CGNU Interim Results 2001-Pt2

CGNU PLC 2 August 2001 PART 2 OF 6 ------------------------------------------------------------------------------ Contents Page Group Chief Executive's statement 1 Operating and financial review 2 Achieved profit basis Summarised consolidated profit and loss account - achieved profit basis 8 Basis of preparation 9 Components of total life achieved profit 9 New business contribution 10 Analysis of life achieved operating profit 11 Embedded value of life business 11 Segmental analysis of embedded value of life business 12 Minority interests in life achieved profit 12 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 Exchange rates 21 Acquisitions 21 Disposals 21 Exceptional items 24 Geographical analysis of life and pensions and investment sales - new business and total income 24 Geographical analysis of modified statutory life profit 25 Geographical analysis of health premiums after reinsurance and operating result 25 Geographical analysis of general insurance premiums after reinsurance and operating result 26 Taxation 27 Dividends 27 Earnings per share 28 Longer-term investment return 29 Statistical supplement Segmental analysis of group operating profit at constant currency - achieved profit basis 30 Supplementary analyses 31 General insurance - geographical ratio analysis 34 General insurance - class of business analyses 35 Assets under management 37 Shareholder information 38 ------------------------------------------------------------------------------ Page 1 GROUP CHIEF EXECUTIVE'S STATEMENT As the UK's leading insurance company and one of the top-five life companies in Europe, we are pleased to report that the Group has produced a strong set of results. We have achieved record half-year long-term savings new business sales at £7.1 billion and increased operating profit before tax from ongoing business, including life achieved profit, up 42% to £977 million (2000: £679 million). Long-term savings Our life and pension sales grew strongly, up 19% to £6.3 billion, whilst retail investment sales were lower at £0.8 billion reflecting the effect of the weak equity markets. In the UK, we continue to see excellent growth in new business sales, up 12% to £4.1 billion, building on the outstanding results produced in 2000. Total pension sales grew by 38% to £1.3 billion and early indications are that stakeholder sales are performing well in this new and developing segment of the pensions market. We are continuing to develop our multi-distribution capability through both our partnership with The Royal Bank of Scotland Group, which has produced total sales of £178 million, and through the launch of norwichunion.com, our wealth management initiative. We are developing strong businesses in continental Europe with top-five positions in the Netherlands, Ireland, Poland, Spain and Turkey. Our continental European businesses have produced life and pension sales up 29% to £2.4 billion,representing 39% of the total group life and pension sales. Our larger businesses in France and the Netherlands contributed £203 million of life achieved operating profit and the overall continental European margin improved benefiting from our bancassurance arrangements in Spain and Italy. Our bancassurance agreements in Spain with Unicaja and Caixa Galicia geographically complement our existing bancassurance arrangement with Bancaja giving us the second-largest savings bank distribution network and making us one of the top-five life companies in Spain. We also recently announced an agreement with the Development Bank of Singapore (DBS), the number one bank in Singapore and largest in South East Asia, which is our first significant step into the Asian long-term savings market. DBS has access to just over 90% of the population in Singapore through its network of 100 branches. We will be using our expertise in bancassurance to deliver the benefits from this partnership in this new and exciting market for us, with significant growth potential. Fund management Morley, our UK fund management operation and a leading UK based fund manager, is the number one CAT-standard ISA provider and a top-five ISA provider based on funds under management. Our investment sales in the UK have continued to perform well against the backdrop of a weak equity market. Our business continues to improve its standing with the external consultant market, securing £1.3 billion of mandates in 2001. In continental Europe, our Dutch fund management operations, Delta Lloyd Nuts Ohra, secured £238 million of investment mandates, despite weak investment markets. In Australia, our sales of Navigator were up 25% to £437 million reflecting a continued market trend towards multi-manager products, with Navigator maintaining a leading position in this market. General insurance Our general insurance business is seeing improvements in operating profit, up 124% to £427 million, benefiting from the steps we have taken to improve risk selection and rates, and lower weather-related claims. The combined operating ratio for both the UK and the Group is now at 103%. We remain fully committed to our target of a combined operating ratio of 102% by the end of this year. We completed the sale of our US general insurance business on 1 June 2001, which concludes our involvement in this