Interim Results 2000 - Part 1
CGNU PLC
2 August 2000
CGNU plc Interim Announcement 2000
CGNU plc
Interim Results 2000
Part 1
UNAUDITED RESULTS - 6 MONTHS ENDED 30 JUNE 2000
- Operating profit before tax, including life achieved profit, of
£800 million (1999: £853 million) is after a £41 million charge for
developing our e-enabled UK wealth management service. On a
modified statutory basis operating profit before tax was £652 million
(1999: £796 million).
- Life achieved operating profit up 24% to £754 million, with
improvements in all our major European businesses.
- General insurance operating profit of £327 million was disappointing
reflecting late notified claims from the December 1999 storms in France
of £90 million and an increase in large claims.
- Worldwide new business sales rose to £6.1 billion, up 18%.
- Increasing distribution strength through alliances in the UK with Royal
Bank of Scotland and Tesco and with Bancaja in Spain and Banca Popolare
di Lodi in Italy.
- Merger integration proceeding rapidly, increased estimate of pre-tax
annualised savings from £250 million to £275 million.
- Interim dividend 14.25 pence net per share.
Bob Scott, Group Chief Executive, commented:
'Following the merger of CGU and Norwich Union completed in May this year,
integration of the business is moving ahead rapidly. CGNU is the world's
sixth largest insurance group, a top-five European life insurer and the UK's
largest insurance group. Our general insurance business results were
disappointing and we continue to take the necessary steps to improve
profitability. Our life and savings business in the UK and Continental Europe
made excellent progress in the half year as well as achieving a number of
significant new distribution agreements.'
Financial Highlights
Restated
Unaudited Unaudited
6 months 6 months
to to Local
30 June 30 June currency
2000 1999 growth
£m £m %
Long-term savings new business
: life & pensions
premiums 5,249 4,628 18%
: investment sales 808 673 21%
Total premiums written after
reinsurance and investment sales 14,549 13,348 12%
Operating profit before tax (i) 800 853 (5%)
Operating earnings per ordinary share (i) 24.6p 27.4p
Dividend per share(ii) 14.25p 14.25p
Shareholders' funds(iii) 16,193 15,673 *
Net asset value per ordinary share (iv) 722p 700p *
Basis of preparation - the CGNU interim 2000 results have been prepared
according to the principles of merger accounting, using common accounting
policies. The 1999 results have been restated to this same basis and in
addition have been revised to comply with FRS16 'Current Tax'.
(i) Operating profit/earnings before tax shown above include life
achieved operating profit and exclude amortisation of goodwill
£18 million (30 June 1999: £17 million) and exceptional items
£nil (30 June 1999: £70 million).
(ii) The dividend at 30 June 1999 of 14.25 pence net per share
represents the CGU plc 1999 interim dividend. The 1999 pro-forma
dividend based on the weighted average interim dividends of CGU plc
and Norwich Union plc was 12.34 pence net per share.
(iii) Based on equity and non-equity shareholders' funds which have been
reduced by the equalisation provision of £224 million
(31 December 1999: £212 million).
(iv) Based on equity shareholders' funds, adding back the equalisation
provision.
* Denotes amount at 31 December 1999.
Life profits reporting
In reporting the CGNU plc headline operating profit, life profits using the
achieved profit basis have been included. This is used throughout the CGNU
Group and by many in the investment community to assess performance. The
modified statutory basis which is used in our financial statements, is also
identified in the headline figures. We have focused on the achieved profit
basis, as we believe life achieved operating profit is a better measure of the
performance of life businesses than the modified statutory basis, which is
deliberately conservative and more concerned with solvency protection and
distributability than performance. Life modified statutory operating profit
before tax amounted to £606 million. The basis used for reporting achieved
profit is consistent with the approach used by CGU plc and Norwich Union plc
and the draft guidance set out by the Association of British Insurers.
Enquiries:
Bob Scott Group Chief Executive Telephone +44 (0)207 662 2003
Richard Harvey Deputy Group Chief Executive Telephone +44 (0)207 662 2286
Peter Foster Group Finance Director Telephone +44 (0)207 662 2007
Chairman's and Group Chief Executive's statement
This is our first opportunity to report on the performance of CGNU following
the merger of CGU with Norwich Union. Excellent progress has been made in
integrating the businesses and, following detailed analysis, the estimated
annual cost savings to be achieved by December 2001 have increased from
£250 million to £275 million. The estimated costs of achieving these savings
will amount to £425 million. We are pleased to report that our philosophy of
'business as usual' has ensured that we also remain focused on operational
excellence and on building business momentum.
