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