Aviva Plc 6 Mths Rslts - Pt.1
Aviva PLC
1 August 2002
PART 1 OF 2
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1 August 2002
UNAUDITED RESULTS
6 MONTHS ENDED 30 JUNE 2002
AVIVA REPORTS OPERATING PROFIT* OF £979 MILLION (2001: £977 MILLION) FOR THE
SIX MONTHS TO 30 JUNE 2002. On a modified statutory basis, operating profit
was £757 million (2001: £728 million)
DELIVERING PROFITABLE NEW BUSINESS GROWTH
- Worldwide new business sales of £7.3 billion (2001: £7.1 billion)
- Worldwide life and pension sales on an APE basis of £1.2 billion
(2001: £1.1 billion), up 11%
- New business contribution up 6% to £289 million with margins at 24.0%;
margins in the discrete second quarter were 25.2% due to business mix
- Bancassurance sales doubled with total sales of £1.3 billion
(2001: £0.6 billion)
EXCELLENT GENERAL INSURANCE RESULT
- Worldwide general insurance business delivers combined operating ratio
of 101% (2001: 103%)
- General insurance operating profit up 13% to £480 million (2001:
£427 million)
STRONG CAPITAL POSITION
- Equity shareholders' funds of £11.3 billion (31 December 2001:
£11.6 billion, restated)
- Net asset value at 511 pence per share (31 December 2001: 524 pence,
restated)
- Orphan estate stands at £4.7 billion and the free asset ratio*** of the
UK Life funds is 14.1%, at 30 June 2002
- Interim dividend of 8.75 pence net per share
* From continuing operations including life achieved operating profit
before amortisation of goodwill and exceptional items.
** Annual premium equivalent (APE) is the UK industry's standard measure of
new regular premiums and 10% of single premiums.
*** Calculated in accordance with FSA guidance existing at 30 June 2002.
All growth rates quoted are at constant rates of exchange.
Richard Harvey, Group Chief Executive, commented:
'This is a solid set of results in the current market environment. Although
investment markets continue to be turbulent, these results reflect the fact
that Aviva is a financially strong company, with resilient and
well-diversified businesses.
'The combination of our strong long-term savings operations and robust general
insurance business distinguishes us. The current environment presents a
challenge to many of our businesses in the short term. However the
longer-term dynamics for our business remain unaltered. We have built our
long-term savings businesses so that they are well-placed with their
multi-distribution channels and broad range of products to meet the needs of
our customers.'
Enquiries:
Richard Harvey
Group Chief Executive Telephone +44 (0)20 7662 2286
Mike Biggs
Group Finance Director Telephone +44 (0)20 7662 2031
Analysts:
Steve Riley
Investor Relations Director Telephone +44 (0)20 7662 8115
James Matthews
Head of Investor Relations Telephone +44 (0)20 7662 2137
Media:
Hayley Stimpson
Director of External Affairs Telephone +44 (0)20 7662 7544
Ian Frater
Head of Group Media Relations Telephone +44 (0)20 7662 8221
Alex Child-Villiers
Financial Dynamics Telephone +44 (0)20 7269 7107
- An interview with Richard Harvey, Group Chief Executive, in video, audio
and text will be available after the results have been released today on
the Group's website, www.aviva.com, and www.cantos.com
- There will be a conference call today for wire services at 8.15 am on
+44 (0)20 8240 8241. Quote: Aviva, Richard Harvey. The transcript will be
available for 1 week on the replay facility on the same telephone number.
Quote: 436899
- A presentation to investors and analysts will take place at 9.30 am at
St Helen's, 1 Undershaft, London, EC3P 3DQ and there will also be a live
teleconference on +44(0)20 8515 2341. The presentation slides will be
available on the Group's website, www.aviva.com. Replay facility will be
available for 2 weeks on +44 (0)20 8797 2499. The pass code is 114464
(followed by hash) for the whole presentation including Question & Answer
session or 114465 (followed by hash) for Question & Answer session only.
- The investors and analysts presentation is being filmed for delayed
webcast and will be available on the Group's website, www.aviva.com,
later this afternoon.
- Photographs are available from www.newscast.co.uk and the media centre
on www.aviva.com
FINANCIAL HIGHLIGHTS
Restated*
6 months 6 months
2002 2001
£m £m
Total premiums written (after reinsurance)
and investment sales - continuing operations,
including share of associates' premiums 14,495 13,995
Worldwide long-term savings new business sales
Life and pensions 6,674 6,290
Retail investments 622 763
New business contribution (before effect
of solvency margin) 289 272
Achieved operating profit before tax
-continuing operations
Life achieved operating profit** 796 849
Health 32 32
Fund management 3 24
General insurance 480 427
Non-insurance operations** (7) 1
Corporate costs (96) (81)
Unallocated interest charges (208) (215)
Wealth management (21) (60)
------ ------
Achieved operating profit before tax
- continuing operations 979 977
====== ======
Modified statutory operating profit
- continuing operations 757 728
Modified statutory operating profit after
tax, minorities and preference dividends
- continuing operations 484 463
Achieved operating earnings per share
- continuing operations 27.4p 27.5p
Modified statutory operating earnings
per share - continuing operations 21.5p 20.6p
Dividend per ordinary share 8.75p 14.25p
Equity shareholders' funds 11,259 11,552***
Total shareholders' funds 11,459 11,752***
Net asset value per ordinary share 511p 524p***
Assets under management £214bn £209bn***
* Restated for the impact of Financial Reporting Standard 19 'Deferred
Tax'.
** Reclassification of other life and savings business from 'Life' to
'Non-insurance operations'.
*** As at 31 December 2001.
GROUP CHIEF EXECUTIVE'S STATEMENT
I am pleased to report that the Group continues to make progress in line with
its stated strategy. In the face of difficult conditions for long-term
savings, Aviva has delivered a solid operating profit before tax, including
life achieved profit, of £979 million (2001: £977 million) demonstrating the
financial and operational strength of our business.
Long-term savings
Our life and pension sales increased to £6.7 billion (2001: £6.3 billion), up
by 11% when measured on an APE basis. In the UK, where we have a market share
of over 12%, we saw strong life and pension sales growth of 12% to
£676 million (2001: £606 million) on an APE basis. This continues to build on
our strong performance in 2001 and re-affirms the strength of the Norwich
Union brand, broad product offerings and strong distribution capability. Life
achieved operating profit was lower at £424 million (2001: £465 million) as
the effect of lower equity markets impacted the returns from the in-force
business. Favourable business mix in the second quarter lifted new business
margins to 24.3% (full year 2001: 25.8%).
Recent reports setting out proposals on the regulatory environment are likely
to change the future of long-term savings provision in the UK market place.
The reviews are aimed at closing the 'savings gap' in the UK which is
estimated at some £27 billion per annum. A combination of increased levels of
consumer education, transparency and simplification should provide an added
impetus to the growth prospects of the UK long-term savings market. The
Sandler Review principles favour providers with scale, multi-distribution
expertise and strong product offerings. However we believe it is important to
assess how shareholder value may be maximised by operating under these
principles.
In Continental Europe, life and pension sales on an APE basis increased to
£443 million (2001: £421 million) with total margins improving relative to the
first quarter of 2002 to 25.5% (full year 2001: 27.0%). Continental European
life achieved operating profit was £350 million (2001: £367 million) and
represents 44% of our total life business result. In July we announced that
our French business is in discussions with Mederic to establish a partnership,
which will offer CGU France's range of life insurance products to Mederic's
client base through a new joint venture life insurance company.
Sales from our bancassurance partnerships continue to gain momentum from the
distribution agreements we put in place during 2001 and total worldwide sales
from this channel were £1.3 billion (2001: £0.6 billion). We continue to seek
opportunities to further extend our reach across the important long-term
savings markets of Europe and we have recently announced an agreement with
Banca Popolare Commercio e Industria in Italy.
Continued investor caution about equity-backed products resulted in lower
retail investment sales at £622 million (2001: £763 million).
Fund management
Ongoing instability in worldwide investment markets has continued to impact
the results of our fund management business as lower investment markets
depressed profits. Operating profit fell to £3 million (2001: £24 million).
Worldwide assets under management increased to £214 billion (2001:
£209 billion), reflecting the impact of new business flows in the period which
more than offset the effects of the fall in global investment markets.
General insurance
Total operating profit from our general insurance business was up 13% to
£480 million (2001: £427 million). This is an excellent result and
demonstrates the success of our strategy of focusing on personal lines and
small commercial businesses. Our worldwide combined operating ratio (COR) of
101% (2001: 103%) reinforces our view that we have built businesses that are
capable of sustaining a COR of 102% through the underwriting cycle.
Shareholders' capital employed and financial strength
In a market that increasingly looks for quality and financial strength, our
strong capital position is fundamental to our business. The Group achieved a
profitable performance at the operating level which when offset by the fall in
the equity markets saw shareholders' funds marginally down at £11.3 billion
(31 December 2001: £11.6 billion, restated) equivalent to 511 pence per
ordinary share. The solvency position of our main trading operations remains
strong despite market falls. At 30 June 2002 the average free asset ratio of
our main UK life companies is 14.1% (10.1% excluding implicit items) and the
orphan estate was £4.7 billion. Furthermore the solvency capital of our
combined general insurance operations is unchanged from the year end levels
and is resilient to further falls. Overall the Group's position remains
strong, with sufficient capital to withstand a further deterioration in the
market.
Outlook
As we move into the second half of 2002, market conditions for long-term
savings sales are becoming increasingly difficult as investors are discouraged
by the ongoing uncertainty in worldwide investment markets and changes in the
macro-economic environment. Over the short term, this environment presents a
challenge to many of our businesses. However, there remains a need for
long-term savings provision and we believe that the longer-term dynamics for
our business remain unaltered. We have built our businesses so that they are
well-placed with their multi-distribution channels and broad range of products
to continue to meet the needs of our customers.
Richard Harvey
Group Chief Executive
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Contents
Page
Operating and financial review 1
Life new business sales 7
Achieved profit basis
Summarised consolidated profit and loss account
- achieved profit basis 13
Basis of preparation 14
Components of total life achieved profit 14
New business contribution 15
Analysis of life achieved operating profit 16
Embedded value of life business 16
Segmental analysis of embedded value of life business 17
Minority interests in life achieved profit 17
Methodology 18
Principal economic assumptions 19
Other assumptions 20
Modified statutory basis
Summarised consolidated profit and loss account
- modified statutory basis 21
Earnings per share - modified statutory basis 22
Consolidated statement of total recognised gains and losses 22
Reconciliation of movements in consolidated shareholders' funds 22
Summarised consolidated balance sheet 23
Consolidated cash flow statement 24
Basis of preparation 25
Exchange rates 26
Acquisitions 26
Disposals 26
Geographical analysis of life and pensions and investment sales
- new business and total income 27
Geographical analysis of modified statutory life profit 28
Geographical analysis of health premiums after reinsurance
and operating result 28
Geographical analysis of general insurance premiums after reinsurance
and operating result 29
Tax 30
Dividends 30
Earnings per share 31
Longer-term investment return 32
Statistical supplement
Segmental analysis of group operating profit at constant currency
- achieved profit basis 33
Supplementary analyses 34
General insurance - geographical ratio analysis 37
General insurance - class of business analyses 38
Assets under management 40
Group capital structure 41
Shareholder information 48
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Page 1
OPERATING AND FINANCIAL REVIEW
Group operating profit before tax
The Group's achieved operating profit before tax from continuing operations,
including life achieved operating profit, was maintained at £979 million
(2001: £977 million). On a modified statutory basis, operating profit from
continuing operations was £757 million (2001: £728 million).
In calculating the current year Group operating profit from continuing
operations, we have included the results of operations acquired, sold or
announced to be sold in the year, as their results are not sufficiently
material to merit separate disclosure. For the prior year operating profit
from continuing operations, we have excluded the results from our US general
insurance business, the sale of which completed in June 2001.
6 months 6 months
2002 2001
£m £m
Achieved operating profit - continuing
operations before tax, amortisation of goodwill and
exceptional items 979 977
Discontinued operations - (21)
Amortisation of goodwill (46) (30)
Change in claims equalisation provision and
Financial Services Compensation Scheme levy (26) (36)
(Loss)/ profit on sale of subsidiary undertakings (16) 247
Effect of economic assumption changes - 143
Short-term fluctuations in investment return
- general insurance and shareholder business (499) (432)
Variation from longer-term investment return
- life business (854) (742)
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(Loss)/ profit on ordinary activities before tax
- achieved profit basis (462) 106
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Profit on ordinary activities before tax
- modified statutory basis 110 425
====== ======
Profit before tax on a modified statutory basis of £110 million (2001:
£425 million) is stated after a £499 million shortfall in the actual
investment return earned in the period compared to the Group's longer-term
investment return assumptions. This principally reflects unrealised losses on
equities held by the Group's non-life operations, particularly in the UK where
the FTSE All-Share index has fallen by over 10% since the beginning of the
year to 2,263 at 30 June 2002 (31 December 2001: 2,523).