The Group's operating profit before tax, including life achieved profit, was
£800 million (1999: £853 million), after a £41 million charge for developing
our e-enabled UK wealth management proposition. On a modified statutory basis
operating profit before tax was £652 million (1999: £796 million).
Our worldwide life and savings business made excellent progress with new
business increasing by 18% to £6.1 billion. Life operating profits on an
achieved profit basis were up 24% at £754 million and up 10% to £606 million
on a modified statutory basis.
We have taken a number of significant steps in developing our life and savings
businesses during the period. Our relationships with Royal Bank of Scotland
Group and Tesco in the UK, Bancaja in Spain and an expanded distribution
agreement with Banca Popolare di Lodi in Italy offer us significant
opportunities to grow further in these important markets.
The Group's decision to sell its smaller Polish life and pensions businesses,
previously owned by Norwich Union, will not affect our leading position in
this market.
Our 'orphan' assets in the UK of approximately £4 billion are currently used
to support strong business development which benefits both policyholders and
shareholders. We will examine whether this continues to be the most
attractive position for both sets of stakeholders. Given the complexity of
the issues a conclusion is unlikely in the short term.
The Group's assets under management increased to £216 billion and our retail
investment sales increased 21% to £808 million.
General insurance operating profit of £327 million (1999: £370 million) was
disappointing, reflecting late notified claims of £90 million from the
December 1999 storms in France and an increase in large claims. We continue to
take the necessary steps to improve profitability and there was an improvement
in the underwriting result in the UK.
A cornerstone of our strategy is to focus on markets where we can achieve a
top-five market position. We have decided to sell our general insurance
businesses CGU Holdings Limited in South Africa, and GAVAG in Germany, and our
life business in Canada. Against a difficult background negotiations continue
to achieve the sale of our US general insurance business which we expect to
conclude around the end of the year.
We have previously announced that CGNU expects to pay dividends for the year
ending 31 December 2000 in line with CGU's dividend for 1999. Thereafter we
expect that CGNU will at least maintain this level of payment while building
dividend cover to a level appropriate for an international group focused on
the long-term savings sector. In line with this policy, the board of
directors has declared an interim dividend of 14.25 pence net per share which
is the same amount as the CGU interim dividend for 1999. The dividend is
payable on 17 November 2000 to shareholders on the register on
29 September 2000.
We are actively developing new e-commerce activities and, in the UK, we will
be launching a new e-enabled wealth management proposition to commence in the
fourth quarter of 2000.
The combined group has achieved an improved competitive position in a number
of its chosen markets as well as significant opportunities for cost savings,
and is in a good position to provide increased returns for shareholders.
Pehr Gyllenhammar Bob Scott
Chairman Group Chief Executive
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Operating and financial review
Group results to 30 June 2000
The Group's operating profit before tax, including life achieved operating
profit, was £800 million for the six months to 30 June 2000
(1999: £853 million). Life achieved operating profit grew strongly by 24% to
£754 million.
A number of significant investments in new developments have been charged to
the Group result. In particular we have invested £41 million in the
development of our e-enabled wealth management proposition and in setting up
'asserta home', the home moving portal. In addition, we have also invested
£30 million in establishing Norwich Union International Limited, our offshore
business in Ireland and in developing our presence in the UK retail investment
market.
General insurance operating profits were £327 million (1999: £370 million)
held back by a disappointing underwriting result in France. Late reporting of
December 1999 storm-related claims of £90 million and adverse development of
certain claims have contributed to an increased underwriting loss in France
from £21 million to £167 million. This deterioration has been partially offset
by an improvement in the UK underwriting result and an increase in longer-term
investment return of £106 million to £861 million.
