9 Months Results 2000-Part 1
CGNU PLC
8 November 2000
PART 1
UNAUDITED RESULTS - 9 MONTHS ENDED 30 SEPTEMBER 2000
- Operating profit before tax from ongoing businesses* of £1,138 million
(1999: £1,120 million) (including life achieved profit). On a modified
statutory basis, operating profit before tax was £898 million
(1999: £1,014 million)
- Life achieved operating profit up 24%** to £1,147 million
- Worldwide long-term savings new business sales up 14%** to £9.0 billion
- General insurance operating profit from ongoing businesses* of
£428 million (1999: £375 million)
- Agreement for the sale of US general insurance business and exit from UK
London Market
- Rapid merger integration progress
* Excluding US general insurance and UK London Market result
** At constant rates of exchange
Bob Scott, Group Chief Executive, commented:
'The worldwide long-term savings businesses continued to make excellent
progress with new business up 14% to £9 billion. Life achieved operating
profit increased 24% to £1,147 million with increased contributions from all
our major businesses.
'Our general insurance result from ongoing businesses made good progress,
rising to £428 million (1999: £375 million) with a combined operating ratio
of 108%, and we continue to take the necessary steps to improve profitability
towards our target combined operating ratio of 102% by the end of 2001.
'We have announced that we have successfully reached agreement for the sale of
our US general insurance operations and that we are to withdraw from London
Market operations.
'This completes the major elements of the restructuring of our business
outlined at the time of the merger to reposition CGNU as a leading
European-based financial services group focused on the long-term savings
markets and the achievement of superior returns from selected general
insurance markets. Whilst this is at considerable cost, this completes the
major repositioning of general insurance business which would have any
material financial consequence for the Group.
'Integration of our businesses is moving ahead rapidly, following our merger
at the end of May. On 2 October our UK life, general and retail fund
management businesses were launched under the new Norwich Union brand and, on
the same day, our Irish business was integrated under the Hibernian brand. The
performance of our ongoing businesses during a period of rapid merger
integration demonstrates the strength of these businesses and the quality of
our people, placing us in a strong position for future growth.'
Financial Highlights
Restated
Unaudited Unaudited Local
9 months 9 months currency
2000 1999 growth
£m £m %
Total long-term savings new business 9,017 8,104 14%
- life & pensions premiums 7,909 7,097 15%
- investment sales 1,108 1,007 11%
Total premiums written after reinsurance
and investment sales from ongoing businesses 19,369 17,552 13%
Operating profit before tax from
ongoing businesses(i) 1,138 1,120 4%
(Loss)/profit on ordinary activities
after tax(ii) (959) 535
Operating earnings from ongoing
businesses per ordinary share(i) 34.5p 32.9p
Shareholders' funds(iii) 14,662 15,673*
Net asset value per ordinary share(iv) 652p 700p*
Basis of preparation - the CGNU 9 months 2000 results have been prepared
according to the principles of merger accounting, using common accounting
policies. The 1999 results have been restated to this same basis and have
been revised to comply with FRS16 'Current Tax'.
(i) Operating profit before tax and earnings shown above include life
achieved operating profit and exclude the operating results of
businesses to be discontinued £132 million (30 September 1999:
£152 million), amortisation of goodwill £31 million (30 September
1999: £25 million) and exceptional items £203 million (30 September
1999: £100 million). They do not incorporate the use of the expected
proceeds from businesses sold or sales of businesses to be completed.
(ii) Loss on ordinary activities after tax, including life achieved
operating profit, is after providing for the loss on sale of the US
general insurance business and withdrawal from London Market
operations.
(iii) Based on equity and non-equity shareholders' funds which have been
reduced by the equalisation provision of £199 million (31 December
1999: £212 million).
(iv) Based on equity shareholders' funds, adding back the equalisation
provision.
* Denotes amount at 31 December 1999.
Life profits reporting
In reporting the CGNU plc headline operating profit, life profits using the
achieved profit basis have been included. This is used throughout the CGNU
Group and by many in the investment community to assess performance. We have
focused on the achieved profit basis, as we believe life achieved operating
profit is a better measure of the performance of life businesses than the
modified statutory basis, which is deliberately conservative and more
concerned with solvency protection and distributability than performance.
