CGNU Interim Results 2001-Pt2
CGNU PLC
2 August 2001
PART 2 OF 6
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Contents
Page
Group Chief Executive's statement 1
Operating and financial review 2
Achieved profit basis
Summarised consolidated profit and loss
account - achieved profit basis 8
Basis of preparation 9
Components of total life achieved profit 9
New business contribution 10
Analysis of life achieved operating profit 11
Embedded value of life business 11
Segmental analysis of embedded value of life business 12
Minority interests in life achieved profit 12
Methodology 13
Principal economic assumptions 14
Other assumptions 15
Modified statutory basis
Summarised consolidated profit and loss
account - modified statutory basis 16
Earnings per share - modified statutory basis 17
Consolidated statement of total recognised gains and losses 17
Reconciliation of movements in consolidated shareholders' funds 17
Summarised consolidated balance sheet 18
Consolidated cash flow statement 19
Basis of preparation 20
Exchange rates 21
Acquisitions 21
Disposals 21
Exceptional items 24
Geographical analysis of life and pensions and investment
sales - new business and total income 24
Geographical analysis of modified statutory life profit 25
Geographical analysis of health premiums after reinsurance and
operating result 25
Geographical analysis of general insurance premiums after
reinsurance and operating result 26
Taxation 27
Dividends 27
Earnings per share 28
Longer-term investment return 29
Statistical supplement
Segmental analysis of group operating profit at constant
currency - achieved profit basis 30
Supplementary analyses 31
General insurance - geographical ratio analysis 34
General insurance - class of business analyses 35
Assets under management 37
Shareholder information 38
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Page 1
GROUP CHIEF EXECUTIVE'S STATEMENT
As the UK's leading insurance company and one of the top-five life companies
in Europe, we are pleased to report that the Group has produced a strong set
of results. We have achieved record half-year long-term savings new business
sales at £7.1 billion and increased operating profit before tax from ongoing
business, including life achieved profit, up 42% to £977 million
(2000: £679 million).
Long-term savings
Our life and pension sales grew strongly, up 19% to £6.3 billion, whilst
retail investment sales were lower at £0.8 billion reflecting the effect of
the weak equity markets. In the UK, we continue to see excellent growth in new
business sales, up 12% to £4.1 billion, building on the outstanding results
produced in 2000. Total pension sales grew by 38% to £1.3 billion and early
indications are that stakeholder sales are performing well in this new and
developing segment of the pensions market. We are continuing to develop our
multi-distribution capability through both our partnership with The Royal Bank
of Scotland Group, which has produced total sales of £178 million, and through
the launch of norwichunion.com, our wealth management initiative.
We are developing strong businesses in continental Europe with top-five
positions in the Netherlands, Ireland, Poland, Spain and Turkey. Our
continental European businesses have produced life and pension sales up 29% to
£2.4 billion,representing 39% of the total group life and pension sales. Our
larger businesses in France and the Netherlands contributed £203 million
of life achieved operating profit and the overall continental European margin
improved benefiting from our bancassurance arrangements in Spain and Italy.
Our bancassurance agreements in Spain with Unicaja and Caixa Galicia
geographically complement our existing bancassurance arrangement with Bancaja
giving us the second-largest savings bank distribution network and making us
one of the top-five life companies in Spain.
We also recently announced an agreement with the Development Bank of Singapore
(DBS), the number one bank in Singapore and largest in South East Asia, which
is our first significant step into the Asian long-term savings market. DBS has
access to just over 90% of the population in Singapore through its network of
100 branches. We will be using our expertise in bancassurance to deliver the
benefits from this partnership in this new and exciting market for us, with
significant growth potential.
Fund management
Morley, our UK fund management operation and a leading UK based fund manager,
is the number one CAT-standard ISA provider and a top-five ISA provider based
on funds under management. Our investment sales in the UK have continued to
perform well against the backdrop of a weak equity market. Our business
continues to improve its standing with the external consultant market,
securing £1.3 billion of mandates in 2001.
In continental Europe, our Dutch fund management operations, Delta Lloyd Nuts
Ohra, secured £238 million of investment mandates, despite weak investment
markets. In Australia, our sales of Navigator were up 25% to £437 million
reflecting a continued market trend towards multi-manager products, with
Navigator maintaining a leading position in this market.