Restated
6 months 6 months
to to Local
30 June 30 June currency
2000 1999 growth
£m £m
Operating profit before tax*
Life achieved operating profit 754 621 24%
Health 21 11 91%
Fund management 22 26 (15%)
General insurance 327 370 (11%)
Non-insurance operations (21) (11) (91%)
Associated undertakings 2 8 (71%)
Corporate costs (97) (65) (52%)
Unallocated interest charges (167) (107) (56%)
------ ------ ------
841 853 -
Wealth management (41) - -
------ ------ ------
Operating profit before tax* 800 853 (5%)
====== ====== ======
* Operating profit before tax, amortisation of goodwill and exceptional
items
The Group's net written premiums and investment sales rose by 12% to
£14.5 billion. Life, pensions, health premiums and investment sales increased
to £8.4 billion (1999: £7.5 billion) boosted by strong sales performance in
2000.
The Group's new life and pension sales in the period to 30 June 2000 reached
£5.2 billion, an increase of 18% over the first half of 1999, reflecting
continued strong performance since the announcement of the merger. In
addition, sales of investment products of £0.8 billion grew by 21% with
significant progress being made in the UK with the success of our Cat-standard
Isas with sales of £172 million.
6 months 6 months
to to Local
30 June 30 June currency
2000 1999 growth
£m £m
Long-term savings new business
Life and pensions premiums:
United Kingdom 3,148 2,484 27%
Europe (excluding UK) 1,850 1,899 7%
International 251 245 2%
------ ------ ------
5,249 4,628 18%
Investment sales 808 673 21%
------ ------ ------
6,057 5,301 18%
====== ====== ======
On a modified statutory basis, operating profit before tax, amortisation of
goodwill, amortisation of acquired additional value of in-force long-term
business and exceptional items was £652 million (1999: £796 million).
Profit before tax rose to £678 million (1999: £450 million), benefiting from
£123 million of favourable short term fluctuations in investment return
compared with £213 million of adverse fluctuations in 1999.
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Life insurance
6 months 6 months
to to Local
30 June 30 June currency
2000 1999 growth
£m £m
Life achieved operating profit*
New business contribution 194 159 25%
Profit from existing business
- expected return 417 326 32%
- experience variances (9) (10) 10%
- operating assumption changes - - -
Development costs (17) - -
Expected return on shareholders'
net worth 155 128 24%
------ ------ ------
740 603 26%
Other life and savings activities 14 18 (22%)
------ ------ ------
Life achieved operating profit
before tax* 754 621 24%
====== ====== ======
Analysed:
United Kingdom 462 380 22%
Europe (excluding UK) 277 213 39%
International 15 28 (48%)
* Life achieved operating profit is stated before amortisation of
goodwill and exceptional items.
Life achieved operating profit was ahead by 24% at £754 million growing by 22%
in the UK to £462 million while in Continental Europe profits rose by 39%.
Growth in Continental Europe is after development costs of £17 million in our
'European Navigator' business based in Dublin and life operations in Poland;
growth excluding development costs was 47%. New business contribution after
cost of capital has risen strongly to £194 million (1999: £159 million),
benefiting from strong volume growth, stable margins in the UK, strengthened
margins in both France and Ireland and the contribution from our pensions
business in Poland. The growth in expected return from in-force business and
shareholder net worth benefits from the application of higher interest rates
on a growing embedded value.
Annual premium New business
equivalent* contribution**
6 months 6 months 6 months 6 months
to to to to
30 June 30 June 30 June 30 June
2000 1999 2000 1999***
£m £m £m £m
Life and pensions business
United Kingdom 479 384 137 111
Europe (excluding UK) 416 352 94 91
International 45 44 5 10
------ ------ ------ ------
940 780 236 212
====== ====== ====== ======
* Annual premium equivalent represents regular premiums plus 10% of
single premiums
** Before cost of capital
*** Restated using 2000 economic assumptions
UK: The long-term savings businesses of Norwich Union and CGU now command an
estimated UK market share of 10%, giving a leading position in the life and
pensions market place. Life and pensions new business contribution is in line
with the growth in the new business sales expressed as an annual premium
equivalent. New business margins have been maintained.
The financial strength of the combined Group has proved to be attractive to
investors. We have seen continued support from the IFA community, the source
of over 75% of CGNU's long-term new business in the UK, that showed an 8%
quarter on quarter growth in 2000. All major product areas achieved growth.
