FY 2008 Part 5 of 5

RNS Number : 3475O

Aviva PLC

05 March 2009

Part 5 of 5

Page 108

D1 - Consolidated income statement

For the year ended 31 December 2008

2008 €m		2008 £m	Restated 2007 £m
	Income
45,258	Gross written premiums	36,206	30,991
(2,301)	Premiums ceded to reinsurers	(1,841)	(1,658)
42,957	Premiums written net of reinsurance	34,365	29,333
346	Net change in provision for unearned premiums	277	(21)
43,303	Net earned premiums	34,642	29,312
2,356	Fee and commission income	1,885	1,760
(20,054)	Net investment (expense)/income	(16,043)	9,689
(1,410)	Share of loss after tax of joint ventures and associates	(1,128)	(304)
9	Profit on the disposal of subsidiaries and associates	7	49
24,204		19,363	40,506
	Expenses
(36,691)	Claims and benefits paid, net of recoveries from reinsurers	(29,353)	(27,121)
4,856	Change in insurance liabilities, net of reinsurance	3,885	(3,508)
13,286	Change in investment contract provisions	10,629	(2,018)
5,603	Change in unallocated divisible surplus	4,482	2,922
(5,514)	Fee and commission expense	(4,411)	(4,244)
(6,770)	Other expenses	(5,416)	(3,473)
(1,934)	Finance costs	(1,547)	(1,217)
(27,164)		(21,731)	(38,659)
(2,960)	(Loss)/profit before tax	(2,368)	1,847
1,335	Tax attributable to policyholders' returns	1,068	(15)
(1,625)	(Loss)/profit before tax attributable to shareholders' profits	(1,300)	1,832
1,854	Tax credit/(expense)	1,483	(349)
(1,335)	Less: tax attributable to policyholders' returns	(1,068)	15
519	Tax attributable to shareholders' profits	415	(334)
(1,106)	(Loss)/profit for the year	(885)	1,498
	Attributable to:
(1,144)	Equity shareholders of Aviva plc	(915)	1,320
38	Minority interests	30	178
(1,106)		(885)	1,498
	Earnings per share
(46.0)c	Basic (pence per share)	(36.8)p	48.9p
(46.0)c	Diluted (pence per share)	(36.8)p	48.5p

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Page 109

D2 - Consolidated statement of recognised income and expense

For the year ended 31 December 2008

2008 €m		2008 £m	Restated 2007 £m
(2,976)	Fair value (losses)/gains on AFS securities, owner-occupied properties and hedging instruments	(2,381)	172
(158)	Fair value gains transferred to profit	(126)	(391)
1,036	Impairment losses on revalued assets	830	-
(116)	Share of fair value changes in joint ventures and associates taken to equity	(93)	9
(1,161)	Actuarial (losses)/gains on pension schemes	(929)	648
98	Actuarial losses/(gains) on pension schemes transferred to unallocated divisible surplus	78	(61)
3,316	Foreign exchange rate movements	2,653	723
294	Aggregate tax effect - shareholder tax	235	(179)
333	Net income recognised directly in equity	267	921
(1,106)	(Loss)/profit for the year	(885)	1,498
(773)	Total recognised income and expense for the year	(618)	2,419
	Attributable to:
(1,399)	Equity shareholders of Aviva plc	(1,119)	2,140
626	Minority interests	501	279
(773)		(618)	2,419

D3 - Reconciliation of movements in consolidated shareholders' equity

For the year ended 31 December 2008

2008 €m		2008 £m	Restated 2007 £m
16,424	Balance at 1 January as published	15,931	14,064
-	Prior year adjustment	-	(319)
16,424	Balance at 1 January restated	15,931	13,745
(637)	Total recognised income and expense for the year	(618)	2,419
(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
14,893	Balance at 31 December	14,446	15,931

Page 110

D4 - Consolidated balance sheet

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
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
236,827		229,722	216,410
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
365,528	Total assets	354,562	321,326
	Equity
685	Ordinary share capital	664	655
4,644	Capital reserves	4,505	4,494
(34)	Shares held by employee trusts	(33)	(10)
2,175	Other reserves	2,110	1,469
3,924	Retained earnings	3,806	6,338
11,394	Equity attributable to ordinary shareholders of Aviva plc	11,052	12,946
1,227	Preference share capital and direct capital instrument	1,190	1,190
2,272	Minority interests	2,204	1,795
14,893	Total equity	14,446	15,931
	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
365,528	Total equity and liabilities	354,562	321,326

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Page 111

D5 - Consolidated cash flow statement

For the year ended 31 December 2008

The cash flows presented in this statement cover all the Group's activities and include flows from both policyholder and shareholder activities.

	Long-term business operations £m	Non-long- term business operations £m	Total 2008 £m	Restated Total 2007 £m
Cash flows from operating activities
Cash-generated from operations	7,920	875	8,795	4,944
Tax paid	(394)	(248)	(642)	(801)
Net cash from operating activities	7,526	627	8,153	4,143
Cash flows from investing activities
Acquisitions of subsidiaries, joint ventures and associates, net of cash acquired	(93)	(243)	(336)	(769)
Disposals of subsidiaries, joint ventures and associates, net of cash transferred	180	173	353	283
Purchase of minority interest in subsidiary	(65)	-	(65)	-
New loans to joint ventures and associates	(182)	-	(182)	(126)
Repayment of loans to joint ventures and associates	52	-	52	159
Net repayment loans to joint ventures and associates	(130)	-	(130)	33
Purchases of property and equipment	(57)	(159)	(216)	(227)
Proceeds on sale of property and equipment	35	24	59	93
Purchases of intangible assets	(34)	(26)	(60)	(48)
Net cash used in investing activities	(164)	(231)	(395)	(635)
Cash flows from financing activities
Proceeds from issue of ordinary shares, net of transaction costs	-	20	20	48
Treasury shares purchased for employee trusts	-	(29)	(29)	(10)
New borrowings drawn down, net expenses	1,435	4,080	5,515	6,322
Repayment of borrowings	(1,365)	(3,852)	(5,217)	(6,000)
Net drawdown of borrowings	70	228	298	322
Interest paid on borrowings	(712)	(825)	(1,537)	(1,208)
Preference dividends paid	-	(17)	(17)	(17)
Ordinary dividends paid	-	(732)	(732)	(500)
Coupon payments on direct capital instrument	-	(56)	(56)	(53)
Finance lease payments	-	(14)	(14)	(7)
Capital contributions from minority shareholders	36	-	36	307
Dividends paid to minority interests of subsidiaries	(83)	(23)	(106)	(66)
Non-trading cash flows between operations	(189)	189	-	-
Net cash from financing activities	(878)	(1,259)	(2,137)	(1,184)
Net increase in cash and cash equivalents	6,484	(863)	5,621	2,324
Cash and cash equivalents at 1 January	11,132	4,432	15,564	12,635
Effect of exchange rate changes on cash and cash equivalents	2,525	359	2,884	605
Cash and cash equivalents at 31 December	20,141	3,928	24,069	15,564

Of the total cash and cash equivalents, £493 million (2007: £96 million) was classified as held for sale (see note D6 c(ii)).

Cash and cash equivalents in long-term business operations of £20,141 million (2007: £11,132million) are primarily held for the benefit of policyholders and so are generally not available for use by the Group.

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Page 112

D6 - Subsidiaries

(a) Acquisitions

(i) VIVAS Health

On 15 May 2008, the Group's Irish subsidiary, Hibernian Group plc, acquired a 70% holding in VIVAS Group Ltd. (VIVAS Health), an Irish health insurance company, for £26 million. Allied Irish Banks plc (AIB) will continue to hold the remaining 30% equity, further strengthening AIB and Hibernian's existing relationship. The company has since been re-branded as Hibernian Aviva Health. Its health insurance products will be distributed through Hibernian and AIB's distribution channels, including Hibernian Aviva Health's existing direct and non-direct channels.

The acquisition of this shareholding has given rise to goodwill on acquisition of £22 million, calculated as follows:

Purchase cost:	£m
Cash paid	25
Attributable costs	1
Total consideration	26

The estimated book and fair values of the assets and liabilities at the date of acquisition were:

	Book value £m	Fair value and accounting policy adjustments £m	Fair value £m
Assets
Reinsurance assets	30	-	30
Cash and cash equivalents	27	-	27
Receivables and financial assets	32	-	32
Other assets	2	-	2
Total assets	91	-	91
Liabilities
Insurance liabilities	(49)	-	(49)
Payables and other financial liabilities	(35)	-	(35)
Other liabilities	(1)	-	(1)
Total liabilities	(85)	-	(85)
Total net assets	6	-	6
Net assets acquired (70%)			4
Goodwill arising on acquisition of this holding			22

The assets and liabilities as at the acquisition date in the table above are stated at their provisional fair values and may be amended in 2009 in accordance with paragraph 62 of IFRS 3, Business Combinations. The residual goodwill represents future cost and revenue synergies from integration with Hibernian Group.

The results of VIVAS Health have been included in the consolidated financial statements of the Group with effect from 15 May 2008, and have contributed £5 million profit to the consolidated loss before tax.

(ii) UBI Vita

On 18 June 2008, the Group acquired 50% plus one share in UBI Assicurazioni Vita SpA (UBI Vita), an Italian life insurance company, from Unione di Banche Italiane Scpa (UBI Banca), for a consideration of £52 million. UBI Vita distributes life insurance products through a bancassurance agreement with Banca Popolare di Ancona and other channels.

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Page 113

D6 - Subsidiaries continued

The acquisition of this shareholding has given rise to goodwill on acquisition of £10 million, calculated as follows:

Purchase cost:	£m
Cash paid	51
Attributable costs	1
Total consideration	52

The estimated book and fair values of the assets and liabilities at the date of acquisition were:

	Book value £m	Fair value and accounting policy adjustments £m	Fair value £m
Assets
Intangible assets	-	41	41
Reinsurance assets	130	-	130
Prepayments and accrued income	20	-	20
Cash and cash equivalents	8	-	8
Debt securities	1,803	(74)	1,729
Other investments	407	-	407
Property and equipment	17	1	18
Receivables and other financial assets	45	-	45
Other assets	2	2	4
Total assets	2,432	(30)	2,402
Liabilities
Insurance liabilities	(2,267)	67	(2,200)
Borrowings	(31)	-	(31)
Payables and other financial liabilities	(56)	-	(56)
Other liabilities	(12)	(18)	(30)
Total liabilities	(2,366)	49	(2,317)
Total net assets	66	19	85
Net assets acquired (50%)			42
Goodwill arising on acquisition of this holding			10

The results of UBI Vita have been included in the consolidated financial statements of the Group with effect from 18 June 2008, and have contributed £2 million loss to the consolidated loss before tax.

(iii) Swiss Life Belgium

On 30 June 2008, the Group acquired 100% of the shares in Swiss Life Belgium, a multi-line insurer, from SNS REAAL for £112 million. By combining Swiss Life Belgium with our Belgian insurance operation, managed through our Dutch subsidiary Delta Lloyd, the Group will further strengthen its position in the Belgian life insurance market.

