3 To take a focused approach to general insurance, with disciplined underwriting and efficient claims handling.
5 To withdraw from lines of business or markets which do not offer the potential for market-leading positions or superior returns.
Business overview Long-term savings company in the UK long-term savings and Spanish
This in-house expertise aims to generate superior policyholders and institutional clients, and supports our long-term savings businesses by investing funds on their behalf.
Group results Our pre-tax operating profit* of £1,907 million (2002: £1,720 million) and an improved return on capital employed† of 12.7% (2002: 9.7%) reflects the continued strength of both our long-term savings and general insurance businesses.
The substantial improvement in our performance in the UK is reflected in Norwich Union’s achievement of a threestar rating at the Financial Services Awards in November 2003, compared with a one-star rating the previous year. We were also voted best life product provider in the Life & Pensions Money Facts Awards in March, and earned gold awards for the second consecutive year in the protection, investment and pension provider categories of the Financial Adviser IFA & Provider Awards in May. Norwich Union Healthcare was awarded the accolade of best healthcare provider in the UK for the third successive year at the Money Marketing Awards 2003.
Netherlands, Belgium, Luxembourg and Germany Delta Lloyd achieved a 15% increase in total sales to £1,356 million (2002: £1,069 million). This performance was boosted by a contribution of £227 million from our new bancassurance partnership in the
We have made announcements regarding job reductions in the UK during the year, some of which arose from an internal operational efficiency review. As a result of the closure of HHH, a further 1,600 jobs will be lost in 2004, though some 400 staff will be redeployed in our UK operations. In addition, we will create over 450 new jobs in the UK to help handle the personal business transferred from HHH.
Our Ignition driver training programme in Ireland, which offers reduced premiums to inexperienced drivers, won an international road safety award in 2003.
Change is continually with us in the modern business environment. The way in which we manage all our business change initiatives is guided by the Gyllenhammar framework on managing change. We manage structural change through detailed planning, the early involvement of those affected and, where job losses are unavoidable, by looking for alternative employment opportunities to minimise the personal and social impact.
– – 1,490 1,218 Discontinued operations – Australia and New Zealand general insurance – 78 – 78 1,907 1,798 1,490 1,296
Dividend cover The proposed full year ordinary dividend of £545 million is covered by the posttax statutory basis operating profit 1.82 times (2002: 1.51 times).
The operating profit from continuing operations (see figure 8) comprised an improved underwriting loss of £54 million (2002: loss of £145 million) and a lower normalised investment return of £965 million (2002: £1,026 million). The normalised investment return declined by £61 million in 2003 as a result of the lower start of year asset values which were depressed by falling markets in 2002 partially offset by the impact of appreciation of the euro during 2003 and additional returns on assets acquired in the year. The improved underwriting result reflects our continuing disciplined approach to risk and strong rating action, with particularly strong performance in the UK and Ireland.
Assets available to shareholders to finance future growth of the group are held within the group’s UK general insurance legal entities. For the purposes of analysing the capital employed by segment, these assets are classified as corporate. In September 2003, Aviva plc issued £1.6 billion of subordinated debt which provides cost-effective funding and is treated as equity for regulatory purposes. Of the £1.6 billion of subordinated debt proceeds, some £400 million was used to repay senior debt with the remaining £1.2 billion classified within corporate.
The free asset ratio (FAR) is the measure of the excess of assets over liabilities, expressed as a proportion of liabilities.
Appointed to the board in May 2003. Former group vice-president of marketing, BP plc (oil). Member of the remuneration committee.
The Audit Committee The Audit Committee comprises the following independent non-executive directors, appointed by the Board: Derek Stevens (Chairman) Guillermo de la Dehesa George Paul Carole Piwnica* *Appointed to the Committee in September 2003.
**From the date of appointment: Anna Catalano and Carole Piwnica – 8 May 2003.
The following changes to directors’ interests during the period 1 January 2004 to 24 February 2004, which relate to shares acquired through dividend reinvestment, have been reported to the Company: Number of shares
G – Long-term business result and fund valuations Transfers from the long-term business technical account to the non-technical account in respect of shareholders’ profits are determined as a result of annual actuarial valuations, which are based on local practice, subject to transfers to or from the fund for future appropriations.
T – Equalisation provision Provision is made in the Group accounts for the equalisation provisions established, where required, in the accounts of individual insurance companies in the United Kingdom and in a limited number of countries overseas. The provision is required by law even though no actual liability exists at the balance sheet date.
Change in the provision for claims (66) Gross amount (46) 227 (3) Reinsurers’ share (2) 8
3 Increase in share capital (31c) 2 11 – Movement in shares held by employee trusts (33) – 9 – Goodwill written back and other movements (J & 34) – 308
Operating activities Net cash inflow from operating activities, excluding exceptional items (47a)* Exceptional items*
The Group’s reportable business segments are long-term business, health business, fund management and general insurance business. The main geographical segments are the United Kingdom, Europe (excluding the United Kingdom) and International.
