9 Months Results 2000-Part 1

CGNU PLC 8 November 2000 PART 1 UNAUDITED RESULTS - 9 MONTHS ENDED 30 SEPTEMBER 2000 - Operating profit before tax from ongoing businesses* of £1,138 million (1999: £1,120 million) (including life achieved profit). On a modified statutory basis, operating profit before tax was £898 million (1999: £1,014 million) - Life achieved operating profit up 24%** to £1,147 million - Worldwide long-term savings new business sales up 14%** to £9.0 billion - General insurance operating profit from ongoing businesses* of £428 million (1999: £375 million) - Agreement for the sale of US general insurance business and exit from UK London Market - Rapid merger integration progress * Excluding US general insurance and UK London Market result ** At constant rates of exchange Bob Scott, Group Chief Executive, commented: 'The worldwide long-term savings businesses continued to make excellent progress with new business up 14% to £9 billion. Life achieved operating profit increased 24% to £1,147 million with increased contributions from all our major businesses. 'Our general insurance result from ongoing businesses made good progress, rising to £428 million (1999: £375 million) with a combined operating ratio of 108%, and we continue to take the necessary steps to improve profitability towards our target combined operating ratio of 102% by the end of 2001. 'We have announced that we have successfully reached agreement for the sale of our US general insurance operations and that we are to withdraw from London Market operations. 'This completes the major elements of the restructuring of our business outlined at the time of the merger to reposition CGNU as a leading European-based financial services group focused on the long-term savings markets and the achievement of superior returns from selected general insurance markets. Whilst this is at considerable cost, this completes the major repositioning of general insurance business which would have any material financial consequence for the Group. 'Integration of our businesses is moving ahead rapidly, following our merger at the end of May. On 2 October our UK life, general and retail fund management businesses were launched under the new Norwich Union brand and, on the same day, our Irish business was integrated under the Hibernian brand. The performance of our ongoing businesses during a period of rapid merger integration demonstrates the strength of these businesses and the quality of our people, placing us in a strong position for future growth.' Financial Highlights Restated Unaudited Unaudited Local 9 months 9 months currency 2000 1999 growth £m £m % Total long-term savings new business 9,017 8,104 14% - life & pensions premiums 7,909 7,097 15% - investment sales 1,108 1,007 11% Total premiums written after reinsurance and investment sales from ongoing businesses 19,369 17,552 13% Operating profit before tax from ongoing businesses(i) 1,138 1,120 4% (Loss)/profit on ordinary activities after tax(ii) (959) 535 Operating earnings from ongoing businesses per ordinary share(i) 34.5p 32.9p Shareholders' funds(iii) 14,662 15,673* Net asset value per ordinary share(iv) 652p 700p* Basis of preparation - the CGNU 9 months 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 have been revised to comply with FRS16 'Current Tax'. (i) Operating profit before tax and earnings shown above include life achieved operating profit and exclude the operating results of businesses to be discontinued £132 million (30 September 1999: £152 million), amortisation of goodwill £31 million (30 September 1999: £25 million) and exceptional items £203 million (30 September 1999: £100 million). They do not incorporate the use of the expected proceeds from businesses sold or sales of businesses to be completed. (ii) Loss on ordinary activities after tax, including life achieved operating profit, is after providing for the loss on sale of the US general insurance business and withdrawal from London Market operations. (iii) Based on equity and non-equity shareholders' funds which have been reduced by the equalisation provision of £199 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. 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. The modified statutory basis is used in our financial statements and, on this basis, the life operating profit before tax amounted to £907 million. The basis used for reporting achieved profit is consistent with the draft guidance set out by the Association of British Insurers. Enquiries: Bob Scott Group Chief Executive Telephone +44 (0)20 7662 2003 Richard Harvey Deputy Group Chief Executive Telephone +44 (0)20 7662 2286 Peter Foster Group Finance Director Telephone +44 (0)20 7662 2007 -------------------------------------------------------------------------- Contents Page Group Chief Executive's statement Operating and financial review 1 Achieved profit basis Summarised consolidated profit and loss account - achieved profit basis 9 Basis of preparation 10 Components of total life achieved profit 10 New business contribution 11 Analysis of life achieved operating profit 12 Embedded value of life business 12 Segmental analysis of embedded value of life business 13 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 Basis of accounts 20 Principal exchange rates 21 Change in accounting policy - dividend income 21 Acquisitions and disposals in the nine months to 30 September 2000 - including businesses to be discontinued 22 Exceptional items 25 Geographical analysis of life and pensions and investment sales - new business and total