em Em % % Agents/brokers Motor 370 353 (81) (70) 122% 120% Property 442 408 (209) 4 147% 99% Other 186 179 (35) (25) 119% 114% Direct 52 59 (16) (30) 131% 152% ------- ------- ------- ------ ------- ------- 1,050 999 (341) (121) 133% 112% ======= ======= ======= ======= ======= ======= The information in the above table has been translated using the rate of 1 euro = 6.56 francs. -------------------------------------------------------------------- General insurance - class of business analysis (continued) c) Netherlands Net written Underwriting Combined premiums result operating ratio 2000 1999 2000 1999 2000 1999 Em Em Em Em % % Domestic 132 79 1 1 99% 98% Motor 258 194 (36) (38) 114% 120% Commercial fire 212 97 (1) 4 100% 94% Liability 46 42 (19) (14) 142% 132% Inward reinsurance 9 15 (3) (2) 135% 111% Other 106 89 (8) (1) 105% 98% ------- ------- ------- ------- ------- ------- 763 516 (66) (50) 108% 108% ======= ======= ======= ======= ======= ======= The information in the above table has been translated using the rate of 1 euro = 2.20 guilders. d) Canada Net written Underwriting Combined premiums result operating ratio 2000 1999 2000 1999 2000 1999 C$m C$m C$m C$m % % Automobile 1,272 1,117 (68) (5) 105% 100% Property 655 596 (38) (9) 107% 101% Liability 162 146 (20) (42) 115% 128% Other 27 32 7 (5) 69% 112% ------- ------- ------- ------- ------- ------- 2,116 1,891 (119) (61) 106% 103% ======= ======= ======= ======= ======= ======= -------------------------------------------------------------------- Assets under management General Long-term Business Business and other Group Group 31 December 31 December 31 December 31 December 2000 2000 2000 1999 £m £m £m £m Financial investments Shares, other variable yield securities and units in unit trusts 47,540 5,868 53,408 54,736 Debt and fixed income securities at market value 11,868 13,565 25,433 24,893 Debt and fixed income securities at amortised cost 35,095 248 35,343 29,757 Loans secured by mortgages and other loans, net of non-recourse funding 11,078 1,233 12,311 11,404 Deposits with credit institutions 1,874 1,112 2,986 2,588 ------- ------- ------- ------- Total financial investments 107,455 22,026 129,481 123,378 Investments in Group undertakings and participating interests* 728 264 992 434 Land and buildings 8,006 820 8,826 7,847 ------ ------- ------- ------- Total investments 116,189 23,110 139,299 131,659 Assets held to cover linked liabilities 24,343 - 24,343 24,626 Other assets included in the balance sheet 8,019 21,657 29,676 26,899 ------- ------- ------- ------- Total assets included in the balance sheet 148,551 44,767 193,318 183,184 ======= ======= ======= ======= Third party funds under management: Unit trusts, Oeics, Peps and Isas 5,295 5,596 Segregated funds 21,302 19,691 ------- ------- Total assets under management 219,915 208,471 ======= ======= * Long-term investments in Group undertakings and participating interests includes £600 million in respect of the investment in RBS Life Investments Limited, (note 5b, page 22). CGNU plc UK GENERAL INSURANCE TRADING CONDITIONS YEAR ENDED 31 DECEMBER 2000 SUMMARY Following the launch of the new Norwich Union Insurance brand on 2 October 2000, we are established as the market leader. Excellent integration progress continues to be made whilst maintaining business as usual. The sheer size and speed of the integration has been unprecedented. Around 2 million policies will be converted to a single product set on a rationalised set of systems. This will enable us to deliver higher quality service and products to our customers from the UK's number one general insurance company. When the floods hit in the autumn of 2000, our systems met the challenge head on. Affected policyholders were contacted within days, enabling us to help them, during a period of great personal distress, to start repairs even before their claims had been processed. Whilst the full year underwriting loss on continuing operations* has deteriorated to £387 million (1999: £284 million), underlying performance, excluding the cost of the autumn floods estimated at £195 million, is showing significant improvement over 1999, with a personal lines combined operating ratio of 100%. The expense ratio has fallen to 10.7% from 11.8% in 1999, making Norwich Union Insurance one of the lowest cost producers in the UK insurance market. Comments on premium rates and claim trends are set out below: PREMIUMS Personal motor: Strong rating action has led to positive insurance margins. Rates are on average 15% higher than 1999 whilst vehicle exposure has remained broadly stable. Although average rating levels will be lower in 2001, we maintain our commitment to improving profitability through targeted rating action over the next twelve months. Homeowners: The underlying result, before the cost of the autumn floods, continues to display satisfactory profitability. Rating increases of circa 4% have been achieved compared to 1999. In 2001, we have implemented single digit rate increases of circa 3%. Personal Creditor: Growth in the market has been driven by the performance of the lending market and consumers' desire for financial products. Margins remain strong despite coming under increasing pressure as more competitors enter the market. Commercial motor: Rates have been increased on average by 20% over the same period last year. Increases have been secured predominantly in the Fleet and Motor Trade sectors. Focused rating action will continue to be applied in line with our profitability targets. The number of vehicles insured has reduced over the period. *Excluding London Market business Commercial property: Rates have increased on average by circa 7% compared to the same period last year. Implementation of rating increases has resulted in reduced exposure in some sectors. The year to date result has been severely impacted by the cost of October and November floods. We believe that rates need to continue to increase because of underlying unprofitability in this market. Commercial liability: Average rating increases in the fourth quarter were 18% and are increasing. The market is showing signs of hardening as Norwich Union Insurance actions to increase rates are now being mirrored by our competitors. We continue to push for what we believe will be the correct pricing level, and to let business go if this cannot be achieved. CLAIMS TRENDS Theft: There has been an overall reduction in the theft loss ratios compared to 1999. Subsidence: The number and cost of notified subsidence claims reduced from the previous year. The total recorded claims cost is £103 million (1999: £107 million). Severe weather: The estimated cost to us of the autumn floods is £195 million. To appreciate the scale of the incident, the flooding experienced across England and Wales contributed to officially the wettest autumn since records began in 1766. Abnormal weather in 1999 amounted to £18 million.

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