In particular, excellent progress was made in both individual and group
pensions, up 31% and 59% respectively, reflecting CGNU's broad and competitive
position and a proactive stance towards building market share in the run up to
stakeholder pensions in April 2001. CGNU is committed to being a major
provider of stakeholder pensions and in July became one of the first to launch
a pension product, primarily aimed at the individual, that meets the
government's minimum standards in the pre-stakeholder pension phase - Your
Pension@CGU. A complementary Norwich Union product aimed at the employer
market has also been launched. Both products will benefit from CGNU's
multi-distribution capability and will be backed up by e-enabled
administration systems.
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In July, we agreed with the Royal Bank of Scotland the purchase of a 50%
interest in Royal Scottish Assurance and National Westminster Life Assurance
for £600 million and we expect the regulatory process to be complete by the
end of 2000. This joint venture will combine the market-leading life
capability of CGNU in the UK with Royal Bank of Scotland's distribution power
in the retail market.
The aim is to increase the penetration of life and pensions products to Royal
Bank of Scotland's 10 million UK personal customers from under 10% to 20%. The
wider product range CGNU can offer, increased levels of customer service and
improved salesforce productivity will be the key components in meeting our
objective. CGNU has substantial experience of managing the links with
financial institutions with some 20 smaller UK building society and banking
relationships. An excellent working relationship has developed between the two
groups and a number of other potential opportunities are being explored.
The agreement with Tesco Personal Finance became effective in June 2000. A
term assurance and an investment Isa product have already been launched.
These are expected to contribute to new business sales from the third quarter.
Europe (excluding UK):
New business contribution in France rose by 44% to £39 million which, combined
with favourable tax experience, contributed to an 88% rise in life achieved
operating profit to £124 million. The French business produced excellent
results with life and pensions new business sales increasing 47% to
£989 million. New single premiums, which dominate the market, increased to
£968 million with strong sales of unit-linked products following strong equity
performance in 1999 and the low interest rate environment. The change in sales
mix towards unit-linked products benefited new business contribution.
Discussions are taking place with Societe Generale with the aim of developing
a bancassurance relationship in the French market.
In Ireland, new business contribution increased by 140% to £12 million. This
growth was driven by higher life and pensions new business sales, which rose
to £223 million, 81% ahead of last year, with the continued success of both
Norwich Union and CGU bond sales and £62 million of new business sales from
Hibernian. Hibernian added £3 million to new business contribution.
Delta Lloyd Nuts Ohra (DLNO) is the third largest life and pensions provider
in the Netherlands with a market share of 6%. New business contribution was
£9 million in the period, down from £15 million reflecting a change in new
business mix towards single premiums. Regular premium sales were down across
the market due to impending tax reforms. Overall life and pensions new
business sales increased by 25% to £235 million and include £41 million from
the acquisition of Nuts Ohra. The integration of Nuts Ohra is proceeding well.
Our German life company, part of the DLNO group, saw annual premiums up 42% to
£19 million.
Polish life and pensions new business sales increased to £136 million. CGNU
is the market leader for private pensions in Poland. Regular pension premiums
of £109 million (1999: £2 million) represent the processing of 572,000 pension
cases and over 50,000 new customers have also been attracted as they enter the
market. The new business contribution from the pensions business was
£22 million.
Sales of life products in the Polish market were lower in the first half of
2000 at £27 million (1999: £38 million). New business contribution in the
period fell to £5 million reflecting the reduction in sales volumes.
Long-term growth prospects for the life business remain very good, with less
than 20% of employed people having an individual life policy.
In May, we announced a new bancassurance partnership with Bancaja, Spain's
fourth largest savings bank, to acquire 50% of the share capital with
management control of Aseval, Bancaja's life insurance subsidiary.
Bancassurance accounts for some 80% of life and pensions sales in Spain and
the combined operation will be a top-ten life and pensions provider.
Regulatory approval has now been received and contribution to new business is
expected to commence later this year. CGNU's existing operations in Spain saw
single premium sales double following the launch of unit-linked life and
savings products.
Our offshore business in Dublin, Norwich Union International Limited, based on
the Navigator e-enabled fund of funds service from our Australian business,
has launched in the UK, Italy and Spain and made its first contribution to new
business in the quarter. We are looking to expand this service into other
markets in Europe.