income 26 Geographical analysis of modified statutory life profit 27 Geographical analysis of health premiums after reinsurance and operating result 27 Geographical analysis of general insurance premiums after reinsurance and operating result 28 Taxation 29 Dividends 29 Earnings per share 30 Longer-term investment return 31 Statistical supplement Segmental analysis of group operating profit at constant currency 32 Supplementary analyses 33 General insurance - geographical ratio analysis 35 General insurance - class of business analysis 36 Assets under management 38 UK general insurance trading conditions -------------------------------------------------------------------------- GROUP CHIEF EXECUTIVE'S STATEMENT At the time of the merger announcement in February 2000, we made clear our commitment to position CGNU plc as a leading European-based financial services group, focused on the long-term savings markets and the achievement of superior returns from selected general insurance markets. Since publishing the Group's half year results on 2 August, I am pleased to report that major progress has been made towards this objective through the agreement for the sale of our US general insurance business and our exit from UK London Market business, actions which have not been without significant cost. This completes the major repositioning of general insurance business which would have any material financial consequence for the Group. At the same time, the Group has continued to press ahead with the integration of its ongoing businesses. These have maintained a successful focus on 'business as usual', together with the development of a number of bancassurance arrangements. The Group operating profit before tax from ongoing business, including life achieved profit, was £1,138 million (1999: £1,120 million). This represents an increase of 13% over the first nine months of 1999 before a charge of £95 million for developing our online wealth management service and after removing the effect of changes in currency exchange rates. On a modified statutory basis, operating profit before tax was £898 million (1999: £1,014 million). Continued growth in long-term savings Our worldwide life and savings business made strong progress in the first nine months with new life, pension and investment sales increasing by 14% to £9 billion. Life operating profit on an achieved profit basis increased by an excellent 24% to £1,147 million. On a modified statutory basis, life operating profit was up 10% at £907 million. On 20 September 2000, we announced the sale of the Norwich Union life and pensions businesses in Poland for £143 million. The sale demonstrates the significant value we have been able to create in this new market in the relatively short period of 19 months since the businesses were started. We are retaining CU Polska, which has a 30% share of the local pension market, measured by assets under management, and a 20% share of the local life market. I am pleased to announce that we have reached agreement for a new life bancassurance partnership with Wells Fargo Insurance, Inc., a subsidiary of Wells Fargo & Company which is the sixth largest bank in the US. This agreement builds on our extensive bancassurance experience and offers us further opportunity to grow in the US life market. Strong investment capability Our retail investment sales increased 11% to £1,108 million and total assets under management increased by £8 billion to £216 billion. We have continued to invest in our UK retail investment business which achieved an increase in sales of 12% to £709 million. Continuing the trend established in previous periods, sales from our Navigator product in Australia rose by 32% to £606 million and funds under administration totalled £2.2 billion. Good progress in general insurance Our ongoing general insurance businesses made good progress with operating profits rising to £428 million (1999: £375 million). The combined operating ratio in the UK, which is our largest general insurance business, improved to 104% (1999: 107%), after excluding the London Market business, and the personal lines business delivered an excellent 100% (1999: 103%). We are continuing to take the necessary steps to improve profitability in our general insurance businesses, towards the Group's target combined operating ratio of 102% by 2001. Rapid integration progress The integration of our businesses continues to make rapid progress. Annualised savings at the end of the third quarter amounted to £50 million, with £9 million included in these results, and integration costs of £203 million have been provided to date. The Group has made significant progress in refocusing the business in line with the objectives set out at the time of the merger, while maintaining the positive momentum in its ongoing business. We are well positioned for future growth and increased shareholder returns. Bob Scott Group Chief Executive -------------------------------------------------------------------------- Page 1 OPERATING AND FINANCIAL REVIEW Group results to 30 September 2000 The Group's operating profit from ongoing businesses before tax, including life achieved profit, was £1,138 million (1999: £1,120 million). On a modified statutory basis operating profit before tax was £898 million (1999: £1,014 million). The result is after continued investment in a number of significant development projects, including a £95 million charge for further development of our UK online wealth management business. This includes £20 million for 'assertahome', our online home-moving