The acquisition of this shareholding has given rise to goodwill on acquisition of £48 million, calculated as follows:

Purchase cost:	£m
Cash paid	112
Attributable costs	-
Total consideration	112

Page 114

D6 - Subsidiaries continued

The estimated book and fair values of the assets and liabilities at the date of acquisition were:

	Book value £m	Fair value and accounting policy adjustments £m	Fair value £m
Assets
Acquired value of in-force business on insurance contracts	-	17	17
Reinsurance assets	28	-	28
Prepayments and accrued income	33	-	33
Cash and cash equivalents	60	-	60
Equity securities	464	-	464
Debt securities	1,735	-	1,735
Property and equipment	19	-	19
Investment property	80	-	80
Loans	21	-	21
Receivables and other financial assets	46	-	46
Other assets	19	-	19
Total assets	2,505	17	2,522
Liabilities
Insurance liabilities	(1,635)	92	(1,543)
Liabilities for investment contracts	(818)	52	(766)
Borrowings	(49)	-	(49)
Payables and other financial liabilities	(41)	-	(41)
Other liabilities	(59)	-	(59)
Total liabilities	(2,602)	144	(2,458)
Total net assets	(97)	161	64
Net assets acquired (100%)			64
Goodwill arising on acquisition			48

The assets and liabilities as at the acquisition date in the table above are stated at their provisional fair values and may be amended in 2009 in accordance with paragraph 62 of IFRS 3, Business Combinations. The residual goodwill represents cost and revenue synergies from integrating the business with our existing Belgian operations.

The results of Swiss Life Belgium have been included in the consolidated financial statements of the Group with effect from 30 June 2008, and have contributed £35 million loss to the consolidated loss before tax.

(iv) Material acquisitions summary

	2008 £m
Total net assets of subsidiaries described above	155
Less: Minority interests	(45)
Net assets acquired	110
Cash paid	188
Attributable costs	2
Total consideration	190
Goodwill arising on material acquisitions above	80
Other goodwill arising (see (v) below)
Addition to existing shareholding in Cajamurcia	3
Other goodwill arising	23
Total goodwill arising in the year	106

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Page 115

D6 - Subsidiaries continued

(v) Other goodwill arising

Addition to existing shareholding in Cajamurcia Vida

As disclosed in the 2007 financial statements, on 6 June 2007 the Group acquired 5% of the share capital of Caja Murcia Vida y Pensiones, de Seguros y Reaseguros SA (Cajamurcia Vida) from the Spanish savings bank Caja de Ahorros de Murcia (Cajamurcia). Cajamurcia Vida was fully consolidated as a subsidiary from that date, as the Group has the power to govern its financial and operating policies, through having the majority vote at meetings of the company's board of directors.

On signing the shareholders' agreement, Cajamurcia granted the Group a call option over a further 45% of the shares in Cajamurcia Vida. On 27 March 2008, the Group exercised this option and acquired 45% of the shares for £81 million. The fair value of the net assets of the company at the date the option was exercised was £176 million, and the acquisition of the additional shareholding gave rise to additional goodwill of £3 million.

Other

Other goodwill has arisen on smaller acquisitions and increases in shareholdings in existing subsidiaries, as well as fair value adjustments to acquisitions made in 2007. None of these is considered material for separate disclosure.

(vi) Unaudited pro forma combined revenues and profit

Shown below are unaudited pro forma figures for combined revenues and profit as though the acquisition date for all business combinations effected during the year had been 1 January 2008, after giving effect to purchase accounting adjustments and the elimination of intercompany transactions. The pro forma financial information is not necessarily indicative of the combined results that would have been attained had the acquisitions taken place at 1 January 2008, nor is it necessarily indicative of future results.

	2008 £m
Revenues (net earned premiums and fee income)	36,620
Loss before tax attributable to shareholders	(1,388)

£32 million of the above pre-tax loss has risen since acquisition.

(b) Disposal of subsidiaries, joint ventures and associates

The profit on the disposal of subsidiaries, joint ventures and associates comprises:

	2008 £m	2007 £m
United Kingdom (see (i) below)	(38)	(7)
Turkey	-	71
Offshore operations (see (iii) below)	14	-
Other small operations	31	(15)
Profit on disposal before tax	7	49
Tax on profit on disposal	-	3
Profit on disposal after tax	7	52

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Page 116

D6 - Subsidiaries continued

(i) UK non-core operations

As part of its strategy to exit certain UK non-core operations, the Group completed the disposals of HPI Limited to Solera Holdings Inc. and RAC Autowindscreens Limited to Arques Management GmbH in December 2008. The loss on disposal of these wholly-owned subsidiaries was £38 million, calculated as follows:

	2008 £m
Assets
Goodwill and intangible assets	99
Investments and property and equipment	10
Deferred acquisition costs and other assets	9
Receivables and other financial assets	25
Cash and cash equivalents	37
Total assets	180
Liabilities
Payables and other financial liabilities	(20)
Other liabilities	(28)
Tax liabilities and other provisions	(17)
Total liabilities	(65)
Net assets disposed of	115
Consideration:
Cash consideration	67
Non-cash consideration	15
Less: transaction costs	(5)
Total consideration	77
Loss on disposal	(38)

(ii) Luxembourg life operations

On 5 November 2008, the Group's Dutch subsidiary, Delta Lloyd NV, exchanged its 100% holding in Commercial Union International Life SA (CUIL) for a 15% shareholding in NewPEL SA, a Luxembourg-registered investment company. No profit or loss was realised on disposal.

The assets and liabilities of CUIL at the date of disposal were:

	2008 £m
Assets
Intangible assets	5
Investments	373
Cash and cash equivalents	5
Other assets	16
Total assets	399
Liabilities
Liability for investment contracts	(372)
Borrowings	(3)
Other liabilities	(10)
Total liabilities	(385)
Net assets disposed of	14
Consideration:
Non-cash consideration	14
Profit on disposal	-

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Page 117

D6 - Subsidiaries continued

(iii) Sale of offshore operations

On 11 July 2008, the Group sold its offshore operations, administered through Aviva Global Services Singapore Pte Ltd (AGS), to WNS (Holdings) Limited (WNS). As part of this agreement, we have entered into a master services agreement with WNS, who will provide business process services to the Group's UK, Irish and Canadian businesses through to 2016. The consideration for the shares in AGS was £35 million and the relevant net assets of AGS at the disposal date were £21 million, giving rise to a profit on disposal of £14 million.

Assets held for sale as at 31 December 2008 comprises:

	2008 £m	2007 £m
Property and equipment held for sale (see (i) below)	102	-
Assets of operations classified as held for sale (see (ii) below)	1,448	1,128
Total assets classified as held for sale	1,550	1,128

(i) Property and equipment held for sale

As part of its restructuring, the UK data centres, presently owned and managed by Norwich Union Central Services Limited, have been classified as held for sale at 31 December 2008 at their fair value of £102 million. In remeasuring the data centres at fair value, an impairment charge of £44 million has been recognised in the income statement within integration and restructuring costs. The data centres were sold on 25 February 2009 at their fair value above.

(ii) Assets and liabilities of operations classified as held for sale

The assets and liabilities of operations classified as held for sale as at 31 December 2008 relate to our Dutch health insurance business and certain UK non-core operations, and were as follows:

	2008 £m	2007 £m
Goodwill and intangible assets	14	-
Investments and property and equipment	396	316
Receivables and other financial assets	386	554
Deferred acquisition costs and other assets	1	-
Prepayments and accrued income	158	145
Tax assets	-	17
Cash and cash equivalents	493	96
Total assets	1,448	1,128
Gross insurance liabilities	(709)	(627)
Borrowings	-	(12)
Payables and financial liabilities	(22)	(72)
Other liabilities	(478)	(220)
Tax liabilities and other provisions	(12)	(11)
Total liabilities	(1,221)	(942)
Net assets	227	186

The 2007 figures relate to our Dutch health insurance business.

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D6 - Subsidiaries continued

(iii) Dutch health insurance business

On 16 July 2007, the Group announced that its Dutch subsidiary, Delta Lloyd Group ('DL'), had reached an agreement to sell its health insurance business to OWM CZ Groep Zorgverkeraar UA ('CZ'), a mutual health insurer, and create a long-term alliance for the cross-selling of insurance products. Under the terms of the agreement, CZ will purchase the DL health insurance business and take on its underwriting risk and policy administration. DL will continue to market and distribute health insurance products from CZ to its existing customers and continue to provide asset management for the transferred business. DL will also have exclusive rights to market life, general insurance and income protection products to CZ's customers. The transaction completed on 1 January 2009.

The relevant assets and liabilities of the DL health insurance business have been classified as held for sale, at their carrying values, in the consolidated balance sheet as at 31 December 2008.

(iv) UK non-core operations

In 2008, the Group decided to sell, and was actively marketing, certain companies as part of its strategy to exit certain UK non-core operations. As at 31 December 2008, The British School of Motoring Limited and its subsidiaries had yet to be sold and, as a result, their relevant assets and liabilities have been classified as held for sale, at their carrying values, in the consolidated balance sheet as at 31 December 2008. On 11 February 2009, these companies were sold to Arques Consulting GmbH, realising a loss on disposal of £9 million which has been provided for within exceptional items in these financial statements.

(d) Other information

One of the Group's subsidiaries, Delta Lloyd NV, is subject to the provisions of Dutch corporate law and particularly the Dutch 'structure company' regime. Under this regime, Delta Lloyd operates under a Supervisory Board which has a duty to have regard to the interests of a wide variety of stakeholders. The Supervisory Board includes two Aviva Group representatives and is responsible for advising and supervising Delta Lloyd's Executive Board. The shareholder is one of the most important stakeholders to whom the Supervisory Board has a duty.

Dutch Law changed in October 2004 to ensure that Supervisory Board directors in Dutch companies were henceforth to be elected by a company's shareholders voting on nominations made by its Supervisory Board and the Works Council. Under the previous system, Supervisory Board directors appointed their own successors. In 2006, Delta Lloyd commenced proceedings against Aviva plc to try to compel the Company to adhere to the system that existed prior to the change in the law, on the basis of agreements they say were entered into in 1973 when the Group acquired Delta Lloyd. The Company disputes these claims and does not expect the litigation, whatever its outcome, to have any adverse effect on the financial or operational performance of Delta Lloyd or the Group. The court gave a judgement in 2008, requiring Aviva to adhere to the previous system of appointment, which Aviva is appealing.

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D7 - Segmental information

(a) Operating segments

The Group has determined its operating segments along regional lines. These reflect the management structure whereby a member of the Executive Management team is accountable to the Group Chief Executive for the operating segment for which he is responsible. The activities of each operating segment are described below:

United Kingdom

The United Kingdom comprises two operating segments - UK Life and UK General Insurance (UK GI). The principal activities of UK Life are life insurance, long-term health and accident insurance, savings, pensions and annuity business, whilst UK GI provides insurance cover to individuals and to small and medium-sized businesses, for risks associated mainly with motor vehicles, property and liability, such as employers' liability and professional indemnity liability, and medical expenses. UK GI also includes the RAC motor recovery business, the group reinsurance result and the results of run off business.

Europe

Activities reported in the Europe operating segment exclude operations in the UK and include those in Russia and Turkey. Principal activities are long-term business in France, the Netherlands, Ireland, Italy, Poland and Spain, and general insurance in France, the Netherlands, Ireland and Italy, as well as the fund management activity of Delta Lloyd.

North America

Our activities in North America principally comprise our long-term business operations in the USA and general insurance business operation in Canada.

Asia Pacific

Our activities in Asia Pacific principally comprise our long-term business operations in Australia, China, India, Singapore, Hong Kong, Sri Lanka, Taiwan, Malaysia, and South Korea.