The cessation of our bancassurance agreement in Italy with Credito Italiano at
the end of June last year has led to a reduction in both new business sales
and new business contribution. Our partnership with Banca delle Marche,
launched in September 1999, produced strong single premium sales of
£36 million.
In Turkey, we continue to prepare for the new opportunities presented by
private pensions legislation currently before parliament and hope to be one of
the first companies to be granted a pensions licence during the second half of
the year.
CGNU will launch into the Romanian market later this year, initially with a
direct sales force and the development of a bancassurance business with BRD,
part of the Societe Generale Group. Romania is one of the largest eastern
European markets with a population of 23 million, and offers the opportunity
to build on our experience in Poland and position CGNU to benefit from future
pensions reform.
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International:
Our Australian life and pensions business increased single premium sales by
23% and regular premium sales increased by 50%. The introduction of new tax
legislation has adversely impacted new business contribution. Our business in
the United States reported sales of £94 million. In the United States we are
investing in a new bancassurance platform which affected profits in the six
month period ended 30 June 2000.
In June we announced our intention to sell our Canadian life business, after
concluding that this business lacked the scale and platform to build a
top-five market position.
In China and India, markets of substantial long term potential, we continue to
lay the ground to position CGNU favourably for the distribution of licences to
operate in the life and savings market.
Health
Underwriting Operating
result profit
6 months 6 months 6 months 6 months
to to to to
30 June 30 June 30 June 30 June
2000 1999 2000 1999
£m £m £m £m
United Kingdom - (2) 2 -
Europe (excluding UK) (10) 3 19 11
------ ------ ------ ------
(10) 1 21 11
====== ====== ====== ======
Premium income increased by 174% to £428 million (1999: £162 million) and
operating profit increased by 91% to £21 million. These improvements
principally reflect the inclusion of the Nuts Ohra business in the
Netherlands, acquired during the second half of 1999.
Fund management
Operating
profit
6 months 6 months
to to
30 June 30 June
2000 1999
£m £m
United Kingdom 6 14
Europe (excluding UK) 7 5
International 9 7
------ ------
22 26
====== ======
CGNU had assets under management of £216 billion at 30 June 2000. It is the
second largest UK-based fund manager and among the top-ten asset managers in
Europe, with strong market positions in the UK, France and the Netherlands and
developing positions in Ireland and Poland.
In the UK, we have established an investment organisation distinct from our
insurance business. The combination of the Norwich Union and Morley businesses
and skills will allow the group to compete effectively in both the retail and
institutional investment markets.
Sales from our Cat-standard Isas in the UK grew significantly to £172 million.
An investment of £13 million has been made in developing our retail fund
management proposition which reduced UK profits.
Sales from the Norwich Union Navigator product in Australia, which are not
included in new business sales, increased by 33% to £376 million, giving funds
under administration of £2.2 billion. The reported profits from this business
have remained at £7 million. The new business contribution from Navigator and
other non-life business sales in Australia was £9 million (1999: £9 million)
and includes the impact of expensing the spend on the next generation of
information technology.
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General insurance
Net written premiums from our worldwide general insurance operations increased
by 8% to £6.2 billion. Operating profit was £327 million (1999: £370 million)
held back by a disappointing underwriting result in France. Late reporting of
the December 1999 storm-related claims of £90 million and adverse development
of certain claims have contributed to an increased underwriting loss in France
from £21 million to £167 million. This deterioration has been partially offset
by an improvement in the UK underwriting result and an increase in longer-term
investment return of £106 million.
The Group's worldwide combined operating ratio was 109% (1999: 106%). The
worldwide expense ratio improved to 12.5% (1999: 12.9%), principally driven by
performance in the UK. We believe that the combination of the significant rate
increases that we have seen across our major businesses, planned merger
savings and the reshaping of our portfolios will produce a significant
improvement in the underwriting result towards our target combined operating
ratio of 102% by the end of 2001.