portal. In arriving at the Group operating profit from ongoing operations, we have excluded the result of the US general insurance business, the sale of which was announced in September, and of the UK London Market operations following the decision to withdraw from this business. Our US general business returned an operating profit of £136 million (1999: £139 million) and the operating loss from our UK London Market business was £4 million (1999: profit £13 million). The results of these businesses are shown under businesses to be discontinued. General insurance operating profits from ongoing businesses improved to £428 million (1999: £375 million) and are after the French storm-related claims of £90 million reported at the half year. The UK underwriting result improved, reporting a loss of £156 million (1999: loss of £232 million). Consistent with the trend previously reported, longer-term investment returns from ongoing businesses increased by £148 million to £936 million. Restated Local 9 months 9 months currency 2000 1999 growth £m £m % Operating profit before tax - ongoing business* Life achieved operating profit 1,147 950 24% Health 33 20 83% Fund management 41 46 (11%) General insurance 428 375 15% Non-insurance operations (21) (14) (50%) Associated undertakings 3 11 (70%) Corporate costs (136) (99) (37%) Unallocated interest charges (262) (169) (56%) ------- ------- ------- 1,233 1,120 13% Wealth management (95) - - ------- ------- ------- Operating profit before tax - ongoing business* 1,138 1,120 4% ======= ======= ======= Businesses to be discontinued US general insurance result 136 139 UK London Market result (4) 13 * Operating profit before businesses to be discontinued, tax, change in risk margin, amortisation of goodwill and exceptional items. Long-term savings new business In October the Group announced strong new life and pensions and investment sales in the period to 30 September 2000 of £9 billion, an increase of 14% over the first nine months of 1999. Excellent growth was delivered by our UK business with life and pension sales up by 24% and investment sales up 12%. Our continental European businesses are capitalising on growth in unit-linked sales, with particular success in France. The sales reflect both organic growth and acquisition, with a 27% improvement after removing the benefit in 1999 and 2000 from the one-off Poland pensions opportunity and the ending of the Credito Italiano bancassurance agreement. ----------------------------------------------------------------------------- Page 2 Local 9 months 9 months currency 2000 1999 growth £m £m % Long-term savings new business Life and pensions premiums: United Kingdom 4,827 3,899 24% Europe (excluding UK) 2,691 2,818 3% International 391 380 2% ------- ------- ------- 7,909 7,097 15% Investment sales 1,108 1,007 11% ------- ------- ------- 9,017 8,104 14% ======= ======= ======= Life insurance Continuing the trend reported in the first half of the year, life achieved operating profit was up by 24% at £1,147 million. This is after development costs of £20 million, which include our European Navigator business based in Dublin. Strong growth continued in our UK life business, up 17% to £690 million, and in continental Europe profits rose by an excellent 42% to £417 million. Local 9 months 9 months currency 2000 1999 growth £m £m % Life achieved operating profit* New business contribution 287 263 Profit from existing business - expected return 627 486 - experience variances (13) (9) - operating assumption changes 11 - Development costs (20) (10) Expected return on shareholders' net worth 240 198 ------- ------- 1,132 928 Other life and savings activities 15 22 ------- ------- Life achieved operating profit before tax* 1,147 950 24% ======= ======= ======= Analysed: United Kingdom 690 591 17% Europe (excluding UK) 417 317 42% International 40 42 (7%) * Life achieved operating profit is stated before amortisation of goodwill and exceptional items. New business contribution before cost of capital is up 5% to £349 million (1999: on 2000 assumptions £343 million). 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. -------------------------------------------------------------------------- Page 3 Annual premium New business equivalent* contribution** 9 months 9 months 9 months 9 months 2000 1999 2000 1999*** £m £m £m £m Life and pensions business United Kingdom 726 599 217 172 Europe (excluding UK) 572 680 130 158 International 72 71 2 13 ------- ------- ------- ------- 1,370 1,350 349 343 ======= ======= ======= ======= * Annual premium equivalent represents regular premiums plus 10% of single premiums ** Before cost of capital *** Restated using 2000 economic assumptions The new business contribution, before cost of capital, as a percentage of new business sales (on annual premium equivalent basis) was 25% (1999: 25%). UK The UK life business was launched under the new Norwich Union brand on 2 October 2000 accompanied by the unveiling of over 50 life, pension, investment and healthcare products. This is the largest value for money product range of any UK life insurer, the best of breed from the merged CGU and Norwich Union businesses. With a 10% market share, the UK life business is the leading UK life insurer and IFA provider, with an increase of 27% in new business through the IFA channel for the first nine months of 2000. While emphasising and growing our commitment to the IFA channel, the UK life business will operate on a multi-distribution basis. This includes a wide network of partnership arrangements, including an