general insurance market. We further consolidated our top-five position in the Australian market with the acquisition of the Fortis general insurance business. We have continued to realign our smaller non-core overseas general insurance businesses and announced the sale of our operations in Belgium, Brazil and Pakistan and the sale of our non-core Australian mortgage indemnity business. Integration Integration continues rapidly and to date we have achieved £233 million of annualised cost savings. This represents 85% of our targeted cost savings and £89 million is included in the results for the first half of 2001. We will complete the integration by the end of 2001 and are confident that our annualised cost savings will exceed the £275 million target. We currently estimate that approximately £300 million of annualised cost savings will be achieved by the end of 2001 with no additional integration spend. Dividend At the time of the merger, the Group indicated that it expected to at least maintain its dividend whilst building its cover to a level appropriate for an international group focused on the long-term savings sector. Consistent with this aim, and whilst investing for the future growth of the business, the Board has decided to maintain the interim dividend paid in 2000 and has declared an interim dividend of 14.25 net pence per ordinary share payable on 15 November 2001 to shareholders on the register at 28 September 2001. Over the last twelve months since completion of the merger, the Group has undergone significant transformation as we refocused the business in line with our strategy. With excellent integration progress we have delivered a strong set of first half results and are well placed to deliver further growth and shareholder value. Richard Harvey Group Chief Executive ------------------------------------------------------------------------------ Page 2 OPERATING AND FINANCIAL REVIEW Group operating profit The Group operating profit before tax from ongoing business, including life achieved profit, was up 42% to £977 million (2000: £679 million), and is after our strategic investment of £60 million (2000: £41 million) for developing our on-line wealth management service. On a modified statutory basis, operating profit before tax from ongoing business was £728 million (2000: £531 million). In calculating the Group operating profit from ongoing business, we have excluded the results from our US general insurance business, the sale of which was completed in June 2001, and the UK London Market operations following our withdrawal from this business last year. Other operations sold or announced to be sold in the year are included within the results from ongoing business as their results are not considered to be material in the context of the Group's total result. Profit before tax on a modified statutory basis including short-term fluctuation in investment returns and other non-operating items was lower at £425 million (2000: £678 million). The negative short-term fluctuations of £446 million (2000: positive £123 million) represents a shortfall in the actual investment return compared to the Group's long-term investment assumptions. The shortfall primarily reflects investment valuation losses on equities held by the non-life operations of the Group, which reflects the decline during the first six months in equity markets worldwide. Profit before tax on an achieved profit basis at £106 million (2000: £738 million) includes a further adverse investment return variance reflecting the impact of the fall in equity markets on the Group's life embedded value. The impact on embedded value is predominantly attributable to the UK where the FTSE All-Share index fell by 9% from 2,984 to 2,728 in the six months. Long-term savings Our long-term savings business achieved record half-year new business sales totalling £7.1 billion (2000: £6.6 billion) continuing to build on the success of 2000. Worldwide life and pension sales grew strongly, up 19% to £6.3 billion (2000: £5.2 billion) while retail investment sales were down at £763 million (2000: £1,392 million) reflecting the lack of consumer confidence in equity-backed products. 6 months 2001 Local currency growth Life and Retail Life and Retail pensions investments Total pensions investments Total £m £m £m % % % Long-term savings sales United Kingdom 3,563 557 4,120 13% 7% 12% Europe (excluding UK) 2,441 122 2,563 29% (83%) (2%) International 286 84 370 13% (46%) (9%) ------ ------ ------ ------ ------ ------ 6,290 763 7,053 19% (45%) 5% ====== ====== ====== ====== ====== ====== Navigator 437 25% Life achieved operating profit 6 6 months months 2001 2000 £m £m New business contribution (after the effect of solvency margin) 227 194 Profit from existing business - expected return 417 417 - experience variances (7) (9) - operating assumption changes 50 - Development costs - (17) Expected return on shareholders' net worth 162 155 ------ ------ 849 740 Other life and savings activities 8 14 ------ ------ Life achieved operating profit before tax 857 754 ====== ====== -------------------------------------------------------------------- Page 3 Group life achieved operating profit increased by 12% to £857 million, due to the higher sales volumes and the impact of favourable operating assumption