General insurance
Our general insurance business is seeing improvements in operating profit, up
124% to £427 million, benefiting from the steps we have taken to improve risk
selection and rates, and lower weather-related claims. The combined operating
ratio for both the UK and the Group is now at 103%. We remain fully committed
to our target of a combined operating ratio of 102% by the end of this year.
We completed the sale of our US general insurance business on 1 June 2001,
which concludes our involvement in this general insurance market. We further
consolidated our top-five position in the Australian market with the
acquisition of the Fortis general insurance business. We have continued to
realign our smaller non-core overseas general insurance businesses and
announced the sale of our operations in Belgium, Brazil and Pakistan and the
sale of our non-core Australian mortgage indemnity business.
Integration
Integration continues rapidly and to date we have achieved £233 million of
annualised cost savings. This represents 85% of our targeted cost savings and
£89 million is included in the results for the first half of 2001. We will
complete the integration by the end of 2001 and are confident that our
annualised cost savings will exceed the £275 million target. We currently
estimate that approximately £300 million of annualised cost savings will be
achieved by the end of 2001 with no additional integration spend.
Dividend
At the time of the merger, the Group indicated that it expected to at least
maintain its dividend whilst building its cover to a level appropriate for an
international group focused on the long-term savings sector. Consistent with
this aim, and whilst investing for the future growth of the business, the
Board has decided to maintain the interim dividend paid in 2000 and has
declared an interim dividend of 14.25 net pence per ordinary share payable on
15 November 2001 to shareholders on the register at 28 September 2001.
Over the last twelve months since completion of the merger, the Group has
undergone significant transformation as we refocused the business in line with
our strategy. With excellent integration progress we have delivered a strong
set of first half results and are well placed to deliver further growth and
shareholder value.
Richard Harvey
Group Chief Executive
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Page 2
OPERATING AND FINANCIAL REVIEW
Group operating profit
The Group operating profit before tax from ongoing business, including life
achieved profit, was up 42% to £977 million (2000: £679 million), and is after
our strategic investment of £60 million (2000: £41 million) for developing our
on-line wealth management service. On a modified statutory basis, operating
profit before tax from ongoing business was £728 million (2000: £531 million).
In calculating the Group operating profit from ongoing business, we have
excluded the results from our US general insurance business, the sale of which
was completed in June 2001, and the UK London Market operations following our
withdrawal from this business last year. Other operations sold or announced to
be sold in the year are included within the results from ongoing business as
their results are not considered to be material in the context of the Group's
total result.
Profit before tax on a modified statutory basis including short-term
fluctuation in investment returns and other non-operating items was lower at
£425 million (2000: £678 million). The negative short-term fluctuations of
£446 million (2000: positive £123 million) represents a shortfall in the
actual investment return compared to the Group's long-term investment
assumptions. The shortfall primarily reflects investment valuation losses on
equities held by the non-life operations of the Group, which reflects the
decline during the first six months in equity markets worldwide.
Profit before tax on an achieved profit basis at £106 million
(2000: £738 million) includes a further adverse investment return variance
reflecting the impact of the fall in equity markets on the Group's life
embedded value. The impact on embedded value is predominantly attributable to
the UK where the FTSE All-Share index fell by 9% from 2,984 to 2,728 in the
six months.
Long-term savings
Our long-term savings business achieved record half-year new business sales
totalling £7.1 billion (2000: £6.6 billion) continuing to build on the success
of 2000. Worldwide life and pension sales grew strongly, up 19% to
£6.3 billion (2000: £5.2 billion) while retail investment sales were down at
£763 million (2000: £1,392 million) reflecting the lack of consumer confidence
in equity-backed products.
6 months 2001 Local currency growth
Life and Retail Life and Retail
pensions investments Total pensions investments Total
£m £m £m % % %
Long-term
savings sales
United Kingdom 3,563 557 4,120 13% 7% 12%
Europe
(excluding UK) 2,441 122 2,563 29% (83%) (2%)
International 286 84 370 13% (46%) (9%)
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6,290 763 7,053 19% (45%) 5%
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Navigator 437 25%
Life achieved operating profit
6 6
months months
2001 2000
£m £m
New business contribution
(after the effect of solvency margin) 227 194
Profit from existing business
- expected return 417 417
- experience variances (7) (9)
- operating assumption changes 50 -
Development costs - (17)
Expected return on shareholders' net worth 162 155
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849 740
Other life and savings activities 8 14
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Life achieved operating profit before tax 857 754
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Page 3
Group life achieved operating profit increased by 12% to £857 million, due to
the higher sales volumes and the impact of favourable operating assumption
changes. The expected returns on existing businesses and shareholders' net
worth were largely unchanged at £579 million (2000: £572 million) due to the
application of lower start of year economic assumptions to a higher opening
embedded value. The most significant operating assumption change relates to
our German operations where revised terms of business generated a profit of
£28 million.