alliance with The Royal Bank of Scotland which is due for completion in the final quarter of this year, a salaried direct sales force and a telesales operation. Total UK new life and pensions business increased by 24% to £4.8 billion during the first nine months of 2000. Growth in new business contribution, up 26% to £217 million (1999: on 2000 assumptions £172 million), reflects the increase in sales volumes, particularly of single premium bonds. Continued progress in individual pension and group pension sales, up 37% and 35% respectively over 1999, reflects the success of our pre-stakeholder products. Stakeholder pensions remain a top priority and, having stated the intention to be the leading stakeholder provider, Norwich Union became the first pension provider to apply for stakeholder registration on 1 October 2000. This represents the first step in enabling employers to designate our stakeholder pension as the scheme for their workforce. Many of our personal pensions customers benefit from charges which are at stakeholder levels or below. From April next year, we are extending the benefit of stakeholder type charging levels to existing customers with personal pension contracts. Europe (excluding UK) Total new life and pensions sales from our major European businesses increased by 27% after removing the benefit in 1999 and 2000 from the one-off Poland pensions opportunity and the ending of the Credito Italiano bancassurance agreement. This increase reflected both organic growth and acquisitions, including, for the first time, sales of £25 million from our new bancassurance partnership with Bancaja, Spain's fourth largest savings bank. The French business produced excellent results with life and pensions new business sales increasing 38% to £1,410 million. New single premiums, which dominate the market, increased to £1,380 million, ahead of overall market growth. New business contribution rose by 24% to £52 million which, combined with favourable tax experience, contributed to the rise in life achieved operating profit to £161 million (1999: £103 million). Hibernian Life & Pensions was launched in Ireland in October 2000 combining the businesses of Norwich Union Life and Hibernian Life. The merger has created a top five provider of new life and pensions business under the strong and established Hibernian brand, with a current market share of 13%. Total new business sales at £333 million were 42% higher than the first nine months of 1999 and included a contribution of £86 million from Hibernian, acquired in January 2000. New business contribution pre-cost of capital increased by 50% to £16 million including a contribution from Hibernian of £4 million. Delta Lloyd Nuts Ohra (DLNO) is a leading life and pensions insurer in the Netherlands. Total new business sales were up 29% at £359 million, including £64 million from Nuts Ohra, acquired during the second half of 1999. This followed strong single premium individual pensions sales, while annual premium volumes were lower ahead of tax reforms. New business contribution pre-cost of capital was £15 million in the period, down from £21 million, reflecting a change in new business mix towards single premiums. --------------------------------------------------------------------------- Page 4 On 20 September 2000, we announced the sale of the Norwich Union life and pensions businesses in Poland to Sampo Insurance Company plc of Finland for £143 million. The merger of CGU plc and Norwich Union plc led the Polish regulator to require CGNU to sell one of the two existing pension businesses. The sale of the Norwich Union life and pensions businesses does not affect our leading position in this market and we retain CU Polska, the leading private pensions provider. Lower new business sales from CU Polska at £147 million (1999: £234 million) reflect the concentration of sales in the third and fourth quarters of 1999 arising from the one-off pensions opportunity. CU Polska has also maintained its share of the life market at around 20%. New business contribution from our Polish life and pensions businesses fell in the period to £35 million, reflecting the reduction in sales volumes. However, long-term growth prospects for the life business remain very good, with less than 20% of employed people having an individual life policy. Our Spanish business is a top 10 life and pensions provider following completion on 31 July 2000 of our new bancassurance partnership with Bancaja, Spain's fourth largest savings bank. Total new business sales of £81 million (1999: £30 million) were up 191% and reflected the success of unit-linked savings products together with £25 million of sales from our new partnership. New business contribution improved from a loss of £3 million to a profit of £3 million,reflecting a strong increase in sales volumes and a contribution of £2 million from our Bancaja partnership. The cessation of our bancassurance agreement in Italy with Credito Italiano at the end of June 1999 has led to a reduction in both new business sales and new business contribution. Sales from Banca Popolare di Lodi, covering 250 branches, have continued to focus on regular premium sales, up over 150% on the same period last year. In Turkey, we are optimistic about the new opportunities presented by private pensions and will be applying for a licence as soon as the pensions legislation is finalised. Annual premium sales at £17 million doubled over 1999, reflecting the continuing development of our direct sales force and the attractive product range. On 11 October 2000, our