Final Results - Year Ended 31 Dec 1999, Part 2

CGU PLC 21 February 2000 Part 2 ---------------------------------------------- A review of CGU's business performance follows ---------------------------------------------- BUSINESS REVIEW LIFE ACHIEVED LIFE PROFITS Life profits benefited from strong new business growth of 33%. Life achieved operating profits amounted to £891m a 15% increase in underlying terms, after allowing for the benefit of £235m in last year's results from an increase in the assumed margins for the return on equities above fixed interest securities. In view of the sizeable movement in interest rates, the 1998 new business contribution has also been shown using the same economic assumptions as have been applied in 1999 to allow a better underlying comparison between 1999 and 1998. Profit on business in New Analysis of life force business Total profits and net contribution assets ------------ ------------------- ------------------- 1999 1998 1999 1998 1998 1999 1998 1998 (i) pub- (i) pub- lished lished £m £m £m £m £m £m £m £m Life operating profit before taxation UK 281 276 134 102 119 415 378 395 France 75 65 22 10 10 97 75 75 Netherlands 165 154 3 (9) - 168 145 154 Italy 13 28 29 26 26 42 54 54 Poland - life 52 42 28 28 26 80 70 68 Poland - pensions 1 1 42 - - 43 1 1 Other Europe (2) (3) (9) (6) (6) (11) (9) (9) Other life businesses 16 12 8 4 3 24 16 15 --- --- --- --- --- --- --- --- 601 575 257 155 178 858 730 753 --- --- --- --- --- Other life & savings 33 21 21 activities (ii) --- --- --- Life operating profit on continuing business before equity return adjustment 891 751 774 Equity return adjustment - - 235 Operating profit on business disposed - 12 12 of (iii) ----- ---- ----- Life operating profit before taxation 891 763 1,021 --- Effect of changes in interest rates and investment return fluctuations 1,052 168 ----- ----- Achieved profit before taxation 1,943 1,189 Taxation (595) (358) ----- ----- Achieved profit after taxation 1,348 831 ===== ===== Notes: (i) New business contribution has been shown using 1999 economic assumptions. (ii) Profits of other life and savings activities, which include service companies, have been calculated on a statutory basis and amount to £33m in 1999 (UK £31m and Poland £2m; 1998 UK £21m). (iii)Our life operation in South Africa was disposed of at the end of 1998. It produced a profit on business in force and net assets of £10m and a new business contribution of £2m in that year. LIFE AND SAVINGS NEW BUSINESS Following an excellent performance by our life and savings business in 1999, record new business sales of £7.1bn were up 33% over last year. There was strong life and pensions growth in the UK, good performances in France and the Netherlands, and our Polish business captured a large share of the new pensions market, with new annual premiums of £282m in 1999. The contribution to life achieved operating profits from new business after the charge for capital increased by 46% using economic assumptions consistent with those applied in 1999. New single New annual Investment premiums premiums sales (ii) Total Local Local Local Local currency currency currency currency 1999 growth 1999 growth 1999 growth growth £m % £m % £m % % ---------------------------------------------------------------------------- UK 2,655 34 171 1 641 36 33 France 1,328 20 13 12 20 Netherlands(iv) 340 16 84 9 15 Italy 768 21 42 (14) 19 Poland - life 13 163 57 12 25 Poland - pensions - n/a 282 n/a n/a Germany 90 n/a 39 n/a n/a Other Europe 185 140 12 21 129 5 55 Other life businesses 201 (5) 44 16 (1) ----- --- --- --- --- --- --- Total 5,580 29 744 76 770 29 33 ----- --- --- --- --- --- --- ---------------------------------------------------------------------------- Notes: (i) Premiums are gross of reassurance. (ii) Includes ISAs, PEPs, unit trusts and UCITS (collective investments sold throughout Europe and Asia). (iii) Growth excludes sales from businesses disposed of. (iv) Netherlands figures include £3m in single premiums and £0.5m in annual premiums from Nuts Ohra. New business contribution New annualised New business contribution premiums (i) 1999 1998 1999 1998 at 1999 1998 assumptions published (ii) £m £m £m £m £m --------------------------------------------------------------------------- UK 437 367 134 102 119 France 146 125 22 10 10 Netherlands 118 109 3 (9) - Italy 119 115 29 26 26 Poland - life 58 57 28 28 26 Poland - pensions 282 - 42 - - Other Europe 78 39 (9) (6) (6) Other life businesses 64 57 8 4 3 ----- --- --- --- --- Total 1,302 869 257 155 178 ----- --- --- --- --- --------------------------------------------------------------------------- Notes: (i) Annualised premiums are annual premiums plus 10% of single premiums. (ii) 1998 new business contribution has been shown using the application of 1999 economic assumptions. UK : CGU Life is one of the UK's strongest life offices, with an estate of some £5 billion in the with-profits funds, low unit costs and a multi- distribution capability. The profit from new business increased by 31% to £134m, with a strong contribution from with-profit bonds helping offset lower endowment sales and the effect of a competitive pensions market. Overall product margins were similar to 1998. Total sales increased by 33% to £3.5bn, with strong growth in with-profit bonds, protection and pension products, where the option for a penalty-free transfer into a new stakeholder pension enabled us to outperform a declining pensions market. CGU Life gained market share in its first full year after the merger and was the third largest seller of life and savings products in 1999. France : The profit contribution from new business more than doubled to £22m reflecting strong AFER growth and improved margins on other savings products. Single premium sales were up 20% to £1,328m against market growth of some 13%. AFER's excellent investment return record helped boost bond sales to £712m, up 45%, and the recently announced investment yield of 6.23% for 1999 will ensure a competitive position in 2000. Unit-linked sales (including £135m in unit-linked AFER sales) and other savings products were up 2% at £482m and group protection sales were £134m (1998 £144m). Netherlands : The acquisition of NUTS OHRA was completed in the fourth quarter of 1999 with the combined company, Delta Lloyd Nuts Ohra, ranking as the third largest life and pensions player. Delta Lloyd Nuts Ohra produced a good performance in 1999. New annual premiums increased by 9% to £84m, reflecting strong sales of Delta Life, our unit-linked universal life product, which were up 37% to £18m. Increased pensions business boosted new single premiums 16% to £340m. The contribution from new business improved to £3m after the cost of capital, reflecting increased sales of profitable individual life products which contributed £13m. Group business profitability was impaired by low interest rates but policy changes introduced in December 1999 together with increased interest rates have significantly increased the profitability outlook for this business. Italy : Total new business sales were higher than in 1998 and new business profits were up £3m to £29m in underlying terms. Single premium sales increased to £768m and annual premiums were £42m. Strong growth in sales of unit-linked savings products through our developing bancassurance arrangements with Banca delle Marche and Banca Popolare di Lodi, partly offset a reduction from the Credito Italiano distribution arrangement which finished in June 1999. Poland : We have achieved exceptional success in capitalising on the major opportunity provided by the privatisation of pension provision. We are the leading pensions business, capturing a market share of over 20% by number of customers and 30% by funds under management. New business profits grew strongly, reflecting an excellent contribution from pensions business and a good performance from life assurance, despite increased competition. New annual pension premiums of £282m were written in 1999, representing the processing of 1.6m pensions cases, with a further 0.5m applications in the pipeline to be processed during 2000. The pensions business has built on the success of our existing life operations and created a major business in Poland, with a customer base of over 3 million and the potential to cross-sell our products. In a year where our sales team focused on the pensions opportunity, a 12% increase in annual premium life sales to £57m and a 163% increase to £13m in single premiums represents an excellent performance. Other: Elsewhere, development costs held back the value of new business, although sales continued to grow strongly in Germany, Ireland and Turkey. Profit on business in-force and net assets Expected Effect Effect of return of changes to experience and using 1-1-99 risk margins other changes Total assumptions 1999 1999 1999 1999 1998(i) £m £m £m £m £m ---------------------------------------------------------------------------- UK 184 81 16 281 276 France 103 - (28) 75 65 Netherlands 121 - 44 165 154 Italy 11 - 2 13 28 Poland - life 24 8 20 52 42 Poland - pensions 5 - (4) 1 1 Other life businesses 31 - (17) 14 9 --- --- --- --- --- 479 89 33 601 575 Equity risk adjustment - - - - 235 --- --- --- --- --- Total 479 89 33 601 810 === === === === === ---------------------------------------------------------------------------- (i) 1998 figures exclude operations disposed of (£10m). Profit on business in force and net assets has been split into three components. (i) The 'Expected return' is the investment return we anticipated earning on the start of year embedded value. It comprises earnings at the risk discount rate on the start of the year value of in force business and at the long term investment return on the net assets. The rates used are those applicable at the beginning of 1999. (ii) The 'Effect of changes to risk margins' has been separately identified. (iii)The 'Effect of experience and other changes' comprises any impact from such items as changes in mortality, lapse and expense assumptions, together with experience variations in 1999. There has been a strong overall positive contribution in 1999. In the UK, following a review of market conditions, a change in risk margin had a positive effect of £81m and there was a £19m profit from the reinsurance of the business portfolio of our British & European Reinsurance subsidiary. In France, the contribution has been reduced by the decision to pay renewal commission on AFER business, which is expected to contribute to future growth and profitability. The Netherlands benefited from good mortality experience in 1999. The result was also boosted by a one-off £27m due to changes in the assumed profit sharing basis. The Poland life contribution includes £16m from continued good mortality experience and £8m from a reduction in the risk margin, as our business becomes more established. In Poland pensions, there was an expense loss due to start-up costs. The other life businesses are currently incurring modest losses as they develop. Analysis of embedded value Valuation of in- Total Net assets force Embedded value 1999 1998 1999 1998 1999 1998 £m £m £m £m £m £m ---------------------------------------------------------------------------- UK 180 174 2,169 1,761 2,349 1,935 France 468 478 418 393 886 871 Netherlands 855 763 925 767 1,780 1,530 Italy 61 60 63 48 124 108 Poland - life 37 30 90 64 127 94 Poland - pensions 18 22 40 - 58 22 Other Europe 28 31 83 69 111 100 Other life businesses 196 169 44 39 240 208 ---------------------------------------------------------------------------- Total 1,843 1,727 3,832 3,141 5,675 4,868 ---------------------------------------------------------------------------- Analysis of movement in embedded value 1999 1998 £m £m ---------------------------------------------------------------- Opening balance 4,868 3,995 Value of new business 257 180 Expected return 479 519 Effect of other experience items 122 66 Change in assumed equity returns - 235 ----- ----- Operating profit 858 1,000 Effect of changes in interest rates and investment return fluctuations 1,052 168 ----- ----- Achieved profits (excluding other life and savings activities) 1,910 1,168 Capital injections 176 82 Dividends (339) (178) Tax (585) (352) Exchange movements (355) 153 ---------------------------------------------------------------- Closing balance 5,675 4,868 ---------------------------------------------------------------- Sensitivity to a 1 percentage point increase in interest rates and in risk margin New business contribution Embedded value ------------------ ------------------ Interest Risk Interest Risk rates margin rates margin £m £m £m £m UK 10 (15) (150) (150) France 5 (5) (25) (60) Netherlands 10 (10) (50) (100) Italy 2 (5) - (5) Poland - life - (2) - (5) Poland - pensions 2 (5) - (5) Other 1 (3) - (10) --- --- --- --- Group 30 (45) (225) (335) --- --- --- --- ------------------------------------------------------------------- The above table gives the impact on the new business contribution and embedded value of a 1 percentage point increase in interest rates and risk margin. Profits are affected by the change of underlying interest rates. When interest rates change, expected future investment returns will also change and this in turn will affect projected cash flows. A change in interest rates will also result in a change in the discount rate used to calculate the present value of the projected cash flows. The risk margin is one element of the discount rate used to calculate the present value of projected cash flows. It is an allowance for the possibility that experience in future years may differ from the assumptions. An analysis of worldwide life premium income and investment sales is shown below: 1999 1998 £m £m ------------------------------------------------ Life UK 3,703 2,891 France 