Interim Results - Part 2 of 2

Aviva PLC 31 July 2003 Part 2 of 2 Page 31 11. Earnings per share (a) Basic earnings per share 6 months 2003 6 months 2002 Full year 2002 Net of Net of Net of tax, tax, tax, minorities minorities minorities and and and Before preference Per preference Per preference Per tax dividend share dividend share dividend share £m £m p £m p £m p Operating profit - continuing operations 638 404 17.9 468 20.8 784 34.8 - discontinued operations - - - 16 0.7 72 3.2 ------ -------- ----- -------- ----- -------- ----- 638 404 17.9 484 21.5 856 38.0 Adjusted for the following items: - Amortisation of goodwill (52) (52) (2.3) (46) (2.0) (135) (6.0) - Amortisation of acquired additional value of in-force long-term business (40) (30) (1.3) (27) (1.2) (100) (4.4) - Cost for termination of Belgium general insurance operations (19) (16) (0.7) - - - - - Short-term fluctuation in investment return 250 207 9.1 (349) (15.6) (1,071) (47.5) - Change in the equalisation provision (28) (20) (0.9) (19) (0.8) (40) (1.8) - Net loss arising on disposal of subsidiary undertakings (7) (1) - (14) (0.6) (61) (2.7) ------ -------- ----- -------- ----- -------- ----- Profit/(loss) attributable to equity shareholders 742 492 21.8 29 1.3 (551) (24.4) ====== ======== ===== ======== ===== ======== ===== Earnings per share has been calculated based on the operating profit before amortisation of goodwill, amortisation of acquired additional value of in-force long-term business and exceptional items, after tax, attributable to equity shareholders, for continuing and for total operations, as well as on the profit attributable to equity shareholders. The directors believe the former two earnings per share figures provide a better indication of operating performance. The calculation of basic earnings per share uses a weighted average of 2,252 million (six months to 30 June 2002: 2,253 million; full year 2002: 2,254 million) ordinary shares in issue, after deducting shares owned by the employee share trusts as required by FRS14 'Earnings per share'. The actual number of shares in issue at 30 June 2003 was 2,257 million (30 June 2002: 2,257 million; 31 December 2002: 2,257 million). (b) Diluted earnings per share: 6 months 2003 6 months 2002 Full year 2002 Weighted Weighted Weighted average average average number of Per number of Per number of Per Total shares share Total shares share Total shares share £m m p £m m p £m m p Profit/(loss) attributable to equity shareholders 492 2,252 21.8 29 2,253 1.3 (551) 2,254 (24.4) Dilutive effect of share awards and options - 8 - - 6 - - 4 - ----- -------- ----- ----- -------- ----- ----- -------- ----- Diluted earnings per share 492 2,260 21.8 29 2,259 1.3 (551) 2,258 (24.4) ===== ======== ===== ===== ======== ===== ===== ======== ===== -------------------------------------------------------------------- Page 32 12. Longer-term investment return The longer-term investment return is calculated separately for each principal general insurance business and certain long-term business 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 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 2003 2002 2003 2002 % % % % United Kingdom 8.1% 8.1% 6.6% 6.6% France 7.5% 7.5% 6.5% 6.5% Ireland 8.7% 8.7% 6.7% 6.7% Netherlands 8.4% 8.4% 6.5% 6.5% Canada 9.3% 9.3% 7.3% 7.3% The table below shows the sensitivity of the half year 2003 operating profit to changes in the longer-term rates of return: Movement in investment return By Change in By Equities 1% higher/lower Group operating profit before tax £19m Properties 1% higher/lower Group operating profit before tax £5m Statistical supplement -------------------------------------------------------------------- Page 33 Segmental analysis of Group operating profit* at constant currency - achieved profit basis 6 months 2002 at 2003 6 months exchange 6 months 2003 rates 2002 Continuing operations £m £m £m Life achieved operating profit United Kingdom 339 424 424 France 90 122 111 Ireland 31 40 37 Italy 33 33 30 Netherlands (including Belgium and Luxembourg) 69 96 87 Poland life and pensions 40 44 47 Spain 71 42 38 Other Europe 2 2 - International 30 21 22 -------- -------- -------- 705 824 796 ======== ======== ======== Health United Kingdom 4 2 2 France 3 4 4 Netherlands 20 29 26 -------- -------- -------- 27 35 32 ======== ======== ======== Fund Management United Kingdom 5 (8) (8) France 6 6 6 Netherlands - 6 5 Other Europe - 1 1 Australia and New Zealand (1) (1) (1) -------- -------- -------- 10 4 3 ======== ======== ======== General insurance United Kingdom 313 303 303 France 15 28 25 Ireland 43 24 21 Netherlands 12 12 11 Other Europe 16 30 28 Canada (33) 37 39 Other 21 27 29 -------- -------- -------- 387 461 456 ======== ======== ======== Non-insurance operations** (47) (28) (28) Corporate costs (56) (95) (96) Unallocated interest charges - external (94) (104) (104) - intra-group (104) (105) (104) -------- -------- -------- Group operating profit before tax* - continuing operations 828 992 955 ======== ======== ======== Discontinued operations - Australia and New Zealand general insurance operations - 25 24 -------- -------- -------- Group operating profit before tax* - continuing and discontinued operations 828 1,017 979 ======== ======== ======== * Group operating profit before tax, before amortisation of goodwill and exceptional items. ** The wealth management result has been included within non-insurance in all periods. Restating 2002 modified statutory life profits to account for the impact of exchange rate movements in 2003 would result in modified statutory life profits being restated from £574 million to £595 million for the six months to 30 June 2002. -------------------------------------------------------------------- Page 34 Supplementary analyses (a) New business contribution - after the effect of solvency margin 6 months 6 months 2003 2002 £m £m United Kingdom 102 157 Europe (excluding UK) France 14 17 Ireland 9 17 Italy 15 13 Netherlands (including Belgium and Luxembourg) 3 1 Poland (1) 4 Spain 58 28 Other (4) (7) International 15 7 -------- -------- 211 237 ======== ======== (b) Experience variances - 30 June 2003 Experience variances include the impact of the difference between expense, demographic and persistency assumptions, and actual experience incurred in the period. Also included are variances arising from tax, where such variances are due to management action. The source of profit is included in the table below. Exceptional Mortality/ expenses(1) morbidity Lapses(2) Other(3) Total £m £m £m £m £m United Kingdom (15) 3 (9) 23 2 France - 4 (2) (3) (1) Netherlands (including Belgium and Luxembourg) (7) - - (11) (18) Europe - 5 (11) 13 7 International (9) - - - (9) -------- -------- -------- -------- -------- (31) 12 (22) 22 (19) ======== ======== ======== ======== ======== (1) Exceptional expenses in the UK reflect one-off project costs including those associated with the pace of regulatory change. In the Netherlands, they relate to development costs in Belgium. In International they primarily relate to the ongoing costs of developing the US life operations. (2) Actual lapse losses in the UK and Europe relate to worse experience than anticipated by our start of year assumptions. (3) In the UK, other experience profits include exceptional profits arising from better than assumed default experience on corporate bonds. (c) Operating assumption changes - 30 June 2003 The impact of operating assumption changes in the period was a loss of £10 million (30 June 2002: loss of £3 million) and arose primarily in the Netherlands in relation to asset mix changes. -------------------------------------------------------------------- Page 35 Supplementary analyses (continued) (d) Non-insurance operations - operating result 6 months 6 months Full year 2003 2002 2002 £m £m £m Hill House Hammond 6 5 4 Norwich Union Equity Release and other personal finance subsidiaries (9) - (6) Your Move (6) (5) (9) Norwich Union Life Services (27) (6) (54) Wealth management - (21) (30) Other (11) (1) (4) -------- -------- -------- (47) (28) (99) ======== ======== ======== The operating result from our equity release business in the UK is included within the non-insurance results on a statutory basis. On an achieved profit methodology new business contribution was £12 million before tax (30 June 2002: £7 million; 31 December 2002: £27 million) and operating profit before tax, including the benefits of the securitisation of our book, was £22 million (30 June 2002: £11 million; 31 December 2002: £47 million) which is excluded from our results. (e) Corporate costs 6 months 6 months Full year 2003 2002 2002 £m £m £m Global finance transformation programme (12) (10) (26) Central costs and sharesave schemes (82) (86) (192) -------- -------- -------- (94) (96) (218) Allocation of staff profit share and other incentive plans to business unit operating results 38 - - -------- -------- -------- (56) (96) (218) ======== ======== ======== (f) Pension schemes The Group continues to account for its pension costs in accordance with SSAP24. The effect on the Group's net assets of substituting FRS17 figures for the corresponding SSAP24 figures is shown below: Full year 2002 Net assets £m Total included on the balance sheet 10,412 Less: pension asset on SSAP24 basis (175) -------- Total excluding pension asset 10,237 Less: pension liability on FRS17 basis* (456) -------- Total net assets including pension liability on FRS17 basis 9,781 ======== * The estimated valuation of the pension liability on a FRS17 basis as at 30 June 2003, is not materially changed. -------------------------------------------------------------------- Page 36 Supplementary analyses (continued) (g) Investments in joint ventures 30 June 30 June 31 December 2003 2002 2002 £m £m £m Share