Romanian operation commenced trading. It offers a new life and savings opportunity by marketing a range of innovative and flexible unit-linked life products. Distribution will initially be through a direct sales force and we also have an agreement to develop 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 leverage our success in Poland and benefit from expected future pensions reform. In the Czech Republic we have signed a binding agreement to acquire a 65% shareholding in a leading Czech pension fund, Vseobecny vzajemny penzijni fond, a.s (VVPF). The acquisition will complement our existing life operation in the Czech Republic, which commenced operations in 1997, and will enable us to provide customers with a full suite of products. The consideration for this transaction is not material in relation to CGNU's net assets. As at 31 December 1999 VVPF had net assets of £3 million. International Our international operations saw an increase in total life and pensions new business of 2%. Achieved operating profit was £40 million (1999: £42 million). We have reached agreement for a new life bancassurance partnership with Wells Fargo Insurance, Inc. in the United States. The agreement will, over the course of 2001, progressively provide access to more than 2,600 branches of Wells Fargo & Company, the 6th largest bank in the US. This partnership significantly extends our current distribution capability, providing a further growth opportunity in the US life market. Health Underwriting Operating result profit 9 months 9 months 9 months 9 months 2000 1999 2000 1999 £m £m £m £m United Kingdom 1 (3) 4 - Europe (excluding UK) (15) 2 29 20 ------- ------- ------- ------- (14) (1) 33 20 ======= ======= ======= ======= Premium income increased by 148% to £568 million (1999: £237 million) and operating profit increased by 83% to £33 million. These improvements principally reflect the inclusion of the Nuts Ohra business in the Netherlands, acquired during the second half of 1999. -------------------------------------------------------------------------- Page 5 Fund management Assets under management increased to £216 billion, including third party managed funds of £25 billion. The Group is the second largest UK-based fund manager and among the top 10 in Europe, with strong market positions in the UK, France and the Netherlands and developing positions in Ireland and Poland. Operating profit 9 months 9 months 2000 1999 £m £m United Kingdom 14 26 Europe (excluding UK) 12 7 International 15 13 ------- ------- 41 46 ======= ======= The first nine months of 2000 have seen significant development in our UK retail investment business, with continued emphasis on a market-leading position in Cat-standard products. We have merged the retail operations of CGU and Norwich Union, which now operate under the new Norwich Union brand,and have continued to invest in building up our UK retail fund proposition, which has held back the UK result by £20 million. On 15 September 2000, we announced the intention to sell our majority stake in Quilter Holdings Limited. The result from our European fund management operations has improved to £12 million and principally reflects a strong performance from Victoire Asset Management in France. Sales from the Norwich Union Navigator product in Australia, which are not included in new business sales, increased by 32% to £606 million, and funds under administration totalled £2.2 billion. The new business contribution from Navigator and other non-life business sales in Australia was £13 million (1999: £13 million), and includes the impact of expensing investment in the next generation of information technology. General insurance The discrete third quarter general insurance underwriting result from ongoing operations improved by £57 million to an underwriting loss of £101 million (1999: underwriting loss £158 million), driven principally by continued progress in our UK business. The year to date underwriting loss from ongoing operations has been held back by the French storm claims of £90 million reported in the first half of this year. Net written premiums from our ongoing worldwide general insurance operations increased by 10% to £6.9 billion. The Group's worldwide combined operating ratio from ongoing businesses was 108% (1999: 107%) or 106% excluding the French storm costs. The worldwide expense ratio from ongoing businesses is lower at 12.5% (1999: 13.6%), with improvements in our UK, French, Irish and Canadian businesses. We remain committed to achieving our target combined operating ratio of 102% by 2001. Underwriting Operating Ongoing business result* profit* 9 months 9 months 9 months 9 months 2000 1999 2000 1999 £m £m £m £m United Kingdom (156) (232) 341 187 Europe (excluding UK) (285) (103) (72) 59 International (67) (78) 159 129 ------- ------- ------- ------- Ongoing business (508) (413) 428 375 ======= ======= ======= ======= Businesses to be discontinued United States (175) (148) 136 139 UK London Market (59) (37) (4) 13 * Excludes the change in the equalisation provision of £12 million (1999: £47 million). -------------------------------------------------------------------------- Page 6 UK CGNU is the largest general insurer in the UK, with a focus on personal and smaller commercial lines businesses. The successful launch of the Norwich Union general insurance brand on 2 October 2000 has re-affirmed our position in a very crowded insurance market as the market leader with a single set of new business products. Since the merger, we have been reviewing our London Market business in the context of the Group's general insurance strategy of focusing on personal lines and smaller commercial risks and, during the last six months, the Group has taken a series of steps towards exiting these businesses, withdrawing capacity from two London Market syndicates and closing down the global risks business. We announced on 1 November 2000 an agreement in principle for the sale of Marlborough Underwriting Agency Limited, our wholly-owned Lloyd's managing agency, to the Berkshire Hathaway Group. Under the terms of the agreement, the Berkshire Hathaway Group will also undertake, subject to Lloyd's approval, to replace CGNU as the provider of capacity to the Marlborough-managed syndicates for 2001. This agreement completes CGNU's withdrawal from London Market business. We have also reached an agreement in principle with Berkshire Hathaway Group to purchase reinsurance to secure protection against any adverse impact of the run-off of claims reserves held by CGNU in respect of business written prior to 1 October 2000, the date of exit, both in respect of historic business through the ILU and other London Market operations and, more recently, Lloyd's. This will provide cover of £1 billion in excess of CGNU's claims reserves of £1.2 billion. Throughout the review, our objective has been to ensure an orderly withdrawal in the interests of clients and brokers and of our shareholders. The charge of £448 million before tax, which we have taken in the third quarter as an exceptional item, is in respect of the withdrawal from London Market operations and includes the cost of associated reinsurance protection. Excluding London Market business, the discrete third quarter underwriting loss improved by £66 million to £30 million (1999: discrete third quarter loss £96 million), with particularly strong performance in motor and homeowner classes. On a year to date basis, the ongoing business underwriting loss improved by £76 million to £156 million (1999: £232 million) and the combined operating ratio in the UK improved to 104% (1999: 107%), with an excellent performance in personal lines business at 100% (1999: 103%). The expense ratio in the UK improved to 10.8% (1999: 11.9%). The strongest improvement in the underwriting result has been achieved in the personal and commercial motor accounts. Annualised rating increases in the region of 13% are being applied to the personal motor account and 20% to the commercial motor account. The liability market remains difficult, but we are pushing through double-digit rating increases and are prepared to sacrifice market share to improve profitability. The profitability of the commercial property account has been impacted by large losses. However, there has been an improvement in the third quarter. We continue to take a disciplined approach to underwriting and remain focused on small/medium sized risks. The recent storms and flooding will impact our fourth quarter results but at this stage it is too early to assess the cost of these events with reasonable certainty. Europe (excluding UK) The underwriting loss in the discrete third quarter in France was £22 million (1999:loss of £3 million). The year to date underwriting loss is after the late notified claims of £90 million from the December 1999 storms and adverse development of certain claims reported in the first half of the year. Underwriting and rating actions continue to be taken with single-digit rate increases in personal lines and double-digit increases in some commercial lines. Our other European businesses reported a year to date underwriting loss of £96 million (1999: £79 million) and operating profit of £48 million (1999: £29 million) including for the first time the full impact of the Hibernian general business acquired in January 2000. International Our Australian and New Zealand businesses reported improved operating profits of £48 million (1999: £13 million) helped by a reduction in weather-related losses in Australia. In Canada, operating profits were down at £64 million (1999: £71 million), mainly driven by deterioration in the property class. At the time of the merger announcement, we had concluded it was in the best interests of shareholders to withdraw from the US general insurance market. This decision reflected the difficult conditions in the US property and casualty market and the requirement for substantial investment to achieve a leading market position. On 25 September 2000, we announced a definitive agreement for the sale of the Group's US general insurance operations to White Mountains Insurance Group Limited for a total consideration of $3,163 million including the repayment of an inter-company loan of $1,100 million. The Group results for the nine months ended 30 September 2000 include an after-tax loss on disposal of $2,060 million (or £1,393 million after tax and translated at the exchange rate prevailing at 30 September 2000) after making appropriate accounting adjustments. Although creating a significant loss, we have achieved a clean-cut exit and, subject to completion, the Group will not bear any continuing operating risk or exposure to the US general business, or provide any guarantees in respect of its claims reserves or balance sheet from 31 August 2000. There will be no price adjustment to reflect the US general business results in the period between 1 September 2000 and completion. -------------------------------------------------------------------------- Page 7 On 27 October 2000, we announced our intention to to sell State Insurance Limited. Following the merger, CGNU plc has two leading general insurance businesses in New Zealand, each with around 19% market share. A review of these businesses concluded that greater shareholder value could be generated from a sale of State Insurance than from integrating the businesses. The Group remains committed to the New Zealand market and will continue to develop its ongoing business, New Zealand Insurance Limited. Non-insurance operations The Group's non-insurance operations reported a loss of £21 million (1999: loss of £14 million). This included a loss of £30 million from our estate agency business, YourMove, £15 million of which related to increased advertising spend and development of the IT infrastructure in the first half of the year. Corporate costs and unallocated interest charges Corporate costs amounted to £136 million (1999: £99 million). As reported at the half year, this includes the crystallisation of the Norwich Union long-term incentive scheme together with an accrual for 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 increase in the charge to £262 million reflects in part the funding of corporate activity. Shareholders' funds Shareholders' funds fell by £1,011 million to £14.7 billion after deducting the equalisation provision of £199 million (1999: £212 million). The loss attributable to equity share holders was £1,309 million (full year 1999: profit £1,003 million). Other movements in shareholders' funds included an increase of £451 million in the valuation of in-force life business and equity dividends payable of £320 million. Net assets per ordinary share were 643 pence (31 December 1999: 690 pence) after deducting the equalisation provision. Adding back the equalisation provision, they were 652 pence (31 December 1999: 700 pence). The Group's 'normalised' after tax return on equity, for the 9 months (annualised), excluding businesses to be discontinued, 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. Merger update The integration of businesses continues to make rapid progress. Annualised cost savings of £50 million have been achieved with £9 million of savings included in the 9 month results. One off costs of £203 million have been provided to date and we expect to have committed and provided the greater part of the total anticipated integration costs of £425 million by the year end. A number of significant integration milestones have been achieved in the period. These include the successful launch of our UK life, general and retail fund management businesses under the new Norwich Union brand on target on 2 October 2000. The launch has been backed by a strong advertising campaign designed to consolidate the new brand rapidly, and will be continuing through into 2001. Our UK life and general businesses now offer improved product ranges, reflecting the best of breed from the merged CGU and Norwich Union businesses, and each operates with a single retrained sales force. The integration projects for each of our UK Group Office and Central Services units have made excellent progress. The Central Services integration will ensure we achieve benefits from economies of scale and common service platforms through centralising facilities management and IT infrastructure for our UK businesses. In the UK, over 15,000 staff have now been appointed. The target headcount reduction in the UK remains at 4,000 and an actual headcount reduction of 926 against this target has been achieved. Our European businesses have also made excellent integration progress. On 2 October 2000, our Irish business launched under the single Hibernian brand. In France, all staff moves have been completed and business teams integrated. -------------------------------------------------------------------------- Page 8 Online developments and wealth management CGNU remains committed to the development of innovative e-commerce applications across its businesses. Our businesses around the world continue to invest in technology to improve operational efficiency. Our UK life business aims to be in a position to process as much as 50% of our new business electronically, through 'no touch' administration, by the end of next year. Our UK general business has announced plans to e-enable the intermediary channel through an initiative called 'i2i-link'. This will streamline and enhance distribution and service by creating a single gateway for transaction with intermediaries. On 2 August 2000, we announced our intention to launch an on-line wealth management service in the UK. norwichunion.com delivered its pre-registration facility on 2 October 2000 to coincide with the launch of the new Norwich Union brand in the UK. In quarter one 2001, we will introduce Trusted Partner services, a wide range of impartial information and financial planning tools designed to help customers make better decisions about their money, their assets and their future. This service will act as the gateway to the full, integrated wealth management proposition. This will include a fund supermarket, a share-dealing service and a range of banking products and services. To date investment in norwichunion.com is £75 million, in line with our previously announced spend of £250 million to the end of 2002. In addition, investment in assertahome is £20 million. assertahome is now attracting over 125,000 unique users a month and is acknowledged as the UK's leading home-moving portal. 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 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 END OF PART 1 OF 4 MORE TO FOLLOW

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