On an achieved profit basis, the loss before tax was £462 million (2001:
profit of £106 million) and includes further adverse investment return
variances of £854 million, reflecting the impact of falls in investment
markets on the Group's life embedded value. The impact on embedded value is
predominantly attributable to the equity market fall in the UK.
In preparing the 2002 interim results we have adopted the requirements of
Financial Reporting Standard (FRS) 19 'Deferred Tax'. The principal impact of
the change in accounting policy has been to provide, on a discounted
basis, additional deferred tax on unrealised appreciation or depreciation of
investments. On an achieved profit basis, the effect of this new policy has
resulted in a tax credit on the ordinary activities of £431 million (2001:
£276 million) for the six month period ended 30 June 2002. The tax for the
period includes a charge of £305 million (2001: £313 million) in respect of
operating profit from continuing operations, equivalent to an effective rate
of 31.2% (2001: 32.0%).
Long-term savings
Our worldwide long-term new business sales saw good growth in the first half
of 2002. Total life and pension sales of £6.7 billion (2001: £6.3 billion)
showed strong growth of 11% when measured on an APE basis, underpinned by the
ongoing development of our bancassurance partnerships in the UK with The Royal
Bank of Scotland Group and in Spain and Italy with our local partners.
However, long-term savings market conditions are becoming increasingly
competitive as we move into the second half of 2002. Retail investment sales
were down to £622 million (2001: £763 million), reflecting continued investor
caution about equity-backed products.
We expect the second half of 2002 to remain challenging until global
investment markets stabilise, when investors' sentiment towards equity-backed
products may change.
6 months 2002 Local currency growth
Life Life
and Retail and Retail
pensions investments Total pensions investments Total
£m £m £m % % %
Long-term savings
sales
United Kingdom 3,708 313 4,021 4% (44%) (2%)
Europe
(excluding UK) 2,505 109 2,614 3% (11%) 2%
International 461 200 661 60% 133% 77%
----- ----- ----- ----- ----- -----
6,674 622 7,296 6% (19%) 3%
===== ===== ===== ===== ===== =====
Navigator - 493 493 - 11% 11%
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Page 2
Life achieved operating profit
6 months 6 months
2002 2001
£m £m
New business contribution
(after the effect of solvency margin) 237 227
Profit from existing business
- expected return 414 417
- experience variances (17) (7)
- operating assumption changes (3) 50
Expected return on shareholders' net worth 165 162
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Life achieved operating profit before tax 796 849
====== ======
Life achieved operating profit was lower at £796 million (2001: £849 million)
due to the non-recurrence of £50 million of positive operating assumption
changes which arose in 2001. New business contribution was 6% higher at
£237 million (2001: £227 million) as a result of the 11% rise in new business
volumes measured on an APE basis. Overall new business margins were lower
principally due to business mix and, to a lesser extent, competitive
pressures. Furthermore, in 2002 we have incurred some adverse experience
variances across a number of our businesses as a result of the impact of the
ongoing market conditions and investments in developing our business. The
effect of applying higher start of year economic assumptions to a lower start
of year embedded value resulted in flat expected returns on existing business
and shareholders' net worth.
Annual premium New business
equivalent* contribution ** New business margin***
6 6 6 6 6 6
months months months months months months Full
2002 2001 2002 2001 2002 2001 year
£m £m £m £m % % %
Life and pensions
business
United Kingdom 676 606 164 164 24.3% 27.1% 25.8%
Europe
(excluding UK) 443 421 113 105 25.5% 24.9% 27.0%
International 83 57 12 3 14.5% 5.3% 12.1%
------ ------ ------ ------ ------ ------ ------
1,202 1,084 289 272 24.0% 25.1% 25.5%
====== ====== ====== ====== ====== ====== ======
* Annual premium equivalent represents regular premiums plus 10% of
single premiums.
** Before effect of solvency margin.
*** New business margin represents the ratio of new business
contribution to annual premium equivalent, expressed as a
percentage.
UK
Our market-leading business, Norwich Union, recorded an achieved operating
profit of £424 million (2001: £465 million) primarily reflecting the impact of
lower equity markets in 2001, which has reduced the expected return by
£20 million and a number of minor adverse experience variances. Margins on new
business were 24.3% (full year 2001: 25.8%) while the discrete second quarter
margin of 25.3% (first quarter 2002: 23.3%) reflects beneficial changes in
product mix and good annuity margins.
A number of reviews relating to the UK long-term savings market have reported
during the first half of 2002, in particular the FSA's review of with-profit
business and the Sandler and Pickering reviews. The recommendations of these
reviews will be drawn together by the FSA for consultation with all
stakeholders later this year and into 2003. We broadly welcome the overall
thrust of the recommendations from the reviews which are aimed at closing the
'savings gap' in the UK, estimated at some £27 billion per annum. A
combination of increased levels of consumer education, transparency and
simplification should provide an added impetus to the growth prospects of the
UK long-term savings market. The Sandler Review principles favour providers
with the scale, multi-distribution expertise and strong product offerings.
We are well placed to manage change and capitalise on these opportunities.
However, we believe it is important to assess how shareholder value may be
maximised by operating under these principles.
The Sandler Review specifically proposed that with-profit business should
operate on a 'charges less expenses', or 100:0 basis. Norwich Union has the
experience to operate on this basis but we also believe that there is nothing
intrinsically wrong with the 90:10 basis. In the shorter term all relevant
Norwich Union products will continue to be marketed on a 90:10 basis. The
impact on new business margins is unclear at this stage and the actual effects
will be determined by a number of factors, including product mix, distribution
costs, efficiency gains, improving volumes and competitive forces. However,
Norwich Union estimates that if this change had occurred in 2001 then based on
our new business and distribution mix, the average margin achieved on the life
and pension business would have been reduced by no more than 5 percentage
points.
In addition, the Sandler Review urges a rapid conclusion to the reattribution
of inherited estates. We will examine this in the interest of both
policyholders and shareholders but would not expect it to complete before the
end of 2004.
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Europe (excluding UK)
Total life achieved operating profit from our Continental European businesses
was £350 million (2001: £367 million). New business margins were 25.5% (full
year 2001: 27.0%), driven predominantly by the increase in Spain where we
achieved margins of 52.3% (full year 2001: 46.5%) as a result of increasing
the proportion of protection business sold. Expected returns on the value of
inforce and shareholders' net worth benefited from the impact of acquisitions
in 2001 in Spain and Italy. There were minimal operating assumption changes or
experience variances in the period.
In July we announced that our French business is in discussions with Mederic
to establish a partnership. The aim of the partnership is to offer CGU
France's range of life insurance and savings products to Mederic's client base
through a new joint venture life insurance company. In addition we announced a
further bancassurance arrangement in Italy. Together with UniCredito Italiano,
the new bancassurance arrangement with Banca Popolare Commercio e Industria
will enhance our distribution capability in this long-term savings market.
International
Life achieved operating profit from our International businesses increased to
£22 million (2001: £17 million) benefiting from our bancassurance agreement
with DBS in Singapore in the second half of 2001, which contributed an
operating profit of £4 million. New business margins were 14.5%
(full year 2001: 12.1%). The results were held back by the ongoing IT
development spend in our US operations.
Life modified statutory basis
On a modified statutory basis, our operating profit amounted to £574 million
(2001: £600 million). As a result of falling bonus rates in the UK, the
with-profit result has decreased to £122 million (2001: £146 million). The
increase in Italy to £19 million (2001: £5 million) reflects the acquisitions
made in the second half of 2001. Other International operations recorded a
loss of £5 million (2001: £14 million) which is principally as a result of
development expenditure in our US operations.
Health
Premium income from our health business grew by 5% to £536 million (2001:
£509 million) and total operating profit was £32 million (2001: £32 million).
Our business in the Netherlands continued to be the main driver of the total
health result with profits at £26 million (2001: £24 million).
Fund management
2002 continues the trend prevalent in the second half of 2001, with uncertain
economic conditions and lower investment markets depressing profits. In
addition, there has been reduced demand for retail investment products.
Operating profit from our worldwide business was £3 million (2001:
£24 million).
Our UK fund management business reported a loss of £8 million (2001: profit of
£5 million). This includes the results of our institutional business, Morley
Fund Management (Morley) and is after the investment in our UK retail
investment business of £16 million (2001: £15 million). Following the trend
seen in the second half of 2001, the Morley profit of £6 million (2001:
£14 million) reflect a reduction in fees as a result of ongoing lower market
values. UK retail investment sales amounted to £313 million (2001:
£557 million). Morley was voted UK Fund Manager of the Year at the Pensions
Week Awards 2002.
Operating profit from Victoire Asset Management, our operation in France, was
maintained at £6 million (2001: £6 million) whilst Delta Lloyd returned an
operating profit of £5 million (2001: £4 million). In Australia, Navigator,
our award-winning multi-manager funds administration business, has seen strong
growth in its sales (which are excluded from the Group's headline new business
figures) of 11% to £493 million (2001: £437 million). Continued development
expenditure on the infrastructure in Singapore has resulted in a loss for the
Navigator fund management result on a statutory basis. On an achieved profits
basis, Navigator's new business contribution was £3 million (2001: £6 million)
and its embedded value grew to £42 million (2001: £40 million).
Assets under management at 30 June 2002 increased to £214 billion (2001:
£209 billion), reflecting the impact of new business flows in the period
offset by the falls in worldwide investment markets.
General insurance
Our worldwide continuing general insurance operations contributed an operating
profit of £480 million (2001: £427 million), underpinned by our clear and
focused strategy on personal lines and small commercial businesses. The
worldwide combined operating ratio from continuing operations was 101% (2001:
103%) and has been achieved through our strict adherence to our operational
disciplines of focused underwriting and efficient claims handling.
Improvements have been made in all countries. The worldwide expense ratio from
continuing operations improved to 11.3% from 11.9%. Net written premiums were
higher at £4,401 million (2001: £4,352 million).
The application of unchanged investment assumptions on lower asset values at
the start of 2002 has resulted in the longer-term investment return falling to
£558 million (2001: £579 million).
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Page 4
General insurance (continued)
Underwriting Operating profit*
result*
6 months 6 months 6 months 6 months
2002 2001 2002 2001
£m £m £m £m
United Kingdom (35) (69) 303 254
Europe (excluding UK) (22) (57) 85 71
International (21) (26) 92 102
------ ------ ------ ------
Continuing operations (78) (152) 480 427
====== ====== ====== ======
Discontinued operations - (173) - (21)
* Excludes the change in the equalisation provision of £26 million
(2001: £22 million) and impact of exceptional items.
UK
Our UK general insurance business recorded a 19% increase in operating profit
to £303 million (2001: £254 million), with a combined operating ratio (COR) of
101%. This is a significant achievement and reflects our continued adherence
to our underwriting strategy through prudent rating action and placing profit
before volume. Our personal lines business achieved an excellent COR of 99%.
In both personal motor and homeowners, we achieved annualised rating increases
of 7%.
In particular, there has been a significant improvement in commercial lines,
reflecting the impact of rating actions and reduced capacity in that market.
In commercial motor we remain focused on maintaining profitability and have
achieved annualised rating actions of 10%. In the commercial property market,
there has been considerable improvement in our underwriting result as we
benefit from the lack of capacity in the market and have achieved annualised
rating actions of 16%. Our commercial liability COR has improved through
recording annualised rating increases of 29% as we change the profitability
profile of this business.
The expense ratio improved to 10.4% (2001: 10.6%) and maintains our position
as one of the lowest cost providers among the large insurers. We continue to
reinvest in the ongoing improvements of infrastructure and the development of
our leading edge technology, such as the digital flood programme and Pay As
You Drive scheme. This programme of continued investment in the business will
consolidate on the foundations we built in 2001 to ensure that we have a
business capable of achieving our target COR across the cycle.
We expect the second half of the year to continue to see a slowing in rating
increases especially in the personal lines classes. We remain committed to
our strict underwriting strategy.
Europe (excluding UK)
In Europe, our general insurance businesses produced total operating profits
of £85 million (2001: £71 million) and saw improvements in performance across
all our businesses.
In France, our general insurance business improved its underwriting result to
a loss of £5 million (2001: loss of £15 million) with a COR of 100% (2001:
103%) as a result of strong rating action and a continued focus on disciplined
underwriting. The sale of CGU Courtage, our broker distribution business
completed in May 2002, generating a profit on disposal of £6 million. In
reporting our results to 30 June, we have excluded the results of CGU
Courtage. This reflects the structure of the sale whereby the Group had no
economic interest in the operating results after 31 December 2001.