changes. The expected returns on existing businesses and shareholders' net worth were largely unchanged at £579 million (2000: £572 million) due to the application of lower start of year economic assumptions to a higher opening embedded value. The most significant operating assumption change relates to our German operations where revised terms of business generated a profit of £28 million. Annual New New premium business business equivalent* contribution** margin**** 6 6 6 6 6 6 Full months months months months months months year 2001 2000 2001 2000*** 2001 2000*** 2000*** £m £m £m £m % % % Life and pensions business United Kingdom 606 479 164 130 27.1% 27.1% 28.6% Europe (excluding UK) 421 416 105 91 24.9% 21.9% 20.4% International 57 45 3 5 5.3% 11.1% 6.0% ------ ------ ------ ------ ------ ------ ------ 1,084 940 272 226 25.1% 24.0% 23.9% ====== ====== ====== ====== ====== ====== ====== * Annual premium equivalent represents regular premiums plus 10% of single premiums. ** Before effect of solvency margin. *** Restated using 2001 economic assumptions and rates of exchange. **** New business margin represents the ratio of new business contribution to annual premium equivalent, expressed as a percentage. UK Our business in the UK is the leading life company with a market share of over 11% and achieved record half-year new business sales up 12% at £4.1 billion (2000: £3.7 billion) building upon the outstanding results produced in 2000. Total pension sales grew by 38% to £1.3 billion and include stakeholder sales of £43 million following the successful launch in April of our stakeholder proposition. Initial indications are that stakeholder sales are performing well in this new and developing segment of the pensions market. We have invested £8 million in the development of our infrastructure to support the stakeholder environment in the first six months of the year, which has masked the emergence of merger savings in these results. Our partnership with The Royal Bank of Scotland Group (RBSG) has produced total sales of £178 million in the six months to 30 June. A new range of life products was launched in June through National Westminster Life Assurance, which is supported by a new dedicated administration centre, and there are plans with this partnership to launch Royal Scottish Assurance branded life products at the end of August. In reporting our numbers we have included our 50% share of sales and operating profit from the RBSG partnership. New business contribution increased to £164 million (2000: £130 million based on 2001 economic assumptions) and represents a new business margin (the ratio of new business contribution to sales measured on an annual premium equivalent basis) of 27.1% (full year 2000: 28.6%, at 2001 economic assumptions). This decline is attributable to product mix where, as expected, the increase of pension sales as a proportion of total UK sales has reduced the average margin in our UK business. Life achieved profit at £473 million (2000: £462 million) reflected the growth in new business contribution with flat expected returns on net assets and shareholders' net worth. Europe (excluding UK) Our French life business outperformed the market in the first half of the year, with sales up 3% to £1,035 million (2000: £989 million) against a contraction in the French market as a whole. Market statistics indicate a decline of some 15% over the first five months of this year. AFER 'French Franc' single premium sales distributed through the largest savings organisation in France, grew by 27% to £472 million (2000: £363 million), as French investors moved away from unit-linked to fixed interest products. New business contribution was £35 million (2000: £35 million, at 2001 assumptions and rates of exchange) with a margin of 28.9% in line with last year. Life achieved operating profit was lower at £110 million (2000: £124 million) as the comparative period result benefited from a favourable one-off tax experience variance. Our top-five business in Ireland increased sales by 14% to £257 million (2000: £223 million). Strong sales of single premium with-profit Celebration Bonds, were up 38% to £99 million (2000: £71 million) as investors recognised the strength of our with-profit products against the backdrop of volatile investment markets. Our strong IFA links and a competitive product will allow us to perform strongly as the Special Savings Incentive Account (SSIA) becomes an established part of the savings market in Ireland. New business contribution increased to £14 million (2000: £11 million, at 2001 assumptions and rates of exchange) reflecting the increase in sales. Life achieved operating profit was up 12% to £37 million. In Italy, new business sales increased significantly to £387 million, principally due to our bancassurance agreement with UniCredito Italiano, which contributed £226 million in sales. New business contribution increased to £15 million (2000: £6 million, at 2001 assumptions and rates of exchange) and life achieved operating profit increased to £24 million (2000: £11 million). Development of new individual pension products designed to take advantage of the new Italian fiscal incentives for retirement savings, enacted earlier this year, are well advanced and will be introduced with our various distribution