The modified statutory basis is used in our financial statements and, on this
basis, the life operating profit before tax amounted to £907 million. The
basis used for reporting achieved profit is consistent with the draft
guidance set out by the Association of British Insurers.
Enquiries:
Bob Scott Group Chief Executive Telephone +44 (0)20 7662 2003
Richard Harvey Deputy Group Chief Executive Telephone +44 (0)20 7662 2286
Peter Foster Group Finance Director Telephone +44 (0)20 7662 2007
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Contents
Page
Group Chief Executive's statement
Operating and financial review 1
Achieved profit basis
Summarised consolidated profit and loss account - achieved profit basis 9
Basis of preparation 10
Components of total life achieved profit 10
New business contribution 11
Analysis of life achieved operating profit 12
Embedded value of life business 12
Segmental analysis of embedded value of life business 13
Methodology 13
Principal economic assumptions 14
Other assumptions 15
Modified statutory basis
Summarised consolidated profit and loss account
- modified statutory basis 16
Earnings per share - modified statutory basis 17
Consolidated statement of total recognised gains and losses 17
Reconciliation of movements in consolidated shareholders' funds 17
Summarised consolidated balance sheet 18
Consolidated cash flow statement 19
Basis of preparation 20
Basis of accounts 20
Principal exchange rates 21
Change in accounting policy - dividend income 21
Acquisitions and disposals in the nine months to 30 September 2000
- including businesses to be discontinued 22
Exceptional items 25
Geographical analysis of life and pensions and investment sales
- new business and total income 26
Geographical analysis of modified statutory life profit 27
Geographical analysis of health premiums after reinsurance
and operating result 27
Geographical analysis of general insurance premiums after
reinsurance and operating result 28
Taxation 29
Dividends 29
Earnings per share 30
Longer-term investment return 31
Statistical supplement
Segmental analysis of group operating profit at constant currency 32
Supplementary analyses 33
General insurance - geographical ratio analysis 35
General insurance - class of business analysis 36
Assets under management 38
UK general insurance trading conditions
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GROUP CHIEF EXECUTIVE'S STATEMENT
At the time of the merger announcement in February 2000, we made clear our
commitment to position CGNU plc as a leading European-based financial
services group, focused on the long-term savings markets and the achievement
of superior returns from selected general insurance markets. Since publishing
the Group's half year results on 2 August, I am pleased to report that major
progress has been made towards this objective through the agreement for the
sale of our US general insurance business and our exit from UK London Market
business, actions which have not been without significant cost. This completes
the major repositioning of general insurance business which would have any
material financial consequence for the Group. At the same time, the
Group has continued to press ahead with the integration of its ongoing
businesses. These have maintained a successful focus on 'business as usual',
together with the development of a number of bancassurance arrangements.
The Group operating profit before tax from ongoing business, including life
achieved profit, was £1,138 million (1999: £1,120 million). This represents
an increase of 13% over the first nine months of 1999 before a charge of
£95 million for developing our online wealth management service and after
removing the effect of changes in currency exchange rates. On a modified
statutory basis, operating profit before tax was £898 million (1999: £1,014
million).
Continued growth in long-term savings
Our worldwide life and savings business made strong progress in the first
nine months with new life, pension and investment sales increasing by 14% to
£9 billion. Life operating profit on an achieved profit basis increased by
an excellent 24% to £1,147 million. On a modified statutory basis, life
operating profit was up 10% at £907 million.
On 20 September 2000, we announced the sale of the Norwich Union life and
pensions businesses in Poland for £143 million. The sale demonstrates the
significant value we have been able to create in this new market in the
relatively short period of 19 months since the businesses were started.
We are retaining CU Polska, which has a 30% share of the local pension market,
measured by assets under management, and a 20% share of the local life market.
I am pleased to announce that we have reached agreement for a new life
bancassurance partnership with Wells Fargo Insurance, Inc., a subsidiary of
Wells Fargo & Company which is the sixth largest bank in the US. This
agreement builds on our extensive bancassurance experience and offers us
further opportunity to grow in the US life market.
Strong investment capability
Our retail investment sales increased 11% to £1,108 million and total assets
under management increased by £8 billion to £216 billion. We have continued to
invest in our UK retail investment business which achieved an increase in
sales of 12% to £709 million.