Hibernian, the market leader in Ireland, increased its operating profit to
£21 million (2001: £17 million) reflecting an improved underwriting result as
it achieved a COR of 100% (2001: 104%). Operating profit from Delta Lloyd and
our other European businesses improved by £39 million (2001: £20 million),
reflecting the benefits of strong rating actions and disciplined underwriting
procedures and the disposal of our loss-making general insurance operations in
Belgium in 2001.
International
Our International businesses returned an operating profit of £92 million
(2001: £102 million). The reduction in operating profit reflected a lower
Canadian result of £39 million (2001: £50 million) with a reduction in the
longer-term investment return following the repatriation of capital in the
second half of 2001.
Our Australian and New Zealand businesses returned an operating profit of
£24 million (2001: £26 million) which includes the operating profit of Fortis
Australia, which we acquired last year. Our other International businesses
returned an operating profit of £29 million (2001: £26 million).
Non-insurance operations
The result of the Group's non-insurance operations fell to a loss of
£7 million (2001: profit of £1 million) primarily reflecting investment by our
UK life service company in systems capability. The UK life service company was
previously included as part of the life result and has been reclassified into
non-insurance operations.
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Page 5
Corporate costs
Corporate costs, excluding staff profit share and other incentive plans, were
higher at £57 million (2001: £49 million) as a result of increased project
spend including the ongoing costs of the global finance improvement programme
which commenced in late 2001. Costs of the finance improvement programme
amounted to £10 million in the period and will increase as the scale of the
programme builds momentum in the second half of 2002. Profit share and other
incentive plans increased to £39 million (2001: £32 million) as incentive
plans were extended across the Group in the second half of 2001.
Unallocated interest charges
Unallocated interest charges comprise internal and external interest on
external borrowings, subordinated debt and intra-group loans which are not
allocated to local business operations. Total interest costs were £208 million
(2001: £215 million) and include the interest cost on the hybrid debt of
£36 million (2001: £nil). The overall reduction in interest costs reflects the
lower levels of borrowings and lower interest rates.
Dividend
In line with the Board's announcement in February to rebase the 2002 full year
dividend to 23.0 pence net per ordinary share the Board has declared an
interim dividend of 8.75 pence net per share (2001: 14.25 pence) payable on
15 November 2002 to shareholders on the register on 27 September 2002.
Group capital and financial strength
Shareholders' funds
Equity shareholders' funds fell to £11.3 billion (31 December 2001:
£11.6 billion, restated) reflecting the benefit of exchange movements and
after the cost of the interim dividend declared of £197 million. Net asset
value per ordinary share, based on equity shareholders' funds, fell to
511 pence per share (31 December 2001: 524 pence per share, restated) after
adding back the equalisation provision of £283 million (31 December 2001:
£272 million).
Capital structure
At 30 June 2002 we had £18.1 billion (31 December 2001: £19.5 billion,
restated) 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.
At 30 June 2002 capital employed in our operations was lower at £18.1 billion
(31 December 2001: £19.5 billion, restated) primarily reflecting £293 million
reduction in shareholders' funds and the use of £1,188 million of assets
employed in the business to reduce internal and external debt.
Standard and Poor's have recently reaffirmed the financial strength rating of
AA (very strong security) in respect of the Group's principal operations.
Return on capital employed
Strong operational performance, coupled with efficient financing, has
increased the Group's normalised annualised 2002 post-tax return on equity to
11.0% (2001: 9.7%). The normalised return is based on the post-tax operating
profit, including life achieved profit, before amortisation of goodwill and
exceptional items, expressed as a percentage of the opening equity capital.
Financial strength of the Group and its principal insurance operations
Aviva group had an estimated excess regulatory capital, as measured on the new
EU Directive, of some £1.5 billion at 30 June 2002 (31 December 2001:
£1.7 billion). This measures the excess of the aggregate value
of the regulatory capital employed in our business over the aggregate minimum
solvency requirements imposed by local regulators excluding the surplus held
in the Group's UK life funds.
In a market that increasingly looks for quality and financial strength, the
resilience of the regulatory capital position of the Group and its principal
insurance operations is fundamental to our business. Our principal UK general
insurance regulated subsidiaries are CGU International Insurance plc (CGUII)
and Norwich Union Insurance (NUI). CGUII is the parent company of the majority
of the Group's overseas life and general insurance subsidiaries.
The combined general insurance businesses of CGUII and NUI have strong
solvency positions. The estimated excess solvency margin (representing the
regulatory value of excess net assets over the required minimum margin) of the
combined operations was £3.1 billion at 30 June 2002 which is unchanged from
the year end position. Solvency cover for the CGUII group was 7.3 times
and the NUI group had a cover of 2.0 times. The solvency margin of the
combined regulated group is resilient to equity market movements. We estimate
that the solvency can withstand market falls of approximately 80% from
30 June 2002 levels before the solvency cover is reduced to 1.0 times.
Furthermore, as CGUII also acts as the holding company for the majority of our
overseas life and non-life businesses its regulatory solvency strength can
benefit these businesses. Another measure that the Group uses to assess its
capital requirements is risk-based capital. At 30 June 2002 the risk-based
capital requirement of our worldwide general insurance businesses was
£3.2 billion in comparison to £4.6 billion of capital employed by these
businesses after deducting goodwill and adding back the claims equalisation
reserve. The combined general insurance businesses of CGUII and NUI hold total
regulated available assets of £6.0 billion. After deducting the risk-based
capital for the general insurance businesses of CGUII and NUI of £3.1 billion
and adding back the claims equalisation reserve of £0.3 billion, the
remaining available capital of £3.2 billion is sufficient to cover the minimum
margin of overseas life businesses by over 2 times.
--------------------------------------------------------------------
Page 6
A common measure of the financial strength in the UK for life insurance
business is the free asset ratio (FAR). We estimate that the average free
asset ratio of our three large UK life companies was 14.1% at 30 June 2002
(31 December 2001: 14.7%). This has been calculated in accordance with FSA
guidance on resilience tests released on 28 June 2002, using a 17% fall in
equities and a 10% fall in property, and includes implicit items. If these
implicit items were excluded then the FAR would be 10.1% (31 December 2001:
10.8%).
The strength of our with-profit funds is underpinned by our UK orphan
estate, which amounts to an estimated £4.7 billion at 30 June 2002
(31 December 2001: £5.2 billion) and are used to support strong business
development for the benefit of policyholders and shareholders alike. The
orphan estate is estimated on the basis of realistic assumptions, as distinct
from statutory free reserves which are calculated on a more prudent statutory
solvency basis.
At 30 June 2002, the aggregate value of with-profit funds in our funds in our
UK life business invested on behalf of our policyholders amounted to
£48 billion. The split of investment as at that date was as follows:
Equity 49% (31 December 2001: 54%)
Fixed interest 35% (31 December 2001: 31%)
Property 15% (31 December 2001: 14%)
Other 1% (31 December 2001: 1%)
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Page 7
LIFE NEW BUSINESS SALES
Geographical analysis of life, pensions and investment sales and new business
contribution
Total new Annual premium
business sales equivalent***
6 months 6 months
to Local to Local
30 June currency 30 June currency
2002 growth* 2002 growth*
£m £m
Life and pensions
United Kingdom 3,708 4% 676 12%
France 909 (12%) 110 (10%)
Ireland 212 (18%) 66 30%
Italy 526 36% 69 25%
Netherlands (including
Belgium and Luxembourg) 310 (4%) 63 (15%)
Poland 38 16% 27 (10%)
Spain 379 29% 63 26%
Other Europe 131 17% 45 12%
International 461 60% 83 44%
------ ------ ------ ------
Total life and pensions 6,674 6% 1,202 11%
Investment sales
United Kingdom 313 (44%) 41 (34%)
Netherlands 56 40% 6 40%
Other Europe 53 (35%) 5 (35%)
International 200 133% 20 133%
------ ------ ------ ------
Total investment sales 622 (19%) 72 (13%)
------ ------ ------ ------
Total long-term savings 7,296 3% 1,274 9%
====== ====== ====== ======
Navigator sales 493 11%
(not included above)
New business
contribution**
6 months
to Local
30 June currency
2002 growth*
£m
Life and pensions
United Kingdom 164 -
France 34 (3%)
Ireland 17 21%
Italy 16 7%
Netherlands (including
Belgium and Luxembourg) 10 (9%)
Poland 6 20%
Spain 33 43%
Other Europe (3) (250%)
International 12 300%
------ ------
Total life and pensions 289 6%
====== ======
* Growth rates are calculated based on constant rates of exchange.
** Stated before the effect of solvency margin.
*** Annual premium equivalent (APE) is a UK industry standard for
calculating life, pensions and investments new business levels. It is
the total of new regular premiums and 10% of single premiums.
United Kingdom:
Norwich Union reported total new business sales of £4 billion (2001:
£4.1 billion), demonstrating continuing success with its life and savings
product offerings in difficult market conditions. Our share of the UK life
market is in excess of 12%. Our target is to grow our business profitably and
to increase our share of the total UK life and pensions market to 15% by the
end of 2005. Total life and pensions sales grew 12% to £676 million (2001:
£606 million) when measured on an Annual Premium Equivalent (APE) basis.
Investment sales however, were lower at £313 million (2001: £557 million) as
investors continued to adopt a cautious approach to retail investment
products.
Our joint venture partnership with The Royal Bank of Scotland Group (RBSG)
continues to gain momentum. Total sales through our partnership increased by
over 160% to £473 million (2001: £178 million), including £309 million of
single premium with-profit bond sales, a product launched in the first quarter
of 2002. A new term assurance product was launched through the joint venture
in May 2002, with encouraging sales to date. In addition we have reached an
agreement, in principle, to extend the range of products offered to include
unit trusts and Isas from early 2003. In reporting our results we have
included our 50% share of sales written through the joint venture life company
amounting to £82 million (2001: £89 million) and 100% of single premium
with-profit bond sales which are written through a Norwich Union fund.
Sales of single premium bonds including those sold through the RBSG
partnership, amounted to £1,624 million (2001: £1,773 million) and included
the benefit of our bond product which was re-launched with enhanced terms in
April 2002. To meet current investor preferences a guaranteed product will be
launched in the second half of 2002.
Total pension sales continued to grow, increasing 17% to £1,472 million (2001:
£1,260 million), including stakeholder sales of £388 million (2001:
£43 million). Within the stakeholder market, Norwich Union maintains its
overall target market share of 20% and has approximately one-third of the IFA
channel. IFAs continue to be one of our key distribution channels and life and
pension sales through IFAs increased by 8% to £505 million (2001:
£467 million) on an APE basis. Sales of annuities grew strongly by 31% to
£460 million (2001: £351 million) and other life sales included sales of level
and decreasing term assurance which increased 26% to £34 million (2001:
£27 million).
The depressed equity markets coupled with low investor confidence have created
a very challenging market place for long-term savings products in the UK. We
expect that this environment will persist during the second half of 2002 and
we anticipate that the overall UK market will be flat in 2002.
New business contribution was £164 million (2001: £164 million) and represents
a new business margin (the ratio of new business contribution to life and
pensions sales measured on an annual premium equivalent basis) of 24.3% (full
year 2001: 25.8%). The discrete second quarter margin was 25.3% (first quarter
2002: 23.3%), reflecting beneficial changes in product mix and good annuity
margins.
--------------------------------------------------------------------
Page 8
France:
Our French life business, the second largest in the Aviva Group, reported a
6% increase in sales of single premium fixed interest AFER products to £501
million (2001: £472 million). This reflects customers' continuing preference
for fixed interest investments, and is assisted by the strength of AFER's
brand and its position as the largest savings organisation in France.
With continuing investor caution and uncertainty in equity markets, total
sales of unit-linked and other savings products were lower at £319 million
(2001: £475 million). A new range of unit-linked products was launched in June
following the presidential elections, however initial sales of these products
were slower than anticipated. Sales of protection business were £89 million
(2001: £88 million). New business contribution amounted to £34 million (2001:
£35 million) with margins of 31.0% (full year 2001: 33.9%) in spite of the
very difficult market conditions.
CGU France announced in July 2002 its intention to establish a partnership
with Mederic, a French mutual life company. It is intended to offer CGU
France's range of life products to Mederic's customers through a new joint
venture life company. The deal is expected to be finalised by the end of 2002.
We expect that the long-term savings marketplace will remain difficult in the
second half of 2002 with the current trend of unit-linked sales continuing
until investment markets begin to stabilise.