Aviva Investors

Aviva Investors operates in most of the regions in which the Group operates, in particular the UK, France, the United States and Canada and other international businesses, managing policyholders' and shareholders' invested funds, providing investment management services for institutional pension fund mandates and managing a range of retail investment products, including investment funds, unit trusts, OEICs and ISAs. Fund management activities of Delta Lloyd are included in the Europe operating segment.

Other Group activities

Investment return on centrally held assets and head office expenses, such as Group treasury and finance functions, together with certain taxes and financing costs arising on central borrowings are included in 'Other Group activities'. Similarly, central core structural borrowings and certain tax balances are included in 'Other Group activities' in the segmental balance sheet. Also included here are consolidation and elimination adjustments.

Measurement basis

The accounting policies of the segments are the same as those for the Group as a whole. Any transactions between the business segments are on normal commercial terms and market conditions. The Group evaluates performance of operating segments on the basis of:

(i) profit or loss from operations before tax attributable to shareholders.

(ii) profit or loss from operations before tax attributable to shareholders, adjusted for non-operating items outside the segment management's control, including investment market performance and fiscal policy changes.

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D7 - Segmental information continued

(i) Segmental income statement for the year ended 31 December 2008

	United Kingdom		Europe £m	North America £m	Asia Pacific £m	Aviva Investors† £m	Other Group activities £m	Total £m
	Life £m	GI# £m	Europe £m	North America £m	Asia Pacific £m	Aviva Investors† £m	Other Group activities £m	Total £m
Gross written premiums	8,108	5,496	15,529	6,486	587	-	-	36,206
Premiums ceded to reinsurers	(612)	(498)	(442)	(214)	(75)	-	-	(1,841)
Internal reinsurance revenue	-	26	(21)	(4)	(1)	-	-	-
Net written premiums	7,496	5,024	15,066	6,268	511	-	-	34,365
Net change in provision for unearned premiums	6	344	(21)	(50)	(2)	-	-	277
Net earned premiums	7,502	5,368	15,045	6,218	509	-	-	34,642
Fee and commission income	310	362	711	40	168	294	-	1,885
	7,812	5,730	15,756	6,258	677	294	-	36,527
Net investment income	(8,844)	326	(6,168)	444	(626)	(407)	(768)	(16,043)
Inter-segment revenue	-	-	-	-	-	203	-	203
Share of loss of joint ventures and associates	(1,058)	-	(38)	-	(32)	-	-	(1,128)
Profit on the disposal of subsidiaries and associates	-	(38)	24	-	-	-	21	7
Segmental income*	(2,090)	6,018	9,574	6,702	19	90	(747)	19,566
Claims and benefits paid, net of recoveries from reinsurers	(8,620)	(3,944)	(13,411)	(2,912)	(464)	-	(2)	(29,353)
Change in insurance liabilities, net of reinsurance	2,674	280	3,409	(2,774)	296	-	-	3,885
Change in investment contract provisions	7,240	-	2,765	(126)	401	349	-	10,629
Change in unallocated divisible surplus	2,151	-	2,331	-	-	-	-	4,482
Amortisation of deferred acquisition costs and acquired value of in-force business	-	-	(44)	(285)	(4)	-	-	(333)
Depreciation and other amortisation expense	(70)	(108)	(120)	(51)	(5)	(5)	-	(359)
Other operating expenses	(1,787)	(2,599)	(2,970)	(633)	(296)	(362)	552	(8,095)
Impairment losses**	-	(26)	(814)	(200)	-	-	-	(1,040)
Inter-segment expenses	(137)	(2)	(18)	(42)	(3)	-	(1)	(203)
Finance costs	(541)	(10)	(703)	(17)	-	-	(276)	(1,547)
Segmental expenses	910	(6,409)	(9,575)	(7,040)	(75)	(18)	273	(21,934)
(Loss)/profit before tax	(1,180)	(391)	(1)	(338)	(56)	72	(474)	(2,368)
Tax attributable to policyholders' returns	1,031	-	49	-	(12)	-	-	1,068
(Loss)/profit before tax attributable to shareholders	(149)	(391)	48	(338)	(68)	72	(474)	(1,300)

* Total reported income, excluding inter-segment revenue, is split United Kingdom £3,928 million, France £1,005 million, Netherlands £6,759 million, USA £4,954 million and Rest of the World £2,717 million. Income is attributed on the basis of geographical origin which does not materially differ from revenue by geographical destination, as most risks are located in the countries where the contracts were written.

** Impairment losses, and reversal of such losses, recognised directly in equity were £830 million and £nil.

† Aviva Investors comprises the Aviva Investors UK, France, the United States, Canada and International fund management businesses.

# United Kingdom GI includes the Group reinsurance business, agency run off business and the non-insurance business for the RAC

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	United Kingdom		Europe £m	North America £m	Asia Pacific £m	Aviva Investors† £m	Other Group activities £m	Total £m
	Life £m	GI £m	Europe £m	North America £m	Asia Pacific £m	Aviva Investors† £m	Other Group activities £m	Total £m
(Loss)/profit before tax attributable to shareholders	(149)	(391)	48	(338)	(68)	72	(474)	(1,300)
Adjusted for non-operating items:
Reclassification of corporate costs and unallocated interest	7	(71)	54	15	-	-	(5)	-
Investment return variances and economic assumption changes on long-term business	694	-	400	433	104	-	-	1,631
Short-term fluctuation in return on investments backing non-long-term business	-	334	389	(47)	-	-	143	819
Economic assumption changes on general insurance and health business	-	91	3	-	-	-	-	94
Impairment of goodwill	-	-	66	-	-	-	-	66
Amortisation and impairment of intangibles	3	33	34	44	-	3	-	117
(Profit)/loss on the disposal of subsidiaries and associates	-	38	(24)	-	-	-	(21)	(7)
Exceptional item	108	312	133	42	-	6	(50)	551
Integration and restructuring costs	60	195	38	-	-	33	-	326
Operating profit/(loss) before tax attributable to shareholders	723	541	1,141	149	36	114	(407)	2,297

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(ii) Segmental income statement for the year ended 31 December 2007

	United Kingdom		Europe £m	North America £m	Asia Pacific £m	Aviva Investors† £m	Other Group activities £m	Restated Total £m
	Life £m	GI £m	Europe £m	North America £m	Asia Pacific £m	Aviva Investors† £m	Other Group activities £m	Restated Total £m
Gross written premiums	6,128	6,039	13,538	4,628	658	-	-	30,991
Premiums ceded to reinsurers	(444)	(577)	(388)	(195)	(54)	-	-	(1,658)
Internal reinsurance revenue	-	28	(19)	(7)	(2)	-	-	-
Net written premiums	5,684	5,490	13,131	4,426	602	-	-	29,333
Net change in provision for unearned premiums	(18)	60	(22)	(40)	(1)	-	-	(21)
Net earned premiums	5,666	5,550	13,109	4,386	601	-	-	29,312
Fee and commission income	246	385	638	30	168	299	(6)	1,760
	5,912	5,935	13,747	4,416	769	299	(6)	31,072
Net investment income	5,186	699	2,761	875	286	(15)	(103)	9,689
Inter-segment revenue	-	-	-	-	-	199	-	199
Share of profit/(loss) of joint ventures and associates	(304)	3	6	-	(9)	-	-	(304)
Profit/(loss) on the disposal of subsidiaries and associates	-	(7)	(5)	-	-	-	61	49
Segmental income*	10,794	6,630	16,509	5,291	1,046	483	(48)	40,705
Claims and benefits paid, net of recoveries from reinsurers	(9,000)	(4,064)	(11,192)	(2,486)	(377)	-	(2)	(27,121)
Change in insurance liabilities, net of reinsurance	(729)	417	(949)	(1,920)	(327)	-	-	(3,508)
Change in investment contract provisions	(694)	-	(1,091)	(153)	(35)	(45)	-	(2,018)
Change in unallocated divisible surplus	1,882	-	1,040	-	-	-	-	2,922
Amortisation of deferred acquisition costs and acquired value of in-force business	-	-	(35)	(122)	(3)	-	-	(160)
Depreciation and other amortisation expense	(24)	(104)	(53)	(45)	(6)	(17)	-	(249)
Other operating expenses	(1,110)	(2,723)	(2,318)	(545)	(251)	(289)	(15)	(7,251)
Impairment losses**	-	-	(50)	(7)	-	-	-	(57)
Inter-segment expenses	(141)	(4)	(18)	(32)	(3)	-	(1)	(199)
Finance costs	(405)	(10)	(527)	(19)	-	-	(256)	(1,217)
Segmental expenses	(10,221)	(6,488)	(15,193)	(5,329)	(1,002)	(351)	(274)	(38,858)
Profit/(loss) before tax	573	142	1,316	(38)	44	132	(322)	1,847
Tax attributable to policyholders' returns	(9)	-	6	-	(9)	(3)	-	(15)
Profit/(loss) before tax attributable to shareholders	564	142	1,322	(38)	35	129	(322)	1,832

* Total reported income, excluding inter-segment revenue, is split United Kingdom £17,424 million, France £5,731 million, Netherlands £5,922 million,
USA £3,777 million and Rest of the World £7,853 million. Income is attributed on the basis of geographical origin which does not materially differ from revenue by geographical destination, as most risks are located in the countries where the contracts were written.

** Impairment losses, and reversal of such losses, recognised directly in equity were £nil and £1 million.

† Aviva Investors comprises the Aviva Investors UK, France, the United States, Canada and International fund management businesses.

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D7 - Segmental information continued

	United Kingdom		Europe £m	North America £m	Asia Pacific £m	Aviva Investors† £m	Other Group activities £m	Restated Total £m
	Life £m	GI £m	Europe £m	North America £m	Asia Pacific £m	Aviva Investors† £m	Other Group activities £m	Restated Total £m
Profit/(loss) before tax attributable to shareholders	564	142	1,322	(38)	35	129	(322)	1,832
Adjusted for non-operating items:
Reclassification of corporate costs and unallocated interest	(6)	(63)	33	19	-	-	17	-
Investment return variances and economic assumption changes on long-term business	112	-	(309)	181	(1)	2	-	(15)
Short-term fluctuation in return on investments backing non-long-term business	-	86	112	9	-	-	(23)	184
Economic assumption changes on general insurance and health business	-	(1)	-	(1)	-	-	-	(2)
Impairment of goodwill	-	-	1	-	-	9	-	10
Amortisation and impairment of intangibles	4	28	21	40	3	7	-	103
(Profit)/loss on the disposal of subsidiaries and associates	-	7	5	-	-	-	(61)	(49)
Integration and restructuring costs	8	114	12	19	-	-	-	153
Operating profit before tax attributable to shareholders	682	313	1,197	229	37	147	(389)	2,216

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(iii) Segmental balance sheet as at 31 December 2008

	United Kingdom		Europe £m	North America £m	Asia Pacific £m	Aviva investors† £m	Other Group activities £m	Total £m
	Life £m	GI £m	Europe £m	North America £m	Asia Pacific £m	Aviva investors† £m	Other Group activities £m	Total £m
Goodwill	52	1,208	1,357	903	55	3	-	3,578
Acquired value of in-force business and intangible assets	65	265	1,470	2,196	28	14	-	4,038
Interests in, and loans to, joint ventures and associates	2,080	-	604	2	296	-	1	2,983
Property and equipment	123	173	519	106	32	10	1	964
Investment property	8,872	148	3,920	7	21	655	803	14,426
Loans	20,156	833	19,061	2,130	56	1	-	42,237
Financial investments	69,052	2,482	125,329	24,621	3,865	1,454	2,919	229,722
Deferred acquisition costs	1,221	998	1,254	2,627	43	3	1	6,147
Other assets	13,933	4,971	23,867	5,537	627	661	871	50,467
Total assets	115,554	11,078	177,381	38,129	5,023	2,801	4,596	354,562
Insurance liabilities
Long-term business and outstanding claims provisions	62,070	6,103	72,464	26,939	2,120	-	-	169,696
Unearned premiums	173	2,966	670	959	22	-	-	4,790
Other insurance liabilities	-	91	182	91	-	-	-	364
Liability for investment contracts	35,109	-	65,106	3,403	1,643	2,298	-	107,559
Unallocated divisible surplus	2,727	-	(405)	-	3	-	-	2,325
Net asset value attributable to unitholders	986	-	3,304	-	175	-	2,453	6,918
External borrowings	2,716	11	6,970	163	-	-	5,341	15,201
Other liabilities, including inter-segment liabilities	8,164	(972)	18,635	4,041	190	324	2,881	33,263
Total liabilities	111,945	8,199	166,926	35,596	4,153	2,622	10,675	340,116
Total equity								14,446
Total equity and liabilities								354,562
Capital expenditure (excluding business combinations)	36	93	72	70	4	5	-	280

External borrowings by holding companies within the Group which are not allocated to operating companies are included in 'Other Group activities'.