Annual New New
premium business business
equivalent* contribution** margin****
6 6 6 6 6 6 Full
months months months months months months year
2001 2000 2001 2000*** 2001 2000*** 2000***
£m £m £m £m % % %
Life and pensions
business
United Kingdom 606 479 164 130 27.1% 27.1% 28.6%
Europe
(excluding UK) 421 416 105 91 24.9% 21.9% 20.4%
International 57 45 3 5 5.3% 11.1% 6.0%
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1,084 940 272 226 25.1% 24.0% 23.9%
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* Annual premium equivalent represents regular premiums plus 10% of
single premiums.
** Before effect of solvency margin.
*** Restated using 2001 economic assumptions and rates of exchange.
**** New business margin represents the ratio of new business contribution
to annual premium equivalent, expressed as a percentage.
UK
Our business in the UK is the leading life company with a market share of over
11% and achieved record half-year new business sales up 12% at £4.1 billion
(2000: £3.7 billion) building upon the outstanding results produced in 2000.
Total pension sales grew by 38% to £1.3 billion and include stakeholder sales
of £43 million following the successful launch in April of our stakeholder
proposition. Initial indications are that stakeholder sales are performing
well in this new and developing segment of the pensions market. We have
invested £8 million in the development of our infrastructure to support the
stakeholder environment in the first six months of the year, which has masked
the emergence of merger savings in these results.
Our partnership with The Royal Bank of Scotland Group (RBSG) has produced
total sales of £178 million in the six months to 30 June. A new range of life
products was launched in June through National Westminster Life Assurance,
which is supported by a new dedicated administration centre, and there are
plans with this partnership to launch Royal Scottish Assurance branded life
products at the end of August. In reporting our numbers we have included our
50% share of sales and operating profit from the RBSG partnership.
New business contribution increased to £164 million (2000: £130 million based
on 2001 economic assumptions) and represents a new business margin (the ratio
of new business contribution to sales measured on an annual premium equivalent
basis) of 27.1% (full year 2000: 28.6%, at 2001 economic assumptions). This
decline is attributable to product mix where, as expected, the increase of
pension sales as a proportion of total UK sales has reduced the average margin
in our UK business. Life achieved profit at £473 million (2000: £462 million)
reflected the growth in new business contribution with flat expected returns
on net assets and shareholders' net worth.
Europe (excluding UK)
Our French life business outperformed the market in the first half of the
year, with sales up 3% to £1,035 million (2000: £989 million) against a
contraction in the French market as a whole. Market statistics indicate a
decline of some 15% over the first five months of this year. AFER 'French
Franc' single premium sales distributed through the largest savings
organisation in France, grew by 27% to £472 million (2000: £363 million), as
French investors moved away from unit-linked to fixed interest products. New
business contribution was £35 million (2000: £35 million, at 2001 assumptions
and rates of exchange) with a margin of 28.9% in line with last year. Life
achieved operating profit was lower at £110 million (2000: £124 million) as
the comparative period result benefited from a favourable one-off tax
experience variance.
Our top-five business in Ireland increased sales by 14% to £257 million
(2000: £223 million). Strong sales of single premium with-profit Celebration
Bonds, were up 38% to £99 million (2000: £71 million) as investors recognised
the strength of our with-profit products against the backdrop of volatile
investment markets. Our strong IFA links and a competitive product will allow
us to perform strongly as the Special Savings Incentive Account (SSIA) becomes
an established part of the savings market in Ireland. New business
contribution increased to £14 million (2000: £11 million, at 2001 assumptions
and rates of exchange) reflecting the increase in sales. Life achieved
operating profit was up 12% to £37 million.
In Italy, new business sales increased significantly to £387 million,
principally due to our bancassurance agreement with UniCredito Italiano, which
contributed £226 million in sales. New business contribution increased to
£15 million (2000: £6 million, at 2001 assumptions and rates of exchange) and
life achieved operating profit increased to £24 million (2000: £11 million).
Development of new individual pension products designed to take advantage of
the new Italian fiscal incentives for retirement savings, enacted earlier this
year, are well advanced and will be introduced with our various distribution
partners starting in the third quarter of 2001. This will offer further
opportunities in a market with excellent long-term growth potential. The sale
of our small life business, NU Vita, to Helvetia completed on 23 July.
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Our business in the Netherlands, which includes the smaller businesses of
Belgium and Luxembourg, reported new life and pension sales up 28% at
£324 million (2000: £250 million). New tax reforms effective from 1 January
this year were expected to hold back sales of life products, however investors
favoured more traditional deposit-based savings over equity-backed products.
Investment sales at £40 million (2000: £584 million) continue to reflect the
volatility in investment markets. In May, Delta Lloyd-branded and
internet-enabled Euro funds were launched in Germany, and this was followed in
June by the launch of a worldwide investment fund into Belgium. The launch of
the funds and the Delta Lloyd brand into Germany prepares the way to benefit
from the 'Riester' pension reforms, expected to take effect in January 2002,
which are likely to increase demand for mutual funds and equity-linked savings
products. New business contribution at £11 million (2000: £5 million, at 2001
assumptions and rates of exchange) resulted in improved margins and life
achieved operating profit grew £18 million to £93 million (2000: £75 million).
The recently announced agreement to acquire Bank Nagelmackers for £82 million
is an important step in the development of an asset accumulation proposition
in Belguim, enabling Delta Lloyd to compete effectively in a market dominated
by integrated financial services.
Our Polish business, CU Polska, is the market leader for private pensions and
individual life assurance. Lower sales at £33 million (2000: £136 million)
primarily reflect that pension sales are now restricted to new entrants in the
Polish employment market, following the one-off pensions privatisation in
1999, which flowed through into 2000. Lower new business contribution at
£5 million (2000: £32 million, at 2001 assumptions and rates of exchange)
followed the lower level of sales while life achieved operating profit was
down 15% at £44 million.
Total sales in Spain increased by 583% to £294 million (2000: £42 million),
with sales of £269 million (2000: £nil) from our partnership with Bancaja. Our
new partnerships with Unicaja and Caixa Galicia will extend our distribution
network in Spain to provide access to approximately 6.7 million customers
through some 2,500 branches. This gives us the second-largest savings bank
distribution network and the fourth among all banking networks in Spain.
Margins improved significantly to 46.0% (full year 2000: 38.6%, at 2001
economic assumptions and rates of exchange) and increased new business
contribution boosted life achieved operating profit in excess of 340% to
£31 million (2000: £7 million).
International
Total new life and pensions sales increased by 13% to £286 million
(2000: £251 million), predominantly reflecting growth in our business in the
United States through good annuity sales. Life achieved operating profit was
£17 million (2000: £15 million). We have completed the disposal of our life
businesses in Canada for a loss of £5 million.
We recently announced a new 10-year bancassurance arrangement with the
Development Bank of Singapore (DBS), the number one bank in Singapore and
largest bank in South East Asia. The partnership, our first major move into
the Asian long-term savings market, gives us exclusive access to DBS's
approximately 4 million customers in Singapore, representing over 90% of the
population. Singapore is an exciting market that has significant long-term
growth potential. We will leverage our bancassurance experience to maximise
the potential of the partnership and expect the agreement to complete in the
second half of the year.
Health
Premium income from our health business grew by 17% to £509 million and total
operating profit was £32 million. Our business in the Netherlands continued to
be the main driver of the total health result with profits at £24 million
(2000: £26 million). In the UK, we have seen the benefits of rating increases
and strong demand for our products.
Fund management
Operating profit from our worldwide fund management business was £24 million
(2000: £22 million).
In the UK, the fund management operating profit was £5 million
(2000: £6 million) and includes £3 million (2000: £6 million) of profit from
the private client investment business Quilter Holdings Limited (Quilters)
disposed in March 2001. The result from the continuing UK fund management
business includes the benefit arising from merger savings, which is more than
offset by our continuing investment in retail investment business of
£15 million (2000: £13 million) and our strategy of building a world-class
fund management business, where we have commenced a number of strategic
initiatives. In addition, the result has been impacted by the lower portfolio
value, as a result of falling stock markets, upon which investment fees are
calculated. Morley, our UK fund management operation, is a top-five ISA
provider, based on funds under management and the leading CAT-standard ISA
provider. On 18 July we reported strong retail investment sales, up 7% to
£557 million (2000: £521 million) against a declining market, while continuing
to develop our institutional capabilities where we obtained £1.3 billion of
new mandates. The sale of Quilters generated a profit on disposal of
£70 million.
In Australia, sales from our Navigator business, which are not included in the
new business sales, grew by 25% to £437 million, reflecting the strength of
the product in the local marketplace. The operating result of the Navigator
business is included within fund management results on a statutory basis. On
an achieved profits basis, new business contribution was £6 million
(2000: £7 million) and operating profit £9 million (2000: £10 million). The
business is investing heavily in new systems and its industry-leading
technology will, in due course, be applied in South East Asia.
Our principal European businesses, Victoire Asset Management in France and
Delta Lloyd Nuts Ohra in the Netherlands, saw an increased operating profit to
£10 million (2000: £6 million) primarily due to significant volumes of
external retail funds procured during 2000.
Assets under management at 30 June 2001 amounted to £204 billion, down from
£220 billion reported at 31 December 2000. The reduction is largely
attributable to the sale of Quilters in the first quarter, the completion of
the sale of the US general insurance business in the second quarter, which
together had combined assets of some £11 billion, and the impact of the fall
in the worldwide equity markets.
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General insurance
Operating profit from our worldwide general insurance business grew 124% to
£427 million (2000: £193 million), aided by an improved result in France which
last year suffered storm-related claims of £90 million. The Group's combined
operating ratio was 103% (2000: 109%) and we remain fully committed to our
target of 102% by the end of the year. The total expense ratio for the Group
has improved to 11.9% (2000: 12.1%).
Underwriting Operating
result* profit*
6 6 6 6
months months months months
2001 2000 2001 2000
£m £m £m £m
United Kingdom (69) (126) 254 196
Europe (excluding UK) (57) (234) 71 (104)
International (26) (47) 102 101
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Ongoing business (152) (407) 427 193
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Businesses discontinued
United States (173) (96) (21) 115
London Market - (31) - 6
* Excludes the change in the equalisation provision of £22 million
(2000: £12 million).
UK
Our UK general insurance business recorded a 30% increase in operating profit
to £254 million (2000: £196 million), with a stronger underwriting result
across our major classes of business and an improved combined operating ratio
of 103%. As the UK's leading general insurer, with a 19% market share, our
strategy is to move away from large commercial risks and to concentrate upon
leadership in personal lines and the needs of small businesses. We continue to
reposition our portfolio by adopting a rigorous approach to the risks that we
accept and by taking strong rating action. In July we introduced a new 'Common
Pricing Platform' for private motor, which is a significant move towards
tailored pricing at an individual customer level. This pricing platform will
be extended to homeowners later in the year. Annualised rating increases for
personal motor and homeowners were 16% and 4% respectively. In the commercial
motor and property businesses, rating actions of 20% and 8% respectively,
continue to be applied while retaining core business at profitable levels. In
our commercial liability business we are continuing to reduce our exposure to
improve the profitability of the business and annualised rating increases were
19%.
We are currently undertaking strategic initiatives to further improve our
already efficient processes, most notably in Total Incident Management, our
market-leading claims service, and the Partner Self Service programme, which
connect us directly with intermediaries and corporate partners through the
deployment of web-based technology. These processes are integral to achieving
and sustaining our target combined operating ratio of 102% by the end of the
year. Our expense ratio has fallen to 10.6% (2000: 10.8%), reflecting the cost
of these initiatives.
Following the recently announced reduction to the Ogden rates from 3% to 2.5%,
we have assessed the impact of this change and estimate the retrospective
impact to be approximately £35 million and an ongoing cost of 0.5% per annum
on motor rates. We have factored the potential for adverse events, such as the
revised ruling, into our pricing and reserving. Our prudent approach means we
have absorbed the retrospective cost and therefore there is no impact on the
current year results or our reserving strength.
In addition, following recent market developments we have considered the
likelihood of a call for funding from the Policyholders' Protection Board. As
a result, we considered it prudent to hold a specific provision and have
charged £14 million (6 months and full year 2000: £nil) as at the end of June.
Given the nature of this item, the charge is shown separately in the profit
and loss account and accordingly is excluded from the general business
operating profit, underwriting result and combined operating ratio to ensure
meaningful period on period comparisons.
Europe (excluding UK)
Our European general insurance businesses produced operating profit of
£71 million (2000: loss of £104 million) and saw improvements in performance
across all of our major businesses. In France, operating profit at £34 million
(2000: loss of £120 million) improved by £154 million, driven by lower
weather-related costs following storm losses of £90 million in 2000, the
impact of more disciplined underwriting and rate increases. Our Irish business
increased operating profit by 55% to £17 million (2000: £11 million) following
strong underwriting and rating actions and exiting unprofitable lines of
business.
International
Our Australian and New Zealand general insurance businesses reported reduced
underwriting losses of £8 million (2000: loss of £12 million). The operating
profit was lower at £26 million (2000: £33 million) primarily reflecting the
sale of State Insurance Limited in New Zealand that contributed £5 million to
the 2000 result. We recently announced the acquisition of Fortis Australia
Limited from the Fortis Group for £111 million, which completed on 3 July. The
acquisition reinforces our top-five position in the Australian general
insurance market and establishes us as the market leader in both the motor
dealer and financial institution distribution channels. We also announced the
withdrawal from the mortgage indemnity market in Australia with the sale of
CGU Lenders Mortgage Insurance Limited for £39 million, expected to complete
in the second half of the year. Operating profit from our Canadian business
was £50 million (2000: £44 million) and other international businesses
returned a small increase in operating profit at £26 million
(2000: £24 million).
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We continue to withdraw from those businesses that we believe do not offer us
the potential for market-leading positions and recently announced the sale of
our general insurance operations in Belgium, Brazil and Pakistan, which are
expected to complete in the second half of the year.
On 1 June we announced the successful completion of the sale of our US general
insurance business thereby completing our exit from this general insurance
market. In accordance with the sale agreement the Group did not bear any
continuing operating risk from 31 August 2000, nor provide any guarantees in
respect of its claims reserves or balance sheet beyond that date, except for
the pre-closing adjustments announced in February 2001 and charged in the year
ended 31 December 2000. Despite the Group retaining no economic interest
beyond this date, accounting standards require that we consolidate the results
up to the date of completion of the transaction. The results of the US
business for the period to 1 June include an operating loss of £21 million
(2000: profit of £115 million) and a post-tax loss, including a short-term
fluctuation in investment returns, of £125 million
(2000: profit of £12 million). The post-tax loss was offset by a compensating
reduction in the final loss on sale of £125 million, resulting in no net
profit or loss to the Group in the first six months of 2001. Further details
are included in note 4 on page 21 of this announcement.
Non-insurance operations
The result of the Group's non-insurance businesses improved to a loss of
£7 million (2000: loss of £19 million) primarily driven by reduced losses from
our estate agency business, Your Move, following the significant expenditure
last year on advertising and the development of new technology. Reduced
profits from our European non-insurance businesses at £1 million
(2000: £12 million) reflected lower levels of commission in our banking
operations in the Netherlands.
Corporate costs
Corporate costs are lower at £81 million (2000: £97 million) benefiting from
the emergence of merger cost savings.
Unallocated interest charges
Unallocated interest charges include intra-group loans with the centre and
external borrowings not allocated to local business operations. The increase
in unallocated interest charges over the equivalent period last year to
£215 million (2000: £167 million) principally reflects the impact of corporate
activity during the course of 2000 and the first half of 2001. The
£1.4 billion proceeds from the sale of the US general insurance business have
primarily been used to reduce borrowings.
Shareholders' funds
Equity shareholders' funds decreased to £13.1 billion
(31 December 2000: £13.4 billion) reflecting the fall in worldwide investment
markets. Following this change, net assets per ordinary share, based on equity
shareholders' funds, fell to 590 pence per share
(31 December 2000: 606 pence per share) after adding back the equalisation
provision of £237 million (31 December 2000: £216 million). The Group's
'normalised' annualised 2001 pre-tax return on equity was 14%. The normalised
return is based on the pre-tax operating profit, including life achieved
profit, before amortisation of goodwill and exceptional items, expressed as a
percentage of the opening equity capital.
The Group seeks to maintain an efficient capital structure using a combination
of equity shareholders' funds, preference capital and borrowings. The Group
has appointed a small group of leading investment banks to raise up to
£1 billion of subordinated debt in the sterling and euro capital markets. This
will further enhance the Group's capital position and support future growth
opportunities. Although discussions are at an early stage it is anticipated
that the bond issue will be launched within the next three months.
Integration update
We have made considerable progress in realising our integration targets in
each of our business units. Rationalisation of IT structures is on track and
we have begun to consolidate our UK multiple data centres into a single data
centre based in Norwich. Further progress has been achieved in the move to
common operational platforms in our UK and overseas general insurance
businesses and we have fully integrated our systems in Morley. The integration
of business unit support infrastructures is now largely complete. We will
complete our integration by the end of 2001 and are confident that we will
exceed the £275 million annualised cost savings target announced last year.
Annualised cost savings were £233 million by the end of June 2001 with
£89 million of savings included in the results for the first half of 2001.
Integration savings Profit and loss Annualised Total
account impact cost savings projected
6 months achieved to integration
2001 date savings
£m £m £m
Life insurance 22 59 91
General insurance 32 106 116
Other operations 35 68 68
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89 233 275
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On-line developments and wealth management
With norwichunion.com we have set out to create a long-term strategic
initiative that brings on-line wealth management to a mass market in the UK.
The first step of this business vision - a comprehensive range of interactive
planning tools and impartial information designed for those who want to take
greater control of their finances - was delivered on 24 May. Using the
strength of the Norwich Union brand has allowed us to launch this initial
proposition, using modest levels of media investment in order to prove the
quality and robustness of our operational capability before adding further
product functionality. Costs incurred in the first six months of 2001 were
£50 million (2000: £31 million).
Our leading national home buying portal, www.assertahome.com, has recently
acquired www.propertyfinder.co.uk through its holding company, asserta
holdings Limited, with consideration being 20% of asserta holdings shares.
Together these two websites will give homebuyers access to the largest choice
of properties available on-line, and will be the biggest single source of
on-line referrals to estate agents in the UK.
Notes to editors
- CGU plc and Norwich Union plc merged on 30 May 2000 to create CGNU
plc, the UK's largest insurance group and one of the top-five life
insurers in Europe with substantial positions in other markets around
the world, making it the world's sixth-largest insurer based on gross
worldwide premiums.
- CGNU's principal business activities are long-term savings, fund
management and general insurance, with worldwide premium income and
retail investment sales from ongoing business of over £27 billion and
assets under management of more than £200 billion.
- From October 2000, the combined life and pensions, general insurance
and retail fund management businesses in the UK operate under the
Norwich Union brand, while the institutional investment business
operates under the Morley Fund Management brand.
- Overseas currency results are translated at average exchange rates.
- All growth rates are quoted in local currency.
- CGNU's corporate press releases and results presentations are
available on the internet: www.cgnu-group.com
- The 2000 new business contribution quoted in the financial highlights
and the operating and financial review has been shown using the
application of 2001 economic assumptions and foreign exchange rates.
- Photographs are available from www.newscast.co.uk
Life profits reporting
In reporting the headline operating profit, life profits have been included
using the achieved profit basis. This is used throughout the CGNU Group and by
many in the investment community to assess performance. We have focused on the
achieved profit basis, as we believe life achieved operating profit is a 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 amounted
to £608 million. The basis used for reporting achieved profit is consistent
with the draft guidance circulated by the Association of British Insurers.
Definitions of Group key performance indicators
Achieved operating - excludes the operating result of businesses
profit discontinued, and is stated before amortisation of
goodwill and Policyholders' Protection Board levy.
Achieved operating - operating profit on an achieved profit basis before
earnings per share amortisation of goodwill and Policyholders'
Protection Board levy, after taxation, attributable
to equity shareholders in respect of ongoing
business.
Modified statutory - excludes the operating result of businesses
operating profit discontinued, and is stated before amortisation of
goodwill, amortisation of acquired additional value
of in-force long-term business and Policyholders'
Protection Board levy.
Ongoing business - total business operations excluding the discontinued
London Market operations and US general insurance
operations.
Net asset value - is calculated based on equity shareholders' funds,
per ordinary share adding back the equalisation provision of
£237 million (31 December 2000: £216 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 assumptions as those
contribution used to determine the embedded values at the
beginning of each year and is stated before tax and
the effect of the solvency margin.
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