Ireland:
New business sales at Hibernian Life & Pensions, our top-five provider of life
and pensions products, increased by 30% to £66 million measured on an APE
basis (2001: £51 million) with total sales of £212 million (2001: £257
million).
New regular premium pension sales increased by 16% to £22 million (2001:
£19 million), reflecting further success in targeting the executive and group
pensions markets. Against a strong second quarter in 2001, single premium
pension sales amounted to £53 million (2001: £86 million). This was due to a
combination of the limited opportunities for new group scheme mandates in the
current difficult investment conditions and the uncertainty which exists in
the individual pensions market ahead of the introduction of the Government's
new pension initiative, the Personal Retirement Savings Account (PRSA),
expected on 1 January 2003. We are well-placed to capitalise on the
introduction of the new PRSA, leveraging Norwich Union's experience in the UK
stakeholder market.
Sales of regular premium life products increased strongly to £28 million
(2001: £9 million), boosted by one-off sales of £23 million from the
Government's Special Savings Incentive Account (SSIA) which closed on 30 April
2002. Life single premium sales were £109 million (2001: £143 million),
reflecting lower demand for unit-linked products in current markets. New
business contribution was higher at £17 million (2001: £14 million) while the
margin was lower at 25.7% (full year 2001: 28.5%) reflecting business mix with
a higher proportion of the lower margin SSIA sales.
Italy:
In Italy the strength of distribution through our bancassurance partnerships
saw sales grow 36% to £526 million (2001: £387 million). Sales through our
agreement with UniCredito Italiano's (UCI) subsidiary, Cassa di Risparmio di
Torino, were particularly strong, growing by 61% to £363 million (2001:
£226 million). UCI recently announced a reorganisation of its branch-banking
network to move to a more focused approach, with individual branches targeting
either retail or corporate customers. This reorganisation will inevitably
create additional challenges to maintaining our sales momentum over the short-
term; however, we are confident that the reorganised network will offer us
greater opportunities over the longer-term.
As further branches of the Banca Popolare di Lodi network came on-stream,
total new business premiums increased significantly to £123 million for the
half year (2001: £11 million). Sales through our bancassurance partner, Banca
delle Marche were £18 million (2001: £33 million). Total new business
contribution was £16 million (2001: £15 million) with a margin of 23.3% (full
year 2001: 22.2%).
In July 2002 we announced, together with UCI, a new agreement with Banca
Popolare Commercio e Industria to form a new bancassurance partnership for an
initial period of five years. This partnership will further enhance our
position in the Italian long-term savings market and provide access to
approximately 550 additional branches. The transaction is subject to
regulatory approval and is expected to complete by the end of 2002.
Netherlands (including Belgium and Luxembourg):
Delta Lloyd, our top-five life and pensions business in the Netherlands,
reported total sales of £366 million (2001: £364 million).
Single premium individual pension sales increased 38% to £102 million (2001:
£74 million), demonstrating that Delta Lloyd is well-positioned to use its
expertise to develop products which can be tailored to the specific needs of
individual customers. Sales of group pensions amounted to £78 million (2001:
£111 million). In an overall life market which has contracted following
changes in tax legislation in 2001, Delta Lloyd increased its market share
with single premium sales of £109 million (2001: £107 million).
Investment sales were up 40% at £56 million (2001: £40 million) but remain at
relatively low levels due to continuing investor caution. To meet investors'
increasing preference for guaranteed investment bonds, Delta Lloyd will launch
new products in the second half of 2002.
The integration of Bank Nagelmackers in Belgium, which was acquired at the end
of 2001, is progressing and life premiums have started to flow through. We
expect sales to continue to grow during the second half of 2002, particularly
as the new products are launched through this distribution channel.
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Page 9
New business contribution was £10 million (2001: £11 million) with a new
business margin of 15.8% (full year 2001: 22.3%).
Poland:
CU Polska continues to be the market leader in individual life and private
pensions in Poland with a 19% share of the life market and a 29% share,
measured by assets under management, of the private pensions market. New life
and savings premiums rose 15% to £23 million (2001: £20 million) in continuing
difficult economic conditions. Pension sales were £15 million (2001:
£13 million), reflecting the low numbers of new entrants to the employment
market who are eligible to buy private pensions.
Spain:
Spain, our top-five life business, achieved a 29% increase in total new
business premiums to £379 million (2001: £294 million) driven by new product
launches through our new bancassurance partnerships which have come on-line
since the second half of 2001.
Total new business premiums from Bancaja were £266 million (2001:
£269 million) against a backdrop of a competitive market for savings products.
Sales through our agreements with Unicaja, Caixa Galicia and Caja Espana
amounted to £86 million (2001: £nil), and this distribution capability will
continue to be developed over the coming months. Further product launches are
planned for the second half of 2002, based on those successfully sold through
the Bancaja network. New business contribution was £33 million (2001:
£23 million) with an increased new business margin of 52.3% (2001: 46.5%)
driven by increased sales of high margin protection business.
Other Europe:
Total life and pension sales from our other European businesses grew by 17% to
£131 million (2001: £111 million).
In Germany, total new business premiums increased by 48% to £62 million (2001:
£42 million), including an increase of 79% in single premiums to £43 million
(2001: £24 million). Sales benefited from a new broker relationship and a
successful marketing campaign.
In Turkey total new business premiums were £12 million (2001: £12 million) and
in the emerging markets of Central and Eastern Europe we continue to develop
our businesses in the Czech Republic, Hungary and Romania. Single premium
sales from our Dublin-based offshore life and savings business were
£44 million (2001: £48 million) while investment sales of our Luxembourg UCITS
were £53 million (2001: £82 million), reflecting the challenging equity market
conditions.
International:
Our International life and pension business continued to grow with sales
increasing 60% to £461 million (2001: £286 million). Our United States
business contributed total life and pensions sales of £237 million (2001:
£159 million), up 50%, reflecting ongoing investor preference for fixed
annuity products.
In Australia, total life and pension sales were higher at £124 million (2001:
£118 million) and unit trust sales increased to £200 million (2001:
£84million). Whilst not included in the new business figures, sales of
Navigator, our market-leading master trust, increased 11% to £493 million
(2001: £437 million). Navigator is Australia's second fastest growing
discretionary master trust, with £3.2 billion of funds under administration at
30 June 2002.
In Singapore, our bancassurance partnership with DBS Group Holdings Limited
(DBS) generated total sales of £97 million (2001: £nil). New products,
including a limited offer single premium savings product, were launched as
planned in the second quarter of 2002. Sales from our recently announced
bancassurance partnership with DBS in Hong Kong are expected to begin to flow
through in the second half of 2002.
In India, our new joint venture with Dabur Group was launched in June 2002.
Aviva owns 26% of the joint venture, the maximum currently permitted under
Indian regulations. In China, an agreement was also signed in April 2002 with
COFCO, a state-owned Chinese export and import business, to set up a life
insurance joint venture. This venture is subject to final regulatory approval,
and we expect it to become operational in early 2003. Both of these operations
offer us access to markets with excellent long-term potential.
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Page 10
Detailed worldwide long-term savings new business analysis
Single
6 months 6 months
to to Local
30 June 30 June currency
2002 2001 growth
£m £m
United Kingdom
Individual pensions 829 768 8%
Group pensions 391 280 40%
Mortgage - - -
Annuities 460 351 31%
Bonds 1,624 1,773 (8%)
Other life 65 114 (43%)
------ ------ ------
Total life and pensions 3,369 3,286 3%
Peps/Isas/unit trusts/Oeics 302 550 (45%)
------ ------ ------
3,671 3,836 (4%)
France
AFER (excluding unit-linked) 501 472 6%
Unit-linked & other savings 308 467 (34%)
Protection business 79 76 4%
------ ------ ------
888 1,015 (13%)
Ireland
Life & savings 109 143 (24%)
Pensions 53 86 (38%)
------ ------ ------
162 229 (29%)
Italy
Life & savings 508 369 38%
------ ------ ------
508 369 38%
Netherlands (including
Belgium and Luxembourg)
Individual pensions 102 74 38%
Group pensions 63 96 (34%)
Life 109 107 2%
------ ------ ------
Total life and pensions 274 277 (1%)
Unit trusts 56 40 40%
------ ------ ------
330 317 4%
Poland
Life & savings 8 3 144%
Pensions 4 - -
------ ------ ------
Total life and pensions 12 3 267%
Spain
Life & savings 318 253 26%
Pensions 33 18 83%
------ ------ ------
351 271 30%
Other Europe
Life & pensions 96 80 20%
UCITS and other 53 82 (35%)
------ ------ ------
149 162 (9%)
International
Life & pensions 420 254 64%
Unit trusts 200 84 133%
------ ------ ------
620 338 81%
------ ------ ------
Total long-term savings 6,691 6,540 2%
====== ====== ======
Analysed:
Life & pensions 6,080 5,784 5%
Investment sales 611 756 (19%)
------ ------ ------
Total long-term savings 6,691 6,540 2%
====== ====== ======
Navigator sales (not included above) 493 437 11%
Regular Total
6 months 6 months
to to Local Local
30 June 30 June currency currency
2002 2001 growth growth
£m £m
United Kingdom
Individual pensions 65 64 2% 7%
Group pensions 187 148 26% 35%
Mortgage 32 23 39% 39%
Annuities - - - 31%
Bonds - 1 (100%) (8%)
Other life 55 41 34% (23%)
------ ------ ------ ------
Total life and pensions 339 277 22% 4%
Peps/Isas/unit trusts/Oeics 11 7 57% (44%)
------ ------ ------ ------
350 284 23% (2%)
France
AFER (excluding unit-linked) - - - 6%
Unit-linked & other savings 11 8 38% (33%)
Protection business 10 12 (17%) 1%
------ ------ ------ ------
21 20 5% (12%)
Ireland
Life & savings 28 9 211% (10%)
Pensions 22 19 16% (29%)
------ ------ ------ ------
50 28 79% (18%)
Italy
Life & savings 18 18 - 36%
------ ------ ------ ------
18 18 - 36%
Netherlands (including
Belgium and Luxembourg)
Individual pensions 1 - - 39%
Group pensions 15 15 - (30%)
Life 20 32 (38%) (7%)
------ ------ ------ ------
Total life and pensions 36 47 (23%) (4%)
Unit trusts - - - 40%
------ ------ ------ ------
36 47 (23%) 1%
Poland
Life & savings 15 17 (10%) 15%
Pensions 11 13 (15%) 16%
------ ------ ------ ------
Total life and pensions 26 30 (12%) 16%
Spain
Life & savings 16 17 (6%) 24%
Pensions 12 6 100% 88%
------ ------ ------ ------
28 23 22% 29%
Other Europe
Life & pensions 35 31 13% 17%
UCITS and other - - - (35%)
------ ------ ------ ------
35 31 13% (5%)
International
Life & pensions 41 32 29% 60%
Unit trusts - - - 133%
------ ------ ------ ------
41 32 29% 77%
------ ------ ------ ------
Total long-term savings 605 513 18% 3%
====== ====== ====== ======
Analysed:
Life & pensions 594 506 17% 6%
Investment sales 11 7 57% (19%)
------ ------ ------ ------
Total long-term savings 605 513 18% 3%
====== ====== ====== ======
Navigator sales
(not included above) - - - 11%
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Page 11
Analysis of UK long-term savings sales by distribution channel
Single
6 months 6 months
to to Local
30 June 30 June currency
2002 2001 growth
£m £m
IFA
- life and pensions products 2,350 2,423 (3%)
- investment products 189 350 (46%)
------ ------ ------
2,539 2,773 (8%)
Bancassurance partnership
with RBSG
- life and pensions products 384 83 363%
Other partnerships/Direct
- life and pensions products 635 780 (19%)
- investment products 113 200 (44%)
------ ------ ------
748 980 (24%)
------ ------ ------
Total UK long-term savings 3,671 3,836 (4%)
====== ====== ======
Regular Total
6 months 6 months
to to Local Local
30 June 30 June currency currency
2002 2001 growth growth
£m £m
IFA
- life and pensions products 270 225 20% (1%)
- investment products 5 4 25% (45%)
------ ------ ------ ------
275 229 20% (6%)
Bancassurance partnership
with RBSG
- life and pensions products 7 6 17% 339%
Other partnerships/Direct
- life and pensions products 62 46 35% (16%)
- investment products 6 3 100% (41%)
------ ------ ------ ------
68 49 39% (21%)
------ ------ ------ ------
Total UK long-term savings 350 284 23% (2%)
====== ====== ====== ======
Annual premium equivalent
Life and
pensions sales Investment sales Total sales
Local Local Local
currency currency currency
£m growth £m growth £m growth
IFA 505 8% 24 (39%) 529 4%
Bancassurance
partnership with RBSG 45 215% - - 45 215%
Other Partnerships
/Direct 126 2% 17 (25%) 143 (3%)
------ ------ ------ ------ ------ ------
Total UK long-term
savings 676 12% 41 (34%) 717 7%
====== ====== ====== ====== ====== ======
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Page 12
Notes to editors
- CGU plc and Norwich Union plc merged to create CGNU plc. On 1 July
2002 CGNU changed its name to Aviva plc ('Aviva'). Aviva is the UK's
largest insurer and one of the top-five life companies in Europe with
substantial positions in other markets around the world, making it the
world's seventh-largest insurance group based on gross worldwide
premiums.
- Aviva's principal business activities are long-term savings, fund
management and general insurance, with worldwide premium income and
retail investment sales from continuing operations of more than
£28 billion for the year ended 31 December 2001 and assets under
management of more than £200 billion as at 31 December 2001.
- Overseas currency results are translated at average exchange rates.
- All growth rates are quoted in local currency.
- Aviva's corporate press releases and results presentations are
available on the internet: www.aviva.com
- The cautionary statements identify important factors that could cause
our actual results to differ materially from those projected in
forward looking statements made in this press release. Forward looking
statements are based on management's current views and assumptions and
involve known and unknown risks and uncertainties that could cause
actual results, performance or events to differ materially from those
expressed.
- Photographs are available from www.newscast.co.uk and the media centre
on www.aviva.com
Life profits reporting
In reporting the headline operating profit, life profits have been included
using the achieved profit basis. This is used throughout the Aviva 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
more realistic measure of the performance of life businesses than the modified
statutory basis. The modified statutory basis is used in our financial
statements and, on this basis, the life operating profit before tax on
continuing operations amounted to £574 million. The basis used for reporting
achieved profit is consistent with the guidance set out by the Association of
British Insurers.
Definitions of Group key performance indicators and other terms
Achieved - excludes the operating result of discontinued
operating operations, and is stated before amortisation of
profit goodwill and exceptional items.
Achieved - operating profit on an achieved profit basis before
operating amortisation of goodwill and exceptional items, after
earnings per taxation, attributable to equity shareholders in respect
share of continuing operations.
Modified - excludes the operating result of discontinued
statutory operations, and is stated before amortisation of
operating goodwill, amortisation of acquired additional value of
profit in-force long-term business and exceptional items.
Continuing - total business operations excluding the discontinued US
operations general insurance operations.
Net asset value - is calculated based on equity shareholders' funds,
per ordinary adding back the equalisation provision of £283 million
share (30 June 2001: £237 million; 31 December 2001:
£272 million).
Assets under - represents all assets managed by the Group including
management funds held on behalf of third parties.
New business - is calculated using the same economic assumptions as
contribution those used to determine the embedded values at the
beginning of each year and is stated before tax and the
effect of the solvency margin.
New business - the ratio of new business contribution to sales measured
margin on an annual premium equivalent basis.
Combined - the aggregate of incurred claims expressed as a
operating ratio percentage of earned premiums and written expenses and
written commissions expressed as a percentage of written
premiums.
Free asset - the excess of the regulatory value of assets over total
ratio liabilities divided by the regulatory value of total
liabilities, expressed as a percentage.
Solvency cover - the excess of the regulatory value of total assets over
total liabilities, divided by the regulatory value of
the required minimum solvency margin.
Orphan estate - the assets of the long-term with-profit funds less the
realistic reserves for non-profit policies, less asset
shares aggregated across the with-profit policies and any
additional amounts expected at the valuation date to
be paid to in-force policyholders in the future in
respect of smoothing costs and guarantees.
CGUII - a principal UK general insurance company and the parent of
the majority of the Group's overseas general insurance and
life assurance subsidiaries.
EU solvency - the excess of assets over liabilities and the world-wide
minimum solvency margins, excluding goodwill and the
additional value of in-force long-term business, and
excluding the surplus held in the Group's life funds.
The Group solvency calculation is determined according
to the UK Financial Services Authority application of EU
Insurance Groups Directive rules.
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Page 13
Summarised consolidated profit and loss account - achieved profit basis
For the six months ended 30 June 2002
Restated* Restated*
6 months 6 months 6 months Full year
2002 2002 2001 2001
Em £m £m £m
Operating profit
1,283 Life achieved operating profit 796 849 1,665
52 Health 32 32 70
5 Fund management 3 24 29
774 General insurance 480 427 945
(11) Non-insurance operations (7) 1 7
(155) Corporate costs (96) (81) (187)
(335) Unallocated interest charges (208) (215) (426)
(34) Wealth management (21) (60) (99)
------ ------ ------ ------
Operating profit - continuing
operations before tax,
amortisation of goodwill
1,579 and exceptional items 979 977 2,004
- Discontinued operations - (21) (21)
------ ------ ------ ------
1,579 979 956 1,983
(74) Amortisation of goodwill (46) (30) (87)
Financial Services
- Compensation Scheme levy - (14) (31)
- Integration costs - - (59)
------ ------ ------ ------
1,505 Operating profit before tax 933 912 1,806
Variation from longer-term
(2,182) investment return (1,353) (1,174) (2,584)
Effect of economic
- assumption changes - 143 1
Change in the
(42) equalisation provision (26) (22) (56)
(Loss)/profit on the disposal
(26) of subsidiary undertakings (16) 247 287
------ ------ ------ ------
(Loss)/profit on ordinary
(745) activities before tax (462) 106 (546)
Tax on operating profit
- continuing operations
before amortisation of
(492) goodwill and exceptional items (305) (313) (631)
Tax on profit on other
695 ordinary activities 431 276 755
------ ------ ------ ------
(Loss)/profit on ordinary
(542) activities after tax (336) 69 (422)
(63) Minority interests (39) (30) (80)
------ ------ ------ ------
(Loss)/profit for
(605) the financial period (375) 39 (502)
(14) Preference dividends (9) (9) (17)
------ ------ ------ ------
(Loss)/profit for
the financial
period attributable
(619) to equity shareholders (384) 30 (519)
(318) Ordinary dividends (197) (321) (857)
------ ------ ------ ------
Retained loss for the
(937) financial period (581) (291) (1,376)
====== ====== ====== ======
* Restated for the effect of Financial Reporting Standard 19.
Earnings per share
Operating profit on an
achieved profit basis
before amortisation
of goodwill and
exceptional items,
after tax, attributable to
equity shareholders in respect
44.2 c of continuing operations 27.4 p 27.5 p 56.1 p
(Loss)/profit attributable to
(27.4)c equity shareholders (17.0)p 1.3 p (23.1)p
(Loss)/profit attributable to
(27.4)c equity shareholders - diluted (17.0)p 1.3 p (23.0)p
--------------------------------------------------------------------
Page 14
Basis of preparation
The achieved profit statement on page 13 includes the results of the Group's
life operations reported under the achieved profit basis combined with the
modified statutory basis results of the Group's non-life operations set out
on pages 21 to 32. In the directors' opinion, the achieved profit basis
provides a more accurate reflection of the performance of the Group's life
operations year on year than results under the modified statutory basis. The
achieved profit methodology used is in accordance with the guidance on
'Supplementary reporting for long-term insurance business (the achieved
profits method)' circulated by the Association of British Insurers in
December 2001. Further details on the methodology and assumptions are set out
on pages 18 to 20.
The results of the Group's life operations under the modified statutory
basis, which is the basis used in the annual statutory accounts, can be found
on pages 21 to 32.
The contribution from the Group's share of the alliance with The Royal Bank
of Scotland Group plc (RBSG) is incorporated within the achieved operating
profit. Goodwill amortised in the period in respect of the Group's holding in
the associated company, RBS Life Investments Limited, is included within the
'Amortisation of goodwill' on page 13.
The results for the six-month periods to 30 June 2002 and 30 June 2001 are
unaudited but have been reviewed by the auditor, Ernst & Young LLP. Their
review report in respect of 30 June 2002 is included in the Interim Report.
The interim accounts do not constitute statutory accounts as defined in
section 240 of the Companies Act 1985.
Components of total life achieved profit
Total life achieved profit, including the Group's share from the alliance
with RBSG, comprises the following components, the first three of which in
aggregate are referred to as life achieved operating profit:
- new business contribution written during the year including value
added between the point of sale and end of year;
- the profit from existing business equal to:
- the expected return on the value of the in-force business at the
beginning of the period,
- experience variances caused by the differences between the actual
experience during the period and expected experience based on the
operating assumptions used to calculate the start of year value,
- the impact of changes in operating assumptions including risk
margins;
- the expected investment return on the shareholders' net worth, based
upon assumptions applying at the start of the year;
- investment return variances caused by differences between the actual
return in the period and the expected experience based on economic
assumptions used to calculate the start of year value; and
- the impact of changes in economic assumptions in the period.
6 months 6 months Full year
2002 2001* 2001*
£m £m £m
New business contribution (after the effect 237 227 479
of solvency margin)
Profit from existing business
- expected return 414 417 848
- experience variances (17) (7) (18)
- operating assumption changes (3) 50 17
Expected return on shareholders' net worth 165 162 339
------ ------ ------
Life achieved operating profit
before tax and exceptional items 796 849 1,665
Exceptional items** - - (12)
Investment return variances (854) (742) (1,632)
Effect of economic assumption changes - 143 1
------ ------ ------
Total life achieved
(loss)/profit before tax (58) 250 22
Tax on operating profit (241) (261) (511)
Tax on other ordinary activities 253 183 499
------ ------ ------
Total life achieved
(loss)/profit after tax (46) 172 10
====== ====== ======
* The other life and savings result has been reclassified to non-
insurance (page 34).
** Exceptional items comprise integration costs.
--------------------------------------------------------------------
Page 15
New business contribution
The following table sets out the contribution from new business written by
the long-term business operations. The contribution generated by new business
written during the period is the present value of the projected stream of
after-tax distributable profit from that business. Contribution before tax is
calculated by grossing up the contribution after-tax at the full corporation
tax rate for UK business and at appropriate rates of tax for other countries.
New business
Annual premium equivalent* contribution
Local
6 months 6 months currency 6 months 6 months
2002 2001 growth 2002 2001
£m £m % £m £m
United Kingdom 676 606 12% 164 164
Europe (excluding UK)
France 110 121 (10%) 34 35
Ireland 66 51 30% 17 14
Italy 69 55 25% 16 15
Netherlands (including
Belgium and Luxembourg) 63 75 (15%) 10 11
Poland
- Life 16 17 (6%) 6 4
- Pensions 11 13 (15%) - 1
Spain 63 50 26% 33 23
Other 45 39 12% (3) 2
International 83 57 44% 12 3
------ ------ ------ ------ ------
Total annualised
premiums 1,202 1,084 11%
Total new business
contribution
before effect of
solvency margin** 289 272
Effect of
solvency margin (52) (45)
------ ------
Total new business
contribution
including effect of
solvency margin 237 227
====== ======
* Annual premium equivalent represents regular premiums plus 10% of
single premiums.
** New business contribution before effect of solvency margin includes
minority interests in 2002 of £28 million (six months to 30 June 2001:
£21 million). This comprises minority interests in France of
£2 million (six months to 30 June 2001: £2 million), Italy £8 million
(six months to 30 June 2001: £6 million), Poland £1 million (six
months to 30 June 2001: £1 million) and Spain £17 million (six months
to 30 June 2001: £12 million).
New business contributions have been calculated using the same economic
assumptions as those used to determine the embedded values as at the
beginning of each year and operating assumptions used to determine the
embedded values as at the end of the period. The effect of solvency margin
represents the impact of holding the minimum European Union (EU) solvency
margin (or equivalent for non-EU operations) and discounting to present value
the projected future releases from the solvency margin to shareholders.
--------------------------------------------------------------------
Page 16
Analysis of life achieved operating profit
Life achieved operating profit is calculated on an after-tax basis and then
grossed up at the full rate of corporation tax for UK business and at
appropriate rates of tax for other countries.
6 months 6 months Full year
2002 2001 2001
£m £m £m
United Kingdom 424 465 850
Europe (excluding UK)
France 111 110 227
Ireland 37 37 79
Italy 30 24 55
Netherlands (including Belgium
and Luxembourg) 87 93 221
Poland
- Life 32 23 65
- Pensions 15 21 34
Spain 38 31 80
Other - 28 18
International 22 17 36
------ ------ ------
Total life achieved operating
profit before tax and exceptional items* 796 849 1,665
====== ====== ======
* Life achieved operating profit includes minority interests in six
months to 30 June 2002 of £43 million (six months to 30 June 2001:
£35 million; full year 2001: £84 million). This comprises minority
interests in France of £4 million (six months to 30 June 2001:
£4 million; full year 2001: £8 million), Italy £14 million (six months to
30 June 2001: £10 million; full year 2001: £27 million), Poland
£7 million (six months to 30 June 2001: £8 million; full year 2001:
£15 million), Spain £18 million (six months to 30 June 2001: £13 million;
full year 2001: £34 million).
Embedded value of life business
6 months 6 months Full year
2002 2001 2001
£m £m £m
Embedded value at the
beginning of the period 11,063 11,234 11,234
Total life achieved
(loss)/profit after tax (46) 172 18
Exchange rate movements 209 (46) (97)
Embedded value of businesses
acquired/(disposed)* 13 (109) 84
Amounts injected into life operations 15 106 175
Amounts released from life operations (467) (220) (351)
------ ------ ------
Embedded value at the end of the period** 10,787 11,137 11,063
====== ====== ======
* Embedded value from businesses acquired in 2002 represents the life
subsidiary of DBS Hong Kong of £13 million. Embedded value from
businesses acquired in 2001 comprises Risparmio and Eurovita in Italy
(£120 million), the life operations of Unicaja, Caixa Galicia and Caja
Espana in Spain (£64 million), Hungary (£11 million) and The Insurance
Corporation of Singapore (£25 million). Embedded value from business
disposed of in 2001 comprises NU Vita (Italy) (£16 million), Greece
(£3 million) and Canada (£117 million).
** Embedded value at the end of the period includes minority interests in
2002 of £366 million (30 June 2001: £224 million; 31 December 2001:
£347 million). This comprises minority interests in France of
£40 million (30 June 2001: £35 million; 31 December 2001: £34 million),
Italy £150 million (30 June 2001: £71 million; 31 December 2001:
£149 million), Poland £57 million (30 June 2001: £52 million; 31 December
2001: £55 million), Spain £117 million (30 June 2001: £62 million;
31 December 2001: £107 million) and Other Europe £2 million (30 June
2001: £4 million; 31 December 2001: £2 million).
--------------------------------------------------------------------
Page 17
Segmental analysis of embedded value of life business
Valuation of
Net worth in-force Embedded value
at 30 June* at 30 June** at 30 June
2002 2001 2002 2001 2002 2001
£m £m £m £m £m £m
United Kingdom 1,600 1,754 3,931 4,275 5,531 6,029
Europe (excluding UK)
France 891 875 417 409 1,308 1,284
Ireland 208 202 269 277 477 479
Italy 181 98 120 76 301 174
Netherlands (including
Belgium and Luxembourg) 969 1,371 955 748 1,924 2,119
Poland 125 109 257 241 382 350
Spain 115 65 218 151 333 216
Other 60 57 58 67 118 124
International 311 293 102 69 413 362
------ ------ ------ ------ ------ ------
4,460 4,824 6,327 6,313 10,787 11,137
====== ====== ====== ====== ====== ======
* The shareholders' net worth comprises the market value of the
shareholders' funds and the shareholders' interest in the surplus held
in the non-profit component of the long-term business funds determined
on a statutory solvency basis and adjusted to add back any
non-admissible assets.
** The net worth includes £2,400 million (30 June 2001: £2,100 million)
in respect of minimum statutory solvency margin requirements that are
supported by shareholders' capital. The effect of holding the minimum
statutory solvency margin and allowing for projected future releases
was £740 million (30 June 2001: £660 million).
Minority interest in life achieved profit
6 months 2002 6 months Full year
Shareholders' Minority 2001 2001
interest interest Group Group Group
£m £m £m £m £m
New business
contribution before
effect of
solvency margin 261 28 289 272 591
Effect of
solvency margin (46) (6) (52) (45) (112)
------ ------ ------ ------ ------
New business
contribution
including effect
of solvency margin 215 22 237 227 479
====== ====== ====== ====== ======
Life achieved
operating profit
before tax and
exceptional items 753 43 796 849 1,665
====== ====== ====== ====== ======
Total life achieved
(loss)/profit
before tax (87) 29 (58) 250 22
Attributed tax 22 (10) 12 (78) (12)
------ ------ ------ ------ ------
Total life achieved
(loss)/profit
after tax (65) 19 (46) 172 10
====== ====== ====== ====== ======
Closing life
embedded value 10,421 366 10,787 11,137 11,063
====== ====== ====== ====== ======
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Page 18
Methodology
(a) Life achieved profit
The achieved profit method of financial reporting is designed to recognise
profit as it is earned over the life of an insurance policy. The total profit
recognised over the lifetime of a policy is the same as under the modified
statutory basis of reporting, but the timing of recognition is different.
Distributable profits from long-term businesses arise when they are released
to shareholders following actuarial valuations. These are carried out in
accordance with statutory requirements designed to ensure and demonstrate
solvency in long-term business funds.
Future distributable profits will depend on experience in a number of areas
such as investment return, discontinuance rates, mortality and administration
costs. Using realistic assumptions of future experience, we can project
releases to shareholders arising in future years from the business in-force
and associated minimum statutory solvency margin.
The life achieved profit reflects current performance by measuring the
movement, from the beginning to the end of the year, in the present value of
projected releases to shareholders from the business in-force and associated
minimum statutory margin, together with the movement in the net assets of the
long-term operations, adjusted for any amounts released from or invested in
life operations.
The present value of the projected releases to shareholders is calculated by
discounting back to the current time using a risk discount rate. The risk
discount rate is a combination of a discount rate to reflect the time value of
money and a risk margin to make prudent allowance for the risk that experience
in future years may differ from the assumptions referred to above.
The calculations are carried out on an after-tax basis and the profits are
then grossed up for tax at the full rate of corporation tax for the United
Kingdom and at an appropriate rate for each of the other countries.
(b) Embedded value
The shareholders' interest in the long-term business operations is represented
by the embedded value. The embedded value is the total of the net assets of
the long-term operations and the present value at risk discount rates (which
incorporate a risk margin) of the projected releases to shareholders arising
from the business in-force, less a deduction for the effect of holding the
minimum statutory solvency margin. This effect of solvency margin is the
difference between the nominal value of the solvency margin and the present
value at risk discount rates of the projected release of the solvency margin
and investment earnings on the assets deemed to back the solvency margin.
For with-profit funds in the United Kingdom and Ireland, for the purpose of
recognising the value of the estate, it is assumed that terminal bonuses are
increased to exhaust all of the free assets over the future lifetime of the
in-force with-profit policies.
--------------------------------------------------------------------
Page 19
Principal economic assumptions
The principal economic assumptions used are as follows:
United Kingdom
30 June 31 December 30 June 31 December
2002 2001 2001 2000
Risk discount rate 7.7% 7.7% 7.9% 7.4%
Pre-tax investment returns:
Base government
fixed interest 5.0% 5.0% 5.3% 4.7%
Ordinary shares 7.5% 7.5% 7.8% 7.2%
Property 6.5% 6.5% 6.8% 6.2%
Future expense inflation 3.7% 3.7% 3.7% 3.7%
Tax rate 30.0% 30.0% 30.0% 30.0%
France
30 June 31 December 30 June 31 December
2002 2001 2001 2000
Risk discount rate 8.6% 8.6% 8.5% 8.5%
Pre-tax investment returns:
Base government
fixed interest 5.1% 5.1% 5.0% 5.0%
Ordinary shares 7.1% 7.1% 7.0% 7.0%
Property 6.6% 6.6% 6.5% 6.5%
Future expense inflation 2.5% 2.5% 2.5% 2.5%
Tax rate 36.4% 36.4% 37.8% 37.8%
Ireland
30 June 31 December 30 June 31 December
2002 2001 2001 2000
Risk discount rate 9.3% 9.3% 9.4% 9.1%
Pre-tax investment returns:
Base government
fixed interest 5.3% 5.3% 5.6% 5.3%
Ordinary shares 8.3% 8.3% 8.6% 8.3%
Property 6.8% 6.8% 7.1% 6.8%
Future expense inflation 4.0% 4.0% 5.0% 5.0%
Tax rate 14.0% 16.0% 18.0% 20.0%
Italy
30 June 31 December 30 June 31 December
2002 2001 2001 2000
Risk discount rate 7.6% 7.6% 7.5% 7.5%
Pre-tax investment returns:
Base government
fixed interest 5.3% 5.3% 5.3% 5.3%
Ordinary shares 8.3% 8.3% 8.3% 8.3%
Property 6.8% 6.8% 6.8% 6.8%
Future expense inflation 3.3% 3.3% 3.3% 3.3%
Tax rate 41.0% 41.0% 43.0% 43.0%
Netherlands
30 June 31 December 30 June 31 December
2002 2001 2001 2000
Risk discount rate 8.0% 8.0% 8.0% 8.0%
Pre-tax investment returns:
Base government
fixed interest 5.1% 5.1% 5.0% 5.0%
Ordinary shares 8.1% 8.1% 7.9% 7.9%
Property 6.6% 6.6% 6.5% 6.5%
Future expense inflation 2.5% 2.5% 2.5% 2.5%
Tax rate 25.0% 25.0% 25.0% 25.0%
Poland - Life
30 June 31 December 30 June 31 December
2002 2001 2001 2000
Risk discount rate 18.5% 18.5% 20.0% 20.0%
Pre-tax investment returns:
Base government
fixed interest 12.5% 12.5% 12.5% 12.5%
Ordinary shares 12.5% 12.5% 12.5% 12.5%
Property n/a n/a n/a n/a
Future expense inflation 9.2% 9.2% 9.2% 9.2%
Tax rate 28.0% 28.0% 28.0% 28.0%
Poland - Pensions
30 June 31 December 30 June 31 December
2002 2001 2001 2000
Risk discount rate 16.9% 16.9% 17.3% 17.3%
Pre-tax investment returns:
Base government
fixed interest 12.5% 12.5% 12.5% 12.5%
Ordinary shares 12.5% 12.5% 12.5% 12.5%
Property n/a n/a n/a n/a
Future expense inflation 9.2% 9.2% 9.2% 9.2%
Tax rate 28.0% 28.0% 28.0% 28.0%
Spain
30 June 31 December 30 June 31 December
2002 2001 2001 2000
Risk discount rate 8.3% 8.3% 8.4% 8.4%
Pre-tax investment returns:
Base government
fixed interest 5.3% 5.3% 5.4% 5.4%
Ordinary shares 8.3% 8.3% 8.4% 8.4%
Property 6.8% 6.8% 6.9% 6.9%
Future expense inflation 3.2% 3.2% 4.0% 4.0%
Tax rate 35.0% 35.0% 35.0% 35.0%
--------------------------------------------------------------------------------
Page 20
Other assumptions
- Current tax legislation and rates have been assumed to continue
unaltered, except where changes in future tax rates have been
announced.
- Assumed future mortality, morbidity and lapse rates have been derived
from an analysis of Aviva's recent operating experience.
- The management expenses of Aviva attributable to long-term business
operations have been split between expenses relating to the
acquisition of new business and to the maintenance of business
in-force. Certain expenses of an exceptional nature have been identified
separately and the discounted value of projected exceptional costs has
been deducted from the value of in-force business. A realistic
estimate of future fund management expenses that will be charged to
long-term businesses by Group companies not included in the long-term
business covered by the achieved profits method has been included
within the value of in-force business.
- It has been assumed that there will be no changes to the methods and
bases used to calculate the statutory technical provisions and current
surrender values.
- The value of in-force business allows for future premiums under
recurring single premium business where collection of future single
premiums is expected and where the receipt of further single premiums
is not regarded as new business at the point of receipt. It does not
allow for future premiums under non-contractual increments, or for
future Department of Social Security (DSS) rebate premiums, and the
value arising therefrom is included in the value of new business when
the premiums are received.
- The value of the in-force business has been determined after allowing
for the effect of holding solvency margins equal to the minimum EU
solvency requirement (or equivalent for non-EU operations). Solvency
margins relating to with-profit business are assumed to be covered by
the surplus within the with-profit funds and no effect has been
attributed to shareholders.
- Bonus rates on with-profit business have been set at levels consistent
with the economic assumptions and Aviva's medium-term bonus plans. The
distribution of profit between policyholders and shareholders within
the with-profit funds assumes that the shareholder interest in
conventional with-profit business in the United Kingdom and Ireland
continues at the current rate of one-ninth of the cost of bonus.
Alternative assumptions
Economic assumptions
The table below shows the sensitivity to a one percentage point increase in
interest rates and in the discount rate for new business contribution and
embedded value.
New business contribution Embedded value
Interest Discount Interest Discount
rates rates rates rates
£m £m £m £m
United Kingdom 13 (25) (250) (300)
Europe (excluding UK)
France 4 (4) (60) (70)
Ireland 2 (2) (5) (15)
Italy 1 (1) - (5)
Netherlands (including
Belgium and Luxembourg) 3 (4) (110) (110)
Poland
- Life - (1) - (10)
- Pensions - - - (10)
Spain 1 (2) (10) (15)
Other - - - -
International (1) (2) (10) (10)
------ ------ ------ ------
23 (41) (445) (545)
====== ====== ====== ======
Profits are affected by a change in underlying interest rates. When interest
rates change, expected future investment returns will also change and this in
turn will affect projected cash flows. A change in interest rates will also
result in a change in the discount rate used to calculate the present value of
the projected cash flows. The impact of an increase of one percentage point in
interest rates incorporates all such changes. In addition, the impact on
embedded value includes the impact of the reduction that would occur in the
market value of fixed interest investments if interest rates increased by one
percentage point. Market values of other asset classes are assumed to reduce
in proportion to movements in the market value of fixed interest investments
of an appropriate term.
The impact of an increase of one percentage point in the discount rate is
calculated with all other assumptions remaining unchanged.
Non-economic assumptions
Sensitivity calculations have been performed to identify the non-economic
assumptions to which new business contribution and the value of in-force
business within embedded value are particularly sensitive. The calculations
have been based on similar percentage movements in each assumption from the
base assumption used to calculate the published new business contribution and
value of in-force. Based on this, the Group's new business contribution is
most sensitive to a change in discontinuance rates, whereas the value of
in-force is broadly equally sensitive to changes in discontinuance rates,
mortality rates and future maintenance expense levels.
--------------------------------------------------------------------
Page 21
Summarised consolidated profit and loss account - modified statutory basis
For the six months ended 30 June 2002
Restated* Restated*
6 months 6 months 6 months Full year
2002 2002 2001 2001
Em Premium income (after reinsurance) £m £m £m
and investment sales - continuing
operations
Life premiums, including share
14,413 of associates' premiums 8,936 8,371 17,590
1,003 Investment sales 622 763 1,475
865 Health premiums 536 509 841
------ ------ ------ ------
16,281 10,094 9,643 19,906
7,098 General insurance premiums 4,401 4,352 8,433
------ ------ ------ ------
23,379 Total continuing operations 14,495 13,995 28,339
Discontinued operations - general
- insurance premiums - 1,103 1,103
------ ------ ------ ------
23,379 Total 14,495 15,098 29,442
====== ====== ====== ======
Operating profit
925 Modified statutory life profit 574 600 1,194
52 Health 32 32 70
5 Fund management 3 24 29
774 General insurance 480 427 945
(11) Non-insurance operations (7) 1 7
(155) Corporate costs (96) (81) (187)
(335) Unallocated interest charges (208) (215) (426)
(34) Wealth management (21) (60) (99)
------ ------ ------ ------
Operating profit - continuing
operations before tax,
amortisation of goodwill,
amortisation of acquired additional
value of in-force long-term
1,221 business and exceptional items 757 728 1,533
- Discontinued operations - (21) (21)
------ ------ ------ ------
1,221 757 707 1,512
(74) Amortisation of goodwill (46) (30) (87)
Amortisation of acquired additional
value of in-force long-term
(55) business (34) (17) (64)
Financial Services Compensation
- Scheme levy - (14) (31)
- Integration costs - - (59)
------ ------ ------ ------
1,092 Operating profit before tax 677 646 1,271
Short-term fluctuation in investment
(847) return (525) (446) (988)
Change in the equalisation
(42) provision (26) (22) (56)
(Loss)/profit on the disposal of
(26) subsidiary undertakings (16) 247 287
------ ------ ------ ------
Profit on ordinary activities
177 before tax 110 425 514
(67) Tax on profit on ordinary activities (42) (133) (198)
------ ------ ------ ------
Profit on ordinary activities
110 after tax 68 292 316
(49) Minority interests (30) (25) (57)
------ ------ ------ ------
61 Profit for the financial period 38 267 259
(14) Preference dividends (9) (9) (17)
------ ------ ------ ------
Profit for the financial period
47 attributable to equity shareholders 29 258 242
(318) Ordinary dividends (197) (321) (857)
------ ------ ------ ------
Retained loss transferred to
(271) reserves (168) (63) (615)
====== ====== ====== ======
* Restated for the effect of Financial Reporting Standard 19.
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Page 22
Earnings per share - modified statutory basis
For the six months ended 30 June 2002
Restated* Restated*
6 months 6 months Full year
2002 2001 2001
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
in respect of continuing operations 21.5p 20.6p 43.2p
Profit attributable to equity
shareholders 1.3p 11.5p 10.8p
Profit attributable to equity
shareholders - diluted 1.3p 11.5p 10.7p
Dividend per share 8.75p 14.25p 38.0p
Consolidated statement of total recognised gains and losses
For the six months ended 30 June 2002
Restated* Restated*
6 months 6 months Full year
2002 2001 2001
£m £m £m
Profit for the financial period 38 267 259
Movement in internally-generated additional
value of in-force long-term business** (413) (228) (761)
Foreign exchange gains/(losses) 270 35 (191)
------ ------ ------
Total recognised (losses)/gains arising
in the period (105) 74 (693)
====== ====== ======
* Restated for the effect of Financial Reporting Standard 19.
** Stated before the effect of foreign exchange movements, which are
reported within the foreign exchange gains/(losses) line.
Reconciliation of movements in consolidated shareholders' funds
For the six months ended 30 June 2002
Restated* Restated*
6 months 6 months Full year
2002 2001 2001
£m £m £m
Shareholders' funds at the beginning of
the period, as originally reported 11,872 13,633 13,633
Prior year adjustment** (120) (346) (346)
------ ------ ------
Shareholders' funds at the beginning of
the period, as restated 11,752 13,287 13,287
Total recognised (losses)/gains
arising in the period (105) 74 (693)
Dividends (206) (330) (874)
Increase in share capital 11 16 29
Other movements 7 5 3
------ ------ ------
Shareholders' funds at the end of
the period 11,459 13,052 11,752
====== ====== ======
* Restated for the effect of Financial Reporting Standard 19.
** The prior year adjustment reflects the implementation of Financial
Reporting Standard 19 (page 25).
--------------------------------------------------------------------
Page 23
Summarised consolidated balance sheet
As at 30 June 2002
Restated* Restated*
30 June 30 June 31 December
2002 2001 2001
£m £m £m
Assets
Goodwill 1,135 750 1,141
------ ------ ------
Investments
Land and buildings 836 768 857
Investments in Group undertakings
and participating interests 304 284 282
Variable yield securities 3,835 5,016 4,168
Fixed interest securities 8,302 8,300 9,288
Mortgages and loans, net of
non-recourse funding 1,208 1,139 1,236
Deposits 910 1,839 1,346
Additional value of in-force
long-term business 5,603 6,411 5,948
------ ------ ------
20,998 23,757 23,125
Reinsurers' share of technical
provisions 3,304 2,924 3,543
Assets of the long-term business 155,541 144,999 151,003
Other assets 10,298 8,641 9,512
------ ------ ------
Total assets 191,276 181,071 188,324
====== ====== ======
Liabilities
Shareholders' funds
Equity 11,259 12,852 11,552
Non-equity 200 200 200
Minority interests 681 560 651
------ ------ ------
12,140 13,612 12,403
Subordinated debt 1,185 - 1,157
------ ------ ------
Total capital, reserves and
subordinated debt 13,325 13,612 13,560
Liabilities of the long-term business 150,120 140,023 145,644
General insurance liabilities 17,783 18,014 17,825
Borrowings 2,254 2,686 2,662
Other creditors and provisions 7,794 6,736 8,633
------ ------ ------
Total liabilities 191,276 181,071 188,324
====== ====== ======
* Restated for the effect of Financial Reporting Standard 19.
--------------------------------------------------------------------
Page 24
Consolidated cash flow statement
For the six months ended 30 June 2002
6 months 6 months Full year
2002 2001 2001
£m £m £m
Net cash inflow from operating
activities, excluding exceptional items
and merger transaction costs* 586 266 701
Net cash outflow from servicing of finance (91) (82) (246)
Corporation tax received/(paid)
(including advance corporation tax) 48 (77) (39)
Net purchases of tangible fixed assets (32) (76) (114)
------ ------ ------
511 31 302
Exceptional items and merger transaction
costs paid* (523) (380) (491)
Acquisitions and disposals of subsidiary
and associated undertakings 114 1,261 853
Equity dividends paid (535) (535) (856)
Proceeds from issue of subordinated debt - - 1,157
Net cash (outflow)/inflow from other
financing activities:
Issue of share capital 10 11 29
Net (repayment)/drawdown of loans (151) 73 94
------ ------ ------
Net cash flows (574) 461 1,088
====== ====== ======
Cash flows were invested as follows:
Increase/(decrease) in cash holdings 135 (114) (69)
Net (sales)/purchases of investments (564) 481 1,223
Non-trading cash (inflow from)/outflow to
long-term business operations (145) 94 (66)
------ ------ ------
Net investment of cash flows (574) 461 1,088
====== ====== ======
The cash flows presented in this statement relate to non-long-term business
transactions only. Long-term business profits are included as net cash
inflows/(outflows) from operating activities only to the extent that they have
been remitted to shareholders by way of dividends from life operations.
* Payments to the Berkshire Hathaway Group for reinsurance purchased in
December 2000 to secure protection against any adverse impact of the
run-off of London Market claims reserves are now shown within exceptional
items.
--------------------------------------------------------------------
Page 25
1. Basis of preparation
(a) The results for the six months to 30 June 2002 have been prepared on
the basis of the accounting policies set out in CGNU plc's 2001 Annual
Report and Accounts, except for deferred tax set out in paragraph (e)
below. The results for the six months to 30 June 2002 and 2001 are
unaudited but have been reviewed by the auditor. The interim accounts
do not constitute statutory accounts as defined in section 240 of the
Companies Act 1985. The results for the full year 2001 have been taken
from the Group's 2001 Annual Report and Accounts. The auditor has
reported on the 2001 accounts and their report was unqualified and did
not contain a statement under section 237(2) or (3) of the Companies
Act 1985. The Group's 2001 Annual Report and Accounts have been filed
with the Registrar of Companies.
(b) 'Discontinued operations' disclosures relate to the disposal of the
general insurance business in the United States, which completed on
1 June 2001. The results of all other operations are entitled
'continuing operations'.
(c) The contribution from the Group's share of the alliance with The
Royal Bank of Scotland Group plc (RBSG) is incorporated within the
modified statutory life profit. Goodwill amortised in the period in
respect of the Group's holding in the associated company, RBS Life
Investments Limited, is included within 'Amortisation of goodwill' on
page 21.
(d) Financial Reporting Standard (FRS) 17 'Retirement Benefits' is not
mandatory for the Group until the year ended 31 December 2003. The
Group has continued to account for pension costs in accordance with
SSAP24.
(e) FRS19 is effective for the year ended 31 December 2002. The principal
impact of the change from the accounting policy applied under SSAP15
is to provide additional deferred tax on unrealised appreciation of
investments. The additional deferred tax provision results in a reduction
in the fund for future appropriations for with-profit life business and
a reduction in profit and loss account reserve for general insurance
business. In the case of non-profit business the establishment of an
additional deferred tax provision has a neutral effect on shareholders'
funds. This is because the reduction in the profit and loss account
reserve is compensated by a corresponding increase in the revaluation
reserve representing additional value of in-force long-term business. The
Group has chosen to adopt the discounting option for deferred tax
purposes.
The effects of implementing FRS19 are as follows:
(i) The provision for deferred tax at 30 June 2002 has increased by
£829 million (30 June 2001: £1,273 million; 31 December 2001:
£945 million). The increase in provision has resulted in the following:
30 June 30 June 31 December
2002 2001 2001
£m £m £m
With-profit business
Reduction in fund for future
appropriations 665 974 735
Non-profit business
Increase in additional value of in-force
business 90 90 90
General insurance business and other
Reduction in shareholders' funds 74 209 120
------ ------ ------
Increase in deferred tax provision 829 1,273 945
====== ====== ======
(ii) The tax charge in the profit and loss account has decreased by
£46 million in the six months to 30 June 2002 (six months to 30 June
2001: decrease of £137 million; full year 2001: decrease of
£226 million).
--------------------------------------------------------------------
Page 26
2. Exchange rates
The euro rates employed in this announcement are an average rate of
1 euro = £0.62 (six months to 30 June 2001: 1 euro = £0.62; full year
2001: 1 euro = £0.62) and a closing rate of 1 euro = £0.65 (30 June
2001: 1 euro = £0.60; 31 December 2001: 1 euro = £0.61).
3. Acquisitions
On 31 May 2002, the Group extended its bancassurance partnership with
DBS Group Holdings Limited (DBS) and acquired 100% of the issued
equity share capital of Dao Heng Assurance and DBS Kwong On Insurance
(together DBS Hong Kong), DBS's life and general insurance subsidiary
in Hong Kong. Total cash consideration was £31 million and net assets
on acquisition of DBS Hong Kong were £16 million, giving rise to
goodwill of £15 million. Further amounts may be payable depending on
the achievement of performance targets by DBS Hong Kong.
4. Disposals
The net (loss)/profit on the disposal of subsidiary undertakings
comprises:
Full
6 months 6 months year
2002 2001 2001
£m £m £m
Long-term savings businesses
Canada - (5) (5)
General insurance businesses
UK (a) (20) - -
France (b) 6 - -
New Zealand - 52 52
United States - 125 125
Belgium - - 46
Other businesses
UK - 70 70
France (c) 1 - -
Other small operations (3) 5 (1)
------ ------ ------
(16) 247 287
====== ====== ======
(a) In January 2002, the Group completed the disposal of its wholly-owned
subsidiary, Sabre Insurance Company Limited, for a total
consideration of £14 million. The net assets disposed of amounted to
£24 million and the loss on disposal, after transaction costs and the
goodwill write-back of £10 million, was £20 million.
(b) In May 2002, the Group completed the disposal of its wholly-owned
subsidiary, CGU Courtage, for a total consideration of £189 million.
The net assets disposed of amounted to £137 million and the profit on
disposal, after transaction costs, warranties and indemnities, was £6
million.
(c) In May 2002, the Group completed the disposal of its wholly-owned
subsidiary, Royal Saint Georges Banque for a total consideration of
£16 million. The net assets disposed of amounted to £15 million and
the profit on disposal, after transaction costs, was £1 million.
--------------------------------------------------------------------
Page 27
5. Geographical analysis of life and pensions and investment sales - new
business and total income
New business sales Premium income
New single New regular (after reinsurance)
premiums premiums and investment sales
6 6 6 6 6 6 Full
months months months months months months year
2002 2001 2002 2001 2002 2001 2001
£m £m £m £m £m £m £m
Life and pensions
sales
United Kingdom
- group 3,294 3,203 332 271 4,525 4,370 8,913
- associates 75 83 7 6 139 153 361
----- ----- ----- ----- ----- ----- -----
3,369 3,286 339 277 4,664 4,523 9,274
Europe
(excluding UK)
France 888 1,015 21 20 1,027 1,127 2,185
Ireland 162 229 50 28 292 321 658
Italy 508 369 18 18 630 440 1,116
Netherlands
(including Belgium
and Luxembourg) 274 277 36 47 651 670 1,290
Poland
- Life 8 3 15 17 147 145 295
- Pensions 4 - 11 13 242 231 433
Spain 351 271 28 23 453 351 1,034
Other 96 80 35 31 266 218 492
International 420 254 41 32 564 345 813
----- ----- ----- ----- ----- ----- -----
Total life and
pension sales
(including share of
associates) 6,080 5,784 594 506 8,936 8,371 17,590
Investment sales
United Kingdom 302 550 11 7 313 557 816
Netherlands 56 40 - - 56 40 85
Other Europe 53 82 - - 53 82 227
International 200 84 - - 200 84 347
----- ----- ----- ----- ----- ----- -----
Total long-term
savings(including
share of associates) 6,691 6,540 605 513 9,558 9,134 19,065
===== ===== ===== ===== ===== ===== =====
Single premiums are those relating to products issued by the Group, which
provide for the payment of one premium only.
Regular premiums are those where there is a contractual obligation to pay on
an ongoing basis.
--------------------------------------------------------------------
Page 28
6. Geographical analysis of modified statutory life operating profit
6 months 6 months Full Year
2002 2001 2001
£m £m £m
United Kingdom*
With-profit 122 146 275
Non-profit 245 248 414
Europe (excluding UK)
France 71 75 160
Ireland 17 15 49
Italy 19 5 26
Netherlands (including Belgium and Luxembourg) 70 68 214
Poland
- Life 25 19 39
- Pensions 3 7 7
Spain 13 12 36
Other (6) (9) (21)
International (5) 14 (5)
------ ------ ------
Total modified statutory life operating profit 574 600 1,194
====== ====== ======
* The other life and savings result has been reclassified to
non-insurance (page 34).
7. Geographical analysis of health premiums after reinsurance and
operating result
(a) Premiums after reinsurance:
6 months 6 months Full year
2002 2001 2001
£m £m £m
United Kingdom 142 128 242
France 55 53 100
Netherlands 339 328 499
------ ------ ------
536 509 841
====== ====== ======
(b) Operating result
Operating profit Underwriting result
6 6 Full 6 6 Full
months months year months months year
2002 2001 2001 2002 2001 2001
£m £m £m £m £m £m
United Kingdom 2 4 8 - 2 4
France 4 4 9 (1) (1) (2)
Netherlands 26 24 53 (6) (11) (15)
------ ------ ------ ------ ------ ------
32 32 70 (7) (10) (13)
====== ====== ====== ====== ====== ======
--------------------------------------------------------------------
Page 29
8. Geographical analysis of general insurance premiums after reinsurance
and operating result
(a) General insurance premiums after reinsurance:
Full
6 months 6 months year
2002 2001 2001
£m £m £m
United Kingdom 2,376 2,454 4,777
Europe (excluding UK)
France 275 389 700
Ireland 255 236 456
Netherlands 241 227 387
Other 244 301 499
International
Australia and New Zealand 335 256 583
Canada 509 436 878
Other 166 53 153
------ ------ ------
Continuing operations 4,401 4,352 8,433
Discontinued operations - 1,103 1,103
------ ------ ------
4,401 5,455 9,536
====== ====== ======
(b) Operating result:
Operating profit* Underwriting
result*
6 6 Full 6 6 Full
months months year months months year
2002 2001 2001 2002 2001 2001
£m £m £m £m £m £m
United Kingdom 303 254 590 (35) (69) (81)
Europe (excluding UK)
France 25 34 58 (5) (15) (33)
Ireland 21 17 48 (7) (10) (7)
Netherlands 11 5 19 (7) (12) (14)
Other 28 15 41 (3) (20) (25)
International
Australia and New Zealand 24 26 69 (11) (8) (1)
Canada 39 50 72 (18) (16) (56)
Other 29 26 48 8 (2) (7)
------ ------ ------ ------- ------ ------
Continuing operations 480 427 945 (78) (152) (224)
Discontinued operations - (21) (21) - (173) (173)
------ ------ ------ ------ ------ ------
480 406 924 (78) (325) (397)
====== ====== ====== ====== ====== ======
* The general insurance operating profit and underwriting result are
stated before the change in the equalisation provision of £26 million
(six months to 30 June 2001: £22 million; full year to 31 December
2001:£56 million) and the Financial Services Compensation Scheme levy of
£nil (six months to 30 June 2001: £14 million; full year to 31 December
2001: £31 million).
--------------------------------------------------------------------
Page 30
9. Tax
The tax charge/(credit) in the profit and loss account comprises:
Restated* Restated*
6 months 6 months Full year
2002 2001 2001
£m £m £m
UK corporation tax (63) (15) 16
Overseas tax 32 90 80
Other (98) (121) (264)
------ ------ ------
Total tax credit for the period (129) (46) (168)
Tax attributable to the long-term
business technical result 171 179 366
------ ------ ------
Charge to profit and loss account 42 133 198
====== ====== ======
Tax charge analysed between:
Operating profit before tax,
amortisation of goodwill, amortisation
of acquired additional value of in-force
long-term business and exceptional items
- continuing operations 235 231 486
- discontinued operations - (7) (7)
Profit on other ordinary activities (193) (91) (281)
------ ------ ------
42 133 198
====== ====== ======
* Restated for the effect of Financial Reporting Standard 19.
10. Dividends
(a) The preference dividends in the profit and loss account comprise:
6 months 6 months Full year
2002 2001 2001
£m £m £m
Preference dividends 9 9 17
====== ====== ======
The preference dividends are in respect of the cumulative irredeemable
preference shares of £1 each in issue.
(b) The ordinary dividends in the profit and loss account comprise:
6 months 6 months Full year
2002 2001 2001
£m £m £m
Ordinary dividends
Interim - 8.75 pence (2001: 14.25 pence) 197 321 321
Final - (2001: 23.75 pence) - - 536
------ ------ ------
Total ordinary dividends 197 321 857
====== ====== ======
Irish shareholders who are due to be paid a dividend denominated in euros
will receive a payment at the exchange rate prevailing on 31 July 2002.
---------------------------------------------------------------------
Page 31
11. Earnings per share
(a) Basic earnings per share
Restated*
6 months 2002 6 months 2001
Net of tax, Net of tax,
minorities minorities
and and
Before preference Per preference Per
tax dividend share dividend Share
£m £m p £m p
Operating profit - continuing
operations before amortisation
of goodwill, amortisation of
acquired additional value of
in-force long-term business
and exceptional items 757 484 21.5 463 20.6
Adjusted for the following
items:
- Operating loss on
discontinued operations - - - (14) (0.6)
- Amortisation of goodwill (46) (46) (2.0) (30) (1.3)
- Amortisation of acquired
additional value of
in-force long-term business (34) (27) (1.2) (12) (0.5)
- Financial Services
Compensation Scheme levy - - - (10) (0.5)
- Integration costs - - - - -
- Short-term fluctuation in
investment return (525) (349) (15.6) (370) (16.5)
- Change in the equalisation
provision (26) (19) (0.8) (16) (0.7)
- Net (loss)/ profit arising
on the disposal of
subsidiary undertakings (16) (14) (0.6) 247 11.0
------ ------ ------ ------ ------
Profit attributable to
equity shareholders 110 29 1.3 258 11.5
====== ====== ====== ====== ======
* Restated for the effect of Financial Reporting Standard 19.
(a) Basic earnings per share (continued)
Restated*
Full year
2001
Net of tax,
minorities
and
preference Per
dividend share
£m p
Operating profit - continuing operations before
amortisation of goodwill, amortisation of acquired
additional value of in-force long-term business and 973 43.2
exceptional items
Adjusted for the following items:
- Operating loss on discontinued operations (14) (0.6)
- Amortisation of goodwill (87) (3.9)
- Amortisation of acquired additional value of
in-force long-term business (49) (2.2)
- Financial Services Compensation Scheme levy (22) (1.0)
- Integration costs (51) (2.3)
- Short-term fluctuation in investment return (754) (33.4)
- Change in the equalisation provision (39) (1.7)
- Net (loss)/ profit arising on the disposal of
subsidiary undertakings 285 12.7
------ ------
Profit attributable to equity shareholders 242 10.8
====== ======
* Restated for the effect of Financial Reporting Standard 19.
Earnings per share has been calculated based on the operating profit from
continuing operations before amortisation of goodwill, amortisation of
acquired additional value of in-force long-term business, exceptional items,
after tax, 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 2,253 million (six months to 30 June 2001: 2,250 million; full year
2001: 2,250 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 2002 was 2,257 million
(30 June 2001: 2,253 million; 31 December 2001: 2,255 million).
--------------------------------------------------------------------
Page 32
Earnings per share (continued)
(b) Diluted earnings per share
Restated*
6 months 2002 6 months 2001
Weighted Weighted
average average
number of Per number of Per
Total shares share shares share
£m m p m p
Profit attributable to equity
shareholders 29 2,253 1.3 2,250 11.5
Dilutive effect of options - 6 - 2 -
----- ------ ----- ----- -----
Diluted earnings 29 2,259 1.3 2,252 11.5
===== ===== ===== ===== =====
* Restated for the effect of Financial Reporting Standard 19.
(b) Diluted earnings per share (continued)
Restated*
Full year 2001
Weighted
average
number of Per
shares share
m p
Profit attributable to equity shareholders 2,250 10.8
Dilutive effect of options 4 (0.1)
----- -----
Diluted earnings 2,254 10.7
===== =====
* Restated for the effect of Financial Reporting Standard 19.
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 period, by the longer-term rate of investment return. The
longer-term rate of investment return is determined using consistent
assumptions between operations, having regard to local economic and market
forecasts of investment return. The allocated longer-term return for other
investments is the actual income receivable for the period.
The principal assumptions underlying the calculation of the longer-term
investment return are:
Longer-term rates of return
Equities Properties
2002 2001 2002 2001
% % % %
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%
Australia and New Zealand 10.0% 10.0% 8.0% 8.0%
Canada 9.3% 9.3% 7.3% 7.3%
United States 9.3% 9.3% 7.3% 7.3%
END OF PART 1 OF 2
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