partners starting in the third quarter of 2001. This will offer further opportunities in a market with excellent long-term growth potential. The sale of our small life business, NU Vita, to Helvetia completed on 23 July. -------------------------------------------------------------------- Page 4 Our business in the Netherlands, which includes the smaller businesses of Belgium and Luxembourg, reported new life and pension sales up 28% at £324 million (2000: £250 million). New tax reforms effective from 1 January this year were expected to hold back sales of life products, however investors favoured more traditional deposit-based savings over equity-backed products. Investment sales at £40 million (2000: £584 million) continue to reflect the volatility in investment markets. In May, Delta Lloyd-branded and internet-enabled Euro funds were launched in Germany, and this was followed in June by the launch of a worldwide investment fund into Belgium. The launch of the funds and the Delta Lloyd brand into Germany prepares the way to benefit from the 'Riester' pension reforms, expected to take effect in January 2002, which are likely to increase demand for mutual funds and equity-linked savings products. New business contribution at £11 million (2000: £5 million, at 2001 assumptions and rates of exchange) resulted in improved margins and life achieved operating profit grew £18 million to £93 million (2000: £75 million). The recently announced agreement to acquire Bank Nagelmackers for £82 million is an important step in the development of an asset accumulation proposition in Belguim, enabling Delta Lloyd to compete effectively in a market dominated by integrated financial services. Our Polish business, CU Polska, is the market leader for private pensions and individual life assurance. Lower sales at £33 million (2000: £136 million) primarily reflect that pension sales are now restricted to new entrants in the Polish employment market, following the one-off pensions privatisation in 1999, which flowed through into 2000. Lower new business contribution at £5 million (2000: £32 million, at 2001 assumptions and rates of exchange) followed the lower level of sales while life achieved operating profit was down 15% at £44 million. Total sales in Spain increased by 583% to £294 million (2000: £42 million), with sales of £269 million (2000: £nil) from our partnership with Bancaja. Our new partnerships with Unicaja and Caixa Galicia will extend our distribution network in Spain to provide access to approximately 6.7 million customers through some 2,500 branches. This gives us the second-largest savings bank distribution network and the fourth among all banking networks in Spain. Margins improved significantly to 46.0% (full year 2000: 38.6%, at 2001 economic assumptions and rates of exchange) and increased new business contribution boosted life achieved operating profit in excess of 340% to £31 million (2000: £7 million). International Total new life and pensions sales increased by 13% to £286 million (2000: £251 million), predominantly reflecting growth in our business in the United States through good annuity sales. Life achieved operating profit was £17 million (2000: £15 million). We have completed the disposal of our life businesses in Canada for a loss of £5 million. We recently announced a new 10-year bancassurance arrangement with the Development Bank of Singapore (DBS), the number one bank in Singapore and largest bank in South East Asia. The partnership, our first major move into the Asian long-term savings market, gives us exclusive access to DBS's approximately 4 million customers in Singapore, representing over 90% of the population. Singapore is an exciting market that has significant long-term growth potential. We will leverage our bancassurance experience to maximise the potential of the partnership and expect the agreement to complete in the second half of the year. Health Premium income from our health business grew by 17% to £509 million and total operating profit was £32 million. Our business in the Netherlands continued to be the main driver of the total health result with profits at £24 million (2000: £26 million). In the UK, we have seen the benefits of rating increases and strong demand for our products. Fund management Operating profit from our worldwide fund management business was £24 million (2000: £22 million). In the UK, the fund management operating profit was £5 million (2000: £6 million) and includes £3 million (2000: £6 million) of profit from the private client investment business Quilter Holdings Limited (Quilters) disposed in March 2001. The result from the continuing UK fund management business includes the benefit arising from merger savings, which is more than offset by our continuing investment in retail investment business of £15 million (2000: £13 million) and our strategy of building a world-class fund management business, where we have commenced a number of strategic initiatives. In addition, the result has been impacted by the lower portfolio value, as a result of falling stock markets, upon which investment fees are calculated. Morley, our UK fund management operation, is a top-five ISA provider, based on funds under management and the leading CAT-standard ISA provider. On 18 July we reported strong