2,148 1,709 Netherlands 837 753 Italy 943 788 Poland 322 166 Ireland 137 40 Other Europe 421 215 United States 243 250 Canada 60 51 Other life businesses 12 89 ----- ----- 8,826 6,952 ----- ----- Investment sales UK 641 473 Other Europe 129 129 ----- ----- 770 602 ----- ----- Total 9,596 7,554 ===== ===== ------------------------------------------------- Note: Life premiums in France include £654m (1998 £413m) of transfers from existing contracts. MODIFIED STATUTORY LIFE PROFITS Modified statutory profits of £548m were 12% higher at constant rates of exchange, after a loss of £15m in the Polish pension business reflecting start-up costs. Modified statutory profits 1999 1998 £m £m ------------------------------------------------------- UK 271 227 France 88 87 Netherlands 140 138 Italy 17 9 Poland - life 31 24 Poland - pensions (15) - Other Europe 1 (7) Other life businesses 15 16 --- --- Profit on continuing business 548 494 Profit on business disposed of - 4 (note) --- --- Total 548 498 --- --- ------------------------------------------------------ Note: Our life operation in South Africa was disposed of at the end of 1998. HEALTH Underwriting Health profit result Premiums Local 1999 1998 1999 1998 1999 1998 currency growth --------------------------------------------------------------------------- £m £m £m £m £m £m % France 13 12 2 - 97 95 4 Netherlands 11 10 (3) 4 128 28 365 -- -- -- -- --- --- --- Total 24 22 (1) 4 225 123 87 -- -- -- -- --- --- --- --------------------------------------------------------------------------- Health business became more significant following the acquisition in the fourth quarter of NUTS OHRA in the Netherlands and is now reported separately. The Group sees opportunities in selected health markets, driven by ageing populations and the resulting pressures on state funded health schemes. In the Netherlands, health business is often sold through employee packages, providing synergies with group pension sales, where we have a strong market position. Operating profits for health business are reported on a statutory basis. Premiums of £97m and £128m have been reclassified from the existing French and Netherlands general insurance business. GENERAL INSURANCE Underwriting results showed an improvement of £111m over last year. The improvement reflected management actions, merger expense savings and the absence of a charge for asbestos and environmental pollution claims from business no longer written. There were better results in our largest businesses in the United Kingdom and the United States, together with a strong performance in Canada. In the fourth quarter, progress was held back by claims from the severe storms that swept through Continental Europe, which cost the Group £70m. Overall, claims from adverse weather were at a similar level to 1998. The longer term investment return ('LTIR'), applicable to general insurance business, was £1,209m (1998 £1,343m). The reduction reflected lower interest rates, cash outflow and the unwinding of the discount on certain claims provisions. Details of the principal assumptions for calculating the LTIR, which are consistent with the assumptions used for the embedded value calculations, are outlined on page 19. General insurance profits for the year amounted to £459m (1998 £482m), with the group combined operating ratio improving to 109% (1998 110%). The general insurance expense ratio improved to 14.4% (1998 15.0%) with the benefit from merger cost savings being partly offset by the effect of lower premiums. General insurance Underwriting Premiums profit result Local 1999 1998 1999 1998 1999 1998 currency growth £m £m £m £m £m £m % --------------------------------------------------------------------------- UK 134 52 (247) (390) 2,611 2,888 (10) France (note) (8) 58 (80) (22) 657 629 7 Netherlands (note) 7 42 (32) (20) 339 313 10 Other Europe 31 10 (38) (57) 589 539 12 United States 178 138 (204) (248) 2,621 2,487 3 Canada 93 72 (25) (47) 788 792 (3) Australia & NZ 3 56 (63) (27) 568 542 1 Rest of World 20 30 (30) (32) 364 400 (4) Group reinsurance 1 24 (31) (18) 84 59 42 --- --- --- --- ----- ----- -- Total 459 482 (750) (861) 8,621 8,649 (1) --- --- --- --- ----- ----- -- Note: Health business has been removed from France and the Netherlands and reported separately. UK: Underwriting results continued to respond to rate increases, portfolio improvements and cost savings and the underwriting result in the final quarter was the best for 11 quarters. Improved results were achieved in the motor classes where premium rates have risen over the last 12 months by 20% in both private and commercial lines. The homeowners class, which accounts for over 20% of UK business, made a good underwriting profit. Employers' liability rates are up 10% and need to increase further to achieve adequacy. The London marine market remains competitive and we continue to decline business at unacceptable rates. Overall premiums were 10% lower, reflecting management actions to improve underwriting results and to avoid under-rated risks, although the rate of reduction has slowed as market conditions improve. France: Underwriting profits were achieved in property classes, despite claims from the severe storms at the end of December totalling £38m after reinsurance. A further £31m of storm losses was incurred in Group reinsurance retentions. The motor underwriting result was impacted during the fourth quarter by adverse claims experience and losses on prior year claims. Good progress was made in integrating Tellit Assurance with Eurofil, our direct writing company. CGU is now the second largest direct writer in France. Netherlands: Motor and liability results were affected by a further increase in the cost of bodily injury claims. Rate increases of 10% have been achieved in the motor account. Underwriting profits were achieved in the domestic and commercial property classes. Other Europe: Results for the year showed the benefit of management actions and rating improvements following a particularly strong fourth quarter result. There were particularly good improvements in Ireland, Germany and Italy. Claims from storms in Germany, Belgium and Switzerland at the end of December amounted to £1m. Premiums were 12% higher following the acquisition of a small Italian general insurer in 1998, acquired as part of a bancassurance arrangement for the life operations. United States: A £44m improvement in the underwriting result for the year included better results from most classes of business. Results benefited from merger expense savings and the absence of a charge for business no longer written. In the second half of the year, the rating environment improved for commercial lines business with rate increases being achieved in segments of the package, agri, inland marine, general liability and commercial auto portfolios. Extensive pricing and profitability reviews are being carried out in all classes to improve profitability further. Canada: Our market leading Canadian business produced a £22m improvement in underwriting results in soft market conditions, producing a combined operating ratio of 103%. Results benefited from a focused and disciplined underwriting approach and more favourable weather conditions. Premium volumes were 3% lower, reflecting our firm stance on rating in competitive conditions and Y2K exclusions. The acquisition of GAN Canada, at the end of the year, increases our share of the profitable personal lines affinity scheme market. The business is being integrated quickly into our own branch network. Australia: Underwriting results were affected by adverse claims experience including £16m from the Sydney hailstorm in April and a one-off charge of £12m due to the reassessment of claims reserves following the introduction of a Goods and Services Tax. Rate increases averaging 5% are being implemented in private property and motor, with significant increases in workers' compensation. ASSOCIATES Profits from associates decreased to £10m (1998 £14m). This included higher profits of £8m from our share of the Hibernian Group (to become a subsidiary in 2000 following its acquisition), offset by a drop in the result of our French associate Sogessur. ASSET MANAGEMENT AND OTHER FINANCIAL SERVICES CGU managed assets of £136,426m at 31 December 1999 (1998 £121,204m), making it one of the top 20 European fund managers. The group's strategy is to grow in the third party fund management market and mandates for new funds and other third party funds of over £1 billion were received during the year. Profits from asset management and other financial services increased to £36m (1998 £14m), including £23m from Morley Fund Management in the UK, reflecting increased fee income and merger expense savings. The UK estate agent chain was re-launched as 'Your Move' during the year, and will be developed alongside our online home sales portal initiative. A loss of £13m (1998 loss £12m) was reported, which was after a charge for the investment in the new brand, which affected results in the fourth quarter. OTHER FINANCIAL HIGHLIGHTS SHAREHOLDERS' FUNDS Shareholders' funds amounted to £9,567m (31 Dec 1998 £9,039m) after deducting the equalisation provision of £134m (31 Dec 1998 £114m). The strong increase in