FY 2008 Part 3 of 5

RNS Number : 3473O

Aviva PLC

05 March 2009

Part 3 of 5.

Page 20

Summarised consolidated income statement - MCEV basis

2008 €m			2008 £m	Restated 2007 £m


		Operating profit before tax attributable to shareholders' profits
3,501		Life MCEV operating earnings (note M4)	2,801	2,544
52	Fund management1 (note M5)		42	90
1,498	General insurance and health (IFRS section: note 6)		1,198	1,021
	Other:
(204)	Other operations and regional costs2 (note M6)		(163)	(70)
(176)	Corporate centre (IFRS section: note 8)		(141)	(157)
(474)	Group debt costs and other interest (IFRS section: note 9)		(379)	(363)
4,197		Operating profit before tax attributable to shareholders' profits	3,358	3,065
		Adjusted for the following:
(15,526)	Economic variances on long-term business (note M7)		(12,422)	(19)
(1,024)	Short-term fluctuation in return of investments on non-long-term business (IFRS section: note 11)		(819)	(184)
(118)	Economic assumption changes on general insurance and health business (IFRS section: note 6c)		(94)	2
(83)	Impairment of goodwill (IFRS section: note 12)		(66)	(10)
(134)	Amortisation and impairment of intangibles		(108)	(89)
9	Profit on the disposal of subsidiaries and associates (Appendix D6)		7	20
(408)	Integration and restructuring costs (IFRS section: note 13)		(326)	(153)
(943)	Exceptional items (IFRS section: note 14)		(754)	-
(14,030)		(Loss)/profit before tax	(11,224)	2,632
(1,049)		Tax on operating earnings	(839)	(924)
5,441		Tax on other activities	4,353	238
4,392			3,514	(686)
(9,638)		(Loss)/profit for the period	(7,710)	1,946
		Attributable to:
(9,540)	Equity shareholders of Aviva plc		(7,632)	1,704
(98)	Minority interests		(78)	242
(9,638)			(7,710)	1,946

All profit is from continuing operations.

1. Excludes the proportion of the results of Aviva Investors fund management businesses and other fund management operations within the group that arises from the provision of fund management services to our life businesses. These results are included within the life MCEV operating earnings consistent with Aviva's MCEV methodology.

2. Excludes the proportion of the results of subsidiaries providing services to the Life business. These results are included within the life MCEV operating earnings.

Earnings per share - MCEV basis

2008	Earnings per share	2008	2007
	Operating earnings on an MCEV basis after tax, attributable to ordinary shareholders of Aviva plc
104.3c	Basic (pence per share)	83.4p	70.4p
103.3c	Diluted (pence per share)	82.7p	69.8p
	Earnings after tax on an MCEV basis, attributable to ordinary shareholders of Aviva plc
(363.6)c	Basic (pence per share)	(290.9)p	63.8p
(363.6)c	Diluted (pence per share)	(290.9)p	63.2p

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Page 21

M1 - Introduction

The summarised consolidated income statement and balance sheet present the group's results and financial position for the life and related businesses on the Market Consistent Embedded Value (MCEV) basis and for its non-life businesses on the International Financial Reporting Standards (IFRS) basis. The MCEV methodology adopted is in accordance with the MCEV Principles published by the CFO Forum in June 2008 with the exception of the use of an adjusted risk-free yield due to current market conditions for immediate annuities in the UK and Netherlands and for immediate annuities, deferred annuities and all other contracts in the US.

The CFO Forum MCEV Principles were designed during a period of relatively stable market conditions. As announced on 19 December 2008, the CFO Forum has agreed to conduct a review of the impact of turbulent market conditions on the MCEV Principles, the result of which may lead to changes to the published MCEV Principles or the issuance of guidance. The particular areas under review include implied volatilities, the cost of non-hedgeable risks, the use of swap rates as a proxy for risk-free rates and the effect of liquidity premia.

The directors consider that Aviva's MCEV methodology gives useful insight into the drivers of financial performance of the group's life and related businesses. This basis values future cash flows from assets consistently with market prices, including more explicit allowance for the impact of uncertainty in future investment returns and other risks. Embedded value is also consistent with the way pricing is assessed and the business is managed.

The prior year comparatives have been restated to MCEV as announced on 4 February 2009.

The results for 2008 and 2007 have been audited by our auditors, Ernst & Young. Their report in respect of 2008 can be found on page 288 in the Report and Accounts.

M2 - Life MCEV operating earnings

In this table the life and pensions MCEV earnings have been broken down into constituent parts. The life and pensions MCEV operating earnings comprise:

- the value of new business written during the year;

- the earnings from existing business; and,

- the expected investment return on the shareholders' net worth.

These components are calculated using economic assumptions as at the start of the year (in-force business) or start of the quarter (new business) and operating (demographic and expenses) assumptions as at the end of the year.

Life and pensions MCEV earnings	2008 £m	Restated 2007 £m
Value of new business	780	897
Earnings from existing business
- expected returns at the reference rate	992	877
- expected returns in excess of the reference rate	446	420
- expected returns	1,438	1,297
- experience variances	(224)	(111)
- operating assumption changes	(165)	(25)
- other operating variances	271	1
Expected return on shareholders' net worth	701	485
Life and pensions operating earnings before tax	2,801	2,544
Economic variances	(12,422)	(19)
Other non-operating variances	(329)	-
Life and pensions (loss)/earnings before tax	(9,950)	2,525
Tax on operating earnings	(821)	(754)
Tax on other activities	3,779	48
Life and pensions (loss)/earnings after tax	(6,992)	1,819

There were no separate development costs reported in these years.

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Page 22

M2 - Life MCEV operating return continued

The table on the previous page presents a summarised breakdown of the life and pensions MCEV earnings on a gross of minorities basis and gross of tax with tax shown separately. The group favours the gross presentation for consistency with the IFRS results. The table below compares the key items on the different bases as the subsequent analysis is provided predominantly on a net of tax and minorities basis as preferred by the CFO Forum Principles.

	2008		Restated 2007
Key indicators	Net of minorities and tax £m	Gross of minorities and tax £m	Net of minorities and tax £m	Gross of minorities and tax £m
Value of new business	409	780	504	897
Life and pensions operating earnings	1,753	2,801	1,567	2,544
Life and pensions earnings	(6,885)	(9,950)	1,619	2,525

M3 - New business

The tables below set out the present value of new business premiums (PVNBP), written by the life and related businesses, the value of new business and the resulting margin firstly gross and then net of tax and minority interests. The PVNBP calculation is equal to total single premium sales received in the period plus the discounted value of regular premiums expected to be received over the term of the new contracts, and is expressed at the point of sale.

The premium volumes and projection assumptions used to calculate the present value of regular premiums for each product are the same as those used to calculate the value of new business, so the components of the new business margin are on a consistent basis.

The value generated by new business written during the period is the present value of the projected stream of after tax distributable profit from that business. The value of new business has been calculated using economic assumptions at the point of sale which has been implemented with the assumptions being taken as those appropriate to the start of each quarter. For contracts that are re-priced more frequently, weekly or monthly economic assumptions have been used. The operating assumptions are consistent with those used to determine the embedded value. The value of new business is shown after the effect of the frictional costs of holding required capital, and after the effect of the costs of residual non-hedgeable risks on the same basis as for the in-force covered business.

(a) Geographical analysis of value of new business

	Present value of new business premiums		Value of new business		New business margin
Life and pensions (gross of tax and minority interest)	2008 £m	Restated 2007 £m	2008 £m	Restated 2007 £m	2008 %	Restated 2007 %
United Kingdom	11,858	11,797	204	278	1.7%	2.4%
France	3,880	3,790	135	144	3.5%	3.8%
Ireland	1,299	1,780	15	37	1.2%	2.1%
Italy	2,331	2,975	71	77	3.0%	2.6%
Netherlands (including Belgium and Germany)	4,097	3,133	(73)	8	(1.8)%	0.3%
Poland	1,842	1,120	65	48	3.5%	4.3%
Spain	2,527	2,433	236	181	9.3%	7.4%
Other Europe	1,014	453	29	7	2.9%	1.5%
Europe	16,990	15,684	478	502	2.8%	3.2%
North America	5,715	3,646	55	52	1.0%	1.4%
Asia	1,351	1,141	30	49	2.2%	4.3%
Australia	369	454	13	16	3.5%	3.5%
Asia Pacific	1,720	1,595	43	65	2.5%	4.1%
Total life and pensions	36,283	32,722	780	897	2.1%	2.7%

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Page 23

M3 - New business continued

	Present value of new business premiums		Value of new business		New business margin
Life and pensions (net of tax and minority interests)	2008 £m	Restated 2007 £m	2008 £m	Restated 2007 £m	2008 %	Restated 2007 %
United Kingdom	11,858	11,797	147	195	1.2%	1.7%
France	3,281	3,157	79	81	2.4%	2.6%
Ireland	974	1,335	10	26	1.0%	1.9%
Italy	980	1,284	21	20	2.1%	1.6%
Netherlands (including Belgium and Germany)	3,868	2,941	(67)	3	(1.7)%	0.1%
Poland	1,604	966	46	34	2.9%	3.5%
Spain	1,376	1,223	80	57	5.8%	4.7%
Other Europe	1,014	453	24	4	2.4%	0.9%
Europe	13,097	11,359	193	225	1.5%	2.0%
North America	5,715	3,646	36	34	0.6%	0.9%
Asia	1,344	1,133	24	39	1.8%	3.4%
Australia	369	454	9	11	2.4%	2.4%
Asia Pacific	1,713	1,587	33	50	1.9%	3.2%
Total life and pensions	32,383	28,389	409	504	1.3%	1.8%

Life and pension sales increased by 11% to £36,283 million (2007: £32,722 million) gross of tax and minority interests. Total value of new business for 2008 was £780 million (2007: £897 million) resulting in a new business margin of 2.1% (2007: 2.7%).

United Kingdom

In 2008, despite the turmoil in the financial markets and the continued slowdown in the housing market, we delivered record life and pension sales for the third year in a row, up 1% to £11,858 million (2007 restated: £11,797 million). Our results were underpinned by the success of our pensions strategy, 24% growth in annuities and higher sales through our joint venture with RBSG of £1,639 million (2007 restated: £1,615 million).

Value of new business declined 27% in 2008 to £204 million (2007 restated: £278 million) leading to a new business margin of 1.7% in 2008 (2007: 2.4%). As we outlined in February 2009, the reduction in margin in 2008 reflects the volatility inherent in MCEV profit methods at times of economic and financial stress. The reduction in margin in 2008 is attributable to annuity business and reflects non-recognition of asset yields (net of credit default allowances) which we have secured above risk-free rate. In 2008 an estimated 0.5% of additional asset yields has been achieved (net of default allowances) but not recognised. This is equivalent to a pre-tax value of £130 million and will emerge in future years through expected return. The effect in 2007 is less pronounced. Excluding this effect, new business contribution has improved reflecting pricing changes, management of business mix and the benefit of operational efficiencies.

Europe

Our European life and pensions sales increased by 8% to £16,990 million (2007 restated: £15,684 million), supported by the strong euro. On a local currency basis sales were down 7%. Reflecting the challenging conditions and reduced sales volumes our new business margin was 2.8% (2007 restated: 3.2%). Margin has been maintained through increased process efficiency and strong cost management across the region. This will remain a priority in 2009 as new business markets continue to contract across much of the region. In 2009 we will optimise our sales volumes consistent with our focus on prudent capital management and seeking the greatest returns on capital.

In France, sales were up 2% including the beneficial effect of the euro. On a local currency basis sales were down 12%, in line with the market. The decline was a consequence of volatility in the equity markets, which reduced consumer demand for unit-linked contracts. However, this impact was offset by growth in our euro-based business, particularly in products with guarantees which offer customers a safe and attractive investment option in the current market conditions. The value of new business declined to £135 million (2007 restated: £144 million) with margin at 3.5% (2007: 3.8%) due to lower sales of higher margin unit-linked products.

In Ireland our sales were down 27% reflecting reduced demand for unit-linked products across both our retail and bancassurance channels. Consumers were deterred by volatile equity markets and the slowdown in economic growth. Value of new business was down to £15 million (2007 restated: £37 million) with margin declining to 1.2% (2007: 2.1%) reflecting the impact of lower sales and the downturn in economic conditions affecting consumer confidence.

In Italy, our acquisition of Avipop and UBI Vita increased sales of protection and pension products respectively but overall sales were down 22% to £2,331 million (2007 restated: £2,975 million). New business margin of 3.0% (2007 restated: 2.6%), giving a value of new business of £71 million (2007 restated: £77 million), reflected a focus on more profitable credit protection business.

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M3 - New business continued

Sales in the Netherlands were up 31% to £4,097 million (2007 restated: £3,133 million) including the beneficial effect of the euro. This performance includes a significant increase in corporate pension sales, as a result of our success in securing five large group schemes which contributed a total of £1,106 million. Sales of annuity products were lower due to increased competition from the banking sector, which is now allowed to offer unit-linked savings and pension products on the same terms as insurers. A new business loss of £73 million (2007 restated: £8 million profit) reflected the change in business mix towards corporate pension business. The profits on this business will be recognised as they emerge over the lifetime of the contracts.