† Aviva Investors comprises the Aviva Investors UK, France, the United States, Canada and International fund management businesses.

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(iv) Segmental balance sheet as at 31 December 2007

	United Kingdom		Europe £m	North America £m	Asia Pacific £m	Aviva Investors† £m	Other Group activities £m	Restated Total £m
	Life £m	GI £m	Europe £m	North America £m	Asia Pacific £m	Aviva Investors† £m	Other Group activities £m	Restated Total £m
Goodwill	71	1,276	1,053	642	40	-	-	3,082
Acquired value of in-force business and intangible assets	65	349	1,164	1,579	28	12	-	3,197
Interests in, and loans to, joint ventures and associates	2,972	-	594	1	215	-	-	3,782
Property and equipment	177	317	374	28	37	7	2	942
Investment property	10,415	252	3,061	-	25	966	672	15,391
Loans	20,153	900	13,895	1,206	39	-	-	36,193
Financial investments	83,489	3,679	103,430	17,227	3,934	1,993	2,658	216,410
Deferred acquisition costs	1,477	1,212	914	830	45	4	5	4,487
Other assets	10,535	5,157	16,086	2,804	500	667	2,093	37,842
Total assets	129,354	13,142	140,571	24,317	4,863	3,649	5,430	321,326
Insurance liabilities
Long-term business and outstanding claims provisions	65,017	6,429	56,505	17,335	1,820	-	-	147,106
Unearned premiums	179	3,468	973	815	15	-	-	5,450
Other insurance liabilities	-	92	113	78	-	-	-	283
Liability for investment contracts	41,845	-	49,551	1,756	1,952	3,140	-	98,244
Unallocated divisible surplus	4,944	-	1,838	-	3	-	-	6,785
Net asset value attributable to unitholders	758	-	2,680	-	189	-	2,782	6,409
External borrowings	2,184	12	6,153	133	-	6	4,169	12,657
Other liabilities, including inter-segment liabilities	10,474	(320)	13,129	1,615	160	294	3,109	28,461
Total liabilities	125,401	9,681	130,942	21,732	4,139	3,440	10,060	305,395
Total equity								15,931
Total equity and liabilities								321,326
Capital expenditure (excluding business combinations)	30	140	106	10	5	6	2	299

(b) Further analysis by products and services

The Group's results can be further analysed by products and services which comprise long-term business, fund management, general insurance and health, and non-insurance activities.

Long-term business

Our long-term business comprises 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 associates and joint ventures, as well as the Lifetime mortgage business written in the UK.

Fund management

Our fund management business invests policyholders' and shareholders' funds, provides investment management services for institutional pension fund mandates and manages a range of retail investment products, including investment funds, unit trusts, OEICs and ISAs. Clients include Aviva Group businesses and third-party financial institutions, pension funds, public sector organisations, investment professionals and private investors.

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General insurance and health

Our general insurance and health business provides insurance cover to individuals and to small and medium sized businesses, for risks associated mainly with motor vehicles, property and liability, such as employers' liability and professional indemnity liability, and medical expenses.

Non-insurance

Non-insurance includes the RAC non-insurance operations, our banking businesses, service companies, head office expenses, such as Group treasury and finance functions, and certain financing costs and taxes not allocated to business segments.

(i) Segmental income statement - products and services for the year ended 31 December 2008

	Long-term business £m	Fund management £m	General Insurance and health** £m	Other† £m	Total £m
Gross written premiums*	24,272	-	11,934	-	36,206
Premiums ceded to reinsurers	(1,044)	-	(797)	-	(1,841)
Net written premiums	23,228	-	11,137	-	34,365
Net change in provision for unearned premiums	-	-	277	-	277
Net earned premiums	23,228	-	11,414	-	34,642
Fee and commission income	753	567	160	405	1,885
	23,981	567	11,574	405	36,527
Net investment (expense)/income	(16,671)	3	425	200	(16,043)
Inter-segment revenue	-	185	-	-	185
Share of loss of joint ventures and associates	(1,089)	(12)	(5)	(22)	(1,128)
Profit on the disposal of subsidiaries and associates	-	-	-	7	7
Segmental income	6,221	743	11,994	590	19,548
Segmental expenses	(7,532)	(662)	(12,100)	(1,622)	(21,916)
Tax attributable to policyholder returns	1,068	-	-	-	1,068
Profit/(loss) before tax attributable to shareholders	(243)	81	(106)	(1,032)	(1,300)
Adjusted for non-operating items	1,937	42	1,304	314	3,597
Operating profit before tax attributable to shareholders' profits	1,694	123	1,198	(718)	2,297

* Gross written premiums includes inward reinsurance premiums assumed from other companies amounting to £255 million, of which £89 million relates to property and liability insurance £131 million to long-term business and the remainder health business.

** General insurance and health business segment includes gross written premiums of £1,945 million and premiums ceded to other companies of £35 million relating to health business. The remaining business relates to property and liability insurance.

† Other includes the RAC non-insurance operations, our banking business, head office expenses, such as Group treasury and finance functions, and certain financing costs and taxes not allocated to business segments.

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D7 - Segmental information continued

(ii) Segmental income statement - products and services for the year ended 31 December 2007


	Long-term business £m	Fund management £m	General insurance and health** £m	Other† £m	Restated Total £m
Gross written premiums*	19,622	-	11,369	-	30,991
Premiums ceded to reinsurers	(858)	-	(800)	-	(1,658)
Net written premiums	18,764	-	10,569	-	29,333
Net change in provision for unearned premiums	-	-	(21)	-	(21)
Net earned premiums	18,764	-	10,548	-	29,312
Fee and commission income	692	494	179	395	1,760
	19,456	494	10,727	395	31,072
Net investment income	8,529	45	827	288	9,689
Inter-segment revenue	-	152	-	-	152
Share of (loss)/profit of joint ventures and associates	(297)	(9)	3	(1)	(304)
Profit/(loss) on the disposal of subsidiaries and associates	-	-	(7)	56	49
Segmental income	27,688	682	11,550	738	40,658
Segmental expenses	(26,139)	(521)	(10,843)	(1,308)	(38,811)
Tax attributable to policyholder returns	(15)	-	-	-	(15)
Profit before tax attributable to shareholders	1,534	161	707	(570)	1,832
Adjusted for non-operating items	76	18	314	(24)	384
Operating profit before tax attributable to shareholders' profits	1,610	179	1,021	(594)	2,216

(iii) Segmental balance sheet - products and services as at 31 December 2008

	Long-term business £m	Fund management £m	General insurance and health £m	Other £m	Total £m
Segment assets	307,928	732	25,190	20,712	354,562
Segment liabilities	(291,347)	(392)	(19,552)	(28,825)	(340,116)
Net assets	16,581	340	5,638	(8,113)	14,446

(iv) Segmental balance sheet - products and services as at 31 December 2007

	Long-term business £m	Fund management £m	General insurance and health £m	Other £m	Restated Total £m
Segment assets	280,375	1,871	24,341	14,739	321,326
Segment liabilities	(265,736)	(1,517)	(18,581)	(19,561)	(305,395)
Net assets	14,639	354	5,760	(4,822)	15,931

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D8 - Tax

(a) Tax (credit)/charged to the income statement

(i) The total tax (credit)/charge comprises:

	2008 £m	Restated 2007 £m
Current tax
For this year	527	885
Prior year adjustments	(284)	(94)
Total current tax	243	791
Deferred tax
Origination and reversal of temporary differences	(1,814)	(348)
Changes in tax rates or tax laws	(7)	(88)
Write-down of deferred tax assets	95	(6)
Total deferred tax	(1,726)	(442)
Total tax (credited)/charged to income statement (note 13c)	(1,483)	349

In February 2009 an Australian tax court case was settled in our favour resulting in the release of tax provisions of £63 million which has reduced the tax charge in the income statement.

(ii) The Group, as a proxy for policyholders in the UK, Ireland, Singapore and Australia, is required to record taxes on investment income and gains each year. Accordingly, the tax benefit or expense attributable to UK, Irish, Singapore and Australian life insurance policyholder returns is included in the tax charge. The tax credit attributable to policyholders' returns included in the credit above is £1,068 million (2007: £15 million charge).

(iii) The tax (credit)/charge can be analysed as follows:

	2008 £m	Restated 2007 £m
UK tax	(1,482)	94
Overseas tax	(1)	255
	(1,483)	349

(iv) Unrecognised tax losses and temporary differences of previous years were used to reduce current tax expense and deferred tax expense by £139 million and £19 million, respectively (2007: £51 million and £6 million, respectively).

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(v) Deferred tax credited to the income statement represents movements on the following items:

	2008 £m	2007 £m
Long-term business technical provisions and other insurance items	591	315
Deferred acquisition costs	224	34
Unrealised losses on investments	(1,706)	(793)
Pensions and other post-retirement obligations	16	40
Unused losses and tax credits	(413)	(272)
Subsidiaries, associates and joint ventures	(199)	(33)
Intangibles and additional value of in-force long-term business	30	(75)
Provisions and other temporary differences	(269)	342
Total deferred tax credited to income statement	(1,726)	(442)

(b) Tax (credited)/charged to equity

(i) The total tax (credit)/charge comprises:

	2008 £m	2007 £m
Current tax	(16)	(19)
Deferred tax
In respect of pensions and other post-retirement obligations	(15)	269
In respect of unrealised losses on investments	(204)	(71)
	(219)	198
Total tax (credited)/charged to equity	(235)	179

(ii) The tax credit attributable to policyholders' returns included above is £nil (2007: £nil).