retail investment sales, up 7% to £557 million (2000: £521 million) against a declining market, while continuing to develop our institutional capabilities where we obtained £1.3 billion of new mandates. The sale of Quilters generated a profit on disposal of £70 million. In Australia, sales from our Navigator business, which are not included in the new business sales, grew by 25% to £437 million, reflecting the strength of the product in the local marketplace. The operating result of the Navigator business is included within fund management results on a statutory basis. On an achieved profits basis, new business contribution was £6 million (2000: £7 million) and operating profit £9 million (2000: £10 million). The business is investing heavily in new systems and its industry-leading technology will, in due course, be applied in South East Asia. Our principal European businesses, Victoire Asset Management in France and Delta Lloyd Nuts Ohra in the Netherlands, saw an increased operating profit to £10 million (2000: £6 million) primarily due to significant volumes of external retail funds procured during 2000. Assets under management at 30 June 2001 amounted to £204 billion, down from £220 billion reported at 31 December 2000. The reduction is largely attributable to the sale of Quilters in the first quarter, the completion of the sale of the US general insurance business in the second quarter, which together had combined assets of some £11 billion, and the impact of the fall in the worldwide equity markets. -------------------------------------------------------------------- Page 5 General insurance Operating profit from our worldwide general insurance business grew 124% to £427 million (2000: £193 million), aided by an improved result in France which last year suffered storm-related claims of £90 million. The Group's combined operating ratio was 103% (2000: 109%) and we remain fully committed to our target of 102% by the end of the year. The total expense ratio for the Group has improved to 11.9% (2000: 12.1%). Underwriting Operating result* profit* 6 6 6 6 months months months months 2001 2000 2001 2000 £m £m £m £m United Kingdom (69) (126) 254 196 Europe (excluding UK) (57) (234) 71 (104) International (26) (47) 102 101 ------ ------ ------ ------ Ongoing business (152) (407) 427 193 ====== ====== ====== ====== Businesses discontinued United States (173) (96) (21) 115 London Market - (31) - 6 * Excludes the change in the equalisation provision of £22 million (2000: £12 million). UK Our UK general insurance business recorded a 30% increase in operating profit to £254 million (2000: £196 million), with a stronger underwriting result across our major classes of business and an improved combined operating ratio of 103%. As the UK's leading general insurer, with a 19% market share, our strategy is to move away from large commercial risks and to concentrate upon leadership in personal lines and the needs of small businesses. We continue to reposition our portfolio by adopting a rigorous approach to the risks that we accept and by taking strong rating action. In July we introduced a new 'Common Pricing Platform' for private motor, which is a significant move towards tailored pricing at an individual customer level. This pricing platform will be extended to homeowners later in the year. Annualised rating increases for personal motor and homeowners were 16% and 4% respectively. In the commercial motor and property businesses, rating actions of 20% and 8% respectively, continue to be applied while retaining core business at profitable levels. In our commercial liability business we are continuing to reduce our exposure to improve the profitability of the business and annualised rating increases were 19%. We are currently undertaking strategic initiatives to further improve our already efficient processes, most notably in Total Incident Management, our market-leading claims service, and the Partner Self Service programme, which connect us directly with intermediaries and corporate partners through the deployment of web-based technology. These processes are integral to achieving and sustaining our target combined operating ratio of 102% by the end of the year. Our expense ratio has fallen to 10.6% (2000: 10.8%), reflecting the cost of these initiatives. Following the recently announced reduction to the Ogden rates from 3% to 2.5%, we have assessed the impact of this change and estimate the retrospective impact to be approximately £35 million and an ongoing cost of 0.5% per annum on motor rates. We have factored the potential for adverse events, such as the revised ruling, into our pricing and reserving. Our prudent approach means we have absorbed the retrospective cost and therefore there is no impact on the current year results or our reserving strength. In addition, following recent market developments we have considered the likelihood of a call for funding from the Policyholders' Protection Board. As a result, we considered it prudent to hold a specific provision and have charged £14 million (6 months and full year 2000: £nil) as at the end of June. Given the nature of this item, the charge is shown separately in the profit and loss account and accordingly is excluded from the general business operating profit, underwriting result and combined operating ratio to ensure meaningful period on period comparisons. Europe (excluding UK) Our European general insurance businesses produced operating profit of £71 million (2000: loss of £104 million) and saw improvements in performance across all of our major businesses. In France, operating profit at £34 million (2000: loss of £120 million) improved by £154 million, driven by lower weather-related costs following storm losses of £90 million in 2000, the impact of more disciplined underwriting and rate increases. Our Irish business increased operating profit by 55% to £17 million (2000: £11 million) following strong underwriting and rating actions and exiting unprofitable lines of business. International Our Australian and New Zealand general insurance businesses reported reduced underwriting losses of £8 million (2000: loss of £12 million). The operating profit was lower at £26 million (2000: £33 million) primarily reflecting the sale of State Insurance Limited in New Zealand that contributed £5 million to the 2000 result. We recently announced the acquisition of Fortis Australia Limited from the Fortis Group for £111 million, which completed on 3 July. The acquisition reinforces our top-five position in the Australian general insurance market and establishes us as the market leader in both the motor dealer and financial institution distribution channels. We also announced the withdrawal from the mortgage indemnity market in Australia with the sale of CGU Lenders Mortgage Insurance Limited for £39 million, expected to complete in the second half of the year. Operating profit from our Canadian business was £50 million (2000: £44 million) and other international businesses returned a small increase in operating profit at £26 million (2000: £24 million). -------------------------------------------------------------------- Page 6 We continue to withdraw from those businesses that we believe do not offer us the potential for market-leading positions and recently announced the sale of our general insurance operations in Belgium, Brazil and Pakistan, which are expected to complete in the second half of the year. On 1 June we announced the successful completion of the sale of our US general insurance business thereby completing our exit from this general insurance market. In accordance with the sale agreement the Group did not bear any continuing operating risk from 31 August 2000, nor provide any guarantees in respect of its claims reserves or balance sheet beyond that date, except for the pre-closing adjustments announced in February 2001 and charged in the year ended 31 December 2000. Despite the Group retaining no economic interest beyond this date, accounting standards require that we consolidate the results up to the date of completion of the transaction. The results of the US business for the period to 1 June include an operating loss of £21 million (2000: profit of £115 million) and a post-tax loss, including a short-term fluctuation in investment returns, of £125 million (2000: profit of £12 million). The post-tax loss was offset by a compensating reduction in the final loss on sale of £125 million, resulting in no net profit or loss to the Group in the first six months of 2001. Further details are included in note 4 on page 21 of this announcement. Non-insurance operations The result of the Group's non-insurance businesses improved to a loss of £7 million (2000: loss of £19 million) primarily driven by reduced losses from our estate agency business, Your Move, following the significant expenditure last year on advertising and the development of new technology. Reduced profits from our European non-insurance businesses at £1 million (2000: £12 million) reflected lower levels of commission in our banking operations in the Netherlands. Corporate costs Corporate costs are lower at £81 million (2000: £97 million) benefiting from the emergence of merger cost savings. Unallocated interest charges Unallocated interest charges include intra-group loans with the centre and external borrowings not allocated to local business operations. The increase in unallocated interest charges over the equivalent period last year to £215 million (2000: £167 million) principally reflects the impact of corporate activity during the course of 2000 and the first half of 2001. The £1.4 billion proceeds from the sale of the US general insurance business have primarily been used to reduce borrowings. Shareholders' funds Equity shareholders' funds decreased to £13.1 billion (31 December 2000: £13.4 billion) reflecting the fall in worldwide investment markets. Following this change, net assets per ordinary share, based on equity shareholders' funds, fell to 590 pence per share (31 December 2000: 606 pence per share) after adding back the equalisation provision of £237 million (31 December 2000: £216 million). The Group's 'normalised' annualised 2001 pre-tax return on equity was 14%. The normalised return is based on the pre-tax operating profit, including life achieved profit, before amortisation of goodwill and exceptional items, expressed as a percentage of the opening equity capital. The Group seeks to maintain an efficient capital structure using a combination of equity shareholders' funds, preference capital and borrowings. The Group has appointed