In Poland our life and pension sales increased to £1,842 million (2007 restated: £1,120 million) driven by the success of a new individual regular premium product launched in late 2007 and significant volumes of short-term endowment policies sold through Deutsche Bank in the first half of the year. The change in product mix led to an improvement in the margin in the second half of 2008 although full year margin was down at 3.5% (2007 restated: 4.3%).

In Spain, our sales increased by 4% to £2,527 million (2007 restated: 2,433 million), driven by the distribution agreement with Cajamurcia launched in the last quarter of 2007 which contributed £304 million in 2008, including one-off transfers of £151 million. This had a positive impact on the margin improvement to 9.3% (2007 restated: 7.4%) with an increased proportion of higher margin protection business.

Other Europe includes a number of markets which have high potential for future growth, comprising Russia, Turkey, Hungary, Romania and the Czech Republic. Sales in these markets increased by 124% to £1,014 million (2007 restated: £453 million). Romania's performance was significantly higher, largely due to one-off sales of £545 million as part of the introduction of compulsory pensions, which has improved margin to 2.9% (2007 restated: 1.5%).

North America

In the US, our long-term savings sales increased by 57% to £5,715 million (2007 restated: £3,646 million). This was the second consecutive year of record volumes despite significant challenges in the financial markets which have changed the competitive landscape and shaken consumer confidence. We retained our number one sales position in both the indexed annuity and the indexed life insurance markets and have already doubled sales within two years of the acquisition of the former AmerUs business, one year ahead of the stated target.

Expanded distribution, marketing programmes and new product launches contributed to sales of both our annuity and life products. 63% growth in annuity sales was a significant accomplishment given the challenging economic environment. In such times, customers look for guarantees and we responded by improving guaranteed income withdrawal benefits and introducing a new bonus index deferred annuity. Sales of life products, which mainly include indexed universal life and term assurance products, were slightly down on the prior year as growth was offset by the impact of our tactical decision to exit certain markets in late 2007 to focus on selling higher margin products.

Funding agreement sales were very strong as the volatile investment markets created a favourable environment for these large institutional transactions.

Value of new business increased by 6% to £55 million (2007 restated: £52 million). New business margin has decreased to 1.0% (2007: 1.4%) due to increased reference rates offset by a shift in business mix to lower margin annuity business.

Asia Pacific

Our life and pension sales grew by 8% to £1,720 million (2007 restated: £1,595 million). On a local currency basis these sales were 1% down on the prior year. Value of new business for 2008 was down 34% to £43 million (2007: £65 million) resulting in a margin of 2.5% (2007 restated: 4.1%).

In Australia, life and pension sales decreased 19% to £369 million (2007 restated: £454 million). In addition to the impact of a difficult economic climate, sales in 2007 were very strong following a one-off group pension transfer and favourable changes to superannuation legislation. Value of new business was £13 million (2007 restated: £16 million) driven by the lower volumes. New business margin remained unchanged at 3.5% (2007 restated: 3.5%).

Sales of life and pensions products in Asia grew 18% to £1,351 million (2007 restated: £1,141 million). This was driven by 66% growth in China, following significant expansion of our distribution network, and first-time contributions from our new joint ventures in South Korea and Taiwan. This growth was partly offset by results from our other Asian operations. In India and Singapore, regulatory changes had a negative impact on our sales while in Hong Kong our products are mainly investment related and were therefore greatly impacted by the market volatility. Value of new business was down by 39% to £30 million (2007 restated: £49 million) reflecting lower volumes in Hong Kong and changes in lapse assumptions in India, together with the impact of the start-up businesses in South Korea and Taiwan and changes in business mix to lower margin products in China and India. These resulted in a lower new business margin of 2.2% (2007 restated: 4.3%).

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Page 25

M3 - New business continued

(b) Post-tax internal rate of return on life and pensions new business and payback period

The new business written requires up front capital investment, due to high set-up costs and capital requirements. The internal rate of return (IRR) is a measure of the shareholder return expected on this capital investment. It is equivalent to the discount rate at which the present value of the post-tax cash flows expected to be earned over the life time of the business written, including allowance for the time value of options and guarantees, is equal to the total invested capital to support the writing of the business. The capital included in the calculation of the IRR is the initial capital required to pay acquisition costs and set up statutory reserves in excess of premiums received ('initial capital'), plus required capital at the same level as for the calculation of the value of new business.

The payback period shows how quickly shareholders can expect the total capital to be repaid. The payback period has been calculated based on undiscounted cash flows and allows for the initial and required capital.

The projected investment returns in both the IRR and payback period calculations assume that equities, properties and bonds earn a return in excess of risk-free consistent with the long-term rate of return assumed in operating earnings.

The IRR on life and pensions new business for the group was 11.4% (2007 restated: 12.9%)

2008	Internal rate of return %	Initial capital £m	Required capital £m	Total invested capital £m	Payback period Years
United Kingdom	14%	157	136	293	8
France	9%	35	118	153	9
Ireland	8%	53	24	77	9
Italy	14%	9	48	57	6
Netherlands (including Belgium and Germany) 1	5%	277	244	521	n/a
Poland	21%	31	12	43	4
Spain	37%	28	75	103	3
Other Europe	13%	57	9	66	6
Europe1	11%	490	530	1,020	7
North America	11%	124	489	613	6
Asia	13%	64	23	87	8
Australia	12%	3	30	33	8
Asia Pacific	12%	67	53	120	8
Total1	11.4%	838	1,208	2,046	7

1. In the Netherlands, the 2008 value of new business is low on a real world basis and so it is not possible to calculate a meaningful payback period. Consequently, the total and Europe average payback periods exclude the Netherlands. On a comparable basis the total payback period in 2007 is 7 years.

2007	Internal rate of return %	Initial capital £m	Required capital £m	Total invested capital £m	Payback period Years
United Kingdom	13%	256	149	405	8
France	12%	29	107	136	8
Ireland	11%	69	23	92	7
Italy	15%	4	52	56	6
Netherlands (including Belgium and Germany)	6%	78	181	259	22
Poland	23%	18	10	28	4
Spain	28%	24	68	92	3
Other Europe	18%	48	4	52	5
Europe1	13%	270	445	715	12
North America	12%	125	280	405	6
Asia	23%	48	11	59	4
Australia	15%	-	23	23	6
Asia Pacific	21%	48	34	82	4
Total1	12.9%	699	908	1,607	9

Total initial capital for life and pensions new business of £838 million (2007 restated: £699 million) is expressed at the point of sale. Hence, it is higher than the impact of writing that new business on net worth of £758 million (2007 restated: £624 million) shown on page 38, because the latter amount includes expected profits from the point of sale to the end of the reporting period, partly offset by the cost of holding the initial capital.

The fall in IRR reflects the reduction on reference rates and the higher weighting of the Netherlands.

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M4 - Geographical analysis of MCEV operating earnings

Gross of tax and minority interests 2008	UK £m	France £m	Ireland £m	Italy £m	Nether-lands £m	Poland £m	Spain £m	Other Europe £m	Europe £m	North America £m	Asia £m	Australia £m	Asia Pacific £m	Total £m
Value of new business	204	135	15	71	(73)	65	236	29	478	55	30	13	43	780
Earnings from existing business
- expected existing business contribution (reference rate)	338	188	39	30	107	91	60	19	534	86	9	25	34	992
- expected existing business contribution (in excess of reference rate)	210	38	8	6	95	8	22	-	177	53	4	2	6	446
Experience variances
- maintenance expense1	20	2	(2)	(6)	(35)	6	(1)	(1)	(37)	-	(2)	-	(2)	(19)
- project and other related expenses1	(62)	(10)	(7)	-	(26)	-	(6)	(6)	(55)	(14)	-	-	-	(131)
- mortality/ morbidity2	18	42	2	2	19	20	4	1	90	-	5	2	7	115
- lapses3	(23)	(8)	(7)	(15)	(11)	26	(24)	(10)	(49)	(5)	(4)	3	(1)	(78)
- other4	7	(45)	(42)	(15)	34	(8)	2	(1)	(75)	(31)	(1)	(11)	(12)	(111)
Operating assumption changes:
- maintenance expenses5	(15)	(12)	(2)	(9)	(167)	4	-	(12)	(198)	(5)	(3)	-	(3)	(221)
- project and other related expenses	13	-	-	-	9	-	-	-	9	-	-	-	-	22
- mortality/ morbidity6	54	-	25	11	(79)	4	(1)	-	(40)	-	1	(1)	-	14
- lapses7	(73)	108	7	(9)	-	(10)	(19)	(20)	57	-	(12)	1	(11)	(27)
- other8	16	(1)	23	3	(28)	24	-	13	34	1	(10)	6	(4)	47
Expected return on shareholders' net worth	166	107	34	63	204	13	23	8	452	61	14	8	22	701
Other operating variances9	10	148	(15)	(1)	138	(2)	(10)	3	261	-	-	-	-	271
Earnings before tax and minority interests	883	692	78	131	187	241	286	23	1,638	201	31	48	79	2,801

1. Project and other related expenses in the UK reflect project costs associated with strategic initiatives, including developments designed to offer a wider range of products to customers, and the simplification of systems and processes. Expenses in the Netherlands reflect an overrun in Belgium following the acquisition of Swiss Life Belgium, and restructuring within the intermediary division.

2. Mortality experience continues to be better than the assumptions set across a number of our businesses.

3. Lapse experience has been volatile, in part reflecting wider economic volatility. In Poland, lapse experience continued to be better than the long-term assumptions for both life and pension products.

4. In France, other experience profits include the reduction in value arising from reductions in fees and commissions received. In Ireland, certain statutory provisions were increased following a review. The movement in the Netherlands reflects changes on group pension scheme contribution. In the USA, other experience reflects the cost of enhancing policyholder crediting rates.

5. In the Netherlands, expense assumptions have been updated following a review of expense allocations.

6. In UK, favourable mortality assumption changes are in respect of mortality and morbidity changes across a range of products. In the Netherlands, mortality assumption changes reflect the impact of using a new industry mortality basis.

7. In the UK, an additional lapse provision has been set up in anticipation of higher short-term recession related withdrawals (pre tax £50m) and higher mortgage and income protection claims (pre tax £20m) to reflect rising unemployment. In France, persistency assumptions have been weakened following continual favourable experience on AFER products.

8. In the UK, other operating assumption changes include the impact of the with-profit special distribution. In Ireland, other assumption changes reflect a reduction in the assumed future tax charges. In Poland, other assumptions reflect a change in the pattern of future mortality charging structure.

9. Other operating variances in France are mainly in respect of the impact of the mutualisation of funds following the merger of two legal entities. In the Netherlands, changes are mainly in respect of aligning the profit sharing policy for existing group business in Belgium, following the acquisition of Swiss Life Belgium.

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M4 - Geographical analysis of MCEV operating earnings continued

Gross of tax and minority interests Restated 2007	UK £m	France £m	Ireland £m	Italy £m	Nether-lands £m	Poland £m	Spain £m	Other Europe £m	Europe £m	North America £m	Asia £m	Australia £m	Asia Pacific £m	Total £m

Value of new business	278	144	37	77	8	48	181	7	502	52	49	16	65	897
Earnings from existing business
- expected existing business contribution (reference rate)	373	148	26	23	96	50	46	10	399	75	10	20	30	877
- expected existing business contribution (in excess of reference rate)	190	31	8	5	132	6	23	-	205	22	2	1	3	420
Experience variances
- maintenance expense	10	2	(3)	9	(6)	3	(1)	(5)	(1)	(21)	(1)	(3)	(4)	(16)
- project and other related expenses1	(87)	10	(4)	-	(16)	-	(3)	(8)	(21)	-	(1)	-	(1)	(109)
- mortality/ morbidity2	12	29	(1)	-	2	14	(4)	2	42	(3)	6	3	9	60
- lapses3	(11)	7	6	(15)	7	17	-	1	23	-	(11)	-	(11)	1
- other4	(24)	(24)	(6)	-	17	7	7	-	1	(27)	-	3	3	(47)
Operating assumption changes:
- maintenance expenses5	8	3	(1)	(1)	(9)	5	1	(10)	(12)	(29)	1	-	1	(32)
- project and other related expenses1	2	(1)	-	-	(7)	-	-	(11)	(19)	-	-	-	-	(17)
- mortality/ morbidity6	29	(2)	-	4	(34)	15	(13)	1	(29)	-	(9)	4	(5)	(5)
- lapses	(16)	1	-	1	4	12	(16)	3	5	(4)	(8)	(2)	(10)	(25)
- other7	(31)	134	-	4	(40)	(4)	-	(14)	80	9	(4)	-	(4)	54
Other operating variances8	93	86	23	40	147	8	14	4	322	51	11	8	19	485
Expected return on shareholders' net worth	(4)	-	-	(10)	15	-	(2)	3	6	(1)	-	-	-	1
Earnings before tax and minority interests	822	568	85	137	316	181	233	(17)	1,503	124	45	50	95	2,544

1. Project and other related expenses in the UK reflect project costs associated with strategic initiatives, including developments designed to offer simpler products to customers, and the simplification of systems and processes. In the Netherlands, project costs mainly represent one-off restructuring costs in the Dutch business.

2. Mortality experience continues to be better than the assumptions set across a range of businesses.

3. Lapse experience in Poland continues to be better than assumptions set across both Life and Pensions businesses.

4. Other experience profits reflect an accumulation of small items, including an increased allowance for operational risk in the USA.

5. Maintenance expense assumptions have been strengthened in the USA following investment to support the growth of the business, and in the Netherlands following a review of expenses.