Underwriting Operating
result* profit*
6 months 6 months 6 months 6 months
to to to to
30 June 30 June 30 June 30 June
2000 1999 2000 1999
£m £m £m £m
United Kingdom (157) (177) 202 132
Europe (excluding UK) (235) (75) (98) 44
International (142) (133) 223 194
------ ------ ------ ------
(534) (385) 327 370
====== ====== ====== ======
* excludes the change in the equalisation provision of £12 million
(1999: £35 million)
UK: The creation of CGNU has brought together two of the most efficient
providers in the general insurance market to form the largest general insurer
in the UK, with a focus on personal and smaller commercial lines businesses.
The merger will generate significant cost savings that will result in lower
unit costs. Combined with our strong relationships with brokers, the strength
of our direct business and innovative distribution partnerships, this
represents a significant opportunity to generate superior returns.
The improvement in the underwriting loss to £157 million (1999: £177 million)
reflected improvements across personal and commercial motor accounts offset by
a deterioration in the commercial property account and the commercial
liability account. The combined operating ratio in the UK improved to 106%
(1999: 107%) and on personal lines business it was 101% (1999: 103%). The
expense ratio in the UK has improved to 10.6% (1999: 11.6%).
In the personal motor account market leading rating increases averaging 20%
continued to outstrip claims inflation. Combined with increased renewal
retention, this also demonstrates this market is continuing to harden. The
commercial motor account also benefited from significant rating increases, up
on average 20%. Strong rating actions continue to be taken on the back of a
hardening market.
The profitability of the commercial property account during the first half of
2000 was adversely impacted by four large claims totalling £36 million. We
continue to take underwriting and rating action in the commercial property and
commercial liability accounts to reduce our exposure.
Europe (excluding UK):
The underwriting result in France deteriorated to a loss of £167 million
(1999: loss of £21 million). This included a charge of £90 million in respect
of the December 1999 storm claims, where costs for the industry have
significantly escalated from original projections due to a combination of
higher average claims costs and late claims notification from agents and lead
co-insurers, making it the second most expensive insured loss to hit Europe.
The 2000 result has also been impacted by large claims and other adverse
current year experience, particularly on the motor account. Underwriting and
rating actions are being taken with single digit rate increases in personal
lines and double digit increases in some commercial lines.
In the Netherlands, the underwriting loss rose to £21 million
(1999: loss of £11 million). A number of large claims in the fire and bourse
businesses have impacted the result and bodily injury claims costs continue to
rise. Rate increases of 7% have been achieved on the motor and personal
accident books since the beginning of the year.
The movement in the underwriting result in Ireland to a loss of £13 million in
the period from a loss of £6 million in 1999 reflects a larger book of
business due to the acquisition of Hibernian.
The group has announced the sale of GAVAG, its general insurance company in
Germany.
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International:
An improved underwriting loss in Australia and New Zealand of £12 million
(1999: £19 million) was helped by a reduction in weather-related losses in
Australia. In both markets the commercial sector is showing signs of hardening
and in Australia rate increases are being obtained. The underwriting result in
Canada has remained stable against 1999 levels in competitive market
conditions. The US underwriting loss was £96 million (1999: £89 million).
In June we announced the proposed sale of our South African general insurance
business to Mutual & Federal.
Non-insurance operations
The Group's non-insurance operations show a loss of £21 million (1999: loss of
£11 million). This includes a loss of £27 million related to our estate
agency business Your Move primarily arising from increased advertising
expenditure and the introduction of new technology.
Corporate costs and unallocated interest charges
Corporate costs amounted to £97 million (1999: £65 million). This includes a
one-off charge of £12 million relating to the cost of the Norwich Union
long-term incentive scheme which crystallised as a result of the merger and
£12 million for the accrual of Norwich Union staff performance-related
payments.
Unallocated interest charges include interest on intra-group loans with the
centre and external borrowings not allocated to local business operations.
The charge has increased to £167 million and mainly reflects an increase in
external borrowings to fund corporate activity.
Shareholders' funds
Shareholders' funds increased by £520 million to £16.2 billion after deducting
the equalisation provision of £224 million (1999: £212 million). Net assets
per ordinary share increased to 712 pence per share
(31 December 1999: 690 pence per share) after deducting the equalisation
provision. Adding back the equalisation provision, they were 722 pence
(31 December 1999: 700 pence).
The Group's 'normalised' annualised 2000 after tax return on equity was 7%.