a small group of leading investment banks to raise up to £1 billion of subordinated debt in the sterling and euro capital markets. This will further enhance the Group's capital position and support future growth opportunities. Although discussions are at an early stage it is anticipated that the bond issue will be launched within the next three months. Integration update We have made considerable progress in realising our integration targets in each of our business units. Rationalisation of IT structures is on track and we have begun to consolidate our UK multiple data centres into a single data centre based in Norwich. Further progress has been achieved in the move to common operational platforms in our UK and overseas general insurance businesses and we have fully integrated our systems in Morley. The integration of business unit support infrastructures is now largely complete. We will complete our integration by the end of 2001 and are confident that we will exceed the £275 million annualised cost savings target announced last year. Annualised cost savings were £233 million by the end of June 2001 with £89 million of savings included in the results for the first half of 2001. Integration savings Profit and loss Annualised Total account impact cost savings projected 6 months achieved to integration 2001 date savings £m £m £m Life insurance 22 59 91 General insurance 32 106 116 Other operations 35 68 68 ------ ------ ------ 89 233 275 ====== ====== ====== -------------------------------------------------------------------- Page 7 On-line developments and wealth management With norwichunion.com we have set out to create a long-term strategic initiative that brings on-line wealth management to a mass market in the UK. The first step of this business vision - a comprehensive range of interactive planning tools and impartial information designed for those who want to take greater control of their finances - was delivered on 24 May. Using the strength of the Norwich Union brand has allowed us to launch this initial proposition, using modest levels of media investment in order to prove the quality and robustness of our operational capability before adding further product functionality. Costs incurred in the first six months of 2001 were £50 million (2000: £31 million). Our leading national home buying portal, www.assertahome.com, has recently acquired www.propertyfinder.co.uk through its holding company, asserta holdings Limited, with consideration being 20% of asserta holdings shares. Together these two websites will give homebuyers access to the largest choice of properties available on-line, and will be the biggest single source of on-line referrals to estate agents in the UK. Notes to editors - CGU plc and Norwich Union plc merged on 30 May 2000 to create CGNU plc, the UK's largest insurance group and one of the top-five life 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 from ongoing business of over £27 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 - The 2000 new business contribution quoted in the financial highlights and the operating and financial review has been shown using the application of 2001 economic assumptions and foreign exchange rates. - Photographs are available from www.newscast.co.uk Life profits reporting In reporting the headline operating profit, life profits have been included using the achieved profit basis. 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 more realistic measure of the performance of life businesses than the modified statutory basis. The modified statutory basis is used in our financial statements and, on this basis, the life operating profit before tax amounted to £608 million. The basis used for reporting achieved profit is consistent with the draft guidance circulated by the Association of British Insurers. Definitions of Group key performance indicators Achieved operating - excludes the operating result of businesses profit discontinued, and is stated before amortisation of goodwill and Policyholders' Protection Board levy. Achieved operating - operating profit on an achieved profit basis before earnings per share amortisation of goodwill and Policyholders' Protection Board levy, after taxation, attributable to equity shareholders in respect of ongoing business. Modified statutory - excludes the operating result of businesses operating profit discontinued, and is stated before amortisation of goodwill, amortisation of acquired additional value of in-force long-term business and Policyholders' Protection Board levy. Ongoing business - total business operations excluding the discontinued London Market operations and US general insurance operations. Net asset value - is calculated based on equity shareholders' funds, per ordinary share adding back the equalisation provision of £237 million (31 December 2000: £216 million). Assets under - represents all assets managed by the Group including management funds held on behalf of third parties. New business - is calculated using the same assumptions as those contribution used to determine the embedded values at the beginning of each year and is stated before tax and the effect of the solvency margin. MORE TO FOLLOW

Companies

Aviva (AV.)
UK 100
FTSE quotes by TradingView

Latest directors dealings

All directors dealings today