6. Mortality assumptions in the UK reflect changes to the anti-selection loading on annuities. In the Netherlands, the mortality assumption strengthening reflected a partial implementation of a new industry mortality basis.

7. In France, other operating assumption changes reflect increased profitability driven by product development and the increased proportion of unit-linked assets within managed funds.

8. Other operating variances in the Netherlands relate to changes in asset management fees.

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Page 28

M4 - Geographical analysis of MCEV operating earnings continued

United Kingdom

Our operating profit for the year was up 7% to £883 million (2007 restated: £822 million) as we improved performance from our in-force book, maintained our focus on the control of persistency experience and continued to deliver on our efficiency saving commitments.

Our continued focus on retention initiatives have enabled us to contain our lapse experience to a loss of £23 million, against a backdrop of changes to capital gains tax rules for bonds and the prevailing economic climate. Furthermore we have established an additional provision of £50 million in anticipation of higher short-term recession related withdrawals and a further £20 million in relation to higher mortgage and income protection claims to reflect rising unemployment.

The adverse expense experience variance was halved in 2008 leaving us on track to achieve our commitment to a zero cost overrun in 2009. In 2008 we achieved £60 million of the £100 million annualised cost savings target announced in October 2007 with £40 million included in the results for the year. The outsourcing of administration to WNS, Swiss Re, Scottish Friendly and IFDS contributed to a reduced and more flexible cost base and allowed us to decommission over 200 systems.

Europe

Operating earnings increased by 9% to £1,638 million (2007 restated: £1,503 million). The strengthening of the euro and the Polish Zloty has had a favourable impact on the result. On a local currency basis operating earnings reduced by 6% which was due to a strengthening of allowances for annuitant mortality in the Netherlands and negative experience variances due to the worsening economic climate. This was partly offset by growth across our central and eastern European operations generating increased value of new business in these growing markets and higher expected returns.

In France, operating earnings were £692 million (2007 restated: £568 million) reflecting higher expected earnings, and the one-off favourable assumption changes of £71 million on savings business following a detailed review of lapse rates. Furthermore, operating profit benefitted by £104 million from the one-off mutualisation of funds following the merger of two legal entities.

In Ireland, operating earnings reduced by 8% to £78 million (2007 restated: £85 million), driven by a lower value of new business and a larger negative experience variance. The impact of this is partially offset by the strengthening of the euro.

In Italy, operating earnings decreased by 4% to £131 million (2007 restated: £137 million) largely reflecting an adverse experience variance as we prudently made provisions to support customers affected by counterparty defaults on structured bond products.

In the Netherlands, operating earnings of £187 million (2007 restated: £316 million) primarily reflects the lower value of new business due to the large corporate pension schemes and strengthening of annuitant mortality.

In Poland, operating earnings increased by 33% to £241 million (2007 restated: £181 million), driven by higher expected return and increased value of new business.

Operating earnings in Spain were £286 million (2007 restated: £233 million) driven by increased value of new business, partially offset by negative experience variances and assumptions relating to deteriorating lapse experience in the current economic climate.

Operating earnings from our central and eastern European businesses was a £23 million profit (2007 restated: £17 million loss). This excellent performance reflects the increased value of new business and higher expected returns generated in these growing markets, which we are confident offer further potential.

North America

Operating earnings were £201 million (2007 restated: £124 million), an increase of 62% driven by improved value of new business, higher expected return from widening credit spreads and less adverse operating assumption changes.

Asia Pacific

Our businesses in Asia Pacific reported a 17% decline in operating earnings to £79 million (2007 restated: £95 million). In Australia, operating earnings of £48 million (2007 restated: £50 million) slightly decreased from prior year. Operating earnings for Asia of £31 million (2007 restated: £45 million) driven by lower value of new business and higher lapses in India, offset by lapse improvements in Hong Kong.

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Page 29

M4 - Geographical analysis of MCEV operating earnings continued

Net of tax and minority interests 2008	UK £m	France £m	Ireland £m	Italy £m	Nether-lands £m	Poland £m	Spain £m	Other Europe £m	Europe £m	North America £m	Asia £m	Australia £m	Asia Pacific £m	Total £m
Value of new business	147	79	10	21	(67)	46	80	24	193	36	24	9	33	409
Earnings from existing business
- expected existing business contribution (reference rate)	244	115	26	9	74	64	23	15	326	56	10	18	28	654
- expected existing business contribution (in excess of reference rate)	151	24	5	2	68	6	9	-	114	35	2	1	3	303
Experience variances
- maintenance expense	15	1	(1)	(2)	(22)	4	-	(1)	(21)	-	(3)	-	(3)	(9)
- project and other related expenses	(45)	(7)	(5)	-	(18)	-	(4)	(5)	(39)	(9)	-	-	-	(93)
- mortality/ morbidity	13	26	1	1	12	15	-	1	56	-	4	1	5	74
- lapses	(17)	(4)	(5)	(5)	(1)	18	(10)	(9)	(16)	(2)	(3)	2	(1)	(36)
- other	5	(29)	(27)	(6)	29	(6)	1	(1)	(39)	(20)	(1)	(8)	(9)	(63)
Operating assumption changes:
- maintenance expenses	(11)	(8)	(1)	(3)	(109)	3	-	(10)	(128)	(3)	(3)	-	(3)	(145)
- project and other related expenses1	9	-	-	-	4	-	-	-	4	-	-	-	-	13
- mortality/ morbidity	39	-	16	4	(77)	3	(1)	-	(55)	-	1	(1)	-	(16)
- lapses	(53)	65	4	(3)	-	(8)	(7)	(16)	35	-	(10)	1	(9)	(27)
- other	12	-	15	1	(13)	18	-	11	32	-	(8)	4	(4)	40
Expected return on shareholders' net worth	119	66	23	20	145	10	10	6	280	39	8	6	14	452
Other operating variances	7	98	(11)	(1)	104	(1)	(4)	2	187	-	3	-	3	197
Earnings after tax and minority interests	635	426	50	38	129	172	97	17	929	132	24	33	57	1,753

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Page 30

M4 - Geographical analysis of MCEV operating earnings continued

Net of tax and minority interests Restated 2007	UK £m	France £m	Ireland £m	Italy £m	Nether-lands £m	Poland £m	Spain £m	Other Europe £m	Europe £m	North America £m	Asia £m	Australia £m	Asia Pacific £m	Total £m
Value of new business	195	81	26	20	3	34	57	4	225	34	39	11	50	504
Earnings from existing business
- expected existing business contribution (reference rate)	261	90	17	6	66	36	18	8	241	48	9	14	23	573
- expected existing business contribution (in excess of reference rate)	133	20	5	1	95	5	9	-	135	14	1	1	2	284
Experience variances
- maintenance expense	7	1	(2)	3	(3)	2	-	(4)	(3)	(13)	(1)	(2)	(3)	(12)
- project and other related expenses	(61)	6	(3)	-	(13)	-	(1)	(7)	(18)	-	(1)	-	(1)	(80)
- mortality/ morbidity	8	18	(1)	-	(1)	10	(3)	2	25	(2)	4	2	6	37
- lapses	(9)	5	4	(5)	4	13	(1)	1	21	-	(9)	-	(9)	3
- other	(17)	(14)	(4)	1	12	5	5	1	6	(18)	2	1	3	(26)
Operating assumption changes:
- maintenance expenses	6	(2)	(2)	-	(12)	4	-	(8)	(20)	(19)	1	-	1	(32)
- project and other related expenses	1	(1)	-	-	(3)	-	-	(9)	(13)	-	-	-	-	(12)
- mortality/ morbidity	20	(1)	-	1	(24)	11	(5)	2	(16)	-	(7)	3	(4)	-
- lapses	(11)	-	-	-	2	8	(7)	3	6	(3)	(7)	(1)	(8)	(16)
- other	(22)	85	-	2	(23)	(4)	-	(11)	49	6	(3)	-	(3)	30
Expected return on shareholders' net worth	66	53	15	12	103	5	6	3	197	33	6	6	12	308
Other operating variances	(2)	-	-	(3)	11	-	(3)	3	8	-	-	-	-	6
Earnings after tax and minority interests	575	341	55	38	217	129	75	(12)	843	80	34	35	69	1,567

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Page 31

M5 - Geographical analysis of fund management operating earnings

The summarised consolidated income statement - MCEV basis, includes earnings from the group's fund management operations as analysed below. As explained in note M21, this excludes the proportion of the results of Aviva Investors fund management businesses and other fund management operations within the Group that arise from the provision of fund management services to our Life businesses. These results are included within the Life MCEV operating earnings.

	2008 £m	2007 £m
United Kingdom	34	40
Europe	9	15
North America	(3)	3
Asia Pacific	1	6
Aviva Investors	41	64
United Kingdom	(18)	(10)
Netherlands	2	17
Other Europe	4	4
Asia Pacific	13	15
Total	42	90

M6 - Analysis of other operations and regional costs

Where subsidiaries provide services to our life business, that proportion has been excluded. These results are included within the life MCEV operating return.

	2008			Restated 2007
	Regional costs £m	Other operations £m	Total £m	Regional costs £m	Other operations £m	Total £m
United Kingdom	-	(12)	(12)	-	(8)	(8)
Europe	(28)	(88)	(116)	(11)	(34)	(45)
North America	(14)	2	(12)	(2)	(2)	(4)
Asia Pacific	(23)	-	(23)	(13)	-	(13)
Total	(65)	(98)	(163)	(26)	(44)	(70)

M7 - Economic variances on long-term business

Economic variances reflect the impact of actual investment experience differing from the investment returns, (including risk premia) assumed in operating profit, and the impact of changes in economic assumptions.

The pre tax loss of £12,422 million was driven by credit spreads widening significantly, particularly in the final quarter of 2008, equity markets reducing by between 30% and 50% and risk free rates reducing significantly. The poor economic conditions had an adverse impact on net worth, but a greater adverse impact on the value of future profits. The loss includes the impact of the grossing up at the local corporation tax rates.

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Page 32

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Page 33

M8 - Consolidated statement of recognised income and expense - MCEV basis

For the year ended 31 December 2008

2008 €m			2008 £m	Restated 2007 £m
(348)		Fair value (losses)/gains on AFS securities, owner-occupied properties and hedging instruments	(278)	45
(10)	Fair value gains transferred to profit		(8)	(12)
(1,161)	Actuarial (losses)/gains on pension schemes		(929)	648
98	Actuarial gains/(losses) on pension schemes transferred to unallocated divisible surplus and other movements		78	(61)
101	Impairment losses		81	-
3,741	Foreign exchange rate movements		2,993	1,159
83		Aggregate tax effect - shareholder tax	66	(246)
2,504		Net income recognised directly in equity	2,003	1,533
(9,638)	(Loss)/profit for the period		(7,710)	1,946
(7,134)		Total recognised (expense)/income for the period	(5,707)	3,479
		Attributable to:
(7,889)	Equity shareholders of Aviva plc		(6,311)	3,044
755	Minority interests		604	435
(7,134)			(5,707)	3,479

M9 - Reconciliation of movements in shareholders' equity - MCEV basis

For the year ended 31 December 2008

2008 €m		2008 £m	Restated 2007 £m
24,422	Balance at 1 January	23,689	20,443
(5,884)	Total recognised (expense)/income for the year	(5,707)	3,479
(1,005)	Dividends and appropriations	(975)	(871)
21	Issues of share capital	20	48
175	Shares issued in lieu of dividends	170	301
37	Capital contributions from minority shareholders	36	-
(109)	Minority share of dividends declared in the year	(106)	(66)
44	Minority interest in acquired subsidiaries	43	315
(67)	Changes in minority interest in existing subsidiaries	(65)	-
(30)	Shares acquired by employee trusts	(29)	(10)
40	Reserves credit for equity compensation plans	39	50
17,644	Total equity	17,115	23,689
(3,106)	Minority interests	(3,013)	(2,501)
14,538	Balance at 31 December	14,102	21,188

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Page 34

M10 - Summarised consolidated balance sheet - MCEV basis

For the year ended 31 December 2008

2008 €m			2008 £m	Restated 2007 £m
		Assets
3,689	Goodwill	3,578	3,082
4,163	Acquired value of in-force business and intangible assets	4,038	3,197
2,751	Additional value of in-force long-term business	2,669	7,758
1,791	Interests in, and loans to, joint ventures	1,737	2,576
1,285	Interests in, and loans to, associates	1,246	1,206
994	Property and equipment	964	942
14,872	Investment property	14,426	15,391
43,543	Loans	42,237	36,193
	Financial investments
154,902	Debt securities	150,255	121,312
44,692	Equity securities	43,351	58,829
37,233	Other investments	36,116	36,269
8,138	Reinsurance assets	7,894	8,054
2,724	Deferred tax assets	2,642	590
641	Current tax assets	622	376
10,119	Receivables and other financial assets	9,816	8,619
6,337	Deferred acquisition costs and other assets	6,147	4,487
3,878	Prepayments and accrued income	3,762	2,986
24,929	Cash and cash equivalents	24,181	16,089
1,598	Assets of operations classified as held for sale	1,550	1,128
368,279	Total assets	357,231	329,084
	Equity
685	Ordinary share capital	664	655
4,644	Capital reserves	4,505	4,494
3,648	Other reserves	3,539	1,179
(34)	Shares held by employee trusts	(33)	(10)
3,924	Retained earnings	3,806	6,338
444	Additional retained earnings on an MCEV basis	431	7,342
13,311	Equity attributable to ordinary shareholders of Aviva plc	12,912	19,998
1,227	Preference share capital and direct capital instruments	1,190	1,190
3,106	Minority interests	3,013	2,501
17,644	Total equity	17,115	23,689
	Liabilities
180,258	Gross insurance liabilities	174,850	152,839
110,886	Gross liabilities for investment contracts	107,559	98,244
2,397	Unallocated divisible surplus	2,325	6,785
7,132	Net asset value attributable to unitholders	6,918	6,409
3,076	Provisions	2,984	1,937
3,113	Deferred tax liabilities	3,020	2,532
662	Current tax liabilities	642	1,225
15,671	Borrowings	15,201	12,657
21,485	Payables and other financial liabilities	20,840	18,060
4,696	Other liabilities	4,556	3,765
1,259	Liabilities of operations classified as held for sale	1,221	942
350,635	Total liabilities	340,116	305,395
368,279	Total equity and liabilities	357,231	329,084