of gross assets 1,401 999 1,242 Share of gross liabilities (1,306) (955) (1,126) -------- -------- -------- 95 44 116 Loans to joint ventures 669 536 665 -------- -------- -------- 764 580 781 ======== ======== ======== As part of their investment strategy, the UK long-term business policyholder funds have invested in a number of property limited partnerships ('PLPs') through a mix of capital and loans. The PLPs are managed by general partners ('GPs') in which the UK long-term business shareholder companies hold equity stakes, and which themselves hold nominal stakes in the PLPs. Most of the PLPs have raised external debt, secured on their respective property portfolios. The lenders are only entitled to obtain payment, of both interest and principal, to the extent that there are sufficient resources in the respective PLPs. The lenders have no recourse whatsoever to the policyholder or shareholders' funds of any company of the Aviva Group. Accounting for the PLPs depends on the shareholdings in the GPs and the terms in each partnership agreement. Where the partnership is managed by a contractual agreement such that no one party exerts control, the PLPs have been accounted for as joint ventures. In addition, the Group has invested in a joint venture life assurance company in China, which commenced operations on 1 January 2003. -------------------------------------------------------------------- Page 37 Supplementary analyses (continued) (h) General business - investment return information Actual Longer-term investment return investment return 6 months 6 months Full year 6 months 6 months Full year 2003 2002 2002 2003 2002 2002 £m £m £m £m £m £m United Kingdom 295 281 534 303 338 663 Europe (excluding UK) France 19 23 56 22 30 61 Ireland 28 25 53 29 28 59 Netherlands 28 17 30 15 18 34 Other 12 25 34 20 31 59 International Canada 44 47 91 52 57 108 Other 16 17 35 17 21 42 ------- ------- ------- ------- ------- ------- Total longer-term investment return - continuing operations 458 523 1,026 Total actual investment income 442 435 833 Realised gains 26 110 99 Unrealised gains/(losses) 151 (454) (992) ------- ------- ------- Total actual investment return - continuing operations 619 91 (60) Discontinued operations - Australia and New Zealand - 3 32 - 35 71 ------- ------- ------- -------- ------- ------- 619 94 (28) 458 558 1,097 ======= ======= ======= ======== ======= ======= Reconciliation between general business investment return information and short-term fluctuation in investment return incorporated in the summarised consolidated profit and loss account - modified statutory basis For the six months to 30 June 2003 Short-term Actual Longer-term fluctuation investment investment in investment return return return £m £m £m General business 619 458 161 Health business 12 36 (24) ----------- ----------- ----------- 631 494 137 ----------- ----------- Life business 113 ----------- Total short-term fluctuation in investment return 250 =========== -------------------------------------------------------------------- Page 38 General insurance - geographical ratio analysis Combined Claims ratio Expense ratio operating ratio 6 months 6 months 6 months 6 months 6 months 6 months 2003 2002 2003 2002 2003 2002 % % % % % % United Kingdom 66.0% 71.0% 10.5% 10.4% 99% 101% France 71.7% 69.9% 11.9% 12.6% 100% 100% Ireland 79.6% 81.0% 8.5% 9.5% 97% 100% Netherlands 61.3% 64.3% 13.7% 17.2% 98% 102% Canada 85.4% 74.1% 12.3% 12.0% 115% 103% -------- -------- -------- -------- -------- -------- Continuing operations 69.9% 71.2% 10.9% 11.1% 101% 101% Discontinued operations - Australia and New Zealand - 73.2% - 13.2% - 102% -------- -------- -------- -------- -------- -------- 69.9 % 71.4% 10.9% 11.3% 101% 101% ======== ======== ======== ======== ======== ======== 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 - Written commissions expressed as a percentage of net ratio written premiums. Combined - Aggregate of claims ratio, expense ratio and operating commission ratio. ratio -------------------------------------------------------------------- Page 39 General insurance - class of business analyses (a) United Kingdom Net written Underwriting Combined premiums result operating ratio 6 months 6 months 6 months 6 months 6 months 6 months 2003 2002 2003 2002 2003 2002 £m £m £m £m % % Personal Motor 657 645 (5) (22) 102% 103% Homeowner 467 495 21 22 96% 95% Creditor 289 227 (1) 6 102% 100% Other 41 42 1 1 97% 100% -------- -------- -------- -------- -------- -------- 1,454 1,409 16 7 100% 99% -------- -------- -------- -------- -------- -------- Commercial Motor 391 365 (2) (10) 100% 103% Property 410 341 5 (10) 95% 103% Liability 177 132 (17) (26) 109% 121% Other 64 129 8 4 82% 91% -------- -------- -------- -------- -------- -------- 1,042 967 (6) (42) 99% 104% -------- -------- -------- -------- -------- -------- £m 2,496 2,376 10 (35) 99% 101% ======== ======== ======== ======== ======== ======== During the six months to 30 June 2003, annualised rating increases were as follows: commercial liability: 31%; commercial property: 16%; commercial motor: 4%; homeowners: 4%; and personal motor: 2%. (b) France Net written Underwriting Combined premiums result operating ratio 6 months 6 months 6 months 6 months 6 months 6 months 2003 2002 2003 2002 2003 2002 €m €m €m €m % % Motor 205 196 3 (5) 97% 100% Property and other 243 248 (13) (3) 103% 100% -------- -------- -------- -------- -------- -------- €m 448 444 (10) (8) 100% 100% -------- -------- -------- -------- -------- -------- £m 305 275 (7) (5) 100% 100% ======== ======== ======== ======== ======== ======= -------------------------------------------------------------------- Page 40 General insurance - class of business analyses (continued) (c) Netherlands Net written Underwriting Combined premiums result operating ratio 6 months 6 months 6 months 6 months 6 months 6 months 2003 2002 2003 2002 2003 2002 €m €m €m €m % % Property 229 163 5 9 93% 91% Motor 130 133 6 (19) 95% 114% Liability 27 32 5 (5) 75% 118% Other 48 61 (20) 3 142% 92% -------- -------- -------- -------- -------- -------- €m 434 389 (4) (12) 98% 102% -------- -------- -------- -------- -------- -------- £m 295 241 (3) (7) 98% 102% ======== ======== ======== ======== ======== ======= (d) Canada Net written Underwriting Combined premiums result operating ratio 6 months 6 months 6 months 6 months 6 months 6 months 2003 2002 2003 2002 2003 2002 C$m C$m C$m C$m % % Automobile 844 736 (202) (22) 125% 103% Property 356 339 1 (14) 100% 104% Liability 110 90 (3) (10) 103% 111% Other 19 15 4 4 73% 73% -------- -------- -------- -------- -------- -------- C$m 1,329 1,180 (200) (42) 115% 103% -------- -------- -------- -------- -------- -------- £m 565 509 (85) (18) 115% 103% ======== ======== ======== ======== ======== ======= -------------------------------------------------------------------- Page 41 Assets under management General Long-term business business and other Group Group 30 June 30 June 30 June 31 December 2003 2003 2003 2002 £m £m £m £m Financial investments Shares, other variable yield securities and units in unit trusts 22,666 2,363 25,029 22,945 Strategic investments 1,267 337 1,604 1,923 Debt and fixed income securities at market value 37,405 9,037 46,442 30,821 Debt and fixed income securities at amortised cost 33,363 - 33,363 42,721 Loans secured by mortgages and other loans, net of non-recourse funding 10,900 1,129 12,029 11,803 Deposits 2,685 551 3,236 2,820 Other investments 1,690 55 1,745 1,105 -------- -------- -------- --------- Total financial investments 109,976 13,472 123,448 114,138 Investments in joint ventures 764 - 764 781 Investments in associated undertakings and participating interests 751 289 1,040 1,050 Land and buildings 8,858 684 9,542 9,416 -------- -------- -------- --------- Total investments 120,349 14,445 134,794 125,385 Assets held to cover linked liabilities 35,640 - 35,640 29,538 Other assets included in the balance sheet 12,864 18,691 31,555 30,000 -------- -------- -------- --------- Total assets included in the balance sheet 168,853 33,136 201,989 184,923 ======== ======== ======== ======== Third party funds under management: Securitised mortgages (gross of non-recourse funding) 3,224 2,099 Unit trusts, Oeics, Peps and Isas 3,763 3,636 Segregated funds 19,616 16,955 -------- --------- Total assets under management 228,592 207,613 ======== ======== Strategic investments include the market value of the Group's shareholding in Societe Generale, Munchener Ruckversicherungs-Gesellschaft and The Royal Bank of Scotland Group. General insurance and other investments mix Total United Continental 30 June Kingdom Europe International 2003 £m £m £m £m Shares, other variable yield securities and units in unit trusts and strategic investments 1,413 991 296 2,700 Debt and fixed income securities at market value 4,030 3,259 1,748 9,037 Land and buildings 301 345 38 684 Other 1,116 651 257 2,024 -------- --------- --------- ------- Total investments 6,860 5,246 2,339 14,445 ======== ======== ========= ======== -------------------------------------------------------------------- Page 42 Group capital structure The Group maintains an efficient structure from a combination of equity shareholders' funds, preference capital, subordinated debt and borrowings, consistent with the Group's risk profile and the regulatory and market requirements of its business. The Group's capital, from all funding sources, has been allocated such that the capital employed by trading operations is greater than the capital provided by its shareholders and its subordinated debtholders. As a result, the Group is able to enhance the returns earned on its equity capital. Capital employed by segment 6 months Full year 2003 2002 £m £m Long-term savings 11,285 10,379 General insurance and