Continuing the trend established in previous periods, sales from our Navigator
product in Australia rose by 32% to £606 million and funds under
administration totalled £2.2 billion.
Good progress in general insurance
Our ongoing general insurance businesses made good progress with operating
profits rising to £428 million (1999: £375 million). The combined operating
ratio in the UK, which is our largest general insurance business, improved to
104% (1999: 107%), after excluding the London Market business, and the
personal lines business delivered an excellent 100% (1999: 103%).
We are continuing to take the necessary steps to improve profitability in our
general insurance businesses, towards the Group's target combined operating
ratio of 102% by 2001.
Rapid integration progress
The integration of our businesses continues to make rapid progress. Annualised
savings at the end of the third quarter amounted to £50 million, with £9
million included in these results, and integration costs of £203 million have
been provided to date.
The Group has made significant progress in refocusing the business in line
with the objectives set out at the time of the merger, while maintaining the
positive momentum in its ongoing business. We are well positioned for future
growth and increased shareholder returns.
Bob Scott
Group Chief Executive
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Page 1
OPERATING AND FINANCIAL REVIEW
Group results to 30 September 2000
The Group's operating profit from ongoing businesses before tax, including
life achieved profit, was £1,138 million (1999: £1,120 million). On a modified
statutory basis operating profit before tax was £898 million (1999: £1,014
million).
The result is after continued investment in a number of significant
development projects, including a £95 million charge for further development
of our UK online wealth management business. This includes £20 million for
'assertahome', our online home-moving portal.
In arriving at the Group operating profit from ongoing operations, we have
excluded the result of the US general insurance business, the sale of which
was announced in September, and of the UK London Market operations
following the decision to withdraw from this business. Our US general business
returned an operating profit of £136 million (1999: £139 million) and the
operating loss from our UK London Market business was £4 million (1999: profit
£13 million). The results of these businesses are shown under businesses to be
discontinued.
General insurance operating profits from ongoing businesses improved to
£428 million (1999: £375 million) and are after the French storm-related
claims of £90 million reported at the half year. The UK underwriting result
improved, reporting a loss of £156 million (1999: loss of £232 million).
Consistent with the trend previously reported, longer-term investment returns
from ongoing businesses increased by £148 million to £936 million.
Restated Local
9 months 9 months currency
2000 1999 growth
£m £m %
Operating profit before tax - ongoing business*
Life achieved operating profit 1,147 950 24%
Health 33 20 83%
Fund management 41 46 (11%)
General insurance 428 375 15%
Non-insurance operations (21) (14) (50%)
Associated undertakings 3 11 (70%)
Corporate costs (136) (99) (37%)
Unallocated interest charges (262) (169) (56%)
------- ------- -------
1,233 1,120 13%
Wealth management (95) - -
------- ------- -------
Operating profit before tax - ongoing
business* 1,138 1,120 4%
======= ======= =======
Businesses to be discontinued
US general insurance result 136 139
UK London Market result (4) 13
* Operating profit before businesses to be discontinued, tax, change in
risk margin, amortisation of goodwill and exceptional items.
Long-term savings new business
In October the Group announced strong new life and pensions and investment
sales in the period to 30 September 2000 of £9 billion, an increase of
14% over the first nine months of 1999. Excellent growth was delivered by our
UK business with life and pension sales up by 24% and investment sales up
12%. Our continental European businesses are capitalising on growth in
unit-linked sales, with particular success in France. The sales reflect both
organic growth and acquisition, with a 27% improvement after removing the
benefit in 1999 and 2000 from the one-off Poland pensions opportunity and the
ending of the Credito Italiano bancassurance agreement.
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Page 2
Local
9 months 9 months currency
2000 1999 growth
£m £m %
Long-term savings new business
Life and pensions premiums:
United Kingdom 4,827 3,899 24%
Europe (excluding UK) 2,691 2,818 3%
International 391 380 2%
------- ------- -------
7,909 7,097 15%
Investment sales 1,108 1,007 11%
------- ------- -------
9,017 8,104 14%
======= ======= =======
Life insurance
Continuing the trend reported in the first half of the year, life achieved
operating profit was up by 24% at £1,147 million. This is after development
costs of £20 million, which include our European Navigator business based in
Dublin. Strong growth continued in our UK life business, up 17% to £690
million, and in continental Europe profits rose by an excellent 42% to £417
million.
Local
9 months 9 months currency
2000 1999 growth
£m £m %
Life achieved operating profit*
New business contribution 287 263
Profit from existing business
- expected return 627 486
- experience variances (13) (9)
- operating assumption changes 11 -
Development costs (20) (10)
Expected return on shareholders' net worth 240 198
------- -------
1,132 928
Other life and savings activities 15 22
------- -------
Life achieved operating profit before tax* 1,147 950 24%
======= ======= =======
Analysed:
United Kingdom 690 591 17%
Europe (excluding UK) 417 317 42%
International 40 42 (7%)
* Life achieved operating profit is stated before amortisation of goodwill
and exceptional items.
New business contribution before cost of capital is up 5% to £349 million
(1999: on 2000 assumptions £343 million). The growth in expected return from
in-force business and shareholder net worth benefits from the application of
higher interest rates on a growing embedded value.
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Page 3
Annual premium New business
equivalent* contribution**
9 months 9 months 9 months 9 months
2000 1999 2000 1999***
£m £m £m £m
Life and pensions business
United Kingdom 726 599 217 172
Europe (excluding UK) 572 680 130 158
International 72 71 2 13
------- ------- ------- -------
1,370 1,350 349 343
======= ======= ======= =======
* Annual premium equivalent represents regular premiums plus 10% of
single premiums
** Before cost of capital
*** Restated using 2000 economic assumptions
The new business contribution, before cost of capital, as a percentage of new
business sales (on annual premium equivalent basis) was 25% (1999: 25%).
UK
The UK life business was launched under the new Norwich Union brand on
2 October 2000 accompanied by the unveiling of over 50 life, pension,
investment and healthcare products. This is the largest value for money
product range of any UK life insurer, the best of breed from the merged CGU
and Norwich Union businesses.
With a 10% market share, the UK life business is the leading UK life insurer
and IFA provider, with an increase of 27% in new business through the IFA
channel for the first nine months of 2000. While emphasising and growing our
commitment to the IFA channel, the UK life business will operate on a
multi-distribution basis. This includes a wide network of partnership
arrangements, including an alliance with The Royal Bank of Scotland which is
due for completion in the final quarter of this year, a salaried direct sales
force and a telesales operation.
Total UK new life and pensions business increased by 24% to £4.8 billion
during the first nine months of 2000. Growth in new business contribution, up
26% to £217 million (1999: on 2000 assumptions £172 million), reflects the
increase in sales volumes, particularly of single premium bonds.
Continued progress in individual pension and group pension sales, up 37% and
35% respectively over 1999, reflects the success of our pre-stakeholder
products. Stakeholder pensions remain a top priority and, having stated the
intention to be the leading stakeholder provider, Norwich Union became the
first pension provider to apply for stakeholder registration on 1 October
2000. This represents the first step in enabling employers to designate our
stakeholder pension as the scheme for their workforce. Many of our personal
pensions customers benefit from charges which are at stakeholder levels or
below. From April next year, we are extending the benefit of stakeholder type
charging levels to existing customers with personal pension contracts.
Europe (excluding UK)
Total new life and pensions sales from our major European businesses increased
by 27% after removing the benefit in 1999 and 2000 from the one-off Poland
pensions opportunity and the ending of the Credito Italiano bancassurance
agreement. This increase reflected both organic growth and acquisitions,
including, for the first time, sales of £25 million from our new bancassurance
partnership with Bancaja, Spain's fourth largest savings bank.
The French business produced excellent results with life and pensions new
business sales increasing 38% to £1,410 million. New single premiums, which
dominate the market, increased to £1,380 million, ahead of overall market
growth. New business contribution rose by 24% to £52 million which, combined
with favourable tax experience, contributed to the rise in life achieved
operating profit to £161 million (1999: £103 million).
Hibernian Life & Pensions was launched in Ireland in October 2000 combining
the businesses of Norwich Union Life and Hibernian Life. The merger has
created a top five provider of new life and pensions business under the strong
and established Hibernian brand, with a current market share of 13%. Total new
business sales at £333 million were 42% higher than the first nine months of
1999 and included a contribution of £86 million from Hibernian, acquired in
January 2000. New business contribution pre-cost of capital increased by
50% to £16 million including a contribution from Hibernian of £4 million.
Delta Lloyd Nuts Ohra (DLNO) is a leading life and pensions insurer in the
Netherlands. Total new business sales were up 29% at £359 million, including
£64 million from Nuts Ohra, acquired during the second half of 1999. This
followed strong single premium individual pensions sales, while annual premium
volumes were lower ahead of tax reforms. New business contribution pre-cost of
capital was £15 million in the period, down from £21 million, reflecting a
change in new business mix towards single premiums.
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Page 4
On 20 September 2000, we announced the sale of the Norwich Union life and
pensions businesses in Poland to Sampo Insurance Company plc of Finland for
£143 million. The merger of CGU plc and Norwich Union plc led the Polish
regulator to require CGNU to sell one of the two existing pension businesses.
The sale of the Norwich Union life and pensions businesses does not affect our
leading position in this market and we retain CU Polska, the leading private
pensions provider.
Lower new business sales from CU Polska at £147 million (1999: £234 million)
reflect the concentration of sales in the third and fourth quarters of 1999
arising from the one-off pensions opportunity. CU Polska has also maintained
its share of the life market at around 20%. New business contribution from
our Polish life and pensions businesses fell in the period to £35 million,
reflecting the reduction in sales volumes. However, long-term growth
prospects for the life business remain very good, with less than 20% of
employed people having an individual life policy.
Our Spanish business is a top 10 life and pensions provider following
completion on 31 July 2000 of our new bancassurance partnership with Bancaja,
Spain's fourth largest savings bank. Total new business sales of £81 million
(1999: £30 million) were up 191% and reflected the success of unit-linked
savings products together with £25 million of sales from our new partnership.
New business contribution improved from a loss of £3 million to a profit of
£3 million,reflecting a strong increase in sales volumes and a contribution
of £2 million from our Bancaja partnership.
The cessation of our bancassurance agreement in Italy with Credito Italiano at
the end of June 1999 has led to a reduction in both new business sales and new
business contribution. Sales from Banca Popolare di Lodi, covering 250
branches, have continued to focus on regular premium sales, up over 150% on
the same period last year.
In Turkey, we are optimistic about the new opportunities presented by private
pensions and will be applying for a licence as soon as the pensions
legislation is finalised. Annual premium sales at £17 million doubled over
1999, reflecting the continuing development of our direct sales force and the
attractive product range.
On 11 October 2000, our Romanian operation commenced trading. It offers a new
life and savings opportunity by marketing a range of innovative and flexible
unit-linked life products. Distribution will initially be through a direct
sales force and we also have an agreement to develop a bancassurance business
with BRD, part of the Societe Generale Group. Romania is one of the largest
eastern European markets with a population of 23 million, and offers the
opportunity to leverage our success in Poland and benefit from expected future
pensions reform.
In the Czech Republic we have signed a binding agreement to acquire a 65%
shareholding in a leading Czech pension fund, Vseobecny vzajemny penzijni
fond, a.s (VVPF). The acquisition will complement our existing life operation
in the Czech Republic, which commenced operations in 1997, and will enable us
to provide customers with a full suite of products. The consideration for
this transaction is not material in relation to CGNU's net assets. As at 31
December 1999 VVPF had net assets of £3 million.
International
Our international operations saw an increase in total life and pensions new
business of 2%. Achieved operating profit was £40 million (1999: £42 million).
We have reached agreement for a new life bancassurance partnership with Wells
Fargo Insurance, Inc. in the United States. The agreement will, over the
course of 2001, progressively provide access to more than 2,600 branches of
Wells Fargo & Company, the 6th largest bank in the US. This partnership
significantly extends our current distribution capability, providing a further
growth opportunity in the US life market.
Health
Underwriting Operating
result profit
9 months 9 months 9 months 9 months
2000 1999 2000 1999
£m £m £m £m
United Kingdom 1 (3) 4 -
Europe (excluding UK) (15) 2 29 20
------- ------- ------- -------
(14) (1) 33 20
======= ======= ======= =======
Premium income increased by 148% to £568 million (1999: £237 million) and
operating profit increased by 83% to £33 million. These improvements
principally reflect the inclusion of the Nuts Ohra business in the
Netherlands, acquired during the second half of 1999.
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Page 5
Fund management
Assets under management increased to £216 billion, including third party
managed funds of £25 billion. The Group is the second largest UK-based fund
manager and among the top 10 in Europe, with strong market positions in the
UK, France and the Netherlands and developing positions in Ireland and Poland.
Operating
profit
9 months 9 months
2000 1999
£m £m
United Kingdom 14 26
Europe (excluding UK) 12 7
International 15 13
------- -------
41 46
======= =======
The first nine months of 2000 have seen significant development in our UK
retail investment business, with continued emphasis on a market-leading
position in Cat-standard products. We have merged the retail operations of
CGU and Norwich Union, which now operate under the new Norwich Union brand,and
have continued to invest in building up our UK retail fund proposition, which
has held back the UK result by £20 million. On 15 September 2000, we announced
the intention to sell our majority stake in Quilter Holdings Limited.
The result from our European fund management operations has improved to £12
million and principally reflects a strong performance from Victoire Asset
Management in France.
Sales from the Norwich Union Navigator product in Australia, which are not
included in new business sales, increased by 32% to £606 million, and funds
under administration totalled £2.2 billion. The new business contribution
from Navigator and other non-life business sales in Australia was £13 million
(1999: £13 million), and includes the impact of expensing investment in the
next generation of information technology.
General insurance
The discrete third quarter general insurance underwriting result from ongoing
operations improved by £57 million to an underwriting loss of £101 million
(1999: underwriting loss £158 million), driven principally by continued
progress in our UK business. The year to date underwriting loss from ongoing
operations has been held back by the French storm claims of £90 million
reported in the first half of this year.
Net written premiums from our ongoing worldwide general insurance operations
increased by 10% to £6.9 billion.
The Group's worldwide combined operating ratio from ongoing businesses was
108% (1999: 107%) or 106% excluding the French storm costs. The worldwide
expense ratio from ongoing businesses is lower at 12.5% (1999: 13.6%), with
improvements in our UK, French, Irish and Canadian businesses. We remain
committed to achieving our target combined operating ratio of 102% by 2001.
Underwriting Operating
Ongoing business result* profit*
9 months 9 months 9 months 9 months
2000 1999 2000 1999
£m £m £m £m
United Kingdom (156) (232) 341 187
Europe (excluding UK) (285) (103) (72) 59
International (67) (78) 159 129
------- ------- ------- -------
Ongoing business (508) (413) 428 375
======= ======= ======= =======
Businesses to be discontinued
United States (175) (148) 136 139
UK London Market (59) (37) (4) 13
* Excludes the change in the equalisation provision of £12 million (1999:
£47 million).
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Page 6
UK
CGNU is the largest general insurer in the UK, with a focus on personal and
smaller commercial lines businesses. The successful launch of the Norwich
Union general insurance brand on 2 October 2000 has re-affirmed our position
in a very crowded insurance market as the market leader with a single set of
new business products.
Since the merger, we have been reviewing our London Market business in the
context of the Group's general insurance strategy of focusing on personal
lines and smaller commercial risks and, during the last six months, the Group
has taken a series of steps towards exiting these businesses, withdrawing
capacity from two London Market syndicates and closing down the global risks
business. We announced on 1 November 2000 an agreement in principle for the
sale of Marlborough Underwriting Agency Limited, our wholly-owned Lloyd's
managing agency, to the Berkshire Hathaway Group. Under the terms of the
agreement, the Berkshire Hathaway Group will also undertake, subject to
Lloyd's approval, to replace CGNU as the provider of capacity to the
Marlborough-managed syndicates for 2001. This agreement completes CGNU's
withdrawal from London Market business.
We have also reached an agreement in principle with Berkshire Hathaway Group
to purchase reinsurance to secure protection against any adverse impact of the
run-off of claims reserves held by CGNU in respect of business written prior
to 1 October 2000, the date of exit, both in respect of historic business
through the ILU and other London Market operations and, more recently,
Lloyd's. This will provide cover of £1 billion in excess of CGNU's claims
reserves of £1.2 billion.