The summarised consolidated balance sheet presented above is unaltered from the corresponding IFRS summarised consolidated balance sheet, with the exception of the following:

1. Adding the excess of the Life MCEV, including minority interests, over the corresponding Life IFRS net assets represented as the additional value of in-force long-term business

2. Corresponding item within equity represented by the additional retained profit on an MCEV basis.

3. Corresponding adjustments to minority interests.

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Page 35

M11 - Reconciliation between shareholders' equity

2008	IFRS £m	Adjustment £m	MCEV £m
Ordinary share capital	664	-	664
Capital reserves	4,505	-	4,505
Other reserves	2,110	1,429	3,539
Shares held by employee trusts	(33)	-	(33)
Retained earnings	3,806	-	3,806
Additional retained earnings on an MCEV basis	-	431	431
Equity attributable to ordinary shareholders of Aviva plc	11,052	1,860	12,912
Preference share capital	200	-	200
Direct capital instruments	990	-	990
Minority interests	2,204	809	3,013
Total equity	14,446	2,669	17,115

Restated 2007	IFRS £m	Adjustment £m	MCEV £m
Ordinary share capital	655	-	655
Capital reserves	4,494	-	4,494
Other reserves	1,469	(290)	1,179
Shares held by employee trusts	(10)	-	(10)
Retained earnings	6,338	-	6,338
Additional retained earnings on an MCEV basis	-	7,342	7,342
Equity attributable to ordinary shareholders of Aviva plc	12,946	7,052	19,998
Preference share capital	200	-	200
Direct capital instruments	990	-	990
Minority interests	1,795	706	2,501
Total equity	15,931	7,758	23,689

M12 - Reconciliation of IFRS total equity to MCEV net worth

	2008 £m	Restated 2007 £m
Net assets on a statutory IFRS basis (note M14)	14,446	15,931
Less: general business and other net assets on an statutory IFRS net basis	2,135	(1,292)
Life and related businesses net assets on a statutory basis	16,581	14,639
Goodwill and other intangibles	(2,947)	(2,359)
Acquired value of in-force business	(2,490)	(1,790)
Adjustment for share of JVs & associates	(472)	(380)
Adjustment for assets to market value net of tax	1,474	335
Adjustment for DAC & DIR net of tax	(2,680)	(1,740)
Adjustment for differences in technical provisions	1,265	737
Other accounting and tax differences	78	938
MCEV net worth	10,809	10,380
MCEV value of in-force	5,580	9,716
MCEV1	16,389	20,096

1.Comprises embedded value of £14,089 million (2007: £18,248 million) and minority interest in long-term business assets of £2,300 million (2007: £1,848 million)

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Page 36

M13 - Group MCEV analysis of earnings

2008 (net of tax and minority interests)	Covered business1 £m A	Non- covered but related to life business2 £m B	Total life business3 £m A+B	Non-covered relating to non-life £m C	Total non- covered business £m B+C	Total £m A+B+C
Opening Group MCEV	18,248	2,059	20,307	881	2,940	21,188
Opening adjustments	-	-	-	-	-	-
Adjusted opening Group MCEV	18,248	2,059	20,307	881	2,940	21,188
Operating MCEV earnings	1,753	-	1,753	535	535	2,288
Non-operating MCEV earnings	(8,638)	(53)	(8,691)	(1,229)	(1,282)	(9,920)
Total MCEV earnings	(6,885)	(53)	(6,938)	(694)	(747)	(7,632)
Other movements in IFRS net equity	-	(28)	(28)	(994)	(1,022)	(1,022)
Capital and dividend flows	(63)	-	(63)	(712)	(712)	(775)
Foreign exchange variances	2,702	567	3,269	(926)	(359)	2,343
Acquired/divested businesses	87	94	181	(181)	(87)	-
Closing Group MCEV	14,089	2,639	16,728	(2,626)	13	14,102
Preference share capital and direct capital instruments						(1,190)
Equity attributable to ordinary shareholders of Aviva plc on an MCEV basis						12,912

Restated 2007 (net of tax and minority interests)	Covered business1 £m A	Non-covered but related to life business2 £m B	Total life business3 £m A+B	Non-covered relating to non-life £m C	Total non- covered business £m B+C	Total £m A+B+C
Opening Group MCEV	16,506	1,594	18,100	528	2,122	18,628
Opening adjustments	-	-	-	-	-	-
Adjusted opening Group MCEV	16,506	1,594	18,100	528	2,122	18,628
Operating MCEV earnings	1,567	-	1,567	309	309	1,876
Non-operating MCEV earnings	52	(33)	19	(191)	(224)	(172)
Total MCEV earnings	1,619	(33)	1,586	118	85	1,704
Other movements in IFRS net equity	-	124	124	316	440	440
Capital and dividend flows	(829)	-	(829)	347	347	(482)
Foreign exchange variances	851	61	912	(14)	47	898
Acquired/divested businesses	101	313	414	(414)	(101)	-
Closing Group MCEV	18,248	2,059	20,307	881	2,940	21,188
Preference share capital and direct capital instruments						(1,190)
Equity attributable to ordinary shareholders of Aviva plc on an MCEV basis						19,998

1. Covered business represents the business that the MCEV calculations cover, as detailed in the Basis of preparation note. The embedded value is presented net of minority interests and tax.

2. Non-covered but related to life business represents the adjustments to the MCEV, including goodwill, to calculate the long-term business net assets on an MCEV basis. An analysis of net assets on an MCEV basis gross of minority interests is provided on page 37.

3. Net assets for the total life businesses on an MCEV basis presented net of minority interests.

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Page 37

M14 - Segmentation of summarised consolidated balance sheet

	2008			Restated 2007
	Life and related businesses £m	General business and other £m	Group £m	Life and related businesses £m	General business and other £m	Group £m
Total assets before acquired value of in-force long-term business	305,562	46,634	352,196	278,677	40,951	319,628
Acquired additional value of in-force long-term business	2,366	-	2,366	1,698	-	1,698
Total assets included in the IFRS balance sheet	307,928	46,634	354,562	280,375	40,951	321,326
Liabilities of the long-term business	(291,347)	-	(291,347)	(265,736)	-	(265,736)
Liabilities of the general insurance and other businesses	-	(48,769)	(48,769)	-	(39,659)	(39,659)
Net assets on a statutory IFRS basis	16,581	(2,135)	14,446	14,639	1,292	15,931
Additional value of in-force long-term business1	2,669	-	2,669	7,758	-	7,758
Net assets on an MCEV basis2	19,250	(2,135)	17,115	22,397	1,292	23,689

Equity capital, capital reserves, shares held by employee trusts and other reserves			8,675			6,318
IFRS basis retained earnings			3,806			6,338
Additional MCEV basis retained earnings			431			7,342
Equity attributable to ordinary shareholders of Aviva plc on an MCEV basis			12,912			19,998
Preference share capital and direct capital instruments			1,190			1,190
Minority interests			3,013			2,501
MCEV basis total equity			17,115			23,689

1. The analysis between the Group's and minority interests' share of the additional value of in-force long-term business is as follows:

	2008	Restated 2007	Movement in period
Group's share included in shareholders' funds	431	7,342	(6,911)
Minority interests' share	809	706	103
Movements in AFS securities	1,429	(290)	1,719
Additional value of in-force long-term business	2,669	7,758	(5,089)

2. Analysis of net assets on an MCEV basis is made up as follows:

	2008	Restated 2007
Embedded value	14,089	18,248
Minority interests	2,300	1,848
	16,389	20,096
Goodwill and intangible assets allocated to long-term business3	2,947	2,359
Notional allocation of IAS19 pension fund deficit to long-term business4	(86)	(58)
Long-term business net assets on an MCEV basis	19,250	22,397

3. Goodwill and intangible assets includes amounts related to associated undertakings and joint ventures.

4. The value of the Aviva Staff Pension Schemes deficit has been notionally allocated between segments, based on current funding and the life proportion has been included within the long-term business net assets on an MCEV basis. The pension fund deficit notionally allocated to long-term business is net of the proportion of funding borne by the UK with-profit funds.

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Page 38

M15 - Analysis of life and pensions earnings

The following table provides an analysis of the movement in embedded value for covered business.
The analysis is shown separately for free surplus, required capital and the value of in-force covered business, and includes amounts transferred between these categories. Included within capital and dividend flows is the transfer to life and related businesses from other segments consisting of service company profits and losses during the reported period that have emerged from the value of in-force. Since the 'look through' into service companies includes only future profits and losses, these amounts must be eliminated from the closing embedded value. All figures are shown net of tax and minority interests.

	2008 £m				Restated 2007 £m
	Earnings on MCEV analysis				Earnings on MCEV analysis
	Free surplus	Required capital1	VIF	Total MCEV	Free surplus	Required capital1	VIF	Total MCEV
Opening MCEV	3,204	6,240	8,804	18,248	3,066	5,287	8,153	16,506
New business value	(1,867)	1,109	1,167	409	(1,432)	808	1,128	504
Expected existing business contribution (reference rate)	-	-	654	654	-	-	573	573
Expected existing business contribution (in excess of reference rate)	-	-	303	303	-	-	284	284
Transfers from VIF and required capital to the free surplus	1,926	(637)	(1,289)	-	1,683	(439)	(1,244)	-
Experience variances	154	3	(284)	(127)	271	(13)	(336)	(78)
Assumption changes	563	(114)	(584)	(135)	18	(8)	(40)	(30)
Expected return on shareholders' net worth	270	182	-	452	172	136	-	308
Other operating variance	44	(29)	182	197	2	12	(8)	6
Operating MCEV earnings	1,090	514	149	1,753	714	496	357	1,567
Economic variances	(3,140)	(433)	(4,833)	(8,406)	37	112	(97)	52
Other non-operating variances	(104)	19	(147)	(232)	-	-	-	-
Total MCEV (loss)/ earnings	(2,154)	100	(4,831)	(6,885)	751	608	260	1,619
Capital and dividend flows	(63)	-	-	(63)	(829)	-	-	(829)
Foreign exchange variance	459	1,597	646	2,702	172	308	371	851
Acquired/divested business	(98)	211	(26)	87	44	37	20	101
Closing MCEV	1,348	8,148	4,593	14,089	3,204	6,240	8,804	18,248

Required capital is shown net of implicit items permitted by local regulators to cover minimum solvency margins.

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Page 39

M16 - Free surplus emergence

	Existing business					New business			Total business
2008	Transfer from VIF to net worth £m	Return on net worth £m	Impact of experience variances and assumption changes on net worth £m	Release of required capital to free surplus £m	Total existing business surplus generation £m	Impact on net worth £m	Reduction in free surplus from required capital £m	Total new business surplus generation £m	Total free surplus generation £m
United Kingdom	403	119	736	85	1,343	(147)	(159)	(306)	1,037
Europe	619	280	(92)	325	1,132	(438)	(422)	(860)	272
North America	194	39	(24)	197	406	(118)	(475)	(593)	(187)
Asia Pacific	73	14	1	(12)	76	(55)	(53)	(108)	(32)
Total	1,289	452	621	595	2,957	(758)	(1,109)	(1,867)	1,090

	Existing business					New business			Total business
2007	Transfer from VIF to net worth £m	Return on net worth £m	Impact of experience variances and assumption changes on net worth £m	Release of required capital to free surplus £m	Total existing business surplus generation £m	Impact on net worth £m	Reduction in free surplus from required capital £m	Total new business surplus generation £m	Total free surplus generation £m
United Kingdom	549	66	225	57	897	(245)	(149)	(394)	503
Europe	537	197	42	118	894	(225)	(345)	(570)	324
North America	103	33	19	133	288	(107)	(280)	(387)	(99)
Asia Pacific	55	12	(4)	4	67	(47)	(34)	(81)	(14)
Total	1,244	308	282	312	2,146	(624)	(808)	(1,432)	714

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Page 40

M17 - Maturity profile of business

(a) Total in-force business

To show the profile of the VIF emergence, the value of VIF in the consolidated balance sheet has been split into five year tranches depending on the date when the profit is expected to emerge.

2008 £m	0-5	6-10	11-15	16-20	20+	Total gross of minority interest	Total net of minority interest
United Kingdom	634	542	385	279	213	2,053	2,053
Europe	1,560	1,200	741	447	411	4,359	3,380
North America	(66)	(245)	(238)	(211)	(342)	(1,102)	(1,102)
Asia Pacific	108	71	47	28	16	270	262
Total	2,236	1,568	935	543	298	5,580	4,593

2007 Restated £m	0-5	6-10	11-15	16-20	20+	Total gross of minority interest	Total net of minority interest
United Kingdom	1,574	1,209	615	345	524	4,267	4,267
Europe	2,200	1,170	736	412	332	4,850	3,946
North America	168	129	41	16	(24)	330	330
Asia Pacific	130	105	15	8	11	269	261
Total	4,072	2,613	1,407	781	843	9,716	8,804

(b) New business

To show the profile of the VIF emergence, the value of new business has been split into five year tranches depending on the date when the profit is expected to emerge.

2008 £m	0-5	6-10	11-15	16-20	20+	Total gross of minority interest	Total net of minority interest
United Kingdom	91	74	69	50	10	294	294
Europe	219	146	103	73	250	791	630
North America	112	45	8	1	(12)	154	154
Asia Pacific	48	17	10	5	10	90	89
Total	470	282	190	129	258	1,329	1,167

2007 Restated £m	0-5	6-10	11-15	16-20	20+	Total gross of minority interest	Total net of minority interest
United Kingdom	192	114	55	31	48	440	440
Europe	283	140	91	56	29	599	450
North America	85	61	6	(1)	(11)	140	140
Asia Pacific	46	41	5	3	4	99	98
Total	606	356	157	89	70	1,278	1,128

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Page 41

M18 - Segmental analysis of life and related business embedded value

	Net worth		VIF £m	Total Embedded value £m
2008	Free surplus £m	Required capital1 £m
United Kingdom	1,357	1,477	2,053	4,887
France2	(92)	1,567	1,044	2,519
Ireland	135	252	603	990
Italy	261	235	149	645
Netherlands (including Belgium and Germany)	(333)	2,284	159	2,110
Poland	115	134	979	1,228
Spain	143	225	287	655
Other Europe	43	34	159	236
Europe	272	4,731	3,380	8,383
North America3	(362)	1,528	(1,102)	64
Asia	72	159	193	424
Australia	9	253	69	331
Asia Pacific	81	412	262	755
Total	1,348	8,148	4,593	14,089

1. Required capital is shown net of implicit items permitted by local regulators to cover minimum solvency margins.

2. France, Netherlands and Aviva USA have a positive surplus on a statutory basis.

3. Aviva USA's holding company debt amounting to £1,128 million at 31 December 2008 has been included within non-covered business.

	Net worth		VIF £m	Total Embedded value £m
Restated 2007	Free surplus £m	Required capital1 £m
United Kingdom	1,255	1,389	4,267	6,911
France	28	1,280	1,228	2,536
Ireland	159	201	465	825
Italy	208	156	125	489
Netherlands (including Belgium and Germany)	1,247	1,713	856	3,816
Poland	111	116	816	1,043
Spain	61	175	334	570
Other Europe	32	24	122	178
Europe	1,846	3,665	3,946	9,457
North America2	(70)	946	330	1,206
Asia	124	53	190	367
Australia	49	187	71	307
Asia Pacific	173	240	261	674
Total	3,204	6,240	8,804	18,248

1. Required capital is shown net of implicit items permitted by local regulators to cover minimum solvency margins.

2. Aviva USA's holding company debt amounting to £349 million at 31 December 2007 has been included within non-covered business.

The shareholders' net worth is the market value of the shareholders' funds and the shareholders' interest in the surplus held in the non-profit component of the long-term business funds, determined on a statutory solvency basis and adjusted to add back any non-admissible assets. This is split between required capital, net of implicit items, and free surplus.

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Page 42

M19 - Risk allowance within present value of in-force (PVIF)

Within the VIF in the tables on page 41, there are additional allowances for risks not included within the basic present value of future profits calculation.

2008	PVFP £m	Frictional costs £m	Non-hedgeable risks £m	Time value of financial options and guarantees £m	VIF £m
United Kingdom	2,470	(176)	(165)	(76)	2,053
France	1,779	(174)	(147)	(414)	1,044
Ireland	637	(10)	(24)	-	603
Italy	196	(22)	(12)	(13)	149
Netherlands (including Belgium and Germany)	856	(246)	(132)	(319)	159
Poland	1,074	(14)	(73)	(8)	979
Spain	355	(18)	(32)	(18)	287
Other Europe	169	(4)	(4)	(2)	159
Europe	5,066	(488)	(424)	(774)	3,380
North America	(864)	(15)	(43)	(180)	(1,102)
Asia	262	(20)	(23)	(26)	193
Australia	132	(27)	(26)	(10)	69
Asia Pacific	394	(47)	(49)	(36)	262
Total	7,066	(726)	(681)	(1,066)	4,593

Restated 2007	PVFP £m	Frictional costs £m	Non-hedgeable risks £m	Time value of financial options and guarantees £m	VIF £m
United Kingdom	4,698	(183)	(154)	(94)	4,267
France	1,713	(132)	(126)	(227)	1,228
Ireland	491	(9)	(16)	(1)	465
Italy	160	(17)	(9)	(9)	125
Netherlands (including Belgium and Germany)	1,422	(263)	(67)	(236)	856
Poland	897	(15)	(60)	(6)	816
Spain	378	(17)	(22)	(5)	334
Other Europe	128	(3)	(3)	-	122
Europe	5,189	(456)	(303)	(484)	3,946
North America	581	(105)	(28)	(118)	330
Asia	210	(7)	(7)	(6)	190
Australia	123	(30)	(16)	(6)	71
Asia Pacific	333	(37)	(23)	(12)	261
Total	10,801	(781)	(508)	(708)	8,804

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Page 43

M20 - Implied discount rates (IDR)

In the valuation of a block of business, the implied discount rate is the rate of discount such that a traditional embedded value for the business equates to the MCEV.

The cashflows projected are the expected future cashflows including expected investment cashflows from equities, bonds and properties earning a risk premium in excess of risk free, statutory reserves and required capital. The risk premiums used are consistent with those used in the expected existing business contribution within operating earnings. As the risk premiums are positive, a discount rate higher than risk-free is required to give a value equal to the market-consistent embedded value.

Average derived risk discount rates are shown below for the embedded value.

	Total in-force business
	2008 %	2007 %
United Kingdom	7.9%	8.4%
France	6.4%	6.8%
Ireland	4.7%	6.2%
Italy	5.9%	6.5%
Netherlands (including Belgium and Germany)1	n/a	9.0%
Poland	6.0%	7.2%
Spain	9.7%	6.5%
Other Europe	9.8%	11.3%
Europe1	n/a	7.5%
North America1	n/a	14.3%
Asia	7.2%	9.5%
Australia	7.8%	9.1%
Asia Pacific	7.5%	9.4%
Total	n/a	8.0%

1. Where the value of in-force business is negative, an IDR cannot be calculated. Consequently an average total IDR is not meaningful.

M21 - Analysis of fund management and service company business within
embedded value

Aviva's MCEV methodology incorporates the impact of earnings arising from subsidiary undertakings providing administration, fund management and other services where these arise in relation to covered business. The principal subsidiaries of the Aviva Group providing such services include NU Life Services Limited (UK) and Aviva Investors. The following table provides an analysis of the elements within the life and other related business embedded value:

	2008			Restated 2007
	Fund management £m	Other operations £m	Total £m	Total £m
United Kingdom	162	(170)	(8)	2
France	164	48	212	186
Netherlands	131	(154)	(23)	33
United States1	209	-	209	84
Other	55	14	69	35
Total	721	(262)	459	340

1. Following the establishment of Aviva Investors the fund management portion of the US business has been separately identified.

The 'look-through' value attributable to fund management is based on the level of after-tax profits expected to be earned in the future over the outstanding term of the covered business in respect of services provided to the Group's life operations. The MCEV basis income statement excludes the actual statutory basis profits arising from the provision of fund management services to the Group's life businesses. The MCEV income statement records the experience profit or loss compared to the assumed profitability, the expected return on the in-force value and the effect on the in-force value of changes to economic assumptions.

In the United Kingdom, NU Life Services Limited (NULS) is the main provider of administration services to the UK Life business. NULS incurs substantially all of the UK businesses' operating expenditure, comprising acquisition, maintenance and project costs. Costs are recharged to the UK Life companies (the product companies) on the basis of predetermined Management Services Agreements (MSAs).

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Page 44

M22 - Summary of minority interest in life and related businesses' MCEV results

2008	France £m	Ireland £m	Italy £m	Nether-lands £m	Poland £m	Spain £m	Europe £m	Asia Pacific £m	Total £m	Share-holders' interest £m	Group £m
Value of new business, net of tax	9	3	27	12	7	85	143	-	143	409	552
Life MCEV operating earnings after tax	29	17	50	5	24	102	227	-	227	1,753	1,980
Life MCEV (loss)/earnings after tax	18	(21)	(30)	(22)	20	(72)	(107)	-	(107)	(6,885)	(6,992)
Closing covered businesses' embedded value	304	323	727	204	177	550	2,285	15	2,300	14,089	16,389

Restated 2007	France £m	Ireland £m	Italy £m	Nether-lands £m	Poland £m	Spain £m	Europe £m	Asia Pacific £m	Total £m	Share-holders' interest £m	Group £m
Value of new business, net of tax	14	6	27	3	5	70	125	1	126	504	630
Life MCEV operating earnings after tax	32	19	46	19	18	88	222	1	223	1,567	1,790
Life MCEV earnings after tax	24	15	66	13	22	57	197	3	200	1,619	1,819
Closing covered businesses' embedded value	235	266	551	158	154	472	1,836	12	1,848	18,248	20,096

There are no minority interests in the United Kingdom or North America.

M23 - Basis of preparation

When compliance with the European Insurance CFO Forum Market Consistent Embedded Value Principles (MCEV Principles), published in June 2008, is stated, those principles require the directors to prepare supplementary information in accordance with the methodology contained in the MCEV Principles and to disclose and explain any non-compliance with the guidance included in the MCEV Principles.

In preparing this supplementary information, the directors have done so in accordance with these MCEV Principles and have also fully complied with all the guidance included therein, with the exception of the use of an adjusted risk-free yield due to current market conditions for immediate annuities in the UK and Netherlands and all US contracts. Specifically, the directors have:

- determined assumptions on a realistic basis, having regard to past, current and expected future experience and to relevant external data, and then applied them consistently;

- made estimates that are reasonable and consistent; and,

Provided additional disclosures when compliance with the specific requirements of the MCEV Principles is insufficient to enable users to understand the impact of particular transactions, other events and conditions and the Group's financial position and financial performance.

Covered business

The MCEV calculations cover the following lines of business: life insurance, long-term health and accident insurance, savings, pensions and annuity business written by our life insurance subsidiaries, including managed pension fund business and our share of the other life and related business written in our associated undertakings and joint ventures, as well as the equity release business written in the UK.

Covered business includes the group's share of our joint ventures including our arrangement with The Royal Bank of Scotland Group (RBSG) and our associated undertakings in India, China, Turkey, Malaysia, Taiwan and South Korea.
In addition, the results of group companies providing significant administration, fund management and other services and of group holding companies have been included to the extent that they relate to covered business. Together these businesses are referred to as 'Life and related businesses'.

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Page 45

M23 - Basis of preparation continued

Adjusted risk-free rate

Aviva's MCEV methodology adopts the CFO Forum Principles and Guidance with the exception of the use of an adjusted risk-free yield due to current market conditions for UK and Netherlands immediate annuities and for immediate annuities, deferred annuities and all other contracts in the US. In stable markets, swap curves are an appropriate risk-free rate. However, in the current turbulent market it is possible, for products where backing asset portfolios can be held to maturity, to earn returns in excess of swaps by investing in corporate bonds and credit default swaps (CDS).

The reference rate for these products has been increased above the swap curve to estimate the additional returns available through replicating portfolios where backing assets can be held to maturity in the current market. Due to the limited availability of CDS assets, particularly at the long durations, this is a material area of judgement and sensitivity analysis has been provided on page 53 on the additions to the swap curves.

In current markets, adjustments have been made to the swap rate for UK and Netherlands immediate annuities and all US contracts. Details of adjustments can be found on page 49.

New business premiums

New business premiums include:

- premiums arising from the sale of new contracts during the period;

- non-contractual additional premiums, including future Department of Work and Pensions (DWP) rebate premiums; and

- expected renewals on new contracts and expected future contractual alterations to new contracts.

The Group's definition of new business under MCEV includes contracts that meet the definition of 'non-participating investment' contracts under IFRS.

For products sold to individuals, premiums are considered to represent new business where a new contract has been signed, or where underwriting has been performed. Renewal premiums include contractual renewals, non-contractual variations that are reasonably predictable and recurrent single premiums that are pre-defined and reasonably predictable.

For Group products, new business includes new contracts and increases to aggregate premiums under existing contracts. Renewal premiums are based on the level of premium received during the reporting period and allow for premiums expected to be received beyond the expiry of any guaranteed premium rates.

Life and pensions operating earnings

For life and pensions operating earnings, Aviva uses normalised investment returns, which are generally expressed as one year swap yields plus an asset risk premium. The use of asset risk premiums reflects management's long-term expectations of asset returns in excess of the swap yield from investing in different asset classes. This assumption does not impact the embedded value as asset risk premia are not recognised until earned.

MCEV methodology

Overview

Under the MCEV methodology, profit is recognised as it is earned over the life of products defined within covered business. The total profit recognised over the lifetime of a policy is the same as under the IFRS basis of reporting, but the timing of recognition is different.

Calculation of the embedded value

The shareholders' interest in the life and related businesses is represented by the embedded value. The embedded value is the total of the net worth of the life and related businesses and the value of in-force covered business. Calculations are performed separately for each business and are based on the cash flows of that business, after allowing for both external and intra-group reinsurance. Where one life business has an interest in another, the net worth of that business excludes the interest in the dependent company.

The embedded value is calculated on an after-tax basis applying current legislation and practice together with future known changes. Where gross results are presented, these have been calculated by grossing up post-tax results at the full rate of corporation tax for each country based on opening period tax rates.

Net worth

The net worth is the market value of the shareholders' funds and the shareholders' interest in the surplus held in the
non-profit component of the long-term business funds, determined on a statutory solvency basis and adjusted to add back any non-admissible assets, and consists of the required capital and free surplus.

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Page 46

M23 - Basis of preparation continued

Required capital is the market value of assets attributed to the covered business over and above that required to back liabilities for covered business, for which distribution to shareholders is restricted. Required capital is reported net of implicit items permitted on a local regulatory basis to cover minimum solvency margins which are assessed at a local entity level. The level of required capital for each business unit is set equal to the higher of:

- The level of capital at which the local regulator is empowered to take action;

- The capital requirement of the business unit under the Group's economic capitalrequirements; and,

- The target capital level of the business unit.

This methodology reflects the level of capital considered by the directors to be appropriate to manage the business. The same definition of required capital is used for both existing and new business.

The free surplus is the market value of any assets allocated to, but not required to support, the in-force covered business at the valuation date.

The level of required capital across the business units expressed as a percentage of the EU minimum solvency margin (or equivalent) can be found on page 50.

Value of in-force covered business (VIF)

The value of in-force covered business consists of the following components:

 present value of future profits;

 time value of financial options and guarantees;

 frictional costs of required capital; and,

 cost of residual non-hedgeable risks.

Present value of future profits (PVFP)

This is the present value of the distributable profits to shareholders arising from the in-force covered business projected on a best estimate basis.

Distributable profits generally arise when they are released following actuarial valuations. These valuations are carried out in accordance with any local statutory requirements designed to ensure and demonstrate solvency in long-term business funds. Future distributable profits will depend on experience in a number of areas such as investment return, discontinuance rates, mortality, administration costs, as well as management and policyholder actions. Releases to shareholders arising in future years from the in-force covered business and associated required capital can be projected using assumptions of future experience.

Future profits are projected using best estimate non-economic assumptions and market consistent economic assumptions. In principle, each cash flow is discounted at a rate that appropriately reflects the riskiness of that cash flow, so higher risk cash flows are discounted at higher rates. In practice, the PVFP is calculated using the 'certainty equivalent' approach, under which the reference rate is used for both the investment return and the discount rate. This approach ensures that asset cash flows are valued consistently with the market prices of assets without options and guarantees. Further information on the risk-free rates is given in note M24.

The PVFP includes the capitalised value of profits and losses arising from subsidiary companies providing administration, investment management and other services to the extent that they relate to covered business. This is referred to as the 'look through' into service company expenses. In addition, expenses arising in holding companies that relate directly to acquiring or maintaining covered business have been allowed for. Where external companies provide services to the life and related businesses, their charges have been allowed for in the underlying projected cost base.

Time value of financial options and guarantees (TVOG)

The PVFP calculation is based on a single (base) economic scenario. However, a single scenario cannot appropriately allow for the effect of certain product features. If an option or guarantee affects shareholder cash flows in the base scenario, the impact is included in the PVFP and is referred to as the intrinsic value of the option guarantee.

However, future investment returns are uncertain and the actual impact on shareholder profits may be higher or lower. The value of in-force business needs to be adjusted for the impact of the range of potential future outcomes. Stochastic modelling techniques can be used to assess the impact of potential future outcomes, and the difference between the intrinsic value and the total stochastic value is referred to as the time value of the option or guarantee.

Stochastic modelling typically involves projecting the future cash flows of the business under thousands of economic scenarios that are representative of the possible future outcomes for market variables such as interest rates and equity returns. Under a market consistent approach, the economic scenarios generated reflect the market's tendency towards risk aversion. Allowance is made, where appropriate, for the effect of management and/or policyholder actions in different economic conditions on future assumptions such as asset mix, bonus rates and surrender rates.

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Page 47

M23 - Basis of preparation continued

Stochastic models are calibrated to market yield curves and volatility levels at the valuation date. Tests are performed to confirm that the scenarios used produce results that replicate the market price of traded instruments.

Where evidence exists that persistency rates are linked to economic scenarios, dynamic lapse assumptions are set that vary depending on the individual scenarios. This cost is included in the TVOG. Dynamic lapses are modelled for parts of the US and French business. Asymmetries in non-economic assumptions that are linked to economic scenarios, but that have insufficient evidence for credible dynamic assumptions, are allowed for within mean best estimate assumptions.

Frictional costs of required capital

The additional costs to a shareholder of holding the assets backing required capital within an insurance company rather than directly in the market are called frictional costs. They are explicitly deducted from the PVFP. The additional costs allowed for are the taxation costs and any additional investment expenses on the assets backing the required capital. The level of required capital has been set out above in the net worth section.

Frictional costs are calculated by projecting forwards the future levels of required capital. Tax on investment return and investment expenses are payable on the assets backing required capital up until the point that they are released to shareholders.

Cost of residual non-hedgeable risks (CNHR)

The cost of residual non-hedgeable risks (CNHR) covers risks not already allowed for in the time value of options and guarantees or the PVFP. The allowance includes the impact of both non-hedgeable financial and non-financial risks. The most significant risk not included in the PVFP or TVOG is operational risk.

Aviva's methodology includes a cost of non-hedgeable risk equivalent to a charge of 2.5% applied to group-diversified capital. The cost has been calculated as a 1.5% charge applied to business unit-level capital, that is, allowing for diversification within a business unit, but not between business units. The charge was set so as to give an aggregate allowance that was in excess of the expected operational risk costs arising from the in-force covered business over its remaining lifetime.

The capital levels used are projected to be sufficient to cover non-hedgeable risks at the 99.5% confidence level one-year after the valuation date. The capital is equal to the capital from the ICA results for those risks considered. The capital has been projected as running off over the remaining life of the in-force portfolio in line with the drivers of the capital requirement.

In addition to the operational risk allowance, financial non-hedgeable risks and other product level asymmetries have been allowed for. These allowances are not material as significant financial non-hedgeable risks and product level asymmetries are either modelled explicitly and included in the TVOG or are included in the PVFP through the use of appropriate best estimate assumptions. Asymmetric risks allowed for in the TVOG or PVFP are described earlier in the Basis of Preparation. No allowance has been made within the cost of non-hedgeable risk for symmetrical risks as these are diversifiable by investors.

Participating business

Future regular bonuses on participating business are projected in a manner consistent with current bonus rates and expected future market-consistent returns on assets deemed to back the policies.

For with-profit funds in the UK and Ireland, for the purpose of recognising the value of the estate, it is assumed that terminal bonuses are increased to exhaust all of the assets in the fund over the future lifetime of the in-force with-profit policies. However, under stochastic modelling there may be some extreme economic scenarios when the total assets in the Group's with-profit funds are not sufficient to pay all policyholder claims. The average additional shareholder cost arising from this shortfall has been included in the TVOG.

For profit sharing business in continental Europe, where policy benefits and shareholder value depend on the timing of realising gains, the apportionment of unrealised gains between policyholders and shareholders reflect contractual requirements as well as existing practice. Under certain economic scenarios where additional shareholder injections are required to meet policyholder payments, the average additional cost has been included in the TVOG.

The embedded value of the US spread-based products anticipates the application of management discretion allowed for contractually within the policies, subject to contractual guarantees. This includes the ability to change the crediting rates and indexed strategies available within the policy. Consideration is taken of the economic environment assumed in future projections and returns in excess of the reference rate are not assumed. Anticipated market and policyholder reaction to management action has been considered. The anticipated management action is consistent with current decision rules and has been approved and signed off by management and legal counsel.

Consolidation adjustments

The effect of transactions between group life companies such as loans and reinsurance arrangements have been included in the results split by territory in a consistent manner. No elimination is required on consolidation.

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Page 48

M23 - Basis of preparation continued

As the MCEV methodology incorporates the impact of profits and losses arising from subsidiary companies providing administration, investment management and other services to the Group's life companies, the equivalent profits and losses have been removed from the relevant segment (non-insurance or fund management) and are instead included within the results of life and related businesses. In addition, the underlying basis of calculation for these profits has changed from the IFRS basis to the MCEV basis.

The capitalised value of the future profits and losses from such service companies are included in the embedded value and value of new business calculations for the relevant business, but the net assets (representing historical profits and other amounts) remain under non-insurance or fund management. In order to reconcile the profits arising in the financial period within each segment with the assets on the opening and closing balance sheets, a transfer of IFRS profits from life and related business to the appropriate segment is deemed to occur. An equivalent approach has been adopted for expenses within our holding companies.

The assessments of goodwill, intangibles and pension schemes relating to life insurance business utilise the IFRS measurement basis.

Exchange rates

The Group's principal overseas operations during the period were located within the Eurozone and the United States.

The results and cash flows of these operations have been translated at the average rates for that period and the assets and liabilities have been translated at the period end rates as follows:

	2008	2007
Eurozone
- Average rate (€1 equals)	£0.80	£0.68
- Period end rate (€1 equals)	£0.97	£0.73
United States
- Average rate (US$1 equals)	£0.54	£0.50
- Period end rate (US$1 equals)	£0.69	£0.50

M24 - Principal economic assumptions

(a) Economic assumptions - Deterministic calculations

Economic assumptions are derived actively, based on market yields on risk-free fixed interest assets at the end of each reporting period.

In setting the risk-free rate we have, wherever possible used the mid-price swap yield curve for an AA-rated bank.

The curve is extrapolated if necessary to get rates suitable to the liabilities. For markets in which there is no reliable swap yield curve the relevant government bond yields are used.

Required capital is shown as a multiple of the EU statutory minimum solvency margin or equivalent.

The adjustments made to swap rates to derive a risk-free rate for UK and Netherlands immediate annuities and immediate annuities, deferred annuities and all other US business are shown below the reference rate table.

The principal economic assumptions used are as follows:

Reference rate and expense inflation

	United Kingdom		Eurozone (excluding the Netherlands)
	2008	2007	2008	2007
Reference rate - term 1 year	2.8%	5.7%	2.5%	4.8%
Reference rate - term 5 years	3.2%	5.1%	3.3%	4.6%
Reference rate - term 10 years	3.5%	5.0%	3.8%	4.7%
Reference rate - term 15 years	3.8%	4.9%	3.9%	4.9%
Reference rate - term 20 years	3.8%	4.8%	3.9%	4.9%
Expense inflation	3.5%	3.6%	2.1%	2.9%

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M24 - Principal economic assumptions continued

	Netherlands1		Poland


	2008	2007	2008	2007
Reference rate - term 1 year	2.5%	4.7%	4.4%	6.2%
Reference rate - term 5 years	3.3%	4.6%	4.3%	5.8%
Reference rate - term 10 years	3.8%	4.7%	4.2%	5.5%
Reference rate - term 15 years	4.0%	4.9%	4.1%	5.4%
Reference rate - term 20 years	3.9%	5.0%	4.0%	5.4%
Expense inflation	2.5%	3.0%	2.9%	4.7%

	United States
	2008	2007
Reference rate - term 1 year	1.3%	4.2%
Reference rate - term 5 years	2.2%	4.2%
Reference rate - term 10 years	2.6%	4.7%
Reference rate - term 15 years	2.9%	4.9%
Reference rate - term 20 years	2.9%	5.0%
Expense inflation	3.0%	3.5%

1. The economic assumptions used in the Netherlands differ from those in the Eurozone as the Dutch bank swap rate is used in the Netherlands.

For service companies, expense inflation relates to the underlying expenses rather than the fees charged to the life company.

In current markets, the following adjustments are made to the swap rate for UK and Netherlands immediate annuities and all US contracts. The risk-free rate is taken as the swap yield curve for the currency of the liability, adjusted by:

				New business	Embedded value
	Fourth Quarter 2008	Third Quarter 2008	First half 2008	Second half 2007	2008	2007
UK and Netherlands immediate annuities	1.45%	0.85%	0.55%	0.25%	1.50%	0.50%
US immediate annuities	2.00%	0.65%	0.55%	0.25%	3.00%	0.50%
US deferred annuities and all other contracts	1.50%	0.65%	0.55%	0.25%	2.50%	0.50%

Risk premium - used for operating profit, Implied Discount Rates (IDR), Internal Rates of Return (IRR) and payback period

For life and pensions operating earnings, Aviva uses normalised investment returns, which are generally expressed as one year swap returns plus an asset risk premium. The use of asset risk premia only impacts operating earnings as expected returns reflect management's long-term expectations of asset returns in excess of the reference rate from investing in different asset classes. This assumption does not impact the balance sheet embedded value or value of new business as asset risk premia are not recognised until earned. The asset risk premia set out in the table below are added to the one year swap rate to calculate expected returns.