The tax on the Group's profit before tax differs from the theoretical amount that would arise using the tax rate of the home country of the Company as follows:

	2008 £m	Restated 2007 £m
(Loss)/profit before tax	(2,368)	1,847
Tax calculated at standard UK corporation tax rate of 28.5% (2007: 30%)	(675)	554
Different basis of tax - policyholders	(767)	5
Adjustment to tax charge in respect of prior years	(283)	(49)
Non-assessable income	(94)	(124)
Non-taxable profit on sale of subsidiaries and associates	(2)	(18)
Disallowable expenses	95	7
Different local basis of tax on overseas profits	(61)	56
Reduction in future UK tax rate (net of movements in unallocated divisible surplus)	-	(64)
Deferred tax not recognised	292	1
Other	12	(19)
Total tax (credited)/charged to income statement (note 13a)	(1,483)	349

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D9 - Earnings per share

(a) Basic earnings per share

(i) The profit attributable to ordinary shareholders is:

			2008			Restated 2007
	Operating profit £m	Adjusting items £m	Total £m	Operating profit £m	Adjusting items £m	Total £m
Profit/(loss) before tax attributable to shareholders' profits	2,297	(3,597)	(1,300)	2,216	(384)	1,832
Tax attributable to shareholders' (loss)/profits	(487)	902	415	(604)	270	(334)
Profit/(loss) for the year	1,810	(2,695)	(885)	1,612	(114)	1,498
Amount attributable to minority interests	(91)	61	(30)	(191)	13	(178)
Cumulative preference dividends for the year	(17)	-	(17)	(17)	-	(17)
Coupon payments in respect of direct capital instruments (DCI) (net of tax)	(40)	-	(40)	(37)	-	(37)
Profit/(loss) attributable to ordinary shareholders	1,662	(2,634)	(972)	1,367	(101)	1,266

(ii) Basic earnings per share is calculated as follows:

			2008			Restated 2007
	Before tax £m	Net of tax, minorities, preference dividends and DCI £m	Per share p	Before tax £m	Net of tax, minorities, preference dividends and DCI £m	Per share p
Operating profit attributable to ordinary shareholders	2,297	1,662	62.9	2,216	1,367	52.8
Non-operating items:
Investment return variances and economic assumption changes on long-term business	(1,631)	(1,280)	(48.4)	15	92	3.6
Short-term fluctuation in return on investments backing non-long-term business	(819)	(553)	(20.9)	(184)	(51)	(2.0)
Economic assumption changes on general insurance and health business	(94)	(67)	(2.5)	2	2	0.1
Impairment of goodwill	(66)	(66)	(2.5)	(10)	(10)	(0.4)
Amortisation and net impairment of intangibles	(117)	(89)	(3.4)	(103)	(72)	(2.8)
Profit on the disposal of subsidiaries and associates	7	7	0.3	49	52	2.0
Integration and restructuring costs and
exceptional items	(877)	(586)	(22.3)	(153)	(114)	(4.4)
(Loss)/profit attributable to ordinary shareholders	(1,300)	(972)	(36.8)	1,832	1,266	48.9

(iii) The calculation of basic earnings per share uses a weighted average of 2,643 million (2007: 2,588 million) ordinary shares in issue, after deducting shares owned by the employee share trusts. The actual number of shares in issue at 31 December 2008 was 2,658 million (2007: 2,622 million).

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Page 131

D9 - Earnings per share continued

(b) Diluted earnings per share

(i) Diluted earnings per share is calculated as follows:

	2008			2007
	Total £m	Weighted average number of shares m	Per share p	Total £m	Weighted average number of shares m	Per share p
(Loss)/profit attributable to ordinary shareholders	(972)	2,643	(36.8)	1,266	2,588	48.9
Dilutive effect of share awards and options	-	24	-	-	24	(0.4)
Diluted (loss)/earnings per share	(972)	2,667	(36.8)	1,266	2,612	48.5

(ii) Diluted earnings per share on operating profit attributable to ordinary shareholders is calculated as follows:

			2008			2007
	Total £m	Weighted average number of shares m	Per share p	Total £m	Weighted average number of shares m	Per share p
Operating profit attributable to ordinary shareholders	1,662	2,643	62.9	1,367	2,588	52.8
Dilutive effect of share awards and options	-	24	(0.6)	-	24	(0.5)
Diluted earnings per share	1,662	2,667	62.3	1,367	2,612	52.3

D10 - Dividends and appropriations

	2008 £m	2007 £m
Ordinary dividends declared and charged to equity in the year
Final 2007 - 21.10 pence per share, paid on 16 May 2008	554	-
(Final 2006 - 19.18 pence per share, paid on 18 May 2007)	-	492
Interim 2008 - 13.09 pence per share, paid on 17 November 2008	348	-
(Interim 2007 - 11.90 pence per share, paid on 16 November 2007)	-	309
	902	801
Preference dividends declared and charged to equity in the year	17	17
Coupon payments on direct capital instrument	56	53
	975	871

Subsequent to 31 December 2008, the directors proposed a final dividend for 2008 of 19.91 pence per ordinary share (2007: 21.10 pence), amounting to £529 million (2007: £554 million) in total. Subject to approval by shareholders at the AGM, the dividend will be paid on 15 May 2009 and will be accounted for as an appropriation of retained earnings in the year ending 31 December 2009.

Interest on the direct capital instrument issued in November 2004 is treated as an appropriation of retained profits and, accordingly, it is accounted for when paid. Tax relief is obtained at a rate of 28.5% (2007: 30%).

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Page 131

D11 - Insurance liabilities

(a) Carrying amount

Insurance liabilities at 31 December comprise:

			2008			Restated 2007
	Long-term business £m	General insurance and health £m	Total £m	Long-term business £m	General insurance and health £m	Total £m
Long-term business provisions
Participating	66,863	-	66,863	66,093	-	66,093
Unit-linked non-participating	22,060	-	22,060	20,601	-	20,601
Other non-participating	67,265	-	67,265	48,618	-	48,618
	156,188	-	156,188	135,312	-	135,312
Outstanding claims provisions	907	11,842	12,749	727	10,842	11,569
Provision for claims incurred but not reported	-	2,518	2,518	-	2,099	2,099
	907	14,360	15,267	727	12,941	13,668
Provision for unearned premiums	-	5,493	5,493	-	5,484	5,484
Provision arising from liability adequacy tests	-	13	13	-	24	24
Other technical provisions	-	-	-	-	3	3
Total	157,095	19,866	176,961	136,039	18,452	154,491
Less: Obligations to staff pension schemes transferred to provisions	(1,402)	-	(1,402)	(1,025)	-	(1,025)
Amounts classified as held for sale	-	(709)	(709)	-	(627)	(627)
	155,693	19,157	174,850	135,014	17,825	152,839

(b) Movements in long-term business liabilities

The following movements have occurred in the long-term business provisions during the year:

	2008 £m	2007 £m
Carrying amount at 1 January	135,312	126,614
Provisions in respect of new business	13,414	10,470
Expected change in existing business provisions	(6,423)	(6,280)
Variance between actual and expected experience	(9,401)	(877)
Effect of adjusting to PS06/14 realistic basis	(40)	(60)
Impact of other operating assumption changes	(812)	95
Impact of economic assumption changes	(604)	(909)
Effect of special bonus to with-profit policyholders	-	1,728
Other movements	(527)	(324)
Change in liability recognised as an expense	(4,393)	3,843
Effect of portfolio transfers, acquisitions and disposals	1,872	571
Foreign exchange rate movements	23,397	4,284
Carrying amount at 31 December	156,188	135,312

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D11 - Insurance liabilities continued

(b) Movements in general insurance and health liabilities

The following changes have occurred in the general insurance and health claims provisions during the year:

	2008 £m	Restated 2007 £m
Carrying amount at 1 January - as reported	12,941	12,718
Prior year adjustment - impact of discounting on latent claims	-	(214)
Carrying amount at 1 January restated	12,941	12,504
Impact of changes in assumptions	120	(1)
Claim losses and expenses incurred in the current year	8,720	8,273
Decrease in estimated claim losses and expenses incurred in prior years	(828)	(956)
Exceptional strengthening of general insurance latent claims provisions	356	-
Incurred claims losses and expenses	8,368	7,316
Less:
Payments made on claims incurred in the current year	(4,682)	(4,408)
Payments made on claims incurred in prior years	(4,307)	(3,686)
Recoveries on claim payments	293	315
Claims payments made in the year, net of recoveries	(8,696)	(7,779)
Unwind of discounting	33	35
Other movements in the claims provisions	(27)	36
Changes in claims reserve recognised as an expense	(322)	(392)
Effect of portfolio transfers, acquisitions and disposals	128	175
Foreign exchange rate movements	1,613	654
Carrying amount at 31 December	14,360	12,941

Prior year releases of £840 million reflect decrease in estimated claim losses and expenses incurred in prior years above of
£828 million and £12 million increase of reinsurance.

Exceptional strengthening of £304 million reflects gross amount of £356 million above and £52 million of reinsurance.

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D11 - Insurance liabilities continued

(d) Loss development tables

(i) Gross figures

Before the effect of reinsurance, the loss development table is:

Accident year	All prior years £m	2001 £m	2002 £m	2003 £m	2004 £m	2005 £m	2006 £m	2007 £m	2008 £m	Total £m
Gross cumulative claim payments
At end of accident year		(3,029)	(2,952)	(2,819)	(2,971)	(3,345)	(3,653)	(4,393)	(4,915)
One year later		(4,766)	(4,486)	(4,190)	(4,561)	(5,011)	(5,525)	(6,676)
Two years later		(5,303)	(4,921)	(4,613)	(4,981)	(5,449)	(5,971)
Three years later		(5,701)	(5,233)	(4,972)	(5,263)	(5,784)
Four years later		(5,966)	(5,466)	(5,258)	(5,448)
Five years later		(6,121)	(5,618)	(5,409)
Six years later		(6,223)	(5,715)
Seven years later		(6,294)
Estimate of gross ultimate claims
At end of accident year		6,590	6,250	6,385	6,891	7,106	7,533	8,530	9,508
One year later		6,770	6,372	6,172	6,557	6,938	7,318	8,468
Two years later		6,775	6,287	6,124	6,371	6,813	7,243
Three years later		6,798	6,257	6,036	6,178	6,679
Four years later		6,754	6,205	5,932	6,008
Five years later		6,679	6,122	5,853
Six years later		6,630	6,056
Seven years later		6,576
Estimate of gross ultimate claims		6,576	6,056	5,853	6,008	6,679	7,243	8,468	9,508
Cumulative payments		(6,294)	(5,715)	(5,409)	(5,448)	(5,784)	(5,971)	(6,676)	(4,915)
	3,600	282	341	444	560	895	1,272	1,792	4,593	13,779
Effect of discounting
Claims previously discounted	(187)	(4)	(4)	(4)	(2)	(3)	(4)	(7)	(12)	(227)
New discounted claims	(474)	-	-	-	-	-	-	-	-	(474)
Present value	2,939	278	337	440	558	892	1,268	1,785	4,581	13,078
Cumulative effect of foreign exchange movements	-	56	70	129	130	165	240	231	-	1,021
Effect of acquisitions	-	12	12	66	21	31	35	60	24	261
Present value recognised in the balance sheet	2,939	346	419	635	709	1,088	1,543	2,076	4,605	14,360

The effect of discounting on new discounted claims relates to the discounting of latent claims introduced for the first time in 2008.