Throughout the review, our objective has been to ensure an orderly withdrawal
in the interests of clients and brokers and of our shareholders. The charge
of £448 million before tax, which we have taken in the third quarter as an
exceptional item, is in respect of the withdrawal from London Market
operations and includes the cost of associated reinsurance protection.
Excluding London Market business, the discrete third quarter underwriting loss
improved by £66 million to £30 million (1999: discrete third quarter loss
£96 million), with particularly strong performance in motor and homeowner
classes. On a year to date basis, the ongoing business underwriting loss
improved by £76 million to £156 million (1999: £232 million) and the combined
operating ratio in the UK improved to 104% (1999: 107%), with an excellent
performance in personal lines business at 100% (1999: 103%). The expense ratio
in the UK improved to 10.8% (1999: 11.9%).
The strongest improvement in the underwriting result has been achieved in the
personal and commercial motor accounts. Annualised rating increases in the
region of 13% are being applied to the personal motor account and 20% to the
commercial motor account. The liability market remains difficult, but we are
pushing through double-digit rating increases and are prepared to sacrifice
market share to improve profitability.
The profitability of the commercial property account has been impacted by
large losses. However, there has been an improvement in the third quarter.
We continue to take a disciplined approach to underwriting and remain focused
on small/medium sized risks.
The recent storms and flooding will impact our fourth quarter results but at
this stage it is too early to assess the cost of these events with reasonable
certainty.
Europe (excluding UK)
The underwriting loss in the discrete third quarter in France was £22 million
(1999:loss of £3 million). The year to date underwriting loss is after the
late notified claims of £90 million from the December 1999 storms and adverse
development of certain claims reported in the first half of the year.
Underwriting and rating actions continue to be taken with single-digit rate
increases in personal lines and double-digit increases in some commercial
lines.
Our other European businesses reported a year to date underwriting loss of
£96 million (1999: £79 million) and operating profit of £48 million (1999:
£29 million) including for the first time the full impact of the Hibernian
general business acquired in January 2000.
International
Our Australian and New Zealand businesses reported improved operating profits
of £48 million (1999: £13 million) helped by a reduction in weather-related
losses in Australia. In Canada, operating profits were down at £64 million
(1999: £71 million), mainly driven by deterioration in the property class.
At the time of the merger announcement, we had concluded it was in the best
interests of shareholders to withdraw from the US general insurance market.
This decision reflected the difficult conditions in the US property and
casualty market and the requirement for substantial investment to achieve a
leading market position. On 25 September 2000, we announced a definitive
agreement for the sale of the Group's US general insurance operations to White
Mountains Insurance Group Limited for a total consideration of $3,163 million
including the repayment of an inter-company loan of $1,100 million.
The Group results for the nine months ended 30 September 2000 include an
after-tax loss on disposal of $2,060 million (or £1,393 million after tax and
translated at the exchange rate prevailing at 30 September 2000) after making
appropriate accounting adjustments. Although creating a significant loss, we
have achieved a clean-cut exit and, subject to completion, the Group will not
bear any continuing operating risk or exposure to the US general business, or
provide any guarantees in respect of its claims reserves or balance sheet from
31 August 2000. There will be no price adjustment to reflect the US general
business results in the period between 1 September 2000 and completion.
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Page 7
On 27 October 2000, we announced our intention to to sell State Insurance
Limited. Following the merger, CGNU plc has two leading general insurance
businesses in New Zealand, each with around 19% market share. A review of
these businesses concluded that greater shareholder value could be generated
from a sale of State Insurance than from integrating the businesses. The
Group remains committed to the New Zealand market and will continue to develop
its ongoing business, New Zealand Insurance Limited.
Non-insurance operations
The Group's non-insurance operations reported a loss of £21 million
(1999: loss of £14 million). This included a loss of £30 million from our
estate agency business, YourMove, £15 million of which related to increased
advertising spend and development of the IT infrastructure in the first half
of the year.
Corporate costs and unallocated interest charges
Corporate costs amounted to £136 million (1999: £99 million). As reported at
the half year, this includes the crystallisation of the Norwich Union
long-term incentive scheme together with an accrual for Norwich Union staff
performance-related payments.
Unallocated interest charges include interest on intra-group loans with the
centre and external borrowings not allocated to local business operations.
The increase in the charge to £262 million reflects in part the funding of
corporate activity.