health 4,014 3,917 Other business 661 554 Corporate 2,547 2,476 -------- -------- Total capital employed 18,507 17,326 -------- -------- Financed by Internal debt 3,658 3,671 External debt 2,326 2,053 Subordinated debt 1,225 1,190 Shareholders' funds and minority interests 11,298 10,412 -------- -------- 18,507 17,326 ======== ======== At 30 June 2003 we had £18.5 billion (31 December 2002: £17.3 billion) of total capital employed in our trading operations which is efficiently financed by a combination of equity shareholders' funds, preference capital, subordinated debt and internal and external borrowings. In the first half of 2003, the total capital employed in our long-term savings operations increased due to retained profits for the half-year, the beneficial impact of the Euro foreign exchange movement and capital injections. The total capital employed in our general insurance businesses was similarly affected by both retained profits and foreign exchange gains. The increase in external debt of £273 million is as a result of an increase in commercial paper issuance. In addition to its external funding sources, the Group has a number of internal debt arrangements in place. These have allowed the assets supporting technical liabilities to be invested into the pool of central assets for use across the Group. They have also enabled the shareholders to deploy cash from some parts of the business to others in order to fund growth. Although intra-group loans in nature, they are counted as part of the capital base for the purpose of capital management. All internal loans have been negotiated at market rates and are appropriately serviced. In the early part of 2003 corporate assets were used to pay the final instalment of the Berkshire Hathaway reinsurance premium, which reduced internal debt. This has been offset by an increase in internal loan arrangements, resulting overall in a small decrease in internal debt. The ratio of the Group's external debt to shareholders' funds was 19% (31 December 2002: 18%). Interest cover, which measures the extent to which external interest costs are covered by achieved operating profit, was 16 times (31 December 2002: 14 times). -------------------------------------------------------------------- Page 43 Group capital structure (continued) Deployment of equity shareholders' funds 6 months Full year 2003 2002 Fixed income Other Other net Equities securities investments assets Total Total £m £m £m £m £m £m Assets Long-term savings 543 3,846 924 1,183 6,496 5,726 General insurance, health, corporate and other business 2,700 2,322 1,049 12 6,083 5,907 ------- ------- --------- ------- -------- -------- 3,243 6,168 1,973 1,195 12,579 11,633 Goodwill 1,363 1,271 Additional value of in-force long-term business 4,565 4,422 -------- -------- Assets backing total capital employed in continuing operations 18,507 17,326 External debt (2,326) (2,053) Internal debt (3,658) (3,671) Subordinated debt (1,225) (1,190) -------- -------- 11,298 10,412 Minority interests (879) (743) Preference capital (200) (200) -------- -------- Equity shareholders' funds 10,219 9,469 ======== ======== Our exposure to equities has increased from £3.1 billion at 31 December 2002 to £3.2 billion, which represents 18% of our capital employed. During the course of the period, as part of the ongoing portfolio management process, the Group reduced its strategic stakes in Societe Generale, Munich Re and The Royal Bank of Scotland Group. The market values of these holdings at 30 June 2003 were £459 million, £303 million and £842 million respectively (31 December 2002: £595 million, £372 million and £956 million respectively) and represented 2.7%, 2.8% and 1.7% (31 December 2002: 3.8%, 2.8% and 2.2%) of the respective issued share capital of these companies. Return on capital employed 6 months Full year 2003 2002 Normalised Opening Return on after-tax equity capital Return on return capital (annualised) capital £m £m % % Long-term savings 492 10,379 9.7% 9.4% General insurance and health 272 3,917 14.4% 12.5% Other business (33) 554 (11.6%) (20.7%) Corporate (20) 2,476 (1.6%) (2.1%) --------- --------- --------- --------- 711 17,326 8.4% 7.9% Borrowings (143) (6,914) 4.2% 4.4% --------- --------- --------- --------- 568 10,412 11.2% 9.9% Minority interests (52) (743) 14.5% 12.7% Preference capital (9) (200) 8.5% 8.5% --------- --------- --------- --------- 507 9,469 11.0% 9.7% Discontinued operations - Australia and New Zealand - - - 20.2% --------- --------- --------- --------- Equity shareholders' funds 507 9,469 11.0% 10.1% ========= ========= ========= ========= The return on capital is calculated as the after-tax return on opening equity capital, based on operating profit, including life achieved profit, before amortisation of goodwill and exceptional items. -------------------------------------------------------------------- Page 44 Group capital structure (continued) Capital management In managing its capital, the Group aims to: (i) match the profile of its assets and liabilities, taking account of the risks inherent in each business. In the case of the Group's life operations, which have long-term liabilities, the majority of capital is held in fixed income securities. A significant proportion of the capital supporting the Group's general insurance and health operations is held in equities, reflecting the relatively low risk profile of these businesses; (ii) maintain financial strength to support new business growth and satisfy the requirements of its policyholders, regulators and rating agencies; (iii) retain financial flexibility by maintaining strong liquidity, including significant unutilised committed credit lines, and access to a range of capital markets; and (iv) allocate capital efficiently to support growth and repatriate excess capital where appropriate. An important aspect of the Group's overall capital management process is the setting of target risk-adjusted rates of return for individual business units, which are aligned to performance objectives and ensure that the Group is focused on the creation of value for shareholders. Risk based capital The Group uses risk based capital as one of several measures to assess its capital requirements for its general insurance businesses. Financial modelling techniques enhance our practice of active capital management, ensuring sufficient capital is available to protect against unforeseen events and adverse scenarios, and risk management. Our aim continues to be the optimal usage of capital through appropriate allocation to our businesses. Our risk based capital model is part of a longer-term development programme for more complex risk monitoring techniques in part to meet future industry standards. Within a few years we expect to agree capital requirements with the regulator on the basis of our risk based capital models. This represents the level of capital necessary to enable the general insurance business to meet the statutory minimum solvency margin over a five year period with 99% probability of not requiring further capital. Our current risk based capital methodology for general insurance business assesses insurance, market and credit risks and makes prudent allowance for diversification benefits. We consider risks over a five year period allowing for planned levels of business growth. Based on our model, our risk based capital requirement may be expressed as 36% of net written premiums. Capital employed in our general insurance business after goodwill and adding back the claims equalisation reserve was £4.0 billion at 30 June 2003 and required capital on a risk basis was £3.3 billion, giving a surplus capital position of £0.7 billion. Sensitivity analysis The sensitivity of the Group's shareholders' funds at 30 June 2003 to a 10% fall in global equity markets or a rise of 1% in global interest rates is as follows: Interest 31 December 30 June Equities rates 2002 2003 down 10% up 1% £bn £bn £bn £bn 4.4 Additional value of in-force(1) 4.6 4.3 5.0 12.9 Other net assets 13.9 13.6 13.6 (6.9) Borrowings(2) (7.2) (7.2) (7.2) --------- --------- --------- 10.4 Shareholders' funds 11.3 10.7 11.4 ========= ========= ========= (1) Assumes achieved profit assumptions adjusted to reflect revised bond yields. (2) Comprising internal, external and subordinated debt. (3) These sensitivities assume a full tax charge/credit on market value appreciation/falls. Post-tax internal rate of return on life and pensions new business The total internal rate of return on life and pensions new business for the Group was 15% (31 December 2002: 16%). The return is the discount rate at which the present value of the post-tax cash flows expected to be earned over the life time of the business written is equal to the initial capital required to support the writing of the business. The capital includes the statutory minimum solvency margin and amounts to £400 million (31 December 2002: £1,000 million). This includes £170 million (31 December 2002: £300 million) of solvency requirements. -------------------------------------------------------------------- Page 45 Group capital structure (continued) Shareholders' funds, including minority interests Normalised Closing shareholders' funds return (note 1) MSSB net Internally assets generated Embedded (note 2) AVIF value Before tax After tax 6 months 2003 Note £m £m £m £m £m Life assurance United Kingdom 2,933 2,423 5,356 339 238 France 1,023 346 1,369 90 58 Ireland 329 202 531 31 27 Italy 327 66 393 33 20 Netherlands (including Belgium and Luxembourg) 1,379 609 1,988 69 52 Poland 121 215 336 40 29 Spain 262 146 408 71 46 Other Europe 159 26 185 2 1 International 485 10 495 30 21 -------- -------- -------- -------- -------- 7,018 4,043 11,061 705 492 Participating interests 3 224 224 - - -------- -------- -------- -------- -------- 7,242 4,043 11,285 705 492 -------- -------- -------- -------- -------- General insurance and health 4 United Kingdom 5 2,097 2,097 284 194 France 406 406 18 13 Ireland 304 304 43 37 Netherlands 218 218 32 23 Other Europe 109 109 16 11 Canada 599 599 (33) (24) Other 281 281 21 18 -------- -------- -------- -------- -------- 4,014 - 4,014 381 272 -------- -------- -------- -------- -------- Other business 661 661 (37) (33) Corporate 5,6 2,547 2,547 (23) (20) External debt 7 (2,326) (2,326) (57) (42) Internal debt (3,658) (3,658) (104) (73) Subordinated debt (1,225) (1,225) (37) (28) -------- -------- -------- -------- -------- (4,001) - (4,001) (258) (196) -------- -------- -------- -------- -------- Shareholders' funds, including minority interests 7,255 4,043 11,298 828 568 ======== ======== ======== ======== ======== Comprising Equities 3,243 3,243 Debt and fixed income securities 6,168 6,168 Property 655 655 Deposits and other investments 1,318 1,318 Intangible assets 8 1,885 4,043 5,928 Other net assets 1,195 1,195 Borrowings (7,209) (7,209) -------- -------- -------- 7,255 4,043 11,298 ======== ======== ======== -------------------------------------------------------------------- Page 46 Group capital structure (continued) Shareholders' funds, including minority interests (continued) Notes 1. The normalised return is based upon operating profit from continuing operations, including life achieved profit, before amortisation of goodwill and exceptional items. 2. Includes acquired additional value of in-force long-term business of £522 million. 3. The net assets represent the £224 million of goodwill on the RBSG joint venture. 4. The capital employed in the Group's general insurance operations includes £401 million of goodwill. 5. Assets available to shareholders are held by the Group's UK general insurance operations and are available to finance future growth of the Group. Accordingly, for the purposes of preparing this note, these assets together with their associated pre-tax investment return of £33 million (post-tax £24 million) have been reclassified as Corporate. 6. The return before tax of £(23) million comprises investment return £33 million and corporate costs £(56) million. 7. The external borrowings reported in the summary consolidated balance sheet of £2,337 million comprise £11 million of general insurance borrowings (reported within the general insurance and health net assets) and £2,326 million of borrowings by holding companies of the Group not allocated to operating companies (shown as external debt). 8. Comprises acquired additional value of in-force long-term business (£522 million), goodwill arising on acquisitions (£1,139 million) and goodwill on the RBSG joint venture (£224 million). -------------------------------------------------------------------- Page 47 Group capital structure (continued) Shareholders' funds, including minority interests (continued) Normalised Closing shareholders' funds return (note 1) MSSB net Internally assets generated Embedded (note 2) AVIF value Before tax After tax 31 December 2002 Note £m £m £m £m £m Life assurance United Kingdom 2,514 2,498 5,012 699 488 France 924 297 1,221 228 145 Ireland 296 176 472 75 66 Italy 295 54 349 52 31 Netherlands (including Belgium and Luxembourg) 1,270 536 1,806 200 147 Poland 130 222 352 111 80 Spain 239 111 350 83 54 Other Europe 157 19 176 (2) (1) International 406 4 410 78 54 -------- -------- -------- -------- -------- 6,231 3,917 10,148 1,524 1,064 Participating interests 3 231 - 231 - - -------- -------- -------- -------- -------- 6,462 3,917 10,379 1,524 1,064 -------- -------- -------- -------- -------- General insurance and health 4 United Kingdom 5 2,052 2,052 491 330 France 481 481 57 41 Ireland 236 236 44 37 Netherlands 275 275 55 41 Other Europe 63 63 49 36 Canada 535 535 80 54 Other 275 275 37 30 -------- -------- -------- -------- -------- 3,917 - 3,917 813 569 -------- -------- -------- -------- -------- Other business 554 554 (94) (67) Corporate 5,6 2,476 2,476 (89) (63) External debt 7 (2,053) (2,053) (133) (102) Internal debt (3,671) (3,671) (228) (161) Subordinated debt (1,190) (1,190) (73) (51) -------- -------- -------- -------- -------- (3,884) - (3,884) (617) (444) -------- -------- -------- -------- -------- 6,495 3,917 10,412 1,720 1,189 Australia and New Zealand - - - 78 72 -------- -------- -------- -------- -------- Shareholders' funds, including minority interests 6,495 3,917 10,412 1,798 1,261 ======== ======== ======== ======== ======== Comprising Equities 3,126 3,126 Debt and fixed income securities 6,033 6,033 Property 496 496 Deposits and other investments 1,293 1,293 Intangible assets 8 1,776 3,917 5,693 Other net assets 685 685 Borrowings (6,914) (6,914) -------- -------- -------- 6,495 3,917 10,412 ======== ======== ======== -------------------------------------------------------------------- Page 48 Group capital structure (continued) Shareholders' funds, including minority interests (continued) Notes 1. The normalised return is based upon operating profit from continuing operations, including life achieved profit, before amortisation of goodwill and exceptional items. 