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D11 - Insurance liabilities continued

(ii) Net of reinsurance

After the effect of reinsurance, the loss development table is:

Accident year	All prior years £m	2001 £m	2002 £m	2003 £m	2004 £m	2005 £m	2006 £m	2007 £m	2008 £m	Total £m
Net cumulative claim payments
At end of accident year		(2,970)	(2,913)	(2,819)	(2,870)	(3,281)	(3,612)	(4,317)	(4,808)
One year later		(4,624)	(4,369)	(4,158)	(4,378)	(4,925)	(5,442)	(6,542)
Two years later		(5,088)	(4,779)	(4,565)	(4,712)	(5,344)	(5,881)
Three years later		(5,436)	(5,064)	(4,924)	(4,986)	(5,671)
Four years later		(5,648)	(5,297)	(5,180)	(5,163)
Five years later		(5,763)	(5,424)	(5,325)
Six years later		(5,841)	(5,508)
Seven years later		(5,896)
Estimate of net ultimate claims
At end of accident year		6,186	6,037	6,218	6,602	6,982	7,430	8,363	9,262
One year later		6,333	6,038	6,093	6,266	6,818	7,197	8,302
Two years later		6,321	5,997	6,037	6,082	6,688	7,104
Three years later		6,329	5,973	5,942	5,882	6,544
Four years later		6,286	5,912	5,851	5,709
Five years later		6,219	5,855	5,772
Six years later		6,173	5,786
Seven years later		6,109
Estimate of net ultimate claims		6,109	5,786	5,772	5,709	6,544	7,104	8,302	9,262
Cumulative payments		(5,896)	(5,508)	(5,325)	(5,163)	(5,671)	(5,881)	(6,542)	(4,808)
	2,100	213	278	447	546	873	1,223	1,760	4,454	11,894
Effect of discounting
Claims previously discounted	(19)	(4)	(4)	(4)	(2)	(3)	(4)	(6)	(11)	(57)
New discounted claims	(390)	-	-	-	-	-	-	-	-	(390)
Present value	1,691	209	274	443	544	870	1,219	1,754	4,443	11,447
Cumulative effect of foreign exchange movements	-	42	63	115	123	153	224	220	-	940
Effect of acquisitions	-	10	10	43	19	26	29	44	26	207
Present value recognised in the balance sheet	1,691	261	347	601	686	1,049	1,472	2,018	4,469	12,594

The effect of discounting on new discounted claims relates to the discounting of latent claims introduced for the first time in 2008.

In the loss development tables shown above, the cumulative claim payments and estimates of cumulative claims for each accident year are translated into sterling at the exchange rates that applied at the end of that accident year. The impact of using varying exchange rates is shown at the bottom of each table. Disposals are dealt with by treating all outstanding and IBNR claims of the disposed entity as 'paid' at the date of disposal.

The loss development tables above include information on asbestos and environmental pollution claims provisions from business written before 2001. The undiscounted claim provisions, net of reinsurance, in respect of this business at 31 December 2008 were £1,019 million (2007: £323 million). The movement in the year reflects exceptional strengthening of provisions by £668 million due to the increased market trend in mesothelioma claim notifications, other strengthening of £16 million (2007: £20 million), foreign exchange rate movements and timing differences between claim payments and reinsurance recoveries.

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Part 136

D12 - Liability for investment contracts

(a) Participating investment contracts

	2008 £m	2007 £m
Carrying amount at 1 January	53,609	49,400
Provisions in respect of new business	3,391	3,009
Expected change in existing business provisions	(1,909)	(1,978)
Variance between actual and expected experience	(4,661)	(404)
Impact of operating assumption changes	(166)	(3)
Impact of economic assumption changes	244	178
Effect of special bonus to with-profit policyholders	-	399
Other movements	13	(176)
Change in liability recognised as an expense	(3,088)	1,025
Effect of portfolio transfers, acquisitions and disposals	2,181	-
Foreign exchange rate movements	12,576	3,184
Other movements	-	-
Carrying amount at 31 December	65,278	53,609

(b) Non-participating investment contracts

	2008 £m	2007 £m
Carrying amount at 1 January	44,635	38,958
Provisions in respect of new business	5,314	8,575
Expected change in existing business provisions	(2,273)	(1,094)
Variance between actual and expected experience	(9,503)	(3,231)
Impact of operating assumption changes	(28)	(2)
Impact of economic assumption changes	5	20
Other movements	(169)	61
Change in liability	(6,654)	4,329
Effect of portfolio transfers, acquisitions and disposals	(14)	254
Foreign exchange rate movements	4,314	1,094
Carrying amount at 31 December	42,281	44,635

The negative variance between actual and expected experience relates mainly to lower than expected investment returns on unit funds.

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Part 137

D13 - Reinsurance assets

(a) Carrying amounts

The reinsurance assets at 31 December comprised:

	2008 £m	Restated 2007 £m
Long-term business
Insurance contracts	4,466	4,298
Participating investment contracts	52	22
Non-participating investment contracts	1,047	1,461
Outstanding claims provisions	145	94
	5,710	5,875
General insurance and health
Outstanding claims provisions	1,737	1,634
Provisions for claims incurred but not reported	29	29
	1,766	1,663
Provision for unearned premiums	418	511
Other technical provisions	-	5
	2,184	2,179
Total	7,894	8,054

Of the above total, £6,097 million (2007: £4,796 million) is expected to be recovered more than one year after the balance sheet date.

(b) Assumptions

The assumptions, including discount rates, used for reinsurance contracts follow those used for insurance contracts.

Reinsurance assets are valued net of an allowance for their recoverability.

The following movements have occurred in the reinsurance asset during the year:

(i) In respect of long-term business provisions

	2008 £m	2007 £m
Carrying amount at 1 January	5,781	5,534
Asset in respect of new business	235	216
Expected change in existing business asset	243	(124)
Variance between actual and expected experience	(1,141)	52
Impact of other operating assumption changes	(761)	14
Impact of economic assumption changes	306	(122)
Other movements	(231)	(40)
Change in asset	(1,349)	(4)
Effect of portfolio transfers, acquisitions and disposals	140	24
Foreign exchange rate movements	993	227
Carrying amount at 31 December	5,565	5,781

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D13 - Reinsurance assets continued

(ii) In respect of general insurance and health outstanding claims provisions and IBNR

	2008 £m	Restated 2007 £m
Carrying amount at 1 January as published	1,663	1,738
Prior year adjustment - impact of discounting on latent claims	-	(61)
Carrying amount at 1 January restated	1,663	1,677
Impact of changes in assumptions	21	-
Exceptional strengthening of latent claims provisions (see below)	52	-
Reinsurers' share of claim losses and expenses
Incurred in current year	228	169
Incurred in prior years	12	12
Reinsurers' share of incurred claim losses and expenses	240	181
Less:
Reinsurance recoveries received on claims
Incurred in current year	(107)	(75)
Incurred in prior years	(257)	(223)
Reinsurance recoveries received in the year	(364)	(298)
Unwind of discounting	24	26
Change in reinsurance asset recognised as income	(27)	(91)
Effect of portfolio transfers, acquisitions and disposals	27	39
Foreign exchange rate movements	105	42
Other movements	(2)	(4)
	1,766	1,663

The one-off strengthening of latent claims reserves during 2008 resulted in an increase in the reinsurers' share of claims and losses of £52 million.

(iii) Reinsurers' share of the provision for unearned premiums (UPR)

	2008 £m	2007 £m
Carrying amount at 1 January	511	484
Premiums ceded to reinsurers in the year	798	800
Less: Reinsurers' share of premiums earned during the year	(909)	(797)
Changes in reinsurance asset recognised as income	(111)	3
Reinsurers' share of portfolio transfers and acquisitions	8	18
Foreign exchange rate movements	10	6
Carrying amount at 31 December	418	511

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Page 139

D14 - Effect of changes in assumptions and estimates during the year

This disclosure only allows for the impact on liabilities and related assets, such as reinsurance, deferred acquisition costs and AVIF, and does not allow for offsetting movements in the value of backing financial assets.

	Effect on profit 2008 £m	Effect on profit 2007 £m
Assumptions
Long-term insurance business
Interest rates	(521)	850
Expenses	24	(13)
Persistency rates	2	(2)
Mortality for assurance contracts	44	16
Mortality for annuity contracts	26	11
Tax and other assumptions	93	60
Investment contracts
Interest rates	(75)	12
Expenses	(27)	5
Persistency rates	2	-
Tax and other assumptions	36	7
General insurance and health business
Change in loss ratio assumptions	(1)	-
Change in discount rate assumptions	(94)	3
Change in expense ratio assumptions	-	(4)
Total	(491)	945

The impact of interest rates for long-term business relates primarily to the UK, Ireland and the Netherlands, driven by the market level of risk-free rates. Lower valuation interest rates in 2008 had the effect of increasing liabilities for traditional business and hence a negative impact on profit. This follows an increase in market interest rates in 2007 which had the reverse effect. The overall impact on profit also depends on movements in the value of assets backing the liabilities, which is not included in this disclosure.

Favourable impacts from expense and mortality assumption changes relate mainly to the UK. Other assumption changes include further implementation of FSA Policy Statement PS06/14 for non-profit business and expense inflation adjustments in the UK, and reserve releases in Asia, partly offset by compensation for unit-linked policies in the Netherlands.

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Page 140

D15 - Unallocated divisible surplus

(a) Movements

The following movements have occurred in the year:

	2008 £m	2007 £m
Carrying amount at 1 January	6,785	9,465
Change in participating contract assets	(12,022)	2,463
Change in participating contract liabilities	7,699	(3,244)
Effect of special bonus to with-profit policyholders	(89)	(2,127)
Other movements	(70)	(14)
Change in liability recognised as an expense	(4,482)	(2,922)
Effect of portfolio transfers, acquisitions and disposals	-	3
Movement in respect of change in pension scheme deficit	(78)	61
Foreign exchange rate movements	88	173
Other movements	12	5
Carrying amount at 31 December	2,325	6,785

In France, Italy and Spain the unallocated divisible surplus balances were £924 million negative in total at 31 December 2008 (2007: £166 million negative) because of an accounting mismatch between participating assets carried at market value and participating liabilities measured using local practice; in each case the negative balance is considered to be recoverable from margins in the existing participating business liabilities.

(b) Special bonus declared by UK Life business

On 5 February 2008, the Group's UK long-term business operation, Norwich Union Life, announced a one-off, special bonus worth an estimated £2.3 billion, benefiting around 1.1 million with-profit policyholders in its CGNU Life and CULAC with-profit funds. The bonus is being used to enhance policy values by around 10% in total, in three instalments, with the qualifying dates being 1 January 2008, 1 January 2009 and 1 January 2010. In accordance with the way the funds are managed, the bonus distribution is being split on a 90/10 basis between policyholders and shareholders. Over the three years, policyholders will receive a total currently estimated as £2,127 million and shareholders will receive a total currently estimated as £236 million.

As explained in our group's accounting policies F and K, the Group's insurance and participating investment contract liabilities are measured in accordance with IFRS 4, Insurance Contracts, and FRS 27, Life Assurance. The latter requires liabilities for with-profit funds falling within the scope of the UK's Financial Services Authority's capital regime to be determined in accordance with this regime, adjusted to remove the shareholders' share of future bonuses. This required us to recognise planned discretionary bonuses within policyholder liabilities at 31 December 2007, even if there was no constructive obligation at the time. As a result of the announcement made above, a transfer of £2,127 million was made in 2007 from the UDS in order to increase insurance liabilities by £1,728 million and participating investment contract liabilities by £399 million. Of the £236 million due to shareholders, £89 million has been transferred from the UDS in 2008 (2007: £nil).