Shareholders' funds
Shareholders' funds fell by £1,011 million to £14.7 billion after deducting
the equalisation provision of £199 million (1999: £212 million). The loss
attributable to equity share holders was £1,309 million (full year 1999:
profit £1,003 million). Other movements in shareholders' funds included an
increase of £451 million in the valuation of in-force life business and equity
dividends payable of £320 million.
Net assets per ordinary share were 643 pence (31 December 1999: 690 pence)
after deducting the equalisation provision. Adding back the equalisation
provision, they were 652 pence (31 December 1999: 700 pence).
The Group's 'normalised' after tax return on equity, for the 9 months
(annualised), excluding businesses to be discontinued, was 7%. The normalised
return is based on the after tax operating profit including life achieved
operating profit, before exceptional items and amortisation of goodwill, as a
percentage of the opening equity capital.
Merger update
The integration of businesses continues to make rapid progress.
Annualised cost savings of £50 million have been achieved with £9 million of
savings included in the 9 month results. One off costs of £203 million have
been provided to date and we expect to have committed and provided the greater
part of the total anticipated integration costs of £425 million by the year
end.
A number of significant integration milestones have been achieved in the
period. These include the successful launch of our UK life, general and retail
fund management businesses under the new Norwich Union brand on target
on 2 October 2000. The launch has been backed by a strong advertising campaign
designed to consolidate the new brand rapidly, and will be continuing through
into 2001. Our UK life and general businesses now offer improved product
ranges, reflecting the best of breed from the merged CGU and Norwich Union
businesses, and each operates with a single retrained sales force.
The integration projects for each of our UK Group Office and Central
Services units have made excellent progress. The Central Services integration
will ensure we achieve benefits from economies of scale and common service
platforms through centralising facilities management and IT infrastructure for
our UK businesses.
In the UK, over 15,000 staff have now been appointed. The target headcount
reduction in the UK remains at 4,000 and an actual headcount reduction of 926
against this target has been achieved.
Our European businesses have also made excellent integration progress. On
2 October 2000, our Irish business launched under the single Hibernian brand.
In France, all staff moves have been completed and business teams integrated.
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Page 8
Online developments and wealth management
CGNU remains committed to the development of innovative e-commerce
applications across its businesses. Our businesses around the world continue
to invest in technology to improve operational efficiency. Our UK life
business aims to be in a position to process as much as 50% of our new
business electronically, through 'no touch' administration, by the end of next
year. Our UK general business has announced plans to e-enable the
intermediary channel through an initiative called 'i2i-link'. This will
streamline and enhance distribution and service by creating a single gateway
for transaction with intermediaries.
On 2 August 2000, we announced our intention to launch an on-line wealth
management service in the UK. norwichunion.com delivered its
pre-registration facility on 2 October 2000 to coincide with the launch of the
new Norwich Union brand in the UK. In quarter one 2001, we will introduce
Trusted Partner services, a wide range of impartial information and financial
planning tools designed to help customers make better decisions about their
money, their assets and their future. This service will act as the gateway to
the full, integrated wealth management proposition. This will include a fund
supermarket, a share-dealing service and a range of banking products and
services.
To date investment in norwichunion.com is £75 million, in line with our
previously announced spend of £250 million to the end of 2002. In addition,
investment in assertahome is £20 million. assertahome is now attracting over
125,000 unique users a month and is acknowledged as the UK's leading
home-moving portal.
Notes to editors
- CGU and Norwich Union merged on 30 May 2000 to create CGNU plc, the UK's
largest insurance group and one of the top-five insurers in Europe with
substantial positions in other markets around the world, making it the
world's sixth largest insurer based on gross worldwide premiums.
- CGNU's principal business activities are long-term savings, fund
management and general insurance, with worldwide premium income and
retail investment sales of £26 billion and assets under management of
more than £200 billion.
- From October 2000, the combined life and pensions, general insurance and
retail fund management businesses in the UK operate under the Norwich Union
brand, while the institutional investment business operates under the
Morley Fund Management brand.
- Overseas currency results are translated at average exchange rates.
- All growth rates are quoted in local currency.
- CGNU's corporate press releases and results presentations are available on
the internet: www.cgnu-group.com
END OF PART 1 OF 4
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