	All territories
	2008	2007
Equity risk premium	3.5%	3.5%
Property risk premium	2.0%	2.0%

Future returns on corporate fixed interest investments are calculated from prospective yields less an adjustment for credit risk.

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M24 - Principal economic assumptions continued

Required capital and tax

	Tax rates1		Required capital (% EU minimum or equivalent)
	2008	2007	2008	2007
United Kingdom1	28.0%	28.0%	100% / 110%	100% / 110%
France	34.4%	34.4%	110%	110%
Ireland	12.5%	12.5%	150%	150%
Italy2	32.4%	32.4%	115% / 184%	115% / 184%
Netherlands3	25.5%	25.5%	168%	188%
Poland	19.0%	19.0%	150%	150%
Spain4	30.0%	30.0%	110% / 125%	110% / 125%
United States	35.0%	35.0%	325%	325%

1. The required capital in the United Kingdom under MCEV is 100% for unit-linked and other non-participating business and 110% for annuity business

2. Required capital in Italy under MCEV is 184% of the EU minimum for Eurovita and 115% for other companies

3. Required capital in the Netherlands is 168%. This capital level is the aggregate capital required for the Netherlands.

4. Required capital in Spain is 125% of the EU minimum for Aviva Vida y Pensiones and 110% for bancassurance companies.

5. Current tax legislation and rates have been assumed to continue unaltered except where changes in future tax rates have been announced.

Other economic assumptions

Required capital relating to with-profit business is assumed to be covered by the surplus within the with-profit funds and no effect has been attributed to shareholders. Bonus rates on participating business have been set at levels consistent with the economic assumptions. The distribution of profit between policyholders and shareholders within the with-profit funds assumes that the shareholder interest in conventional with-profit business in the United Kingdom and Ireland continues at the current rate of one-ninth of the cost of bonus.

(b) Economic Assumptions - Stochastic calculations

The calculation of time value of options and guarantees allows for expected management and policyholder actions in response to varying future investment conditions. The management actions modelled include changes to asset mix, bonus rates and rates of interest and other guarantees granted to policyholders. Modelled policyholder actions are described under 'Other assumptions'.

The embedded value of the US spread based products anticipates the application of management discretion allowed for contractually within the policies, subject to contractual guarantees. This includes the ability to change the crediting rates and indexed strategies available within the policy. Consideration is taken of the economic environment assumed in future projections and returns in excess of the reference rate are not assumed. Anticipated market and policyholder reaction to management action has been considered. The anticipated management action is consistent with current decision rules and has been approved and signed off by management and legal counsel.

Model - United Kingdom, Europe (excluding Delta Lloyd) and North America

Swap rates are generated by a model, the Libor Market Model (LMM), that projects a full swap curve at monthly intervals. Forward rates are assumed to have a log-normal distribution which guarantees non-negative interest rates. The model is calibrated to at-the-money swaptions of a variety of terms and tenors. Swaption volatilities are taken from Bloomberg. Tests have been performed to ensure that sufficient scenarios have been used that the result converges to the stochastic value of the business being valued.

The total annual return on equities is calculated as the return on one-year swaps plus an excess return. This excess return is modelled using a log-normal model where volatility varies by time horizon. This allows the model to capture the term structure of implied volatilities. The model is calibrated to at-the-money options of a variety of terms. Option volatilities are taken from a survey of investment banks.

The model also generates property total returns and real yield curves, although these are not significant asset classes for Aviva outside the UK. In the absence of liquid market data, the volatilities of these asset classes are based on historic data.

Assumptions for correlations between asset classes have been set based on historic data.

Model - Netherlands

In the Netherlands, yield curves are based on De Nederlandsche Bank (DNB) yield curve data.

The interest rate model used is a short rate G2++ model. The model is calibrated to the DNB yield curve and the swaption implied volatilities. Swaption implied volatilities are taken from Bloomberg.

The equity model is a Heston model. The model considers an equity volatility surface in the market and covers strike levels between 0.8 and 1.2. The model is calibrated to the same DNB curves used in interest rate model. The option volatilites used for year-end 2007 are DJ Eurostoxx 50-quotes taken from Bloomberg. For 2008 the model was calibrated to DJ Eurostoxx 50-quotes (end August 2008) provided by a market maker.

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M24 - Principal economic assumptions continued

The inflation model used is based on the standard Jarrow-Yildirim inflation model which connects real and nominal yields and an inflation index. This is calibrated to ZCII quotes on HICPxT-index.

Asset classes

The significant asset classes for UK participating business are equities, property and long-term fixed rate bonds. The most significant assumption is the distribution of future long-term interest rates, since this is the most important factor in the cost of guaranteed annuity options.

For many businesses, including US, France and Netherlands, the most important assets are fixed rate bonds of various durations.

Summary statistics

Swaption implied volatilities

The implied volatility is that determined by Black-Scholes' formula to reproduce the market price of the option. The following table sets out the model swaption implied volatilities.

	20081 Swap length				2007 Swap length
Option length	10 years	15 years	20 years	25 years	10 years	15 years	20 years	25 years
UK sterling
10 years	n/a	n/a	11.8%	n/a	n/a	n/a	10.9%	n/a
15 years	n/a	n/a	11.9%	n/a	n/a	n/a	10.8%	n/a
20 years	n/a	n/a	12.1%	n/a	n/a	n/a	10.8%	n/a
25 years	n/a	n/a	12.4%	n/a	n/a	n/a	10.9%	n/a
Euro
10 years	11.7%	11.7%	11.7%	11.8%	11.7%	11.1%	10.6%	10.3%
15 years	10.9%	10.9%	10.4%	10.9%	11.4%	10.9%	10.5%	10.2%
20 years	10.5%	10.4%	10.4%	10.3%	10.6%	10.2%	9.9%	9.7%
25 years	10.0%	10.0%	9.9%	9.5%	10.3%	9.9%	9.6%	9.4%
Netherlands
10 years	11.6%	11.6%	11.7%	11.7%	11.1%	10.9%	10.7%	10.7%
15 years	10.8%	10.7%	10.6%	10.8%	10.7%	10.4%	10.2%	10.3%
20 years	10.5%	10.3%	10.2%	10.3%	10.3%	10.0%	9.8%	9.8%
25 years	10.0%	9.8%	9.8%	9.7%	10.1%	9.8%	9.4%	9.4%
US dollar
10 years	15.2%	14.4%	14.0%	14.0%	17.1%	15.0%	13.4%	12.2%
15 years	13.9%	13.0%	12.8%	12.7%	15.0%	13.2%	11.9%	10.9%
20 years	13.3%	12.4%	12.1%	12.1%	13.3%	11.8%	10.7%	10.0%
25 years	12.9%	11.9%	11.6%	11.7%	12.4%	11.2%	10.3%	9.8%

Equity implied volatilities

The implied volatility is that determined by the Black-Scholes' formula to reproduce the market price of the option. The following tables sets out the model equity implied volatilities.

20081	Country
Option length	UK	France	Italy	Ireland	Netherlands	Spain	US
5 years	25.8%	24.9%	24.4%	24.5%	26.1%	26.3%	24.6%
10 years	27.2%	26.3%	n/a	26.2%	26.8%	28.8%	27.3%
15 years	27.7%	n/a	n/a	27.0%	27.1%	n/a	25.9%

2007	Country
Option length	UK	France	Italy	Ireland	Netherlands	Spain	US
5 years	23.7%	26.2%	23.7%	24.6%	26.5%	25.5%	23.4%
10 years	25.2%	27.5%	26.0%	26.7%	28.9%	27.2%	25.1%
15 years	25.8%	29.1%	26.0%	28.2%	29.5%	28.3%	27.0%

1. Volatilities are calibrated to end August 2008

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M24 - Principal economic assumptions continued

Property implied volatilities

Best estimate levels of volatility have been used, in the absence of meaningful option prices from which implied levels of volatility can be derived.

For the UK and the Netherlands, model property implied volatility is 15% for 31 December 2008
(31 December 2007 :15%).

Demographic assumptions

Assumed future mortality, morbidity and lapse rates have been derived from an analysis of Aviva's recent operating experience with a view to giving a best estimate of future experience. We have anticipated future changes in experience where that is appropriate, e.g. we have allowed for improvements in future policyholder longevity.

We have set the assumptions based on a best estimate of outcome of shareholder outcomes. In particular, where the policyholder behaviour varies with economic experience, we have set assumptions which are dynamic, i.e. vary depending on the economic assumptions. For example, surrender and option take up rate assumptions that vary according to the investment scenario under consideration have been used in the calculation of the time value of options and guarantees, based on our assessment of likely policyholder behaviour in different investment scenarios.

Additionally, where demographic experience is not driven by economic scenarios but is asymmetric on a stand-alone basis, the best estimate assumption considers the weighted-average expected experience, not simply the median or most likely outcome.

Expense assumptions

Management expenses and operating expenses of holding companies attributed to life and related businesses have
been included in the MCEV calculations and split between expenses relating to the acquisition of new business,
the maintenance of business in-force and project expenses. Future expense assumptions include an allowance
for maintenance expenses and a proportion of recurring project expenses. Certain expenses of an exceptional nature, when they occur, are identified separately and are generally charged as incurred. No future productivity gains have been anticipated.

Where subsidiary companies provide administration, investment management or other services to our life businesses, the value of profits or losses arising from these services have been included in the embedded value and value of new business.

Non-hedgeable risk

A charge of 2.5% has been applied to the Group-diversified capital required on a 1-in-200 one-year basis over the remaining lifetime of in-force business.

Valuation of debt

Borrowings in the MCEV consolidated balance sheet are valued on an IFRS basis, consistent with the primary financial statements. At 31 December 2008 the market value of the Group's external debt, subordinated debt, preference shares including General Accident plc preference shares of £250 million (classified as minority interests) and direct capital instrument was £4,911 million (31 December 2007: £5,774 million).

	2008 £m	2007 £m
Borrowings per summarised consolidated balance sheet - MCEV basis	15,201	12,657
Add: amount included within held for sale	-	12
Less: Securitised mortgage funding	(7,785)	(7,295)
Borrowings excluding non-recourse funding - MCEV basis	7,416	5,374
Less: Operational financing by businesses	(1,891)	(1,063)
External debt and subordinated debt - MCEV basis	5,525	4,311
Add: Preference shares (including General Accident plc) and direct capital instrument	1,440	1,440
External debt, subordinated debt, preference shares and direct capital instrument - MCEV basis	6,965	5,751
Effect of marking these instruments to market	(2,054)	23
Market value of external debt, subordinated debt, preference shares and direct capital instrument	4,911	5,774

Other

It has been assumed that there will be no changes to the methods and bases used to calculate the statutory technical provisions and current surrender values, except where driven by varying future investment conditions under stochastic economic scenarios.

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M25 - Sensitivity analysis

(a) Economic assumptions

The following tables show the sensitivity of the embedded value and the value of new business to:

- using swap yields as the risk-free rate.

- one and two percentage point increase and decrease in the risk-free rate, including all consequential changes (including assumed investment returns for all asset classes, market values of fixed interest assets, risk discount rates);

- 10% increase and decrease in market values of equity and property assets;

- 25% increase in equity and swaption volatilities;

- 50 basis point increase and decrease in credit spreads; and

- decrease in the level of required capital to 100% EU minimum (or equivalent).

Group sensitivities including non-life are covered on page •.

In each sensitivity calculation, all other assumptions remain unchanged except where they are directly affected by the revised economic conditions. For example, future bonus rates are automatically adjusted to reflect sensitivity changes to future investment returns. Some of the sensitivity scenarios may have consequential effects on valuation bases, where the basis for certain blocks of business is actively updated to reflect current economic circumstances. Consequential valuation impacts on the sensitivities are allowed for where an active valuation basis is used. Where businesses have a target asset mix, the portfolio is re-balanced after a significant market movement otherwise no re-balancing is assumed.

For new business, the sensitivities reflect the impact of a change immediately after inception of the policy.

In general, the magnitude of the sensitivities will reflect the size of the embedded values, though this will vary as the sensitivities have different impacts on the different components of the embedded value. In addition, other factors can have a material impact, such as the nature of the options and guarantees, as well as the types of investments held.

Sensitivities will also vary according to the current economic assumptions, mainly due to the impact of changes to both the intrinsic cost and time value of options and guarantees. Options and guarantees are the main reason for the asymmetry of the sensitivities where the guarantee impacts to different extents under the different scenarios. This can be seen in the sensitivity of a 1%-2% movement in the interest rate for the Netherlands and US, where there is a significant amount of business with investment return guarantees.