D16 - Pension obligations

(a) Recognised in the income statement

The total pension expense for these schemes comprises:

	2008 £m	2007 £m
Current service cost	(162)	(173)
Past service cost	(1)	-
Gain on curtailments	(3)	(15)
Total pension cost charged to net operating expenses	(166)	(188)
Expected return on scheme assets	706	614
Less: Income on insurance policy assets accounted for elsewhere (see (iii) above)	(64)	(49)
	642	565
Interest charge on scheme liabilities	(585)	(515)
Credit to investment income	57	50
Total charge to income	(109)	(138)

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Page 141

D16 - Pension obligations continued

(b) Recognised in the statement of recognised income and expense

	2008 £m	2007 £m
Expected return on scheme assets	(706)	(614)
Actual (negative)/positive return on these assets	(1,245)	404
Actuarial losses on scheme assets	(1,951)	(210)
Less: losses on insurance policy assets accounted for elsewhere	58	72
Actuarial losses on admissible assets	(1,893)	(138)
Experience gains/(losses) arising on scheme liabilities	105	(80)
Changes in assumptions underlying the present value of the scheme liabilities	859	902
Loss on acquisitions	-	(36)
Actuarial (losses)/gains recognised in the statement of recognised income and expense	(929)	648

The cumulative amount of actuarial gains and losses on the pension schemes recognised in the statement of recognised income and expense since 1 January 2004 (the date of transition to IFRS) is a loss of £1,090 million at 31 December 2008 (2007: loss of £161 million).

Movements in the pension schemes' deficits and surpluses comprise:

					2008
	Scheme assets £m	Scheme liabilities £m	Pension scheme deficit £m	Adjust for Group insurance policies £m	IAS 19 pensions deficit £m
Net deficits in the schemes at 1 January	9,839	(10,017)	(178)	(1,025)	(1,203)
Employer contributions	620	-	620	(70)	550
Employee contributions	24	(24)	-	(7)	(7)
Benefits paid	(368)	368	-	39	39
Current and past service cost (see (a) above)	(5)	(158)	(163)	-	(163)
Losses on curtailments (see (a) above)	-	(3)	(3)	-	(3)
Credit/(charge) to investment income (see (a) above)	706	(585)	121	(64)	57
Other actuarial gains/(losses) (see (a) above)	(1,951)	964	(987)	58	(929)
Buy-outs and other transfers	(1)	1	-	1	1
Exchange rate movements on foreign plans	474	(497)	(23)	(334)	(357)
Net deficits in the schemes at 31 December	9,338	(9,951)	(613)	(1,402)	(2,015)

The change in the pension schemes' net deficits during 2008 is mainly attributable to the fall in equity and property investment values, partly offset by favourable changes in assumptions underlying the present value of the schemes' liabilities and further deficit contribution payments to the main UK scheme made by the employing companies.

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Page 142

D16 - Pension obligations continued

					2007
	Scheme assets £m	Scheme liabilities £m	Pension scheme deficit £m	Adjust for Group insurance policies £m	IAS 19 pensions deficit £m
Net deficits in the schemes at 1 January	9,223	(10,196)	(973)	(1,086)	(2,059)
Employer contributions	297	-	297	(41)	256
Employee contributions	23	(23)	-	(4)	(4)
Benefits paid	(339)	339	-	33	33
Current and past service cost (see (a) above)	(4)	(169)	(173)	-	(173)
Losses on curtailments (see (a) above)	-	(15)	(15)	-	(15)
Credit/(charge) to investment income (see (a) above)	614	(515)	99	(49)	50
Acquisitions	72	(91)	(19)	(15)	(34)
Other actuarial gains/(losses) (see (a) above)	(210)	822	612	72	684
Buy-outs and other transfers	6	(6)	-	(2)	(2)
Changes in asset admissibility	-	-	-	152	152
Exchange rate movements on foreign plans	157	(163)	(6)	(85)	(91)
Net deficits in the schemes at 31 December	9,839	(10,017)	(178)	(1,025)	(1,203)

D17 - Borrowings

(a) Movements during the year

Movements in borrowings during the year were:

	Core structural £m	Operational £m	Total 2008 £m
New borrowings drawn down, net of expenses	3,929	1,586	5,515
Repayment of borrowings	(3,496)	(1,721)	(5,217)
Net cash inflow	433	(135)	298
Foreign exchange rate movements	779	1,779	2,558
Borrowings acquired for non-cash consideration	-	(3)	(3)
Acquisitions	-	81	81
Fair value movements	-	(404)	(404)
Amortisation of discounts and other non-cash items	2	-	2
Movements in the year	1,214	1,318	2,532
Balance at 1 January	4,311	8,358	12,669
Balance at 31 December	5,525	9,676	15,201

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Page 143

D17 - Borrowings continued

(b) Movements in borrowings during the previous year were:

	Core structural £m	Operational £m	Total 2007 £m
New borrowings drawn down, net of expenses	4,780	1,542	6,322
Repayment of borrowings	(4,799)	(1,201)	(6,000)
Net cash inflow	(19)	341	322
Foreign exchange rate movements	133	499	632
Borrowings acquired for non-cash consideration	-	18	18
Acquisitions	-	(174)	(174)
Fair value movements	-	(268)	(268)
Amortisation of discounts and other non-cash items	2	-	2
Movements in the year	116	416	532
Balance at 1 January	4,195	7,942	12,137
Balance at 31 December	4,311	8,358	12,669

All movements in fair value in 2008 and 2007 on securitised mortgage loan notes designated as fair value through profit or loss were attributable to changes in market conditions. These loan notes have external credit ratings which have not changed since the inception of the loans.

D18 - Risk management

As a global company, we face a large and diverse number of risks. Each of these risks has the potential to harm our financial performance or hinder the achievement of our strategic objectives. If we don't manage risk effectively we could miss potential opportunities to further develop and expand our business.

What sorts of risks do we face?

We group the type of risks we face into three categories: financial, strategic and operational.

- Financial risks cover market and credit risk, insurance risk, liquidity and capital management.

- Strategic risks include issues such as customer, products and markets as well as any risks to our business model arising from changes in our market and risks arising from mergers and acquisitions.

- Operational risks arise from inadequately controlled internal processes or systems, human error or non-compliance as well as from external events. Operational risks include taxation, reputation and regulatory risks, such as compliance.

Naturally, it's impossible to analyse every single risk we encounter, so instead we set limits to manage our material risks to ensure we stay within our risk appetite (the amount of risk we are willing to accept). To work out how 'material' a risk is to our business we assess its size and scale based on how likely it is that it will occur and what potential impact it would have on our business and our stakeholders if it were to occur. Most importantly, when risks are outside of appetite we agree what actions need to be taken to manage the risks (or groups of risks).

Our Risk Management Framework provides the means for us to identify, assess, measure, manage and monitor all of these different types of risk to provide us with a single picture of the threats, uncertainties and opportunities we face. We're then able to make appropriate decisions to limit and control the impact that all of these risks may have on our strategic objectives.

What risk management activity happens at Aviva?

To ensure that risks are effectively identified and assessed and that appropriate controls and responses are in place, our risk management activity needs to operate through clearly defined and agreed structures and processes.

At Aviva, we coordinate all group-wide risk management activities through a central risk team, led by the Group Chief Risk Officer. In each of our regions, local Chief Risk Officers ensure that the regional risk profiles remain within the limits set centrally. The local Chief Risk Officers work with business unit management to ensure that our risk management framework is being used consistently across all our businesses. They also work with the Group Chief Risk Officer to coordinate and communicate decisions that are taken at a group level.

As well as working with the regions, the central risk team is also responsible for managing group risk governance and oversight.

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D18 - Risk management continued

Our Risk Management Framework

At Group centre, we monitor risks on a regular basis through our Risk Management Framework. The framework includes all our risk management processes, systems and tools and helps set standards for identifying, managing and reporting risks and establishing minimum standards for our control environment.

This process allows us to:

- assess the overall risk exposures we face as a group;

- identify risk exposures across specific areas of our business or business activities; and

- define the risks we're prepared to accept.

The central risk team monitors these risk exposures on a regular basis, with a specific focus on financial risks via a fortnightly report, and reports the findings to the Executive Committee. As part of the performance management process, senior management review risk management information to ensure the successful delivery of our business objectives.

As well as the ongoing monitoring activities the central risk team produces a formal quarterly risk report for the Risk and Regulatory Committee of the Board and the various risk oversight committees.

Corporate governance and oversight

Our risk governance framework allocates responsibility for the oversight of risk management to a number of committees at Group centre with the Group Asset Liability Committee ('ALCO') and the Group Operational Risk Committee ('ORC') providing a key focus on financial and operational risk. The Group centre committees are in turn supported by the regions.

These committees monitor the aggregate risk profile, provide challenge and recommend risk management activity and ensure that our risk policies are used to manage risk to agreed standards.

Board oversight is maintained on a regular basis through its Risk and Regulatory Committee. The Group Chief Risk Officer has a reporting line to the Chief Financial Officer as well as to the Chairman of the Risk & Regulatory Committee, assuring independence of the function.

Policies and procedures

We have 35 policies that deal with the management of all our risks. These policies define our risk appetite and set out risk management and control standards for the group's worldwide operations. The policies also set out the roles and responsibilities of businesses, regions, policy owners, and the risk oversight committees.

As our business needs to change and respond to market conditions and customer needs, we regularly monitor our policies and risk appetite to ensure they remain relevant and up-to-date. This helps to provide assurance to the various governance and risk oversight committees that there are appropriate controls in place for all our core business activities, and that the processes for managing risk are understood and followed consistently across our global businesses.

Risk and economic capital

We continue to develop our economic capital models to allow us to measure, compare and further understand our risks. The results of the modelling are incorporated into our key decision making processes. These models show us the relative impact to economic capital from the risks we face. In turn this allows us to consider appropriate and effective mitigating strategies where risks are outside of appetite

The Financial Services Authority (FSA) requires Aviva to assess its economic capital requirements to ensure that it adequately reflects business and control risks. In turn this analysis supports our strategic planning and decision-making processes.

How are financial, strategic and operational risks managed at Aviva?

Financial Risks

We're exposed to financial risk as a result of changes in the values of our investments and the value of our insurance liabilities. This risk is caused by potential market movements in equity and property prices, the impact of interest rate changes and inflation expectations, credit risk exposures, foreign exchange rate movements and liquidity demands.

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D18 - Risk management continued

Market risk

Aviva is exposed to market risk from owning a portfolio of international insurance businesses. A decline in markets or an increase in market volatility may also adversely affect sales of our investment products and our fund management business. We recognise that market risk is part of the businesses that we run, and that a certain level of market risk is acceptable in order to deliver benefits to both policyholders and shareholders.

We manage market risk by applying our market risk policy to all of the assets under the Group's control. This includes policyholder assets (those assets supporting the technical liabilities) and shareholder assets (the surplus assets held that are not required to meet policyholder benefits and to cover regulatory margins). In practice assets can move between these categories.

To ensure we manage the risks around assets backing technical liabilities, we have set standards for the way businesses should match their liabilities with appropriate assets. Businesses also need to follow a clear decision-making and monitoring process when liabilities cannot be matched or a degree of mismatching is desired. Several of our long term savings businesses sell products where the majority of the market risk is borne by the policyholder. Any market risk attributable to policyholders is managed to satisfy the policyholders' objectives for risk and reward.

We monitor the financial impact of the changes to market values (including our staff pension schemes) through our measurement of economic capital and sensitivities to our key performance measures and set our risk appetite in respect of the amount to be invested in different types of asset.