Equities 1% higher/lower Group operating profit before tax 33 40 Properties 1% higher/lower Group operating profit before tax 11 13 8 – Long-term business bonuses
The total tax (charged)/credited in the non-technical account relates to the following: Parent company and subsidiary undertakings (371) (197) Associated undertakings 4 (9)
Unrealised gains on investments (443) (214) (199) (48) (642) (262) Deferred acquisition costs (217) (203) 1 – (216) (203) Provisions and other timing differences 262 (62) (52) (37) 210 (99) Losses 5 3 173 146 178 149
(ii) Other The Group also has a 50% holding in AVIVA-COFCO Life Insurance Company Limited, a life assurance company incorporated and operating in China. These shares are held by the Company, with a cost of £22 million (2002: £20 million) and share of net assets of £18 million (2002: £20 million).
Movements in investments in associated undertakings (2) 9 7 Balance at 1 January Goodwill (note 21c) 231 – 231 Share of net assets 496 240 736
Balance at 31 December Goodwill (note 21c) 218 35 253 Share of net assets 507 214 721
(c) The long-term debt securities and other fixed income securities, which are shown at amortised cost, are analysed below: 2003 2002 £m £m
The majority of the securitisations relate to long-term business. Cash inflows from non-recourse funding on non-long-term business were £478 million in 2003 (2002: £219 million).
Investments 1,141 977 Loans and advances to banks 136 543 Loans and advances to customers 2,563 1,722 3,840 3,242 Short-term deposits and cash 42 – Other assets 224 272
– “with-profit” funds of CGNU Life, Commercial Union Life, Norwich Union Life & Pensions and the Provident Mutual fund, where the with-profits policyholders are entitled to at least 90% of the distributed profits, the shareholders receiving the balance; – “non-profit” funds of Norwich Union Annuity, Norwich Union Life & Pensions and Norwich Union Linked Life, where shareholders are entitled to 100% of the distributed profits. Shareholder profits on unitised with-profit business written by Norwich Union Life &
(iv) In other overseas operations, using methods similar to those described above.
(b) The directors have been advised by the Group’s reporting actuary that the assets of each of the long-term operations were at least sufficient to meet their respective liabilities at 31 December 2003.
Life assurances 2.5% to 4.5% PM60-64, TD73-77, TD 88/90 Annuities 2.5% to 4.5% TPRV (prospective table)
Net of reinsurers’ share, the outstanding claims provisions before discounting were £10,430 million (2002: £9,508 million). The period of time which will elapse before the liabilities are settled has been estimated by modelling the settlement patterns of the underlying claims and related reinsurance recoveries.
An equalisation provision has been established in the Group accounts as explained in accounting policy T on page 58. This had the effect of reducing Group and Company shareholders’ funds by £364 million at the year end (2002: £314 million). The change in the equalisation provision during the year comprised a reduction of £49 million (2002: £57 million) in the balance on the general business technical account and the profit on ordinary activities before tax. In 2002, the reduction of £57 million included a partial offset of £15 million representing the equalisation provision of a subsidiary company sold during that year.
Experience losses/(gains) on scheme liabilities Amount 106 (131) Percentage of the present value of scheme liabilities 1.6% 2.4%
(a) The reconciliation of profit/(loss) on ordinary activities to net cash inflow from operating activities is: 2003 2002 £m £m
Net non-long-term business cash included in the consolidated balance sheet 1,138 1,273 (135)
The achieved profit statement includes the results of the Group’s life operations reported under the achieved profit basis combined with the modified statutory basis results of the Group’s non-life operations set out on pages 56 to 100. In the directors’ opinion, the achieved profit basis provides a more accurate reflection of the performance of the Group’s life operations year on year than results under the modified statutory basis. The achieved profit methodology used is in accordance with the guidance on “Supplementary reporting for long-term insurance business (the achieved profit method)” circulated by the Association of British Insurers in December 2001. Further details on the methodology and assumptions are set out on pages 107 to 109.
The impact of an increase of one percentage point in the assumed investment returns for equity and property investments is calculated with all other assumptions remaining unchanged.
Our responsibilities, as independent auditors, in relation to the supplementary information are established in the United Kingdom by the Auditing Practices Board and our profession’s ethical guidance. We report to you our opinion as to whether the supplementary information has been properly prepared in accordance with the achieved profit basis. We also report to you if we have not received all the information and explanations we require for our audit of the supplementary information.
France Aviva Participations SA and its principal subsidiaries: Aviva Assurances SA Aviva Courtage SA Aviva Direct SA Aviva France SA Aviva Gestion d’Actifs Aviva Vie SA Eurofil SA Société d’Epargne Viagére SA (75.0%) Union Financière de France Banque (Banking) (76.3%)
Share dealing facilities for overseas shareholders: To sell your shares over the telephone, you can contact Barclays Stockbrokers on 00 44 141 352 3959. They will be able to sell your shares and send you a sterling cheque for the proceeds. Barclays Stockbrokers Limited is a member of the London Stock Exchange and is authorised and regulated by the Financial Services Authority.