shareholders' funds included an increase of £818m in the valuation of in-force life business before the effect of exchange rate changes in addition to the profit attributable to ordinary shareholders as set out on page 21. Movements in rates of exchange had a negative effect of £311m of which £120m related to the reserve arising on the valuation of in-force life business. Net assets per ordinary share at 31 December 1999 were 714p (31 Dec 1998 675p) after deducting the equalisation provision. Adding back the equalisation provision, they were 724p (31 Dec 1998 684p). At 17 February 2000, net assets per ordinary share were estimated at 698p (708p adding back the equalisation provision). The solvency margin (excluding life) was 49% (31 Dec 1998 51%). UNALLOCATED EXPENSES Unallocated expenses amounted to £98m (1998 £80m). These expenses included an increase in various corporate expenses of £62m (1998 £47m), reflecting a number of business development initiatives and allocations to worldwide staff profit sharing schemes of £36m (1998 £33m). The Trustees of the Group's UK and Republic of Ireland Approved Profit Sharing Schemes, General Accident and Trustee Company Limited and Bank of Ireland respectively, intend to acquire in aggregate some £20m worth of CGU plc ordinary shares in the week following the posting of the Listing Particulars. The shares will be purchased in connection with the appropriation of profits under those schemes in respect of the 1999 Financial Year. UNALLOCATED INTEREST CHARGES Unallocated interest charges include interest on intra-group loans with the centre and external borrowings not allocated to territorial operations. These charges amounted to £208m (1998 £175m) and included external loan interest of £74m (1998 £78m). DIVIDEND DETAILS (ORDINARY SHARES) The recommended final dividend of 23.75p per share (1998 21.90p) will be paid on 17 May 2000 to shareholders on the register at the close of business on 10 March 2000 (ex-dividend 6 March 2000). Together with the interim dividend of 14.25p, this makes a total of 38.00p per share for the year (1998 35.15p), and will cost £498m (1998 £461m). A dividend reinvestment plan will again be available. LONGER TERM INVESTMENT RETURN (LTIR) The longer term investment return applicable to general business results is calculated separately for each principal general insurance business unit. In respect of equities and properties, the return is calculated by multiplying the opening market value of the investments, adjusted for sales and purchases during the year, by the longer term rate of investment return. For other investments, the actual income receivable is included. The principal assumptions underlying the calculation of the LTIR, which are consistent with the assumptions for life embedded value calculations, are:- Longer term rates of return Equities Properties 2000 1999 1998 2000 1999 1998 % % % % % % -------------------------------------------------------------- UK 8.1 6.9 8.1 6.6 5.4 7.4 France 7.5 5.9 6.5 6.5 4.9 6.5 Netherlands 8.4 6.8 7.1 6.5 4.9 6.1 United States 9.3 7.7 7.8 7.3 5.7 6.8 Canada 9.3 7.9 8.0 7.3 5.9 7.0 Australia & NZ 10.0 8.0 8.0 8.0 6.0 7.0 -------------------------------------------------------------- ANNUAL REVIEW AND REPORT AND ACCOUNTS Copies of the summary Annual Review (or the full Group Accounts), which have not yet been reported on by the auditors, will be circulated to shareholders on 15 March 2000. These documents can be obtained by telephoning the Shareholders Relations Service on 020 7662 8866. The financial information set out in this announcement is unaudited and does not constitute the company's statutory accounts for the years ended 31 December 1999 or 1998. Statutory accounts for 1998 have been delivered to the Registrar of Companies, whereas those for 1999 will be delivered following the company's annual general meeting on 19 April 2000. The auditors have reported on the accounts for 1998. Their report was unqualified and did not contain a statement under section 237 (2) or (3) of the Companies Act 1985. AGM The Company will be seeking through a special resolution at the Annual General Meeting to renew its powers to make market purchases of ordinary shares of 25p each. In addition the Company will be seeking new powers to make market purchases of its cumulative irredeemable £1 preference shares. The Directors have no present intention of exercising these authorities but will keep the matter under review. Details of the proposed resolutions will be included in the Notice of Annual General Meeting to be sent to shareholders shortly. EARNINGS PER SHARE CALCULATION 