Total annual household savings in France continue to grow by over 20%, with much of the increase invested in life insurance. This expansion is set to continue, albeit at a more moderate pace, particularly as the tax regime remains broadly favourable. With stock markets performing well, the most rapid growth has been in unit-linked, multi-fund products.
The combined general insurance business began operating on 2 October 2000, just four months after the merger was approved. We remain on track to complete one of the largest mergers the UK financial services industry has ever seen by creating the UK’s leading general insurance company. Currently, Norwich Union insures one in five UK households, one in five motor vehicles and 700,000 businesses.
During the year, Morley continued on its course to become a UK leader in socially responsible investment when it recruited one of the country’s top teams in this growing field.
CGNU chaired the FORGE group of banks and insurers which has developed guidelines on environmental management and reporting for UK financial services. Backed by the Government, these guidelines were issued to all UK insurers and banks in December 2000.
Before the merger, both CGU and Norwich Union had a strong tradition of community involvement in the UK and overseas. Thanks in no small part to the continued efforts and enthusiasm of employees, this has continued in CGNU.
Pre-tax operating profit before change in risk margin, amortisation of goodwill and exceptional items
Netherlands Total sales rose 158% to £1.6 billion, boosted by the first full-year contribution from Nuts Ohra (acquired in October 1999) and an impressive performance in retail investment sales. Operating profit was up 12% to £174 million (1999: £168 million).
The Group is committed to achieving satisfactory returns from general insurance business results through strict underwriting and reducing its costs. With the emphasis on profitability rather than market share, all our businesses are ensuring that premium rates were appropriate for the risks written.
Operating profits include longer-term investment returns. The differences between these and the actual investment returns are reported as favourable short-term fluctuations and amounted to £258 million in 2000. Over the last three years, the actual returns exceeded the longer-term returns by £1,292 million.
Details of the Group’s operations for the accounting period, its current position and future prospects are contained in the Chairman’s statement, Group Chief Executive’s review and business operating and financial reviews set out on pages 2 to 31.
Details of the share capital and shares under option as at 31 December 2000, and shares issued during the year which ended on that date, are given in note 31 on pages 85 to 87.
Louise Botting, Sir Tim Lankester, Lord Lang of Monkton and Peter Ward, who were directors at the beginning of the year, resigned from the Board on 30 May 2000 upon completion of the merger with Norwich Union. Mike Biggs, Guillermo de la Dehesa, Richard Harvey, Sir Michael Partridge, George Paul, Philip Scott and Elizabeth Vallance were all appointed to the Board on that date. Since these directors joined the Board after the date of the last Annual General Meeting they will, in accordance with the articles of association, retire at the forthcoming Annual General Meeting and being eligible, offer themselves for reappointment.
The Board’s Remuneration report is contained on pages 40 to 43.
Each year, the Committee gathers data from a number of independent sources concerning salaries paid to senior executives performing comparable functions within the financial services sector and industry generally, for similar sized companies. Based on this information, salaries are targeted towards the upper quartile for comparable positions, subject to the senior executives being assessed as fully competent in their role. Competence is measured taking into account the executive’s experience, performance and personal objectives achieved and requires evidence of superior performance over a sustained period.
In addition to the benefits described above, executive directors are entitled to the benefits of a company car allowance, and private medical insurance.
The Committee is of the view that the above Plan was instrumental in motivating key members of management to exceed the merger savings target whilst remaining focused on the underlying performance of the Group. The Committee has therefore sanctioned that a CGNU Integration Incentive Plan (CGNU Plan) be introduced in connection with the CGU and Norwich Union merger. Like the CGU Integration Incentive Plan, the CGNU Plan has two parts: The first is a cash incentive with the purpose of ensuring that executives focus on achieving the agreed objectives for the particular part of the Group’s operations for which they are responsible. Participants will receive a cash award in 2002 of up to 50% of their basic salary if their respective business units meet both their trading and merger savings targets.
The executive directors’ participation in the CGNU Plan is conditional upon the approval of shareholders and a resolution that they participate will be proposed at the forthcoming Annual General Meeting.
Service contracts agreed with each executive director incorporate their terms and conditions of employment.
It was stated in last year’s Remuneration Report that it was the Company’s intention to reduce the notice period for new executive appointments to 12 months. In line with this statement, Mike Biggs, Richard Harvey and Philip Scott, who joined the Board as executive directors in May 2000 upon the Merger, have contracts which include a 12 months’ notice period. Those executive directors who had already been granted 24 month contracts, namely Bob Scott, Peter Foster, Philip Twyman and Tony Wyand, have retained such terms as the Board does not consider it to be in shareholders’ interests to renegotiate these contracts.
Investment income consists of interest, dividends and rents receivable for the year together with realised investment gains and losses. Following the adoption of FRS16 ‘Current taxation’, dividend income is no longer grossed up for related tax credits. This represents a change in policy as disclosed in note 3 on page 64. Interest includes the interest rate differential on forward foreign exchange contracts. Realised investment gains and losses represent the difference between the net sale proceeds and the cost of acquisition. Unrealised investment gains and losses represent the difference between the carrying value at the year end and the carrying value at the previous year end or purchase value during the year. Long-term business investment income and unrealised gains and losses are included in the long-term business technical account and, where applicable, a transfer is made to the non-technical account to ensure that the return remaining in the long-term technical account attributable to shareholders reflects the longer-term investment return. Non-long-term business investment income and unrealised gains and losses are taken to the non-technical account. The longer-term return on the investments owned by general business operations is then transferred from the non-technical account to the general business technical account. Profits and losses arising on investment transactions with the long-term funds are included in realised investment gains. Unrealised gains and losses on the valuation of internally generated in-force long-term business are taken to the revaluation reserve as explained in accounting policy L.
The fund for future appropriations is used in connection with long-term business funds containing liabilities in respect of participating policies or in respect of other non-linked policies under which benefits reflect current resources and the future experience of the fund. In such funds, the division between shareholders’ reserves and policyholders’ liabilities is uncertain and, as a result, amounts whose allocation either to policyholders or shareholders has not been determined by the end of the financial year are held in the fund for future appropriations. Transfers between the fund for future appropriations and the long-term business technical account represent the changes in the unallocated amounts between balance sheet dates.
Unwinding of discount on business no longer written (37) (24) (33) 24 33 – – Health insurance results (20) (5) 88 29 68 24
Exceptional items (9b) (211) (115) Change in the equalisation provision (27) (55)
Investment income (F & 7a) 2 Profit from associated undertakings 1 10
(1,755) Provision for loss on sale of United States general business (18d) (1,070) – (735) Loss on withdrawal from London Market operations (448) –
Operating profit before tax based on longer-term investment return before amortisation of goodwill, amortisation of acquired additional value of in-force long-term business and exceptional items: (909) – businesses discontinued and to be discontinued (554) 201
(118) of in-force long-term business and exceptional items (72) 1,281 Short-term fluctuation in investment return 3 – long-term business 2 29 420 – general business and other 256 221
Total recognised gains and losses arising in the year 665 63 (2,065) (1,337)
Profit/(loss) on ordinary activities before taxation 791 768 (91) 1,468 Tax and minority interests (276) (199) 27 (448)
Profit/(loss) for the financial year 515 569 (64) 1,020 Other recognised gains and losses 507 23 (10) 520
Total recognised gains and losses arising in the year 1,022 592 (74) 1,540
(Loss)/profit for the financial year (13) 23 (419) (107) Retranslation to closing date – – (4) (1)
Operating (loss)/profit before exceptional items (1,891) (879) (74) 684 Exceptional items (211) (115) (211) (115)
Excluding goodwill amortisation, Including goodwill amortisation, amortisation of acquired additional amortisation of acquired additional value of in-force and exceptional items value of in-force and exceptional items £m £m £m £m
United Kingdom 2,313 2,064 236 201 3,383 3,153 Europe (excluding UK) 703 352 244 383 1,264 925 International 406 397 23 27 488 472
Total general business premiums 13,872 12,668 7 – Analysis of investment return
All the shares in Arena are held by an independent trustee, Stichting Security Trustee Arena 2000-1 B.V. DLNO does not own, directly or indirectly, any of the share capital of Arena or its parent company. DLNO has purchased £30 million of the fixed rate notes, which are repayable in 2062, and these are included in debt securities and other fixed income securities within other financial investments in the consolidated balance sheet.
The issued share capital at 31 December 1999 of £560 million shown in the consolidated balance sheet comprises 1,312,541,748 ordinary shares of CGU plc and the conversion of the 1,936,743,694 Norwich Union plc shares in issue at that date.
Netherlands Life assurance 3 to 4 GBM 61-65, 76-80, 80-85 and GBM/V 85-90, 90-95 Annuities in deferment and in payment and DIL 98 plus further allowance for future mortality improvement
‘Other’ comprises borrowings by holding companies within the Group which are not allocated to operating companies. The amounts shown above are net of related derivative contracts.
The 1.5% FF2.8 billion exchangeable bonds were issued by a French subsidiary undertaking. They are repayable in cash in 2003 and hence are included in borrowings falling due within two to five years. The holders may however exchange their bonds at any time up to 8 July 2003 into ordinary shares of Société Générale, which are already owned by the Group, although the issuer has the option to pay a cash equivalent. The carrying value of the bonds is adjusted to reflect the value of the Société Générale shares if this value exceeds the nominal bond exchange value of FF381.25 (formerly FF1,525 before a share split during 2000). At 31 December 2000, the value of a Société Générale share was FF434.24.
General insurance United Kingdom 4,937 4,635 3,889 3,569 Europe (excluding UK) 2,112 1,806 1,797 1,773 International 1,941 1,932 1,742 1,883
Fund management and non-insurance operations United Kingdom (29) 3 (3) 4 Europe (excluding UK) 44 17 18 10 International 21 16 8 5
Total life achieved operating profit before tax, change in risk margin and exceptional items** 1,533 1,366 * Excludes other life and savings activities.
Canada CGU Holdings Canada Limited and its principal operating subsidiary: CGU Insurance Company of Canada Limited Pilot Insurance Company