2. Includes acquired additional value of in-force long-term business of £505 million. 3. The net assets represent the £231 million of goodwill on the RBSG joint venture. 4. The capital employed in the Group's general insurance operations includes £282 million of goodwill. 5. Assets available to shareholders are held by the Group's UK general insurance operations and are available to finance future growth of the Group. Accordingly, for the purposes of preparing this note, these assets together with their associated pre-tax investment return of £129 million (post-tax £90 million) have been reclassified as Corporate. 6. The return before tax of £(89) million comprises investment return £129 million and corporate costs £(218) million. 7. The external borrowings reported in the summary consolidated balance sheet of £2,064 million comprise £11 million of general insurance borrowings (reported within the general insurance and health net assets) and £2,053 million of borrowings by holding companies of the Group not allocated to operating companies (shown as external debt). 8. Comprises acquired additional value of in-force long-term business (£505 million), goodwill arising on acquisitions (£1,040 million) and goodwill on the RBSG joint venture (£231 million). -------------------------------------------------------------------- Page 49 Shareholder information Financial calendar 2003/2004 Ex-dividend date for 2003 interim dividend 24 September 2003 Record date for 2003 interim dividend 26 September 2003 Payment of 2003 interim dividend 17 November 2003 Announcement of long-term savings new business for 9 months to 30 September 23 October 2003 Preliminary announcement of 2003 results 26 February 2004 Dividend reinvestment plan Aviva's Dividend Reinvestment Plan (the 'Plan') enables cash dividends to be reinvested in the Company's shares at reduced dealing costs. Shareholders who have not already joined the Plan and wish to do so should contact the Company's Registrar (at the address below) to obtain full details and a mandate form. Completed mandate forms must be returned to the Registrar by no later than 27 October 2003 in order to participate in the Plan for the 2003 interim dividend. Shareholders who have previously elected to join the Plan need take no further action. Dividend payments direct to your bank account If you wish, you can have your dividend payments credited to your bank or building society account on the dividend payment date - a tax voucher will still be posted to your home address to confirm the payment. The Company has also introduced a service - the Transcontinental Accounts Payment Service ('TAPS') - which allows shareholders in many countries to have dividends credited direct to bank accounts in local currencies. To obtain further details and a mandate form for either service please contact the Company's Registrars (at the address below). Shareview Shareview is the internet based service that allows you to view your shareholding online and, if you wish, to receive shareholder communications (e.g. Notice of Meeting, Report and Accounts, etc) via e-mail rather than by post. To register, please go to www.shareview.co.uk where you will find more details of the service, practical help and extensive information on other share registration matters. Useful contact details Detailed below are various addresses that may prove useful in the event that you have a query in respect of your shareholding. Please quote Aviva plc, as well as the name and address in which your shares are held, in all correspondence. General shareholding Lloyds TSB Registrars The Causeway 0870 600 3952 administration queries and Worthing Aviva share account queries West Sussex BN99 6DA Corporate and single company Barclays Tay House 0870 514 3263 PEPS Stockbrokers 300 Bath Street Limited Glasgow G2 4LH Individual Savings Accounts Lloyds TSB Registrars The Causeway 0870 242 4244 ('Isas') (Isa Manager) Worthing West Sussex BN99 6DA Internet sites Aviva owns various internet sites, most of which interlink with each other. For a list of all our websites, please go to: http://www.aviva.com/customers/ global.cfm Aviva group www.aviva.com UK long-term savings and general insurance www.norwichunion.com Fund management www.morleyfm.com Buying a home www.your-move.co.uk Aviva plc Registered in England no: 2468686 Registered Office: St Helen's, 1 Undershaft, London EC3P 3DQ -------------------------------------------------------------------- End of Announcement This information is provided by RNS The company news service from the London Stock Exchange

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