1999 1998 ------------------------- --------------------------- Earnings per share Net of Net of tax, tax, minorities minorities and and Before preference Per Before preference Per tax dividend share tax dividend share £m £m p £m £m p ---------------------------------------------------------------------------- Operating profit, including life achieved profits, before goodwill amortisation and exceptional items 1,114 774 59.0 1,298 876 67.5 Deduct life achieved profits (891) (596) (45.5) (1,021) (689) (53.1) Add modified statutory life profit 548 377 28.8 498 341 26.3 ----------------------------------------------------------------------------- Operating profit, including modified statutory life profits, before goodwill amortisation and exceptional items 771 555 42.3 775 528 40.7 Goodwill amortisation (19) (19) (1.4) (7) (7) (0.5) ----------------------------------------------------------------------------- Operating profit before exceptional items 752 536 40.9 768 521 40.2 Exceptional items (151) (120) (9.2) (610) (475) (36.6) ----------------------------------------------------------------------------- Operating profit 601 416 31.7 158 46 3.6 Short-term fluctuations in investment returns 243 111 8.5 647 481 37.1 Change in the equalisation provision (28) (21) (1.6) 55 38 2.9 Net loss arising from sale of subsidiary undertakings (8) (8) (0.6) (14) (9) (0.7) Merger transaction costs - - - (75) (75) (5.8) ---------------------------------------------------------------------------- Profit attributable to equity shareholders 808 498 38.0 771 481 37.1 ----------------------------------------------------------------------------- Earnings per share were calculated using a weighted average of 1310.9m (1998 average of 1297.8m) ordinary shares in issue. Unaudited financial statements, a statistical appendix, and achieved profits assumptions follow. UNAUDITED FINANCIAL STATEMENTS USING MODIFIED STATUTORY LIFE PROFITS 12 months to December 1999 12 months 12 months 12 months 1999 Profit and loss account 1999 1998 Unaudited Unaudited Audited Euro m Premium income and investment sales £m £m after reinsurance 14,586 Life premiums and investment sales 9,596 7,554 342 Health premiums 225 123 13,104 General insurance premiums 8,621 8,649 ------ ------ ------ 28,032 Total 18,442 16,326 ====== ====== ====== Operating profit before taxation 833 Modified statutory life profits 548 498 36 Health 24 22 698 General insurance 459 482 15 Associated undertakings 10 14 55 Asset management/other financial services 36 14 ------ ------ ------ 1,637 Business unit operating profit 1,077 1,030 (465) Unallocated expenses and interest charges (306) (255) ------ ------ ------ Operating profit before goodwill 1,172 amortisation and exceptional items 771 775 (29) Goodwill amortisation (19) (7) ----- --- --- 1,143 Operating profit before exceptional items 752 768 (230) Exceptional items (151) (610) ----- --- --- 913 Operating profit before taxation 601 158 Short-term fluctuation in investment 369 returns 243 647 (42) Change in the equalisation provision (28) 55 (12) Net profit/(loss) arising from sale of subsidiary undertakings (8) (14) - Merger transaction costs - (75) ----- --- --- Profit on ordinary activities before 1,228 taxation 808 771 (369) Tax on profit on ordinary activities (243) (243) ----- --- --- Profit on ordinary activities after 859 taxation 565 528 (76) Minority interests (50) (30) --- --- --- 783 Profit for the financial year 515 498 (26) Preference dividends (17) (17) ---- ---- ---- Profit for the financial year 757 attributable to ordinary shareholders 498 481 Ordinary dividends (284) Interim (187) (174) (473) Final (311) (287) (757) (498) (461) ---- ---- ---- - Transfer to retained profits - 20 ==== ==== ==== Earnings per share (note 2) Operating profit before goodwill amortisation and exceptional items, after taxation, attributable to 64.3c equity shareholders 42.3p 40.7p 57.8c Profit attributable to equity shareholders 38.0p 37.1p 57.4c Profit attributable to equity shareholders - diluted 37.8p 36.8p 57.8c Dividend per ordinary share 38.00p 35.15p Notes: (1) Exceptional items in 1999 comprise merger integration costs of £120m and integration incentive plans of £31m. (1998 comprise merger integration costs of £260m and an additional claims provision of £350m.) (2) Earnings per share are analysed on page 20. (3) Total ordinary shares in issue at 31 December 1999 were 1312.5m (31 December 1998 1309.2m). (4) Published results have been translated at average rates of exchange, while assets and liabilities have been translated at closing rates of exchange. The principal average rates were: 12 months 1999 12 months 1998 French franc 9.99 9.78 Netherlands florin 3.35 3.29 United States dollar 1.62 1.66 Canadian dollar 2.40 2.47 (5) The results have been translated into euros using the average rate for the year of 1 Euro =£0.658. CGU plc 12 months to December 1999 12 months 12 months 1999 1998 Unaudited Audited Operating profit before goodwill amortisation and exceptional items £m £m UK 427 280 France 102 167 Netherlands 164 196 Other Europe 75 46 United States 195 156 Canada 96 76 Australia & NZ 3 56 Rest of World 14 29 Group reinsurance 1 24 ----- ----- 1,077 1,030 Unallocated expenses (98) (80) Unallocated interest charges (208) (175) ----- ---- 771 775 ===== ==== Summarised reconciliation of movements in consolidated shareholders funds Profit for the financial year 515 498 Movement in the valuation of in-force long term business 818 611 Foreign exchange rate movements on this valuation (120) 49 698 660 Other foreign exchange rate movements (191) 73 Total recognised gains and losses arising in ----- ----- the year 1,022 1,231 Dividends (515) (478) Increase in capital and shares in lieu of dividends 22 249 Merger reserve arising in the year - 11 Other movements (1) 9 ---- ----- Total movements in the year 528 1,022 Shareholders funds at 1 January 9,039 8,017 ----- ----- Balance at 31 December 9,567 9,039 ===== ===== CGU plc At 31 December 1999 Summarised consolidated balance sheet Group Group as at as at 31 Dec 99 31 Dec 98 Unaudited Audited Assets £m £m Goodwill 191 253 Investments Land and buildings 738 798 Participating interests 266 304 Variable yield securities 6,625 5,221 Fixed interest securities 10,062 10,999 Mortgages and loans 400 267 Deposits 703 707 Valuation of in-force long term business 3,832 3,141 22,626 21,437 Reinsurers share of technical provisions 2,317 2,141 Assets of the long term business 83,858 76,196 Other assets 7,705 5,837 ------- ------- Total assets 116,697 105,864 ======= ======= Liabilities Shareholders' funds Equity 9,367 8,837 Non-equity 200 202 Minority interests 527 512 ------ ------- Total capital and reserves 10,094 9,551 Liabilities of the long term business 81,983 74,457 General insurance liabilities 17,949 17,504 Borrowings 1,231 950 Other creditors and provisions 5,440 3,402 Total other liabilities 24,620 21,856 -------- ------- Total liabilities 116,697 105,864 ======== ======= CGU plc 12 months to December 1999 12 months 12 months Consolidated cash flow statement 1999 1998 -------------------------------- Unaudited Audited £m £m Net cash inflow from operating activities excluding exceptional items and merger transaction costs 368 511 Exceptional items and merger transaction costs paid (219) (161) Net cash outflow from servicing of finance (101) (114) Corporation tax paid (including advance corporation tax) (101) (318) Net purchases of tangible fixed assets (75) (65) Acquisitions and disposals of subsidiary and associated undertakings (23) (101) Equity dividends paid (474) (495) Net cash inflow/(outflow) from financing activities 219 (54) _____ _____ Net cash flows (406) (797) -------------- _____ _____ Cash flows were invested as follows: ------------------------------------ Increase in cash holdings 19 31 Net portfolio investment ------------------------ Net sales of investments (510) (894) Non-trading cash flow to long term business operations 85 66 _____ _____ (406) (797) _____ _____ ACHIEVED PROFITS ASSUMPTIONS The key economic assumptions are listed below: United Nether- Kingdom France lands Italy Poland Poland life pensions EV Op. EV Op. EV Op. EV Op. EV Op. EV Op. prof. prof. prof. prof. prof. prof. % % % % % % % % % % % % ----------------------------------------------------------------------------- Risk margin 3.6* 3.6* 5.2 5.2 4.5 4.5 4.4 4.4 10.5 10.5 8.0 8.0 After tax discount rate 4.5 3.3 3.3 2.3 3.6 2.6 3.2 2.3 8.4 8.1 8.4 8.1 (excluding risk margin) Risk discount rate 8.3* 7.0* 8.7 7.7 8.3 7.2 7.7 6.8 19.8 19.5 17.1 16.7 Pre-tax investment returns: Base Government fixed interest return ** 5.6 4.4 5.5 3.9 5.5 3.9 5.6 4.0 12.5 12.5 12.5 12.5 Ordinary shares 8.1 6.9 7.5 5.9 8.4 6.8 8.6 7.0 12.5 12.5 12.5 12.5 Property 6.6 5.4 6.5 4.9 6.5 4.9 6.6 5.0 - - - - Future expense inflation 4.0 3.0 2.5 2.5 2.5 2.5 2.5 2.5 9.2 9.2 9.2 9.2 Tax rate for grossing up profits and new business contribution 30.0 40.0 25.0 43.0 33.0 33.0 ----------------------------------------------------------------------------- * For unit-linked business, the risk margin is 4.1% ** The Base Government fixed interest return depends upon the actual duration of the assets.

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