The normalised return is based on the after tax operating profit including
life achieved operating profit, before exceptional items and amortisation of
goodwill as a percentage of the opening equity capital. The total annualised
2000 return on equity, including all investment and currency movements,
amounted to 11%.
Merger update
The integration of businesses is making rapid progress. Management teams have
been confirmed and extensive planning by business units ensured that the
integration process could begin as soon as the merger became effective on
30 May 2000.
A high-level estimate of pre-tax cost savings of £250 million when the merger
was announced, has been increased to £275 million, following a detailed review
by business units. The revised estimate excludes anticipated savings of
£15 million from businesses we have subsequently decided to dispose of. The
integration is still expected to be complete by the end of 2001, with the
first full year of cost savings being made in 2002. The estimated cost of
achieving the savings has increased from £350 million to £425 million. This
increase from our previous estimate reflects the higher marginal cost of
achieving the increased savings. Headcount reductions in the UK have been
confirmed at 4,000.
Merger savings by business
£m
UK Life 66
UK General Insurance 97
UK Fund Management 27
Group Office 33
Overseas 52
------
Total 275
======
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The major integration activity is taking place in the UK. The UK life
operations are focused on launch-day on 2 October when the two businesses will
begin to market an integrated range of products under the Norwich Union brand
and a fully trained sales force will be in place.
The UK general insurance business will also re-launch under the Norwich Union
brand on 2 October, with a clear focus on personal and small commercial lines.
An integrated sales force will also be in place by this date. The product
range will be announced in August and future systems have been selected. The
claims process will be focused on Norwich Union's Total Incident Management
approach, a combination of customer care, cost control and efficiency that
sets us apart from the rest of the market. During the integration process, we
will maintain a clear focus on underwriting and customer service.
Integration in the fund management business in the UK is proceeding at a pace.
The front office structures were integrated in July and all key members of
staff have been retained. A research-driven, risk-controlled active investment
philosophy has been established.
Corporate activity in 2000
The Group has already agreed a number of transactions this year, including the
acquisition of Hibernian in Ireland, bancassurance arrangements with the Royal
Bank of Scotland Group in the UK, Bancaja in Spain and Banca Popolare di Lodi
in Italy and in establishing relationships with Tesco and Marks and Spencer.
The cost of these transactions will amount to £1.2 billion, and are being
funded through a combination of internal and external resources. Consistent
with the requirements of the business and its growth intentions, the Group
will continue to maintain an efficient capital position. The gearing ratio at
the end of June 2000 was 18% (31 December 1999: 13%).
A cornerstone of our strategy is to focus on markets where we can achieve a
top-five market position. We have decided to exit the general insurance
markets in South Africa and Germany and our life business in Canada is being
sold. Negotiations continue to achieve the sale of our US general insurance
business which we expect to conclude around the end of the year.
Online developments and wealth management
CGNU is committed to the development of innovative e-commerce applications
across its businesses. Already we have seen the benefits to our business of
e-enablement through both intermediary and direct distribution channels,
particularly in the UK, France and the Netherlands.
In the UK, later this year, we will introduce a business to consumer
internet-based wealth management service. This will position Norwich Union,
the UK brand, as a trusted partner, helping customers to make better financial
decisions by offering them easy access, impartial news and information, and
the ability to buy an expanded range of digital services and products online.
Our investment in wealth management in the UK will be substantial. In
addition to previously announced initiatives we will invest £250 million in
product and infrastructure development to the end of 2002, and we anticipate a
contribution to profits by the end of 2003. Implementation will be phased to
ensure a high quality of service.
Asserta home, launched in May, is already regarded as the leading home moving
portal in the retail property market and covers 50% of the homes market.
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Page 8
Notes to editors
- CGU and Norwich Union merged on 30 May 2000 to create CGNU plc the
UK's largest insurance group and one of the top-five insurers in
Europe with substantial positions in other markets around the world
making it the world's sixth largest insurer based on gross worldwide
premiums.
- CGNU's principal business activities are long-term savings, fund
management and general insurance with worldwide premium income and
retail investment sales of £26 billion and assets under management
of more than £200 billion.
- From October, the combined life and pensions, retail fund businesses
and general insurance in the UK will operate under the Norwich Union
brand, while the institutional investment business will operate
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
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