Embedded value

				Risk free rates
2008 Embedded value (net of tax and minority interest)	As reported on page 41 £m	Risk free rate as swap yields £m	1% increase £m	1% decrease £m	2% increase £m	2% decrease £m
United Kingdom	4,887	(2,117)	(105)	90	(215)	175
France	2,519	-	(70)	(60)	(210)	(360)
Ireland	990	-	(50)	55	(90)	120
Italy	645	-	5	(45)	5	(100)
Netherlands (including Belgium and Germany)	2,110	(120)	560	(805)	900	(1,525)
Poland	1,228	-	(30)	40	(55)	95
Spain	655	-	(15)	20	(35)	40
Other Europe	236	-	(5)	5	(10)	10
Europe	8,383	(120)	395	(790)	505	(1,720)
North America	64	(3,862)	(505)	210	(845)	90
Asia	424	-	20	(35)	30	(175)
Australia	331	-	(15)	15	(25)	30
Asia Pacific	755	-	5	(20)	5	(145)
Total	14,089	(6,099)	(210)	(510)	(550)	(1,600)

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M25 - Sensitivity analysis continued

Embedded value continued

		Equity/property
2008 Embedded value (net of tax and minority interest)	As reported on page 41 £m	Market values		Volatility 25% increase £m
		10% increase £m	10% decrease £m
United Kingdom	4,887	400	(410)	(25)
France	2,519	145	(160)	(150)
Ireland	990	15	(10)	-
Italy	645	-	-	-
Netherlands (including Belgium and Germany)	2,110	410	(385)	(220)
Poland	1,228	15	(15)	-
Spain	655	5	(10)	(10)
Other Europe	236	5	-	-
Europe	8,383	595	(580)	(380)
North America	64	-	-	-
Asia	424	10	(10)	-
Australia	331	5	(5)	-
Asia Pacific	755	15	(15)	-
Total	14,089	1,010	(1,005)	(405)

2008 Embedded value (net of tax and minority interest)	As reported on page 41 £m	Swaption implied volatilities 25% increase £m	Corporate bond credit spreads		EU minimum capital (or equivalent) £m
			50bps increase £m	50bps decrease £m
United Kingdom	4,887	-	(610)	770	10
France	2,519	(95)	(120)	125	15
Ireland	990	-	-	-	5
Italy	645	-	-	-	5
Netherlands (including Belgium and Germany)	2,110	(165)	(265)	285	100
Poland	1,228	-	-	-	5
Spain	655	-	(55)	60	5
Other Europe	236	-	-	-	-
Europe	8,383	(260)	(440)	470	135
North America	64	(45)	(625)	660	5
Asia	424	-	(25)	20	15
Australia	331	-	(5)	10	5
Asia Pacific	755	-	(30)	30	20
Total	14,089	(305)	(1,705)	1,930	170

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M25 - Sensitivity analysis continued

Value of new business

2008 Value of new business (net of tax and minority interest)				Risk free rates
	As reported on page 23 £m	Risk free rate as swap yields £m	1% increase £m	1% decrease £m	2% increase £m	2% decrease £m
United Kingdom	147	(161)	17	(25)	28	(60)
France	79	-	4	(7)	7	(21)
Ireland	10	-	3	(3)	6	(8)
Italy	21	-	(1)	-	(2)	(1)
Netherlands (including Belgium and Germany)	(67)	(10)	30	(47)	58	(138)
Poland	46	-	(3)	3	(5)	7
Spain	80	-	(4)	4	(8)	8
Other Europe	24	-	(1)	3	(5)	8
Europe	193	(10)	28	(47)	51	(145)
North America	36	(101)	(61)	50	(127)	68
Asia	24	-	5	(9)	8	(31)
Australia	9	-	(2)	4	(5)	7
Asia Pacific	33	-	3	(5)	3	(24)
Total	409	(272)	(13)	(27)	(45)	(161)

2008 Value of new business (net of tax and minority interest)		Equity/property
	As reported on page 23 £m	Market values		Volatility 25% increase £m
		10% increase £m	10% decrease £m
United Kingdom	147	5	(5)	(2)
France	79	2	(2)	(3)
Ireland	10	1	(1)	-
Italy	21	-	-	-
Netherlands (including Belgium and Germany)	(67)	-	-	(1)
Poland	46	-	-	-
Spain	80	-	-	-
Other Europe	24	1	(2)	-
Europe	193	4	(5)	(4)
North America	36	-	-	-
Asia	24	-	-	-
Australia	9	-	-	-
Asia Pacific	33	-	-	-
Total	409	9	(10)	(6)

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M25 - Sensitivity analysis continued

Value of new business continued

	As reported on page 23 £m	Swaption implied volatilities 25% increase £m	Corporate bond credit spreads		EU minimum capital (or equivalent) £m
2008 Value of new business (net of tax and minority interest)			50bps increase £m	50bps decrease £m
United Kingdom	147	-	(79)	85	1
France	79	(2)	2	(9)	1
Ireland	10	-	-	-	1
Italy	21	-	-	-	-
Netherlands (including Belgium and Germany)	(67)	-	(11)	12	14
Poland	46	-	-	-	-
Spain	80	-	(4)	5	-
Other Europe	24	-	(1)	(1)	2
Europe	193	(2)	(14)	7	18
North America	36	(12)	(67)	72	10
Asia	24	-	-	-	2
Australia	9	-	-	-	-
Asia Pacific	33	-	-	-	2
Total	409	(14)	(160)	164	31

(b) Non-economic assumptions

The following tables below show the sensitivity of the embedded value and the value of new business to the following changes in non-economic assumptions:

- 10% decrease in maintenance expenses (a 10% sensitivity on a base expense assumption of £10 pa would represent an expense assumption of £9 pa). Where there is a 'look through' into service company expenses the fee charged by the service company is unchanged while the underlying expense decreases;

- 10% decrease in lapse rates (a 10% sensitivity on a base assumption of 5% pa would represent a lapse rate of
4.5% pa); and

- 5% decrease in both mortality and morbidity rates disclosed separately for life assurance and annuity business.

No future management actions are modelled in reaction to the changing non-economic assumptions. In each sensitivity calculation all other assumptions remain unchanged. No changes to valuation bases have been included.

Embedded value

2008 Embedded value (net of tax)	As reported on page 41 £m	10% decrease in maintenance expenses £m	10% decrease in lapse rates £m	5% decrease in mortality/ morbidity rates - life assurance £m	5% decrease in mortality/ morbidity rates -annuity business £m
United Kingdom	4,887	165	100	70	(190)
France	2,519	50	35	30	-
Ireland	990	20	25	10	(5)
Italy	645	5	5	5	-
Netherlands (including Belgium and Germany)	2,110	195	5	30	(195)
Poland	1,228	40	65	15	-
Spain	655	10	45	15	(5)
Other Europe	236	5	15	-	-
Europe	8,383	325	195	105	(205)
North America	64	85	80	70	(20)
Asia	424	15	5	5	-
Australia	331	10	20	15	-
Asia Pacific	755	25	25	20	-
Total	14,089	600	400	265	(415)

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M25 - Sensitivity analysis continued

Value of new business

2008 Value of new business (net of tax)	As reported on page 23 £m	10% decrease in maintenance expenses £m	10% decrease in lapse rates £m	5% decrease in mortality/ morbidity rates- life assurance £m	5% decrease in mortality/ morbidity rates - annuity business £m
United Kingdom	147	18	23	15	(20)
France	79	1	2	1	-
Ireland	10	2	4	-	-
Italy	21	1	-	-	-
Netherlands (including Belgium and Germany)	(67)	15	4	2	(14)
Poland	46	3	5	2	-
Spain	80	2	12	3	-
Other Europe	24	2	6	2	(2)
Europe	193	26	33	10	(16)
North America	36	6	4	7	(3)
Asia	24	5	2	1	-
Australia	9	1	5	2	-
Asia Pacific	33	6	7	3	-
Total	409	56	67	35	(39)

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Definitions of Group key performance indicators and other terms

Asymmetric risk	Risks that will cause shareholder profits to vary where the variation above and below the average are not equal in distribution.
CFO Forum	The CFO Forum www.cfoforum.nl is a high-level group formed by the Chief Financial Officers of major European listed and non-listed insurance companies. Its aim is to discuss issues relating to proposed new accounting regulations for their businesses and how they can create greater transparency for investors. The Forum was created in 2002, the Market Consistent Embedded Value principles were launched in June 2008 and CFO Forum members across Europe have agreed to adopt these for their 2009 published accounts. The principles are a further development of the European Embedded Value principles first launched in May 2004.
Cost of non-hedgeable risks	This is the cost of undertaking those risks for which a deep and liquid market in which to hedge that risk does not exist. This can include both financial risks and non-financial risks such as mortality, persistency and expense.
Covered business	The contracts to which the MCEV methodology has been applied.
EU solvency	The excess of assets over liabilities and the world-wide minimum solvency margins, excluding goodwill and the additional value of in-force long-term business, and excluding the surplus held in the Group's life funds. The Group solvency calculation is determined according to the UK Financial Services Authority application of EU Insurance Group’s Directive rules.
Financial options and guarantees	Features of the covered business conferring potentially valuable guarantees underlying, or options to change, the level or nature of policyholder benefits and exercisable at the discretion of the policyholder, whose potential value is impacted by the behaviour of financial variables.
Free surplus	The amount of any capital and surplus allocated to, but not required to support, the in-force covered business.
Frictional costs	The additional taxation and investment costs incurred by shareholders through investing the Required Capital in the Company rather than directly.
Funds under management	Represents all assets actively managed or administered by or on behalf of the Group including those funds managed by third parties.
Funds under management by Aviva	Represents all assets actively managed or administered by the fund management operations of the Group.
Group MCEV	A measure of the total consolidated value of the Group with covered life business included on an MCEV basis and non-covered business (including pension schemes and goodwill) included on an IFRS basis.
Gross risk-free yields	Gross of tax yields on risk-free fixed interest investments, generally swap rates under MCEV.
Holding company	A legal entity with a function of being a consolidating entity for primary financial reporting of covered business.
IFRS operating profit	From continuing operations on an IFRS basis, stated before tax attributable to shareholders’ profits, impairment of goodwill and exceptional items.
Implicit items	Amounts allowed by local regulators to be deducted from capital amounts when determining the EU required minimum margin.
Inherited estate	The assets of the long-term with-profit funds less the realistic reserves for non-profit policies, less asset shares aggregated across the with-profit policies and any additional amounts expected at the valuation date to be paid to in-force policyholders in the future in respect of smoothing costs and guarantees.
Life business	Subsidiaries selling life and pensions contracts that are classified as covered business under MCEV.
Life MCEV	The MCEV balance sheet value of covered business as at the reporting date. Excludes non-covered business including pension schemes and goodwill.
Life MCEV operating earnings	Operating earnings on the MCEV basis relating to the lines of business included in the embedded value calculations. From continuing operations and is stated before tax, impairment of goodwill and exceptional items.
Life MCEV earnings	Total earnings on the MCEV basis relating to the lines of business included in the embedded value calculations. From continuing operations.

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Look-through basis	Inclusion of the capitalised value of profits and losses arising from subsidiary companies providing administration, investment management and other services to the extent that they relate to covered business.
Long-term savings	Includes life and pension sales calculated under MCEV and retail investment sales.
Market consistent	A measurement approach where economic assumptions are such that projected asset cash flows are valued consistently with current market prices for traded assets.
MCEV	Aviva’s Market Consistent Embedded Value methodology which is in accordance with the MCEV Principles published by the CFO Forum in June 2008 with the exception of the use of an adjusted risk-free yield due to current market conditions for immediate annuities in the UK and the Netherlands and for immediate annuity, deferred annuity and all other contracts in the US.
Net asset value per ordinary share	Net asset value divided by the number of ordinary shares in issue. Net asset value is based on equity shareholders’ funds.
Net worth	The market value of the shareholders’ funds and the shareholders’ interest in the surplus held in the non-profit component of the long-term business funds, determined on a statutory solvency basis and adjusted to add back any non-admissible assets, and consists of the required capital and free surplus.
New business margin	New business margins are calculated as the value of new business divided by the present value of new business premiums (PVNBP), and expressed as a percentage.
Present value of new business premiums (PVNBP)	Present value of new regular premiums plus 100% of single premiums, calculated using assumptions consistent with those used to determine the value of new business.
Required capital	The amount of assets, over and above the value placed on liabilities in respect of covered business, whose distribution to shareholders is restricted.
Risk-free rate (reference rate in CFO Forum terminology)	The risk-free return that can be earned on investments in the currency of the liability being valued. In stable markets, including the period from 31 December 2006 to 30 June 2007, the risk-free rate is taken as the swap curve yield. In current markets, including the period from 1st July 2007, the risk-free rate is taken as swaps except for UK and Netherlands immediate annuities and immediate annuities, deferred annuities and all other US contracts. The adjusted risk-free rate is taken as swaps plus the additional return available for products and where backing asset portfolios can be held to maturity.
Service companies	Companies providing administration or fund management services to the covered business.
Solvency cover	The excess of the regulatory value of total assets over total liabilities, divided by the regulatory value of the required minimum solvency margin.
Spread business	Contracts where a significant source of shareholder profits is the taking of credit spread risk that is not passed on to policyholders. The most significant spread business in Aviva are immediate annuities and US deferred annuities and life business.
Statutory basis	The valuation basis and approach used for reporting financial statements to local regulators.
Stochastic techniques	Techniques that incorporate the potential future variability in assumptions.
Symmetric risks	Risks that will cause shareholder profits to vary where the variation above and below the average are equal and opposite. Financial theory says that investors do not require compensation for non-market risks that are symmetrical as the risks can be diversified away by investors.
Time value and intrinsic value	A financial option or guarantee has two elements of value, the time value and intrinsic value. The intrinsic value is the discounted value of the option or guarantee at expiry, assuming that future economic conditions follow best estimate assumptions. The time value is the additional value arising from uncertainty about future economic conditions.
Value of new business	Is calculated using economic assumptions set at the start of each quarter and the same operating assumptions as those used to determine the embedded values at the end of the reporting period and is stated after the effect of any frictional costs. Unless otherwise stated, it is also quoted net of tax and minority interests.