Equity price risk

Falls in equity prices is our largest market risk exposure. We continually monitor our exposures relative to our risk appetite and have reduced our overall exposures to equity risk during 2008 by extending our portfolio of equity hedges. This is in addition to the significant equity de-risking we performed in 2007 within our main staff pension scheme and General Insurance businesses. These hedges tend to take the form of a portfolio of options designed to provide protection against falls in equity prices at the lowest cost possible. Over the year we have actively managed our portfolio of equity hedges to ensure our equity risk remains within appetite without any adverse liquidity impacts.

'Hedging' is a strategy used to reduce exposures to price risk movements.

Our analysis of equity price risk shows that a 10% decrease in equity prices causes a £382 million pre-tax decrease in the level of shareholders' funds on an IFRS basis and a reduction of embedded value of £650 million, net of tax on an MCEV basis. Sensitivities to increases in equity prices are shown in note 55 and in the section on MCEV reporting. These figures are based on an instantaneous shock and include the impact of the hedges in place.

Interest rate risk

Changes in the level of interest rates affect both the products we sell and the value of our investments. For example, long-term debt and fixed income securities are both exposed to fluctuations in interest rates. We are also exposed to movements in interest rates on business carrying investment return and surrender value guarantees.

A 1% decrease in interest rates would increase shareholders' funds by £420 million pre-tax on an IFRS basis and embedded value would decrease by £465 million, net of tax on an MCEV basis. Sensitivities to increases in interest rates are shown in note 55 and in the section on MCEV reporting.

For some categories of our long-term business, we reduce interest rate risk through the close matching of assets and liabilities. For short-term business such as general insurance, we require a close matching of assets and liabilities by duration to minimise this risk. If we can't entirely remove interest rate exposure through matching, then we may use a variety of derivative instruments in order to hedge against unfavourable market movements.

We have implemented a portfolio of hedges in Delta Lloyd to protect against the interest rate guarantees within the business. This strategy protected our position in the light of the rapidly falling interest rates environment we have witnessed.

Property price risk

We also invest in property assets in different global locations. These assets are also subject to fluctuations in their value. Property investment is managed locally by our business units, recognising any local regulatory restrictions in respect of asset admissibility or liquidity and with reference to the business units' risk appetite.

A 10% decrease in property values would decrease shareholders' funds by £355 million pre-tax on an IFRS basis and embedded value would decrease by £355 million, net of tax on an MCEV basis. Sensitivities to property values are shown in note 55 and in the section on MCEV reporting.

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D18 - Risk management continued

Credit risk

We have significant exposures to credit risk through our investments in corporate bonds, commercial mortgages, and other securities. We hold these investments for the benefit of both our policyholders and shareholders.

We manage the exposure to individual counterparties, by measuring exposure against centrally set limits. These limits take account of credit ratings issued by rating agencies such as Standard & Poor's.

We manage the level of risk we're prepared to take via analysis that helps us define the optimal balance between the risk we take and the returns we can earn on the underlying assets, monitoring the types of investment available to us to achieve our aims. We also actively monitor and consider the risk of a fall in the value of fixed interest securities from changes in the perceived credit worthiness of the issuer.

We're also exposed to credit risk through our use of reinsurance. Reinsurance arrangements are only placed with providers who meet our counterparty credit standards.

Foreign exchange risk

As an international business we're exposed to fluctuations in exchange rates in the countries in which we undertake business. Over half of our premium income comes from currencies other than sterling. Generally, we don't hedge these currency risks as profits are retained to support growth in the business units, however significant dividends from overseas business units are hedged as they are declared.

Movements in exchange rates will affect the value of shareholders' funds which are expressed in sterling. This aspect of foreign exchange risk is monitored centrally against limits aimed at aligning capital deployed with capital required. We use currency borrowings and derivatives when necessary to keep currency exposures within these limits. We hedge specific foreign exchange transaction risks when we feel it's appropriate; for example, acquisition or disposal activity. We're also exposed to some exchange risk from assets held in staff pension schemes, as a part of the investment strategy agreed with the scheme trustees.

Derivatives risk

We use derivatives in a number of our businesses to enable efficient investment management or as part of structured retail savings products. In addition we use derivatives to hedge the financial risks discussed above. Derivatives can involve complex financial transactions and, to minimise the risks involved, we set minimum standards of control that we require our businesses to adopt when using derivatives.

Activity is overseen by the Derivatives Approvals Committee, which monitors implementation of the policy, exposure levels and approves large or complex transactions proposed by businesses. Speculative activity is prohibited, unless prior approval has been obtained from the Derivatives Approval Committee.

Liquidity risk

We need to ensure that we maintain sufficient liquid assets to meet our cash-flow obligations as they fall due. All our businesses identify their sources of liquidity risk and monitor the potential exposures.

At group level, we maintain a prudent level of liquidity which meets the expectations of the FSA and the wider investment community. We maintain a buffer of liquid assets to cover unforeseen circumstances, including providing temporary funds to any of our business units that may experience temporary liquidity shortfalls. The group maintains significant committed borrowing facilities from a range of banks.

Insurance Risk Management

As an insurance business, we evaluate exposures to determine whether or not to insure risks and set terms and conditions for any insurance products underwritten.

Life insurance risk

Our life insurance businesses are exposed to a range of life insurance risks from various products. These risks are, typically, longevity (the risk that people will live longer than we have assumed), mortality (the death of a policyholder), and morbidity (ill health), as well as experience risks to changes in the underlying assumptions made at the start of the insurance policy , for example duration of the policy and expenses.

Longevity risk

We have a significant exposure to annuity business and our most significant life insurance risk is therefore associated with longevity. We monitor longevity statistics and compare these with emerging industry trends. We use the results of this analysis to decide both the reserving and pricing of annuities.

Inevitably, there remains uncertainty about the development of longevity that cannot be removed. Should our assumptions in respect of annuitant mortality worsen by 5% then shareholders' funds would decrease by £320 million pre-tax on an IFRS basis and decrease embedded value by £380 million on an MCEV basis, net of tax.

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D18 - Risk management continued

Mortality and morbidity risk

Our business units manage mortality and morbidity risk arsing on insurance products through the setting of limits and the use of reinsurance to transfer excessive risk exposures. Sensitivity tests show that mortality risk is relatively low. A 5% worsening in assurance mortality experience reduces shareholder funds by £30 million on an IFRS basis and decreases embedded value by £265 million on an MCEV basis, net of tax.

Persistency risk

Persistency (or lapse) risk affects all of our life insurance businesses and is managed at a business unit level through frequent monitoring of experience. Where possible, the potential financial impact of lapses is reduced by the product design. Guidelines have been developed on persistency management, sharing best practice in the setting of lapse assumptions, product design requirements, experience monitoring, and required management actions.

Product Design and Pricing risk

Poorly designed or inadequately priced products can lead to both financial loss and reputational damage for Aviva. Guidelines have been developed to support the businesses through the complete cycle of the product development process, financial analysis and pricing.

Expense risk

Expenses are managed and monitored at a business unit level, as part of general day-to-day business management. Expense management is a key part of a business' ability to meet financial targets. Expense risk arises not only from any failure to control the overall level of expenses but also from any deviation of actual experience from the assumptions made in pricing our insurance policies. Expense assumptions are regularly monitored to ensure they remain appropriate.

General Insurance risk

Our general insurance businesses are exposed to a variety of risks, including fluctuations in the timing, frequency and severity of claims and claim settlements, inadequate reinsurance protection and inadequate reserves.

Catastrophe Risk

Our largest general insurance risk is claims incurred from catastrophic events, such as flooding and windstorm. We manage this risk through central monitoring of risk aggregations and, where we do not wish to retain the risk within the group, by purchasing catastrophe cover from third party reinsurers.

We use reinsurance to help reduce the financial impact of a catastrophe and to manage the volatility of our earnings. We use extensive financial modelling and analysis to ensure we understand the catastrophe risk and to ensure we get maximum benefit in terms of cost of providing the catastrophe reinsurance covers.

As catastrophe events become more remote, the amount of risk we retain increases, so that our total potential loss from our most concentrated exposure (northern European wind storm) is approximately £400 million for a one in ten year event, compared to approximately £ 850 million for a one in a hundred year event.

Worsening Claims Ratios

Another material risk is the financial impact of worsening claims ratios. The business units manage this risk through underwriting disciplines, control of claims management and exploring different solutions to the way we measure and price the risks we underwrite. For example, our UK business has developed digital flood mapping to understand better the risk to household insurance from flood damage.

Strategic risks

We are exposed to a number of strategic risks. Our strategy needs to support our vision, purpose and objectives and be responsive to both the external and internal environment, for example changes in the competitive landscape, regulatory changes, merger and acquisition opportunities and emerging trends (such as climate change, pandemic and improving longevity).

Strategic risk is explicitly considered throughout our strategic review and planning process. Developments are assessed during our quarterly performance management process where all aspects of our risk profile are considered.

We actively engage with external bodies to share the benefit of our expertise in supporting responses to emerging risks as well as challenging developments that could be damaging to our business and the industry as a whole.

Operational risks

We're exposed to operational risk arising from inadequately controlled internal processes or systems, human error or non-compliance as well as from external events. Operational risks include taxation, reputation and regulatory risks, such as compliance.

Our businesses are primarily responsible for identifying and managing operational risks in line with minimum standards of control set out in our policies. Each operational risk is assessed against financial, operational and reputation criteria.

Business management teams must be satisfied that all material risks falling outside our risk appetite are being mitigated, monitored and reported to an appropriate level. Any risks with a high potential impact level are monitored centrally on a regular basis.

Supplier risk

Within Aviva, we have robust guidelines on how supplier risk should be assessed, mitigated and monitored through our Purchasing and Outsourcing policies. These policies are promoted and endorsed by Aviva's senior management. Aviva's local Procurement and Risk teams, who understand local service issues and concerns, have the responsibility to ensure these are implemented fully at a local level. Performance against these guidelines is then assessed at both regional and group level on an ongoing quarterly basis. Risk is measured against four areas: financial impact, internal service disruption, customer impact and risk to the Aviva brand.

Where we identify any local potential supply risk - detailed actions plans are put in place to resolve and local senior management are informed to ensure appropriate management focus is applied.

In addition we complete regular assessments of our major suppliers and ensure that we have robust alternative supply options available. We assess the ongoing financial health of our major suppliers globally coupled with a review of the business contingency plans to ensure an adequate standard of assurance is maintained.

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19 - Related party transactions

The Group received income from related parties from transactions made in the normal course of business.
Loans to related parties are made on normal arm's-length commercial terms.

Services provided to related parties

		2008		2007
	Income earned in year £m	Receivable at year end £m	Income earned in year £m	Receivable at year end £m
Associates	61	-	58	-
Joint ventures	5	3	4	2
Employee pension schemes	24	6	26	6
	90	9	88	8

The related parties' receivables are not secured and no guarantees were received in respect thereof.
The receivables will be settled in accordance with normal credit terms. Details of guarantees, indemnities
and warranties provided on behalf of related parties are given in note 50(h).

Services provided by related parties

There were no services provided by related parties in either 2007 or 2008.

Details of loans made to joint ventures and associates may be found in notes 18 and 19 respectively.

Key management compensation

The total compensation to those employees classified as key management, being those having authority and responsibility for planning, directing and controlling the activities of the Group, including the executive and
non-executive directors is as follows: