HY 2008 Results Part 1 of 4

RNS Number : 1653A

Aviva PLC

30 July 2008

News release

30 July 2008

Aviva plc

Interim results for the six months ended 30 June 2008

Growth in operating profit and dividend
EEV operating profit up 12% to £1,719 million
IFRS operating profit up 7% to £1,233 million
Dividend up 10% to 13.09p, reflecting confidence in delivery of stated targets and future prospects

Financial strength in an uncertain economic environment
Net asset value per share of 702 pence
Strong balance sheet and sound capital position despite unrealised investment losses leading to overall loss after tax
Resilient business flows driven by composite model and geographic spread
Life and pensions sales up 11% to £17,283 million at increased margin
General insurance result ahead of 'meet or beat' combined operating ratio target at 97%
Difficult conditions in global markets reduce asset management result; plans on track for Aviva Investors launch

Accelerating transformational change of existing business for the benefit of customers and shareholders
Reaffirmed commitment to growth and efficiency targets
Increase in cost savings target to £500 million (from £350 million)

Reattribution offer agreed with policyholder advocate#
£1 billion offer to eligible policyholders funded from existing shareholder resources: £400 minimum and £1,000 average cash payment to customers
With special distribution, around 70% of value of inherited estate released to policyholders, totalling £3.1 billion.
Internal rate of return on reattribution of 11.5%~, creating a one-off EV profit of £225 million and a one-off IFRS profit of £390 million~ for shareholders and underpinning confidence in future dividend stream

Andrew Moss, group chief executive, commented:

'In the face of economic headwinds Aviva has made real progress in the last six months. Operating profit and dividend are well ahead of last year and we maintain a strong balance sheet despite significant unrealised investment losses affecting our bottom line earnings. We are accelerating our transformational change programme to deliver a unified and more profitable company in line with our 'One Aviva, twice the value' vision. Short term economic uncertainties persist but we remain positive about our prospects.

'We're pleased to have reached an agreement with Clare Spottiswoode, the policyholder advocate, for our inherited estate reattribution in the UK. Policyholders and shareholders will benefit from this ground-breaking deal, that is fair to all parties involved.'

Worldwide highlights	6 Months 2008	6 Months 2007	Growth %
Operating profit - EEV basis*	£1,719 m	£1,541m	12 %
(Loss)/profit after tax - EEV basis	£(1,275)m	£1,502m	(185)%
Operating profit - IFRS basis**†	£1,233 m	£1,151m	7 %
(Loss)/profit after tax - IFRS basis	£(81)m	£890m	(109)%
(Loss)/earnings per share (total IFRS return)	(3.9)p	31.0p	(113)%
Interim dividend per share	13.09p	11.90p	10%
Net asset value per share	702p	772p^	(9)%
Equity shareholders' funds***	£18,672m	£20,253m^	(8)%
Return on equity shareholders' funds	10.3%	11.3%	-

All operating profit is from continuing operations and all growth rates are quoted in Sterling.

* Including life EEV operating return, before tax and exceptional items.

** Including life IFRS operating return, before tax and exceptional items.

*** Measured on an EEV basis, excluding preference shares, direct capital instrument and minority interests.

† 2007 comparative restated for the change in IFRS operating profit definition announced 22 November 2007.

^ As at 31 December 2007.

# Detailed press release on the reattribution offer is available from the media centre at www.aviva.com

~ Based on 30 June 2008 values and an assumed 100% take-up rate. The value created by the reattribution will be highly dependent on the performance of equity and property markets, and the level of policyholders who accept the offer. Estimate profit to be recognisd once transaction completed, subject to approvals.

Segmental analysis of Group operating profit

For the six months to 30 June

	6 months 2008 £m	6 months 2007 £m	Growth %
Continuing operations
Life EEV operating return
United Kingdom	471	413	14 %
France	297	225	32 %
Ireland	30	37	(19)%
Italy	89	72	24 %
Netherlands (including Belgium and Germany)	139	166	(16)%
Poland	103	71	45 %
Spain	157	107	47 %
Other Europe	8	1	700 %
Europe	823	679	21 %
North America	139	112	24 %
Asia	23	24	(4)%
Australia	24	23	4 %
Asia Pacific	47	47	-
	1,480	1,251	18%
Fund management1
Aviva Investors	20	29	(31)%
United Kingdom2	(8)	(4)	(100)%
Netherlands	6	9	(33)%
Other Europe	3	2	50%
Europe	9	11	(18)%
Asia Pacific	9	9	-
	30	45	(33)%
General insurance and health
United Kingdom3	326	284	15%
France	30	31	(3)%
Ireland	41	80	(49)%
Netherlands	44	70	(37)%
Other Europe	22	22	-
Europe	137	203	(33)%
North America	76	70	9%
Asia Pacific	(1)	3	(133)%
	538	560	(4)%
Other operations and regional costs4	(57)	(45)	(27)%
Regional operating profit before tax	1,991	1,811	10%
Corporate centre	(71)	(80)	11%
Group debt costs and other interest	(201)	(190)	(6)%
Group operating profit before tax5	1,719	1,541	12%

1. Excludes the proportion of the results of Aviva Investors and other fund management businesses within the group that arise from the provision of fund management services to our life businesses. These results are included within the Life EEV operating return consistent with CFO Forum EEV principles.

2. Investment business trading as Norwich Union and our collective investment joint venture business with RBSG.

3. UK general insurance includes the results of the Group's reinsurance operations.

4. Excludes the results of Norwich Union Equity Release. Also excludes the proportion of the results of Norwich Union Life Services relating to the services provided to the UK life business. These results are included within the Life EEV operating return.

5. Group operating profit before tax. All operating profit is from continuing operations.

Group Chief Executive's Statement

Group Results

Overview

In the face of an uncertain economic environment Aviva has delivered a solid financial result. EEV operating profit is up 12% to £1,719 million (six months to 30 June 2007: £1,541 million) and IFRS operating profit is up 7% to £1,233 million (six months to 30 June 2007: £1,151m). This is reinforced by a dividend increase of 10% underlining our confidence in the future prospects of Aviva's increasingly global business.

Our global composite model is working well for us. Having a balance of long-term savings, asset management and general insurance across the world provides a firm foundation for growing our business. This model underpins our strong balance sheet and sound capital position.

Everyone is well aware of today's investment market conditions. The group's loss after tax on both an EEV and IFRS basis reflects the reduction in value of the group's assets. Overall, our long-term savings new business flows and margins have proved resilient. Sales in the faster growing markets of North America and Asia Pacific have offset the more challenging markets of Europe, including the UK. Customers have naturally shown a preference for products with guarantees. Over the medium term economic analysis shows us that in tough times people do return to saving. They first cut discretionary spending, reduce debt and then focus on providing financial security for themselves and their families. Aviva can benefit from this behaviour.

We have remained focused on making the most of our existing businesses and in these turbulent times this strategy has served us well. Improving our efficiency and managing risk and capital effectively has led to better customer service and will create shareholder value. Today we have announced a £150 million increase in our overall cost saving target to £500 million. In addition, we have successfully concluded our negotiations with the policyholder advocate in the reattribution of the £2.1 billion inherited estate of two of our with-profit funds. This is an excellent result for our customers and shareholders, bringing average cash payments of £1,000 to eligible customers, while enabling us to manage capital more effectively and creating a one-off EV profit of £225 million and a one-off IFRS profit of £390 million for our shareholders and underpinning confidence in our future dividend stream.

Strategy update

Our 'one Aviva, twice the value' vision represents the transformation of our business to grow and operate more efficiently. We have made significant progress against the clear targets we have set ourselves.

Our move to a global brand next year is a key milestone. In the summer of 2009 Norwich Union will become Aviva in the UK while Hibernian (Ireland) and Commercial Union (Poland) will change at the end of 2009. Uniting our businesses under a global brand is one of the most tangible examples of our 'one Aviva, twice the value' vision. Over time we will benefit from increased consumer awareness, increased brand strength and greater efficiency by investing in one brand rather than several.

At the heart of our global business are our 45 million customers and most already know us as Aviva. We want to improve their experience by giving them better and more individual service. We need to increase significantly the number of customers who recommend us to others and we will measure this by a new single measure of customer advocacy across Aviva.

Engaging our 57,000 staff in the cultural change needed to achieve our vision has been a high priority. We have brought our top 450 leaders together in a series of high-level summits, creating, for the first time in Aviva's history, a shared goal to improve our business for our customers and shareholders. The energy, enthusiasm and personal commitment shown has been immense and we will engage a further 1,000 leaders in the autumn.

Transforming our global businesses to work as one and deliver superior customer service means we have to invest for the future. We are investing in our brand and will launch a single global intranet later this year to bring our people even closer together as part of our new global IT strategy. We see opportunities for shared services in each of our regions and we estimate our new global purchasing process could bring savings of more than £50 million.

We are also investing in a global finance programme to ensure compliance with future changes in regulation and reporting standards, and improvements in our financial control and risk frameworks. This will deliver Sarbanes-Oxley compliance and would enable us to consider a US listing of our shares in 2009.

Aviva Investors, our new global asset management business, is another example of our vision in action. Aviva Investors launches in September bringing a new way of managing our £307 billion assets under management across 15 countries.

We recently announced the sale of our offshore operations and an agreement for the supply of offshore services to the UK, Ireland and Canada. Our teams across the world have worked together to bring a single solution to maximise economies of scale and realise the investment we have made in our offshore operations.

We have made two new key appointments in the last few months. Andrea Moneta has recently joined as CEO, Aviva Europe, bringing significant European financial services knowledge into some of our key businesses. Amanda Mackenzie has also joined the group as group marketing director and the first dedicated 'voice of the customer' at our executive table.

Regional performance

United Kingdom

Life and pension sales up 1% to £5,863 million
Life EEV operating profit up 14% to £471 million
Life new business gross margin stable at 3.1%
UK general insurance result up 15% to £326 million and COR of 98%

UK Life: We continue to transform our UK life business and grow its profitability. Our objective is to grow new business sales at least as fast as the market, while maintaining margins, and to drive value from our existing business. In challenging conditions we have delivered strong and profitable growth and record sales in the first half. We have increased our market share in a declining market. Our financial strength enables us to provide products that are attractive to customers in the current market conditions.

We are making tough decisions; we are changing our wrap platform to provide wrap functionality in a way that better serves our customers through a new strategic partnership with Scottish Friendly. Transforming our business means simplifying our systems and reducing costs to give customers even better service. Our cost reduction programme is already contributing to profit and we are on track to deliver £100 million of savings by the end of 2009. We have made great progress in simplifying our complex legacy systems, turning off 118 product systems. We have added new products as a result of listening to feedback from our customers and intermediaries.

We anticipate that the UK market will remain subdued in the second half of the year but we will continue to maintain a market leading position and our profit outlook is on track for continued growth.

UK General Insurance: Our general insurance result improved as a result of more normal weather patterns in the first half of 2008, when compared with last year's terrible floods.

We are transforming our UK general insurance business. It is a competitive market and tough decisions have been necessary to improve performance. Core to this transformation is simplifying our operating model, which is the result of a series of mergers and acquisitions over a number of years. We will focus our core insurance skills to improve customer service and drive profitable growth. We have completed the first phase and are on track to deliver cost savings of £200 million in 2008 as a result.

Phase two of the transformation, announced in June, is the creation of nine modern customer-facing centres of insurance expertise to deliver consistent first-class service. This and associated initiatives will deliver an extra £150 million in savings a year by 2010 and we are aiming for a market-leading expense ratio of less than 11%. As previously announced, there will be some impact on our staff from these changes. Any job loss is regrettable and we will manage this process with sensitivity and ensure compulsory redundancies are minimised.

We believe that market conditions will remain challenging into 2009. We are focused on managing for long-term profitable growth but expect this to place some pressure on business volumes in the short term.

Europe

Life and pension sales up 15% to £8,431 million
Life EEV operating profit up 21% to £823 million
Life new business gross margin up to 4.1%
COR of 95%

In Europe we have a strong geographical portfolio of more mature businesses in northern and southern Europe combined with the faster growing markets of central and eastern Europe. Naturally we have benefited from a stronger euro during the period. Our target is to deliver average long-term savings new business growth of 10% a year to 2010, while growing new business profit at least as fast. Our growth in profits ahead of sales in the first half of the year demonstrates that we are firmly focused on creating value.

Our multi-distribution model also brings strength. Around half of our life business in Europe is through long-term bancassurance partnerships and the other half through intermediaries and direct sales. Understandably in current conditions, some of our bank partners have been focused on marketing deposits ahead of long-term savings products but our range of distribution channels means we will continue to drive overall growth and we are confident that bank channels will return to growth in due course.

Conditions will remain challenging for the rest of 2008 but we are confident of achieving our medium term growth and profitability target.

Our general insurance combined operating ratio of 95% was ahead of our group target. General insurance and health were up 17% with some benefit from the strong euro, while operating profit was down 33% reflecting competitive market conditions, investment in our new direct motor business in Poland and higher claims costs in Ireland.

North America

Life and pensions sales up 28% to £2,205 million
Life EEV operating profit up 24% to £139 million
Life new business gross margin up to 4.2%
COR of 98%

In the US, we delivered another outstanding performance despite the difficult economic climate and became the number one provider of indexed annuities. This supplements our long-standing position as leader in the indexed life market, which is the fastest growing segment of the US life insurance market. Indexed annuities are particularly attractive in volatile markets as they bring valuable guarantees to the 'Baby Boomer' generation who have already saved for the future. The Aviva name continues to bring us new distribution and we now work with almost double the number of Independent Marketing Organisations than we have in the previous two years and have added over 2,300 new agents to our distribution network in the first half of 2008.

We continue to innovate to meet customer needs and aspirations. Our 'Wellness for Life' programme is the first in the US to offer life insurance discounts to customers who follow simple health measures. Our associated exclusive arrangement with the world-renowned Mayo Clinic brings attractive benefits to customers.

We are building on solid foundations in the US following the acquisition of the former AmerUs business in 2006. On a proforma basis, since June 2006 we have increased total sales by 76%. We remain firmly on track to meet our target of doubling sales within three years of the acquisition while maintaining margins.

In Canada, our general insurance business remains number two in the market and continues to achieve growth without compromising profitability.

Asia Pacific

Life and pension sales up 20% to £784 million
Life EEV operating profit in line with prior period at £47 million
Life new business gross margin down to 4.3%

Our business in Asia Pacific continues to go from strength to strength and is an increasingly important part of the Aviva group with a presence in nine countries in the region. We remain firmly on track to deliver our target to grow long-term savings new business sales by at least 20% a year to 2010.

In the high potential markets of India and China we are now an established player. We are now the number two foreign life insurer in China. These are vast markets and we have gained ground quickly. Over the past year we have started business in Taiwan, Malaysia and, very recently, South Korea. We have used our bancassurance expertise to establish ourselves at speed. We have centralised our product development for the region to enable us to deliver new products to market fast.

We are investing for the future. The region holds significant potential for us and we continue to seek opportunities to extend our footprint where we can create value. We will share knowledge, skills and experience across the Asia Pacific region and beyond to augment our growth plans.

Aviva Investors

IFRS operating profit down 16% to £49 million
Group funds under management at 30 June 2008 down 3% to £307 billion

Plans are on track for the launch of Aviva Investors in September 2008. We are bringing together our strengths in investment manufacturing and distribution to operate globally as a single business across the UK, Europe, North America and Asia Pacific. We aim to grow the business significantly and accelerate its contribution to group profits.

The half year result reflects the challenging conditions in global financial markets.

Summary and outlook

Despite the turbulence in world financial markets, we have grown our operating profit and dividend, and maintained a strong balance sheet. We are focused on improving and realising the full potential of our business for the benefit of customers and shareholders in line with our 'one Aviva, twice the value' vision.

We are committed to our growth and efficiency targets and are investing for the future. We continue to watch, plan and respond to developments in world markets and have the flexibility to adjust our course to achieve our vision. We are not complacent but remain positive about future growth prospects over time.

Andrew Moss
Group Chief Executive

Enquiries:

Andrew Moss	Group chief executive	Telephone +44 (0)20 7662 2679
Philip Scott	Group finance director	Telephone +44 (0)20 7662 2264
Analysts:
Charles Barrows	Investor relations director	Telephone +44 (0)20 7662 8115
Jessie Burrows	Head of investor relations	Telephone +44 (0)20 7662 2111
Susie Yeoh	Investor relations, senior manager	Telephone +44 (0)20 7662 2117
Media:
Hayley Stimpson	Director of group media relations	Telephone +44 (0)20 7662 7544
Sue Winston	Head of group media relations	Telephone +44 (0)20 7662 8221
Danielle Anthony	Group media relations, senior manager	Telephone +44 (0)20 7662 9511
Vanessa Rhodes	Group media relations, senior manager	Telephone +44 (0)20 7662 2482
James Murgatroyd/Ed Simpkins	Finsbury	Telephone +44 (0)20 7251 3801

NEWSWIRES: There will be a conference call today for wire services at 8.15am (BST) on +44 (0)20 7162 0025 Quote: Aviva, Andrew Moss.

ANALYSTS: A presentation to investors and analysts will take place at 9.30am (BST) at the London Stock Exchange, 10 Paternoster Square, London, EC4M 7LS. The investors and analysts presentation is being filmed for live webcast and can be viewed on the Group's website www.aviva.com or on www.cantos.com. In addition a replay will be available on these websites later today. There will also be a live teleconference link to the investor and analyst meeting on +44 (0) 20 7806 1955. A replay facility will be available until 11 August 2008 on +44 (0)20 7806 1970. The pass code is 4843238# for the whole presentation including the question & answer session or 4665957# for the question & answer session only.

The presentation slides will be available on the Group's website, www.aviva.com/investors/presentations.cfm from 9.00am (BST).

The Aviva media centre at www.aviva.com/media includes images, company information and news release archive. Photographs are available from the Aviva media centre at www.aviva.com/media.

Notes to editors

Aviva is a leading provider of life and pensions to Europe with substantial positions in other markets around the world, making it the world's fifth largest insurance group based on gross worldwide premiums at 31 December 2007.

Aviva's principal business activities are long-term savings, fund management and general insurance, with worldwide total sales* of £49.2 billion at 31 December 2007 and total funds under management of £359 billion at 30 June 2008.

*Based on life and pensions PVNBP, total investment sales and general insurance and health net written premiums including share of associates' premiums.

Income statements and cash flows of foreign entities are translated at average exchange rates while their balance sheets are translated at the closing exchange rates on 30 June 2008.

The present value of new business premiums (PVNBP) is equal to total single premium sales received in the year plus the discounted value of annual premiums expected to be received over the term of the new contracts, and is expressed at the point of sale.

All growth rates are quoted in sterling.

This interim announcement may include oral and written 'forward-looking statements' with respect to certain of Aviva's plans and its current goals and expectations relating to its future financial condition, performance and results. These forward-looking statements sometimes use words such as 'anticipate', 'target', 'expect', 'estimate', 'intend', 'plan', 'goal', 'believe' or other words of similar meaning. By their nature, all forward-looking statements involve risk and uncertainty because they relate to future events and circumstances which may be beyond Aviva's control, including, among other things, UK domestic and global economic and business conditions, market-related risks such as fluctuations in interest rates and exchange rates, the policies and actions of regulatory authorities, the impact of competition, the possible effects of inflation or deflation, the timing impact and other uncertainties relating to acquisitions by the Aviva Group and relating to other future acquisitions or combinations within relevant industries, the impact of tax and other legislation and regulations in the jurisdictions in which Aviva and its affiliates operate, as well as the other risks and uncertainties set forth in our 2007 Annual Report to Shareholders. As a result, Aviva's actual future financial condition, performance and results may differ materially from the plans, goals and expectations set forth in Aviva's forward-looking statements, and persons receiving this announcement should not place undue reliance on forward-looking statements.

Aviva undertakes no obligation to update the forward-looking statements made in this announcement or any other forward-looking statements we may make. Forward-looking statements made in this announcement are current only as of the date on which such statements are made.

Contents

Operating and financial review 2

European Embedded Value (EEV) Basis 27

Summarised consolidated income statement - EEV basis 28

Earnings per share - EEV basis 28

Consolidated statement of recognised income and expense - EEV basis 29

Reconciliation of movements in consolidated shareholders' equity - EEV basis 29

Summarised consolidated balance sheet - EEV basis 30

Segmentation of summarised consolidated balance sheet - EEV basis 31

1. Basis of preparation - EEV basis 32

2. Components of life EEV return 32

3. New business contribution 33

4. Geographical analysis of the components of life EEV operating return 36

5. Analysis of movement in life and related businesses embedded value 39

6. Segmental analysis of life and related businesses embedded value 40

7. Time value of options and guarantees 41

8. Analysis of service companies and fund management businesses within embedded value 41

9. Analysis of fund management operating profit 42

10. Analysis of other operations and regional costs 42

11. Summary of minority interest in life and related businesses' EEV results 43

12. Principal economic assumptions 44

13. Sensitivity analysis 47

IFRS Basis 51

Summarised consolidated income statement - IFRS basis 52

Earnings per share - IFRS basis 52

Pro forma reconciliation of Group operating profit to profit before tax - IFRS basis 53

Earnings per share - IFRS operating profit basis 53

Consolidated statement of recognised income and expense - IFRS basis 54

Reconciliation of movements in consolidated shareholders' equity - IFRS basis 54

Summarised consolidated balance sheet - IFRS basis 55

Summarised consolidated cash flow statement - IFRS basis 56

1.Basis of preparation - IFRS 57

2.Exchange rates 58

3.Acquisitions 59

4.Profit/(loss) on the disposal of subsidiaries and associates 61

5.Integration and restructuring costs 62

6.Operations classified as held for sale 62

7.Analysis of long-term business IFRS operating profit 63

8.Long-term business economic volatility 63

9.Analysis of fund management operating profit 64

10.Analysis of general insurance and health 64

11.Analysis of other operations and regional costs 67

12.Corporate Centre 68

13.Group debt costs and other interest 68

14.Tax 68

15.Earnings per share 70

16.Dividends and appropriations 71

17.Segmental information 72

18.Assets under management 81

19.Pension Schemes 81

20.Insurance liabilities 83

21.Liability for investment contracts 84

22.Reinsurance assets 85

23.Effect of changes in assumptions and estimates during the period 86

24.Unallocated divisible surplus 86

25.Borrowings 86

26.Sensitivity analysis 87

Appendices 89

Appendix A - Group Capital Structure 90

Appendix B - Cost Savings 96

Appendix C - Analysis of Assets 97

Shareholder services 108

Page 2

Operating and financial review

1 - Group operating profit before tax

In an uncertain economic environment, the group's operating profit before tax, including Life EEV operating return, increased by 12% to £1,719 million (six months to 30 June 2007: £1,541 million). This solid performance has been driven by strong results in the life segment, and lower profit in the general insurance and health segment, once again demonstrating the strength of our composite model. On an IFRS basis, worldwide operating profit before tax increased by 7% to £1,233 million (six months to 30 June 2007 restated: £1,151 million).

	EEV basis		IFRS basis
	6 months 2008 £m	6 months 2007 £m	6 months 2008 £m	Restated1 6 months 2007 £m
Life operating return	1,480	1,251	970	834
Fund management2	30	45	63	76
General insurance and health	538	560	538	560
Other:
Other operations and regional costs	(57)	(45)	(66)	(49)
Corporate centre	(71)	(80)	(71)	(80)
Group debt costs and other interest	(201)	(190)	(201)	(190)
Operating profit before tax	1,719	1,541	1,233	1,151
(Loss)/profit before tax attributable to shareholders' profits	(1,671)	2,031	(17)	1,198
Equity shareholders' funds	18,672	19,136	11,530	12,395

1. 30 June 2007 comparatives restated for the change in IFRS operating profit definition (impact on EEV was £nil).

2. On an EEV basis, this excludes the proportion of the results of Aviva Investors and other fund management operations within the Group that arise from the provision of fund management services to our Life businesses. These results are included within the Life EEV operating return.

2 - Long-term savings

Total long-term business sales for the first six months of the year were up 2% to £19,700 million (six months to 30 June 2007: £19,294 million). This performance is driven by 11% growth in life and pensions sales of £17,283 million (six months to 30 June 2007: £15,543 million), up 4% on a local currency basis. This was offset by a decrease of 36% in investment sales to £2,417 million (six months to 30 June 2007: £3,751 million) which have been impacted across all our regions by the current economic climate and volatile market conditions. Before the impact of exchange rate movements total sales were down 5%.

	30 June 2008			Sterling growth
	Life and pensions £m	Retail investments £m	Total £m	Life and pensions %	Retail investments %	Total %
Long-term saving sales
United Kingdom	5,863	840	6,703	1%	(47)%	(10)%
Europe	8,431	526	8,957	15%	(32)%	10%
North America	2,205	-	2,205	28%	-	28%
Asia Pacific	784	1,051	1,835	20%	(24)%	(10)%
Total new business sales on a present value of new business premium (PVNBP) basis	17,283	2,417	19,700	11%	(36)%	2%

In the United Kingdom total sales were down 10% to £6,703 million (2007: £7,415 million). Life and pensions sales were up 1% at £5,863 million (2007: £5,820 million) with growth in annuities and individual pensions sales offsetting a decrease in the sales of bonds. Investments sales were £840 million (2007: £1,595 million).

Aviva Europe delivered long-term business sales of £8,957 million (2007: £8,131 million), up 10%. Within this, life and pension sales were up 15% to £8,431 million (2007: £7,353 million). Removing the impact of the strong euro, sales were flat on a local currency basis, due to large decreases in Italy and Ireland, principally driven by the uncertain financial markets, offset by strong growth in the Netherlands and central and eastern Europe. Investment sales were down 32% to £526 million (2007: £778 million).

Sales in North America were up 28% to £2,205 million (2007: £1,716 million), reflecting higher funding agreement sales which increased by 147% to £375 million (2007: £152 million) and annuity sales of £1,579 million (2007: £1,293 million), up 22%.

Total long-term savings sales for Asia Pacific were £1,835 million (2007: £2,032 million). Within this, life and pension sales for the first half of the year grew by 20% to £784 million (2007: £654 million). This performance reflects the growth seen in China and India as well as the impact of the new businesses in Taiwan and Malaysia, together with favourable movements in exchange rates. Investment product sales fell 24% to £1,051 million (2007: £1,378 million).

Page 3

2 - Long-term savings continued

Geographical analysis of life, pensions and investment sales

	Present value of new business premiums 1
	6 months 2008 £m	6 months 2007 £m	Growth Sterling %	Growth Local Currency %
Life and pensions business
United Kingdom	5,863	5,820	1%	1%

France	2,010	1,832	10%	(4)%
Ireland	648	889	(27)%	(36)%
Italy	1,275	1,818	(30)%	(38)%
Netherlands (including Germany and Belgium)	1,991	1,146	74%	53%
Poland	739	379	95%	57%
Spain	1,259	1,114	13%	(1)%
Other Europe	509	175	191%	174%
Europe	8,431	7,353	15%	-
North America	2,205	1,716	28%	29%
Australia	204	240	(15)%	(25)%
China	126	48	163%	142%
Hong Kong	138	162	(15)%	(15)%
India	95	57	67%	59%
Singapore	149	138	8%	(1)%
Other Asia	72	9	700%	691%
Asia Pacific	784	654	20%	11%
Total life and pensions	17,283	15,543	11%	4%
Investment sales2
United Kingdom	840	1,595	(47)%	(47)%
Netherlands	221	365	(39)%	(47)%
Poland	46	141	(67)%	(74)%
Other Europe	259	272	(5)%	(16)%
Europe	526	778	(32)%	(42)%
Australia	840	1,030	(18)%	(28)%
Singapore	211	348	(39)%	(45)%
Asia Pacific	1,051	1,378	(24)%	(32)%
Total investment sales	2,417	3,751	(36)%	(40)%
Total long term savings	19,700	19,294	2%	(5)%
Navigator sales (included above)	978	1,298	(25)%	(33)%

1. All references to sales in this announcement refer to the present value of new business premiums (PVNBP) unless otherwise stated. PVNBP is the present value of new regular premiums plus 100% of single premiums, calculated using assumptions consistent with those used to determine new business contribution.

2. Investment sales are calculated as new single premium plus the annualised value of new regular premiums.

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2 - Long-term savings continued

United Kingdom

Against a backdrop of difficult market conditions UK life increased life and pensions sales by 1% in a declining market, consolidating the 39% sales growth delivered over the last two financial years. First quarter market share grew to 11.4% (full year 2007: 10.5%). This has been achieved through the focused execution of our strategy, leveraging our broad product offering and distribution reach.

Life and pensions sales were £5,863 million (2007: £5,820 million). Investments sales were £840 million (2007: £1,595 million), as current economic conditions continue to impact consumer attitudes to saving for the future.

Total sales included another strong half year from our bancassurance partnership with the Royal Bank of Scotland Group. Sales were up 12% on the same period of 2007 reflecting the commitment of both partners to the ongoing development of this successful relationship.

Total pensions sales were broadly in line with the equivalent period last year. Pensions sold directly to individuals performed particularly strongly, up 22%, supported by sales of our new SIPP-Lite product. Annuities were up 39% to £1,286 million which includes BPA sales of £418 million. Individual annuities sold through the open market option increased 70% on the same period last year.

In a market which has been adversely impacted by a steep reduction in mortgage applications, we held the level of our protection sales, benefiting from the strength of our joint venture with RBSG and other partnerships. Bond sales fell 16% as the market re-aligned to the new tax regime. Falls in unit-linked bonds were offset by strong performances elsewhere, with 55% growth in with-profits bonds to £885 million and 65% growth in offshore unit-linked bonds to £149 million.

We have a programme of new product initiatives and we continue to focus on further strengthening our distribution footprint. To date we have made our successful Simplified Life protection product available through IFAs; expanded our enhanced annuity proposition, making it available to a wider range of customers; realigned our stakeholder pensions pricing to reflect the more price competitive proposition that this segment requires; launched our SIPP-Lite product, as part of our retirement solutions strategy; launched our Capital Protected Plan, responding to increasing customer demand for more certainty from their investments, and most recently enhanced our pricing capabilities for annuity business, increasing the number of factors we consider during quotation to optimise rates for over 70% of customers.

The market has remained volatile during the first half of the year and we expect this to continue throughout 2008. Product categories most susceptible to the economic situation, in particular protection and single premium savings, will face low or negative growth compared to the same period last year, leading to an overall flat or slightly growth market for the full year. Our ongoing investment in propositions and the development of our distribution footprint will enable us to deliver sales at least in line with the market whilst maintaining margins.

Europe

Overall sales in Europe were up 10% to £8,957 million (2007: £8,131 million) supported by the strength of the euro. On a local currency basis sales were down 4%, following growth of 14% in the first six months of 2007, reflecting difficult market conditions for life and pensions business and investment sales in a number of countries within the region. This is a resilient performance, achieved through the strength of our geographical diversity and a multi-channel distribution strategy.

We have had strong growth in the Netherlands, where three group pension schemes contributed £758 million and growth has also been strong across central and eastern Europe. However, a number of countries have experienced lower consumer demand for long-term savings products and the performance of the bancassurance distribution channel has been significantly affected by banks prioritising their savings products following reduced liquidity in the banking sector. Trading conditions in Ireland, Italy and Spain were particularly challenging, although Spain benefited from sales of £180 million, including one-off transfers amounting to £151 million, through Cajamurcia, our most recent Spanish bancassurance partnership.

In Ireland, overall life and pension sales were down 27% against the same period last year. This reflects the slowdown in economic growth, a falling property market and the one-off impact of maturing Special Savings Incentive Account (SSIA) contracts in 2007. In Italy, sales were down 30% reflecting difficult market conditions and the timing of marketing campaigns.

The life and pensions business in France increased by 10% against the same period last year, reflecting the strength of the euro. On a local currency basis sales declined by 4% as sales through the bank and broker channels decreased due to lower demand for unit-linked products. However, we out-performed the overall market, which declined by 7%1 mainly due to growth in sales through our partnership with AFER, France's largest savings association, following last year's successful product modernisation.

Our businesses in central and eastern Europe grew life and pension sales 125% to £1,248 million (2007: £554 million). In Poland sales increased by 95%. This reflects a strong performance by Aviva's direct sales force in the pensions market, the success of our new regular premium product, Nowa Perspectywa, sold through the broker channel and a limited-period promotion of a savings product in the first quarter of the year in the bank channel. Significant growth was experienced in Romania, where sales were boosted by an initial surge of pension contracts written as a result of government reforms to the provision of compulsory pensions. While we expect some additional sales resulting from this reform in the third quarter, these sales are one-off in nature and boosted our sales by £252 million in the first half of the year. In Turkey, sales increased by 50% reflecting the commencement of our bancassurance arrangement with Akbank and success in the pensions market.

1. In GWP terms, the Fédération Française des Sociétés d'Assurance (FFSA) states that the French market for life individual products has declined 7% as at 30 June 2008.

Long-term savings continued

Page 5

We have a strong portfolio of businesses across Europe and while 2008 is expected to continue to present challenging conditions in a number of countries across the region we remain confident in achieving our medium term growth target to deliver average long-term savings new business growth of 10% over the period 2007 to 2010, while growing new business profit at least as fast.

North America

In the United States, we have built upon the impressive growth achieved in 2007 with a further increase of 28% in new business sales to £2,205 million (2007: £1,716 million). This strong growth was accomplished despite a volatile economic environment in the US and we remain fully confident in our target to double the sales in our US business while maintaining margins within three years of the acquisition of the former AmerUs business.

In the first quarter of 2008, we became the number one seller in both the indexed annuity market and the indexed life insurance market. In the indexed annuity market we now have a 21% market share with three of our products appearing in the top 10. In the first half of 2008 we contracted with nearly as many Independent Marketing Organisations (IMOs) as we did in the past two years combined and we added more than 2,300 new agents to our annuity distribution network.

Sales of annuities increased by 22% to £1,579 million (2007: £1,293 million), a significant accomplishment given a challenging economic environment that was highlighted by increasing competitive pressures, volatile equity markets and changing interest rates. Our continued growth demonstrates a consumer demand for products with guarantees, particularly in light of the current investment climate. While competitive pressures have increased, current and future product launches, combined with marketing programmes and expanding distribution, support our ongoing confidence for future growth.

On 25 June, the U.S. Securities & Exchange Commission held an open meeting and one of the topics covered was a proposed new rule that would have the effect of classifying equity indexed annuities as securities for regulatory purposes. Indexed annuities are valuable products that fill an important financial need for many consumers and we expect indexed products to be an important part of our product offering for years to come.

Life sales totalled £251 million (2007: £271 million), a decrease of 7% from prior year reflecting our product rationalisation programme, implemented during late 2007, to focus on higher margin life products. We expect higher new sales in the second half of this year through a combination of new product launches, marketing programmes and growth in the indexed life insurance market.

Funding agreement sales were very strong at £375 million (2007: £152 million), an increase of 147% over the prior period as we took advantage of favourable market circumstances. Funding agreement sales, an integral part of our product portfolio, are large corporate transactions and will continue to grow as market opportunities arise.

Asia Pacific

Total long-term savings sales for Asia Pacific were £1,835 million (2007: £2,032 million). Within this, life and pension sales for the first half of the year grew by 20% to £784 million (2007: £654 million). This performance reflects both the growth seen in China and India as well as the impact of the new businesses in Taiwan and Malaysia, together with favourable movements in exchange rates.

In China, sales through the joint venture life business Aviva-COFCO increased by 163% reflecting ongoing distribution expansion. We have increased our presence in the country to eight provinces, with a total of 32 city branches (2007: seven provinces, 17 city branches). In India our share of total sales from Aviva's joint venture with the Dabur Group increased 67% reflecting the on-going expansion of the direct sales force and development of bancassurance partnerships.

In Australia, sales were down 15%. However, 2007 included the benefit of a one-off transfer of group pensions business of £64 million as well as the £21 million impact of a favourable change to superannuation legislation. Excluding the one-offs and the impact of exchange rate movements, underlying sales grew by 16% against the prior year, driven by higher sales of protection and retail products.

Life and pension sales in Singapore increased by 8%, mainly due to the favourable effect of exchange rate movements. On a local currency basis sales were 1% down on the prior year following the withdrawal of the 'Big-e' product, which contributed £70 million of sales in half year 2007, partly offset by the impact of new product initiatives. In Hong Kong, our products are mainly investment related and aggressive competition together with the volatile market contributed to a 15% decrease in sales.

Investment sales in the period under review fell by 24% to £1,051 million (2007: £1,378 million), affected by the current volatile market conditions. Further to this, investment sales in Singapore were adversely impacted by a change to local pension laws which restricts external contributions from the government pension fund. Prior year investment sales were boosted by a one-off impact of £227 million due to the favourable changes in Australian superannuation legislation.

Looking forward, the second half of the year will remain challenging if the markets continue to be volatile. However, given our plans to continue to expand our distribution network and develop our relationships with our business partners, we remain confident in achieving our medium-term sales target to grow long-term savings new business sales by an average of at least 20% a year to 2010.

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2 - Long-term savings continued

Present value of life new business premiums

The present value of new business premiums (PVNBP) is derived from the single and regular premiums of the products sold during the financial period and are expressed at the point of sale. The PVNBP calculation is equal to total single premium sales received in the year plus the discounted value of regular premiums expected to be received over the term of the new contracts. The projection assumptions used to calculate PVNBP for each product are the same as those used to calculate new business contribution. The discounted value of regular premiums is also expressed as annualised regular premiums multiplied by a Weighted Average Capitalisation Factor (WACF). The WACF will vary over time depending on the mix of new products sold, the average outstanding term of the new contracts and the projection assumptions. The table below sets out the factors required to derive PVNBP by business units.

	6 months 2008					6 months 2007
	Regular Premiums £m	ACF	Present value of regular premiums £m	Single premiums £m	PVNBP £m	PVNBP £m
United Kingdom
Individual pensions	218	4.3	929	1,068	1,997	1,819
Group pensions	40	5.6	225	202	427	582
Annuities	-	-	-	1,286	1,286	927
Bonds	-	-	-	1,628	1,628	1,939
Protection	80	4.8	384	61	445	443
Equity release	-	-	-	80	80	110
United Kingdom	338	4.6	1,538	4,325	5,863	5,820
France
Euro funds1	13	5.6	73	1,291	1,364	979
Unit-linked funds	23	5.2	120	435	555	780
Protection business	14	6.4	89	2	91	73
Total life and pensions	50	5.6	282	1,728	2,010	1,832
Ireland
Life and savings	19	5.0	95	201	296	459
Pensions	46	3.7	169	183	352	430
Total life and pensions	65	4.1	264	384	648	889
Italy	58	5.4	316	959	1,275	1,818
Netherlands (including Belgium and Germany)
Life	34	6.6	225	255	480	420
Pensions	45	8.3	372	1,139	1,511	726
Total life and pensions	79	7.6	597	1,394	1,991	1,146
Poland
Life and savings	23	5.2	120	323	443	205
Pensions	26	8.3	215	81	296	174
Total life and pensions	49	6.8	335	404	739	379
Spain
Life and savings	61	5.4	331	541	872	898
Pensions	36	5.4	193	194	387	216
Total life and pensions	97	5.4	524	735	1,259	1,114
Other Europe	64	6.9	440	69	509	175
Europe	462	6.0	2,758	5,673	8,431	7,353
United States
Life	30	8.0	239	12	251	271
Annuity	-	-	-	1,579	1,579	1,293
Funding agreements	-	-	-	375	375	152
North America	30	8.0	239	1,966	2,205	1,716
Asia	69	4.8	330	250	580	414
Australia	32	3.2	103	101	204	240
Asia Pacific	101	4.3	433	351	784	654
Total life and pensions	931	5.3	4,968	12,315	17,283	15,543

1. Euro funds are savings that receive an annual bonus declaration, based on the investment performance of the underlying funds.

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Analysis of sales via bancassurance channels

	Present value of new business premiums 1
	6 months 2008 £m	6 months 2007 £m	Growth local currency2 %
Life and pensions
United Kingdom	628	575	9%
France	487	417	3%
Ireland	349	435	(30)%
Italy
Unicredit Group	575	1,106	(54)%
Banca Popolare Italiana group	127	175	(36)%
Banca delle Marche	13	39	(71)%
Banca Popolari Unite	526	479	(4)%
	1,241	1,799	(39)%
Netherlands	227	199	-
Poland	291	46	409%
Spain
Bancaja	312	405	(32)%
Caixa Galicia	137	201	(40)%
Unicaja	330	258	12%
Caja España	114	89	13%
Caja de Granada	54	59	(20)%
Cajamurcia	180	-	-
	1,127	1,012	(2)%
Other Europe	27	-	-
Europe	3,749	3,908	(16)%
North America	6	27	(78)%
Asia Pacific	312	166	79%
Total life and pension sales	4,695	4,676	(9)%
Investment Sales3
United Kingdom	242	202	20%
Total bancassurance sales	4,937	4,878	(8)%

1. Present value of new business premiums (PVNBP) is the present value of new regular premiums plus 100% of single premiums, calculated using assumptions consistent with those used to determine new business contribution.

2. Growth rates are calculated based on constant rates of exchange.

3. Investment sales are calculated as new single premium plus annualised value of new regular premiums.

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Detailed worldwide life and pension new business

	Single			Regular			PVNBP
	6 months 2008 £m	6 months 2007 £m	Local currency growth1	6 months 2008 £m	6 months 2007 £m	Local currency growth1	Local currency growth1
United Kingdom
Individual pensions	1,068	959	11%	218	211	3%	10%
Group pensions	202	367	(45)%	40	42	(5)%	(27)%
Annuities	1,286	927	39%	-	-	-	39%
Bonds	1,628	1,939	(16)%	-	-	-	(16)%
Protection	61	107	(43)%	80	63	27%	-
Equity release	80	110	(27)%	-	-	-	(27)%
United Kingdom	4,325	4,409	(2)%	338	316	7%	1%
France
Euro funds2	1,291	925	23%	13	9	30%	22%
Unit-linked funds	435	631	(39)%	23	28	(28)%	(38)%
Protection business	2	1	100%	14	12	-	10%
Total life and pensions	1,728	1,557	(2)%	50	49	(11)%	(4)%
Ireland
Life and savings	201	337	(48)%	19	26	(37)%	(43)%
Pensions	183	257	(38)%	46	46	(12)%	(28)%
Total life and pensions	384	594	(43)%	65	72	(21)%	(36)%
Italy
Life and savings	959	1,456	(42)%	58	72	(29)%	(38)%
Netherlands (including Belgium and Germany)
Life	255	219	2%	34	32	(6)%	-
Pensions	1,139	394	154%	45	40	(2)%	83%
Total life and pensions	1,394	613	100%	79	72	(4)%	53%
Poland
Life and savings	323	130	98%	23	14	35%	74%
Pensions	81	64	1%	26	16	30%	36%
Total life and pensions	404	194	66%	49	30	32%	57%
Spain
Life and savings	541	669	(29)%	61	43	24%	(15)%
Pensions	194	126	36%	36	16	100%	57%
Total life and pensions	735	795	(19)%	97	59	45%	(1)%
Other Europe	69	51	19%	64	31	92%	174%
Europe	5,673	5,260	(6)%	462	385	5%	-
United States
Life	12	26	(54)%	30	35	(14)%	(7)%
Annuity	1,579	1,290	23%	-	1	(100)%	23%
Funding agreements	375	152	148%	-	-	-	148%
North America	1,966	1,468	35%	30	36	(17)%	29%
Asia	250	184	28%	69	48	38%	34%
Australia	101	146	(39)%	32	29	(3)%	(25)%
Asia Pacific	351	330	(3)%	101	77	22%	11%
Total life and pensions	12,315	11,467	1%	931	814	7%	4%

1. Growth rates calculated based on constant rates of exchange.

2. Euro funds are savings that receive an annual bonus declaration based on the investment performance of the underlying funds.

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Detailed worldwide investment sales analysis

	Single			Regular			PVNBP
	6 months 2008 £m	6 months 2007 £m	Local currency growth1	6 months 2008 £m	6 months 2007 £m	Local currency growth1	Local currency growth1
United Kingdom
Peps/ISAs/Unit Trusts/OIECS/SIPPs	732	1,475	(50)%	442	442	-	(47)%
United Kingdom	732	1,475	(50)%	44	44	-	(47)%
Netherlands (including Belgium and Germany)
Unit Trusts	221	365	(47)%	-	-	-	(47)%
Poland
Mutual Funds	43	139	(75)%	3	2	-	(74)%
Other Europe
UCITS	259	272	(16)%	-	-	-	(16)%
Europe	523	776	(42)%	3	2	-	(42)%
Asia Pacific
Unit Trusts	73	80	(20)%	-	-	-	(20)%
Navigator	978	1,298	(33)%	-	-	-	(33)%
Asia Pacific	1,051	1,378	(32)%	-	-	-	(32)%
Total investment sales	2,306	3,629	(41)%	47	46	-	(40)%

1. Growth rates are calculated based on constant rates of exchange.

2. UK regular premium investment sales include SIPP products. These are similar in nature to pension products and their payment pattern is stable and predictable and accordingly they have been capitalised. Regular premium SIPP sales for the 6 months to 30 June 2008 totalled £16 million (2007: £19 million) and have been multiplied using a weighted average capitalisation factor of 5.0 (2007: 5.0). As such, regular premium SIPP sales have produced an overall contribution to investment sales of £80 million (2007: £95 million) out of the total UK investment sales of £840 million (2007: £1,595 million).

3 - Life EEV operating return

Worldwide Life EEV operating return before tax was 18% higher at £1,480 million (six months to 30 June 2007: £1,251 million) due to increased contributions from both new and existing business. New business contribution after the effect of required capital was 16% higher at £488 million (six months to 30 June 2007: £419 million) with the Group's new business margin after the effect of required capital improving to 2.8% (six months to 30 June 2007: 2.7%).

	6 months 2008 £m	6 months 2007 £m
Life EEV return
New business contribution (after the effect of required capital)	488	419
Profit from existing business
- expected return	694	600
- experience variances	43	(19)
- operating assumption changes	(46)	11
Expected return on shareholders' net worth	301	240
Life EEV operating return before tax	1,480	1,251
Analysed by:
United Kingdom	471	413
Europe	823	679
North America	139	112
Asia Pacific	47	47
	1,480	1,251

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3 - Life EEV operating return continued

	6 months 2008 £m	6 months 2007 £m
New business value post cost of capital	488	419
Persistency experience variances	(9)	(10)
Persistency assumption changes	(1)	-
Net flows after persistency	478	409
Other experience variances	52	(9)
Other operating assumption changes	(45)	11
Net flows after all operating experience and variances	485	411

After adjusting for adverse persistency experience and assumption changes of £10 million (six months to 30 June 2007: £10 million adverse) we continue to generate positive net flows into our life and pension book.

Geographical analysis of new business

			Before the effect of required capital				After the effect of required capital
	Present value of new business premiums		New business contribution		New business margin1		New business contribution		New business margin1
	6 months		6 months		6 months		6 months		6 months
	2008 £m	2007 £m	2008 £m	2007 £m	2008 %	2007 %	2008 £m	2007 £m	2008 %	2007 %
United Kingdom	5,863	5,820	183	178	3.1%	3.1%	154	143	2.6%	2.5%
France	2,010	1,832	84	80	4.2%	4.4%	52	54	2.6%	2.9%
Ireland	648	889	5	14	0.8%	1.6%	2	12	0.3%	1.3%
Italy	1,275	1,818	37	49	2.9%	2.7%	29	37	2.3%	2.0%
Netherlands (including Belgium and Germany)	1,991	1,146	60	37	3.0%	3.2%	15	24	0.8%	2.1%
Poland	739	379	21	17	2.8%	4.5%	18	15	2.4%	4.0%
Spain	1,259	1,114	133	88	10.6%	7.9%	124	79	9.8%	7.1%
Other Europe	509	175	7	(2)	1.4%	(1.1)%	5	(3)	1.0%	(1.7)%
Europe	8,431	7,353	347	283	4.1%	3.8%	245	218	2.9%	3.0%
North America	2,205	1,716	92	57	4.2%	3.3%	68	35	3.1%	2.0%
Asia	580	414	22	20	3.8%	4.8%	15	16	2.6%	3.9%
Australia	204	240	12	12	5.9%	5.0%	6	7	2.9%	2.9%
Asia Pacific	784	654	34	32	4.3%	4.9%	21	23	2.7%	3.5%
Total life and pensions business	17,283	15,543	656	550	3.8%	3.5%	488	419	2.8%	2.7%

1. New business margin represents the ratio of new business contribution to present value of new business premiums, expressed as a percentage.

United Kingdom

Our UK Life business delivered strong life and pension sales, up 1% at £5,863 million (six months to 30 June 2007: £5,820 million) in a declining market. Life EEV operating return increased 14% to £471 million (six months to 30 June 2007: £413 million), reflecting the increased profitability of our new business and strong improvement in expense experience.

New business margin was maintained at 3.1% (30 June 2007: 3.1%), as strong annuity volumes and expenses
savings enabled us to absorb the impacts of a very competitive market and the transition to a 1% charge on stakeholder pensions. After required capital, our new business contribution was £154 million (six months to 30 June 2007:
£143 million), with a margin of 2.6% (30 June 2007: 2.5%).

Total experience variances have improved to show an adverse variance of £5 million (six months to 30 June 2007: £37 million adverse). We have further reduced our adverse expense variance to £24 million (six months to 30 June 2007: £52 million) as we embed initiatives previously announced as part of our operational review. We continue to focus on extracting further value from our business as we simplify our infrastructure and streamline our operations. In October 2007 we announced that we were targeting a further £100 million savings. By the end of June 2008, we have achieved annualised savings of £30 million, which contributed £14 million to our half year financial performance. Adverse lapse experience of £10 million (six months to 30 June 2007: £6 million adverse) reflects the impact of changes to capital gains tax rules for unit-linked bonds. We continue to focus on customer retention activities in light of the current economic conditions.

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Europe

We have a strong portfolio of businesses across Europe with operations in both mature economies and the fast growing central and eastern European states. This diversity has enabled us to deliver resilient sales despite a challenging economic environment.

Life and pensions sales in Aviva Europe increased by 15% to £8,431 million (six months to 30 June 2007: £7,353 million). The strength of the euro has had a positive impact on these results and, on a local currency basis, sales in the region were flat. The results reflect both the volatile investment market conditions reducing customers' appetite for long term savings and banks' current emphasis on offering higher rate deposits instead of long-term savings products in response to reduced liquidity in the market.

Life EEV operating return increased 21% to £823 million (six months to 30 June 2007: £679 million). New business contribution after the effect of required capital increased to £245 million (six months to 30 June 2007: £218 million), with strong growth in Spain partly offset by falls in Ireland and Italy where volumes were lower. New business margins before and after required capital were 4.1% and 2.9% respectively (30 June 2007: 3.8% and 3.0% respectively).

Expected returns on existing business and shareholders' net worth were higher at £562 million (six months to 30 June 2007: £429 million), reflecting higher start of year embedded value. Experience variances were £71 million favourable (six months to 30 June 2007: £19 million), largely reflecting stronger cost control in the Netherlands. Operating assumption changes were £55 million adverse (six months to 30 June 2007: £13 million favourable) reflecting strengthening of allowances for annuitant mortality in the Netherlands.

In France, our sales of £2,010 million (six months to 30 June 2007: £1,832 million) reflect the strength of the euro. On a constant currency basis sales declined by 4% against prior year, however we out-performed the overall market which declined by 7%. The operating return on an EEV basis increased by 32% to £297 million (six months to 30 June 2007: £225 million) reflecting both the strong euro, continued positive experience variances on mortality and the reduction in cost of required capital arising from the recognition of an increased value of implicit items.

Ireland sales were down 27% to £648 million (six months to 30 June 2007: £889 million). The slowdown was mainly due to reduced demand for property and investment funds and less buoyant economic conditions. New business contribution of £5 million (six months to 30 June 2007: £14 million) reflect the fall in volumes and operating profit on an EEV basis was £30 million (six months to 30 June 2007: £37 million).

Sales in Italy were down 30% to £1,275 million (six months to 30 June 2007: £1,818 million), reflecting market volatility and a change in timing of marketing campaigns as our bank partners focused more on attracting bank deposits rather than marketing long-term savings products in response to reduced liquidity in the banking sector. EEV operating profit increased to £89 million (six months to 30 June 2007: £72 million), reflecting the strength of the euro and favourable experience variances which have offset lower returns resulting from decreased sales.

Netherlands sales were higher at £1,991 million (six months to 30 June 2007: £1,146 million), boosted by three large group pension scheme contracts totalling £758 million and a strong performance in Belgium. EEV operating return was down on the prior period at £139 million (six months to 30 June 2007: £166 million) reflecting adverse assumption changes for mortality and unit-linked contract charges partly offset by favourable experience variances.

In Spain, sales were up 13% to £1,259 million (six months to 30 June 2007: £1,114 million) with new business margin up to 10.6% (30 June 2007: 7.9%) reflecting the benefit of the Cajamurcia risk portfolio transfer. Operating return on an EEV basis was £157 million (six months to 30 June 2007: £107 million) largely due to the higher new business contribution.

Our businesses in central and eastern Europe grew life and pension sales by 125% to £1,248 million (six months to 30 June 2007: £554 million). Operating return for the period increased by 54% to £111 million (six months to 30 June 2007: £72 million) reflecting higher new business contribution and favourable mortality and lapse variances in Poland.

North America

Our business in the United States has continued the outstanding growth since the acquisition of the former AmerUs Group, with total new business sales of £2,205 million (six months to 30 June 2007: £1,716 million), an increase of 28% over the prior period. This strong growth was accomplished despite a volatile economic environment in the US.

New business margins were consistent with full year 2007 at 4.2% and up from the prior period of 3.3%. This is largely due to favourable margins achieved on funding agreement sales combined with improved life margins including a no lapse guarantee, offset by reduced annuity margins due to higher option costs. New business contribution has improved to £92 million (six months to 30 June 2007: £57 million) as a result of these higher margins combined with increased sales levels.

Life EEV operating return was £139 million (six months to 30 June 2007: £112 million), an increase of 24% driven by the increases in new business contribution and higher expected returns partly offset by adverse persistency experience.

Page 12

3 - Life EEV operating return continued

Asia Pacific

Life and pension sales growth was 20% at £784 million (six months to 30 June 2007: £654 million) mainly driven by China and India.

New business contribution of £34 million (six months to 30 June 2007: £32 million) was slightly ahead of the prior year reflecting the growth in premium income, while the margin fell to 4.3% (30 June 2007: 4.9%) due to a higher proportion of business being generated by our expanding businesses in India and China and the start up nature of operations in Malaysia and Taiwan. After the effect of required capital, the margin was 2.7% (30 June 2007: 3.5%).

Life EEV operating return was £47 million (six months to 30 June 2007: £47 million) mainly reflecting higher expected return arising from an increasing in-force business offset by a decrease in new business contribution and higher adverse experience variances.

4 - Bancassurance margins - before required capital, tax and minority interest

	Present value of new business premiums		New business contribution2		New business margin3
	6 months 2008 £m	6 months 20071 £m	6 months 2008 £m	6 months 20071 £m	6 months 2008 %	6 months 20071 %
United Kingdom	628	575	27	24	4.3%	4.2%
France	487	417	23	19	4.7%	4.6%
Ireland	349	435	4	9	1.1%	2.1%
Italy	1,241	1,799	36	49	2.9%	2.7%
Netherlands	227	199	7	7	3.1%	3.5%
Poland	291	46	1	-	0.3%	-
Spain	1,127	1,012	134	87	11.9%	8.6%
Other Europe	27	-	2	-	7.4%	-
Europe	3,749	3,908	207	171	5.5%	4.4%
North America	6	27	-	(1)	-	(3.7)%
Asia Pacific	312	166	9	10	2.9%	7.2%
Bancassurance channels	4,695	4,676	243	204	5.2%	4.4%

1. Comparative periods restated to reflect all bancassurance channels, whereas previously we only reflected principal bancassurance channels.

2. Before effect of required capital which amounted to £41 million (six months to 30 June 2007: £32 million).

3. New business margin represents the ratio of new business contribution to present value of new business premiums, expressed as a percentage.

United Kingdom

Life and pension sales through the bancassurance agreement with The Royal Bank of Scotland Group continued to grow strongly, up 9% to £628 million (six months to 30 June 2007: £575 million) reflecting the commitment of both partners to the ongoing development of this successful relationship. New business margins increased slightly to 4.3% (30 June 2007: 4.2%). Including investment products, sales were up 12%.

Europe

In France, the new business margin of our bancassurance joint venture was stable at 4.7% (30 June 2007: 4.6%). In Ireland, new business margin was lower at 1.1% (30 June 2007: 2.1%) reflecting lower sales through our partnership with AIB which decreased by 20% in difficult market conditions. In Italy, our bancassurance partnerships produced lower sales of £1,241 million (six months to 30 June 2007: £1,799 million) but increased new business margin to 2.9% (30 June 2007: 2.7%). The new business bancassurance margin in Spain increased to 11.9% (30 June 2007: 8.6%), following the one-off transfer of a large risk portfolio into the Cajamurcia joint venture and the change in business mix across other venture partners. Our bancassurance agreement with ABN AMRO in the Netherlands generated a margin of 3.1% (30 June 2007: 3.5%) reflecting a change in business mix and increased competition.

North America

Sales were down to £6 million (six months to 30 June 2007: £27 million) reflecting the rationalisation of the Boston bancassurance channels as a result of the AmerUs acquisition.

Asia Pacific

Life and pension sales grew by 88% to £312 million (six months to 30 June 2007: £166 million), mainly driven by the impact of new product initiatives in Singapore, new businesses in Taiwan and Malaysia and sales growth from distribution expansion in China. New business margin at 2.9% (30 June 2007: 7.2%), reflected a higher proportion of business being generated in China, change in product mix and re-design brought about by legislative changes in India, and the start-up nature of operations in Malaysia and Taiwan.

Page 13

5 - New business contribution - after required capital, tax and minority interest

New business contribution after required capital, tax and minority interest increased by 17% to £280 million (six months to 30 June 2007: £240 million) with a resultant new business margin of 1.8% (30 June 2007: 1.8%).

	Present value of new business premiums1		New business contribution2		New business margin3
	6 months 2008 £m	6 months 2007 £m	6 months 2008 £m	6 months 2007 £m	6 months 2008 %	6 months 2007 %
Bancassurance channels	2,894	2,586	80	71	2.8%	2.7%
Other distribution channels	12,319	10,716	200	169	1.6%	1.6%
Total life and pensions business	15,213	13,302	280	240	1.8%	1.8%
Analysed by:
United Kingdom	5,863	5,820	111	100	1.9%	1.7%
Europe	6,364	5,116	109	99	1.7%	1.9%
North America	2,205	1,716	44	23	2.0%	1.3%
Asia Pacific	781	650	16	18	2.0%	2.8%
	15,213	13,302	280	240	1.8%	1.8%

1. Stated after deducting the minority interest.

2. Stated after deducting the effect of required capital, tax and minority interest.

3. New business margin represents the ratio of new business contribution to present value of new business premiums, expressed as a percentage.

6 - Long-term business operating profit on an International Financial Reporting Standard (IFRS) basis

On an IFRS basis, our long-term business operating profit before shareholder tax was £970 million (six months to 30 June 2007 restated: £834 million), an increase of 16%. The increase is primarily driven by the special distribution in the United Kingdom and increased profits in Europe, especially in the Netherlands.

United Kingdom

IFRS operating profit was 20% higher at £428 million (six months to 30 June 2007 restated: £357 million) driven by the with-profits business and supported by a £107 million profit relating to the shareholder proportion of the first phase of the special distribution announced in February this year.

The non-profit result was down by 17% to £226 million (six months to 30 June 2007 restated: £272 million). The prior year included a £76 million one-off benefit from the implementation of the reserving changes introduced by PS06/14. Excluding this item, earnings of the non-profit business were up 15% on an underlying basis reflecting the benefit of cost saving initiatives.

Europe

In Europe life IFRS operating profit increased to £486 million (six months to 30 June 2007 restated: £395 million), driven primarily by increased profits in France, the Netherlands, Poland and Spain. Elsewhere investment market volatility has impacted profits through reduced sales.

In France operating profit increased to £145 million (six months to 30 June 2007 restated: £136 million) reflecting the favourable impact of the euro partly offset by reduced unit-linked income. Operating profit in Ireland was down on the prior period at £28 million (six months to 30 June 2007 restated: £31 million) driven by higher expenses and adverse claims and lapse experience. In the Netherlands operating profit was £134 million (six months to 30 June 2007 restated: £94 million) including £20 million one off release of a surplus in a staff pension provision partially offset by new business strain particularly on the new corporate pension schemes. In Poland operating profit increased to £76 million (six months to 30 June 2007 restated: £53 million) reflecting higher life and pension sales and favourable foreign exchange. Operating profit in Spain was higher at £74 million (six months to 30 June 2007 restated: £57 million) reflecting the acquisition of Cajamurcia Vida in the latter half of 2007. In Italy we have seen operating profit remain steady at £37 million (six months to 30 June 2007 restated: £38 million) despite the downturn in sales.

Aviva Europe's remaining businesses in central and eastern Europe contributed an improved operating loss of £8 million (six months to 30 June 2007 restated: £14 million loss), as we continue to build scale and market share in these developing countries.

North America

Life operating profit decreased by 28% to £42 million (six months to 30 June 2007 restated: £58 million) primarily due to margin compression from increased competitive pressures and higher cost of options to support product guarantees.

Asia Pacific

Life operating profit decreased to £14 million (six months to 30 June 2007 restated: £24 million), reflecting increased expenses arising from distribution expansion in China and India, and start-up costs in relation to the new businesses in Malaysia, Taiwan and Korea.

Page 14

7 - Fund management

Our worldwide fund management operating profit decreased by 17% to £63 million (six months to 30 June 2007: £76 million) on an IFRS basis. Funds under management by Aviva at 30 June 2008 were £307 billion (31 December 2007: £316 billion) reflecting challenging global investment markets.

	6 months 2008 £m	6 months 20071 £m	Full year 20071 £m
Aviva Investors	49	58	123
United Kingdom	(8)	(4)	(10)
Europe	13	13	27
Asia Pacific	9	9	15
Total	63	76	155

1. Prior periods have been restated to reflect the new management structure including France and Canada.

On an EEV basis, the total operating profit from our fund management businesses was £30 million (six months to 30 June 2007: £45 million) and represents the profit from those funds managed on behalf of third parties and the Group's non-life businesses.

Aviva Investors

On 28 February, as part of the 'one Aviva, twice the value' vision, we announced our plans to combine the asset management companies within Aviva to create a single, globally integrated asset manager to be known as Aviva Investors. We have started the transition to one global business and by 30 June 2008 had moved France and Canada to join the existing Morley business.

The combined Aviva Investors businesses reported operating profit of £49 million (six months to 30 June 2007: £58 million). This decrease was primarily due to the extremely poor conditions in global financial markets.

Within this, United Kingdom reported operating profit of £28 million for the six months ended 30 June 2008 (six months to 30 June 2007: £33 million) against a backdrop of turbulent investment markets. The commercial property market in the UK remains difficult, but our global property capability continues to be a market leader and many of our funds performed well on a relative basis.

France reported an operating profit of £16 million in line with the prior period (six months to 30 June 2007: £16 million). On a local currency basis, operating profit has decreased by 13% reflecting the downturn in fund management fees income as a consequence of investment market volatility during the period.

Other fund management businesses

United Kingdom operating loss of £8 million comprises £2 million loss (six months ended 30 June 2007: £nil) from our Norwich Union retail investment business and £6 million loss (six months to 30 June 2007: £4 million loss) from our collective investment business with RBSG.

Europe operating profit of £13 million (six months to 30 June 2007: £13 million) reflected positive foreign exchange movements offset by lower fee income from funds under management, which have been affected by volatile stock markets.

Asia Pacific, comprising our Navigator business in Australia and Singapore, contributed £9 million in line with the prior period.

8 - General insurance and health operating profit

The group's net written premiums from its worldwide general insurance and health businesses increased by 5% to £5,800 million for the six month period to 30 June 2008 (six months to 30 June 2007: £5,498 million).

Group operating profit from general insurance and health businesses decreased by 4% to £538 million (six months to 30 June 2007: £560 million). The worldwide general insurance combined operating ratio (COR) has remained stable at 97% (30 June 2007: 97%).

The general insurance and health underwriting result increased to £58 million (six months to 30 June 2007: £49 million). The worldwide GI expense ratio has decreased to 12.7% (30 June 2007: 12.9%), primarily driven by cost savings achieved by our UK general insurance business.

The longer-term investment return (LTIR) on general insurance and health business assets was lower at £480 million (six months to 30 June 2007: £511 million) resulting from the changes in asset mix due to equity de-risking that took place in the latter half of 2007 and lower levels of investments following payment of flood claims in the United Kingdom.

We continue to apply our reserving policy consistently and the reserves in the group are set conservatively with the aim to protect against adverse future claims experience and development. Our business is predominantly short tail in nature and loss development experience is generally stable. As a result of the conservatism applied in setting the reserves, there are releases of £230 million, net of reinsurance, in 2008 which reflect releases from the 2007 accident year and prior.

Page 15

8 - General insurance and health operating profit continued

	Net written premiums		Underwriting result		Operating profit
	6 months 2008 £m	6 months 2007 £m	6 months 2008 £m	6 months 2007 £m	6 months 2008 £m	6 months 2007 £m
United Kingdom	2,832	2,950	37	(46)	326	284
Europe	2,183	1,869	7	88	137	203
North America	771	665	15	5	76	70
Asia Pacific	14	14	(1)	2	(1)	3
Continuing operations	5,800	5,498	58	49	538	560

United Kingdom

Total operating profit of £326 million (six months to 30 June 2007: £ 284 million) includes contributions of £21 million from our captive reinsurance operations and health business. Our group captive reinsurer, Aviva Re, reported an operating profit of £19 million (six months to 30 June 2007: £17 million) and PMI health result was a profit of £2 million (six months to 30 June 2007: £2 million loss), reflecting higher underlying profitability and withdrawal from less profitable international business. The following commentary relates to Norwich Union Insurance, our UK general insurance business only.

Norwich Union Insurance is the leading general insurer in the United Kingdom. We provide a range of insurance products focused on personal and small business customers, together with a range of motoring solutions through the RAC and associated brands.

Net written premiums have decreased by 4% to £2,589 million (2007: £2,699 million). The reduction in premiums reflects lower levels of creditor business resulting from the ongoing uncertainty in the creditor market generally, coupled with our determination to write business for profit rather than volumes. In personal motor we have achieved rate increases of 5% (2007: 8%). Homeowner rates have increased by 10% (2007: 5%), reflecting the action initiated in August 2007 as a response to almost a decade of flat rates in that market. Rates in commercial lines have been steadily increasing and we have achieved an overall average annualised increase of 2% (2007: 3% decrease). However, this market remains extremely competitive and we have seen volumes decrease as a result.

For the six month period to 30 June 2008, general insurance profits increased to £305 million (2007: £269 million), despite a continuation of the challenging market conditions seen throughout 2007. Our combined operating ratio improved to 98% (2007: 102%) and is now in line with the Group target.

The principal factor in the improved profitability was that weather-related claims were in line with normal expectations compared with a £235 million adverse impact in the first half of 2007. The result includes savings on prior year claims development of £160 million (six months to 30 June 2007: £245 million). Performance in the first half of the year has also been impacted by the difficult market conditions and an increase in commission costs, driven by consolidation within the broker market. These factors have outweighed the benefits we have derived from our initiatives to deliver cost savings and control claims inflation.

Longer-term investment return (LTIR) is 13% lower on the prior period to £273 million (six months to 30 June 2007: £315 million) driven by the de-risking of the portfolio which has seen higher yielding equities replaced by more secure fixed interest securities and adverse cash flow in both 2007 and 2008 which has resulted in lower levels of investments held.

In October 2007 we announced a programme to leverage the investments we have made in recent years and deliver cost savings of £200 million in 2008 from the first phase of this programme. We are on track to deliver these savings and our expense ratio for the half year has improved to 12.8% (30 June 2007: 13.6%) and, notwithstanding the pressure on business volumes, we expect the full year ratio will be in line with the target of 12.4% presented at the analyst day in October 2007.

In June 2008 we announced details of the second phase of the programme to transform our business. This phase is designed to improve service and drive growth and will involve the redesign of the Operations function, simplification of processes, improvements in customer services and the consolidation of expertise into nine modern insurance centres of excellence. We expect this phase, together with additional actions being taken in other areas (most notably in the IT function), will deliver further cost savings of £150 million per annum and an expense ratio of less than 11% by 2010 (based on current volumes of business), giving us significant competitive advantage in the UK market.

Europe

Aviva Europe's net written premiums increased by 17% to £2,183 million (six months to 30 June 2007: £1,869 million), reflecting the strength of the euro whilst the underlying trend is one of increasing price competition across a number of countries. Our general insurance and health businesses recorded operating profits of £137 million (six months to 30 June 2007: £203 million) reflecting the current competitive nature of the insurance markets particularly in Ireland and the Netherlands.

In France we recorded net written premiums of £485 million (six months to 30 June 2007: £421 million) and an operating profit of £30 million (six months to 30 June 2007: £31 million). A small underwriting profit of £1 million was achieved against a breakeven result in 2007 reflecting favourable claims experience and control of costs. An improved general insurance COR was achieved at 96% (30 June 2007: 97%).

Page 16

8 - General insurance and health operating profit continued

Our market-leading Irish business has continued to experience intense competitive pressures within the market which have impacted the operating profit, down to £41 million for the period (six months to 30 June 2007: £80 million). The combined operating ratio worsened to 98% (30 June 2007: 78%) reflecting increased claims frequency and large claims during the first half of 2008, which impacted the underwriting result of £8 million (six months to 30 June 2007: £53 million). Net written premiums were £266 million for the period (six months to 30 June 2007: £245 million). We recently announced the acquisition of VIVAS Health, rebranded as Hibernian Health in June, which will enable us to compete strongly in the health market and add to our competitive strength.

In the Netherlands, our general insurance and health business recorded an operating profit of £44 million (six months to 30 June 2007: £70 million). Net written premiums increased to £1,233 million (six months to 30 June 2007; £1,055 million) driven by higher volumes and ratings increases the phasing of health premiums and the acquisition of Erasmus in April 2007. The general insurance business recorded an operating profit of £57 million (six months to 30 June 2007: £86 million) and the COR worsened to 92% (30 June 2007: 76%) reflecting deterioration in claims experience, particularly motor, lower reserve releases in 2008 as well as pressure on premium rates. The health business reported an operating loss of £13 million (six months to 30 June 2007: £16 million loss) as rating improvements in late 2007 took effect. The health business has been shown as held for sale as at 30 June 2008 as we have previously announced the sale of this business to OWM CZ Groep Zorgverkeraar, which is expected to complete on 1 January 2009. In the meantime Delta Lloyd has commenced selling its products to CZ's existing customer base. Delta Lloyd has recently launched a new online insurer, iZio, in the Netherlands, offering competitively priced general insurance products including home contents and car insurance.

Our other general insurance operations in Italy, Turkey and Poland contributed operating profit of £22 million (six months to 30 June 2007: £22 million) and net written premiums of £199 million (six months to 30 June 2007: £148 million).

North America

In the highly competitive Canadian market, we continue to achieve growth without compromising profitability.
Net written premiums were £771 million (six months to 30 June 2007: £665 million). On a constant currency basis, this is an increase of 4%, reflecting growth in commercial lines.

The underwriting result was £15 million (six months to 30 June 2007: £5 million) with a favourable movement in COR to 98% (30 June 2007: 99%). Strong premium growth and favourable prior year claims development were partially offset by claims inflation, increases in claim frequency combined with losses from the record winter snowfall.

Operating profit was £76 million (six months to 30 June 2007: £70 million) with the positive movement in the underwriting result being partly offset by lower investment income following the equity de-risking that took place
in the latter half of 2007.

Asia Pacific

The businesses in Asia Pacific reported an operating loss of £1 million (six month period to 30 June 2007: £3 million profit) due to higher claims from the health business in Singapore, fire related in Malaysia and flood related claims in Sri Lanka.

9 - Other operations and regional costs

	6 months 2008 £m	6 months 2007 £m	Full year 2007 £m
Europe	(12)	-	(11)
North America	(5)	-	(2)
Asia Pacific	(9)	-	(3)
Regional costs	(26)	-	(16)
United Kingdom	(33)	(23)	(8)
Europe	(10)	(22)	(38)
North America	1	-	(2)
Asia Pacific	2	(4)	(10)
Other operations	(40)	(49)	(58)
Total	(66)	(49)	(74)

United Kingdom

The £33 million loss for the period (six months to 30 June 2007: £23 million loss) mainly comprises a £23 million loss arising from the Lifetime wrap platform and a £12 million increase in the provision for interest on disputed tax liabilities, £5 million of which is exchange rate related. This is partly offset by a £5 million profit from the Norwich Union Insurance non-insurance operations. Following a strategic review of the Lifetime platform, a decision has been made to enter into a strategic partnership with Scottish Friendly to run the Lifetime back office administration and migrate the wrap onto their existing platform. This has given rise to impairment losses and restructuring costs as discussed on page 18.

Europe

The loss of £22 million for the period (six months to 30 June 2007: £22 million loss) principally reflects the inclusion of Aviva Europe regional office costs of £12 million, following regionalisation in July 2007. Head office costs in our French business have increased due to higher staff and finance strategy costs while in the Netherlands, lower staff incentive plan costs were partly offset by lower profit in the Dutch banking division.

Page 17

9 - Other operations and regional costs continued

North America

The loss of £4 million (six months to 30 June 2007: £nil) reflects the inclusion of regional costs and other non-insurance businesses.

Asia Pacific

The increased loss of £7 million (six months to 30 June 2007: £4 million loss) reflects the new regional costs.

10 - Corporate centre

The corporate centre result for the period was lower at £71 million (six months to 30 June 2007: £80 million) due to lower central spend and staff incentive costs. Within this total, project spend has increased to £20 million (six months to 30 June 2007: £13 million), driven by the corporate centre's share of the ongoing implementation of the global finance strategy. This project will allow us to deliver new reporting requirements under MCEV and Solvency II and compliance with Sarbanes-Oxley (which would support a potential US listing). Further expenditure to deliver this project is also included in each region's operating profit.

11 - Group debt costs and other interest

Group debt costs and other interest of £201 million (six months to 30 June 2007: £190 million) comprise internal and external interest on borrowings, subordinated debt and intra-group loans not allocated to local business operations. Interest costs remained at prior period levels of £223 million (six months to 30 June 2007: £222 million). Within this, external interest costs were £128 million (six months to 30 June 2007: £129 million) reflecting higher interest on subordinated debt, due to hybrid debt issue in May 2008, offset by lower commercial paper interest as the proceeds were used to repay some commercial paper. Internal interest costs remain unchanged at £95 million (six months to 30 June 2007: £93 million). Also included is UK net pension income which represents the expected return on pension scheme assets less the interest charge on pension scheme liabilities. Net pension income fell to £22 million (six months to 30 June 2007: £32 million) reflecting lower asset returns due to equity de-risking.

Interest on the £990 million direct capital instrument issued in 2004 is not included within unallocated interest as it is instead treated as an appropriation of profits retained in the period. This appropriation is settled in accordance with IFRS and will be reflected in the second half of the year.

12 - (Loss)/profit before tax

	EEV basis		IFRS basis
	6 months 2008 £m	6 months 2007 £m	6 months 2008 £m	6 months 2007 £m
Operating profit before tax	1,719	1,541	1,233	1,151
Investment return variances and economic assumption changes on long-term business	(2,783)	542	(636)	107
Short-term fluctuation in return on investments backing general insurance and health business	(314)	37	(314)	37
Impairment of goodwill	(42)	(3)	(42)	(3)
Amortisation and impairment of intangibles	(44)	(41)	(51)	(49)
Profit/(loss) on the disposal of subsidiaries and associates	9	(5)	9	(5)
Integration and restructuring costs	(132)	(40)	(132)	(40)
Exceptional costs for termination of operations	(84)	-	(84)	-
(Loss)/profit before tax / (Loss)/profit before tax attributable to shareholders' profits	(1,671)	2,031	(17)	1,198

Loss before tax on an EEV basis was £1,671 million (six months to 30 June 2007: £2,031 million profit), and includes unfavourable investment variance and economic assumption changes on long-term business of £2,783 million (six months to 30 June 2007: £542 million favourable). These variances reflect the impact of the worsening economic conditions prevailing during the period and volatile investment markets.

The IFRS long-term business unfavourable investment variance of £636 million (six months to 30 June 2007: £107 million favourable) was driven by increasing risk free rates, widening credit spreads and poor equity performance across all regions. The effect of these together with non-life investment market movements and integration costs are included in the IFRS loss before tax attributable to shareholders' of £17 million loss (six months to 30 June 2007: £1,198 million profit).

The adverse short-term fluctuation in return on investments backing general insurance and health business of £314 million (six months to 30 June 2007: £37 million positive) is due to lower market returns compared to our longer-term investment return assumptions. The group reduced its exposure to equities through an active sell off of part of our equity book in the second half of 2007.

Impairment of goodwill of £42 million (six months to 30 June 2007: £3 million) is mainly driven by £39 million impairment of goodwill balances in the Netherlands.

Page 18

12- (Loss)/profit before tax continued

Amortisation and impairment of intangibles on an IFRS basis was £51 million (2007: £49 million). This mainly reflects the amortisation of the intangible benefit from acquired distribution channels in North America and Europe and the amortisation of capitalised development costs and exclusivity rights in the United Kingdom.

Integration and restructuring costs of £132 million (six months to 30 June 2007: £40 million) comprises phase one restructuring costs of £38 million announced in October 2007 and phase two restructuring costs of £83 million announced in June 2008. The balance mainly related to the implementation of Aviva Investors.

Exceptional costs for termination of operations of £84 million (six months to 30 June 2007: £nil) are due to the migration of the wrap platform in the UK to a third party provider, Scottish Friendly. These costs include write-downs of goodwill and intangible assets.

13 - Taxation

The taxation credit for the six month period was £396 million (six months to 30 June 2007: £529 million charge) on an EEV basis and includes a charge of £523 million (six months to 30 June 2007: £416 million) in respect of operating profit, which is equivalent to an effective rate of 30.4% (2007: 27.0%) mainly reflecting increased profits in France, Spain and the US which are taxed at higher rates. The effective tax rate on IFRS operating profit is 28.7% (2007: 28.6%).

14 - Earnings per share

Our IFRS loss per share, on a total return basis, for the six month period is a loss of 3.9 pence (six months to
30 June 2007: 31.0 pence profit). The 7% increase in operating profit to £1,233 million (six months to 30 June 2007: £1,151 million) is more than offset by the impact of investment variances and economic assumption changes in our long-term business and adverse short-term fluctuations in our general insurance businesses, resulting from the current economic climate and volatile investment markets, of £950 million (six months to 30 June 2007: £144 million favourable).

15 - Dividends

Ordinary dividends

The Board has recommended a 10% increase in the interim dividend to 13.09 pence net per share (30 June 2007: 11.90 pence) payable on 17 November 2008 to shareholders on the register on 26 September 2008.

Preference dividends

83/8% cumulative irredeemable preference shares of £1 each

The Board has recommended a dividend of 4.1875% per share for the six month period ending 30 September 2008 payable on 30 September 2008 to preference shareholders that were on the register on 15 August 2008.

83/4% cumulative irredeemable preference shares of £1 each

The Board has recommended a dividend of 4.375% per share for the six month period ending 31 December 2008 payable on 31 December 2008 to preference shareholders on the register on 14 November 2008.

16 - Pension fund deficit

At 30 June 2008, the Group's overall pension fund deficit less surpluses had increased by £337 million to £515 million (gross of tax). This was mainly due to a £998 million loss on assets offset by the payment of £320 million into the scheme (which completes our commitment to provide funding of £700 million) and £230 million of net gains from changes in the assumptions and better demographic experience than expected.

17 - Return on equity shareholders' funds

The Group's annualised post-tax operating return on equity shareholders' funds was 10.3% (30 June 2007: 11.6%; 31 December 2007: 11.3%), reflecting the impact of a higher opening capital base partly offset by a 5% increase in post tax EEV operating profit reflecting the improvement in long-term business results.

Page 19

18 - Capital

Capital management objectives

Aviva's capital management philosophy is focused on capital efficiency and effective risk management to support a progressive dividend policy and EPS growth. Rigorous capital allocation is one of the group's primary strategic priorities and is ultimately governed by the Group Executive Committee.

The group's overall capital risk appetite is set and managed with reference to the requirements of a range of different stakeholders including shareholders, policyholders, regulators and rating agencies. In managing capital we seek to:

maintain sufficient, but not excessive, financial strength to support new business growth and satisfy the requirements of our stakeholders;

optimise our overall debt to equity structure to enhance our returns to shareholders, subject to our capital risk appetite and balancing the requirements of the range of stakeholders;

retain financial flexibility by maintaining strong liquidity, including significant unutilised committed credit lines and access to a range of capital markets;

allocate capital rigorously across the group, to drive value adding growth in accordance with risk appetite;

increase the dividend on a basis judged prudent, while retaining capital to support future business growth, using dividend cover on an IFRS operating earnings after tax basis in the 1.5 to 2.0 times range as a guide.

Capital resources

The primary sources of capital used by the group are equity shareholders' funds, preference shares, subordinated debt and borrowings. We also consider and, where efficient to do so, utilise alternative sources of capital such as reinsurance and securitisation in addition to the more traditional sources of funding. Targets are established in relation to regulatory solvency, ratings, liquidity and dividend capacity and are a key tool in managing capital in accordance with our risk appetite and the requirements of our various stakeholders.

Overall, the group has significant resources and financial strength. The ratings of the group's main operating subsidiaries are AA/AA- ('very strong') with a stable outlook from Standard & Poor's, Aa3 ('excellent') with a stable outlook from Moody's and A+ ('Superior') with a stable outlook from AM Best. These ratings reflect the group's strong liquidity, competitive position, capital base, increasing underlying earnings and strategic and operational management. The Group is subject to a number of regulatory capital tests and also employs economic capital measures to manage capital and risk.

Capital allocation

Capital allocation is undertaken based on a rigorous analysis of a range of financial, strategic, risk and capital factors to ensure that capital is allocated efficiently to value adding business opportunities. A clear management decision making framework, incorporating ongoing operational and strategic performance review, periodic longer term strategic and financial planning and robust due diligence over capital allocation is in place, governed by the Group Executive Committee and Group Capital Management Committee. These processes incorporate various capital profitability metrics, including an assessment of return on capital employed and internal rates of return in relation to hurdle rates to ensure capital is allocated efficiently and that excess business unit capital is repatriated where appropriate.

Different measures of capital

In recognition of the requirements of different stakeholders, the group measures its capital on a number of different bases, all of which are taken into account when managing and allocating capital across the group. These include measures which comply with the regulatory regimes within which the group operates and those which the directors consider appropriate for the management of the business. The primary measures which the group uses are:

(i) Accounting bases

The group reports its results on both an IFRS and a European Embedded Value basis. The directors consider that the European Embedded Value principles provide a more meaningful measure of the long term underlying value of the capital employed in the group's life and related businesses. This basis allows for the impact of uncertainty in the future investment returns more explicitly and is consistent with the way the life business is priced and managed. Accordingly, in addition to IFRS, we analyse and measure the net asset value and total capital employed for the group on this basis. This is the basis on which group return on equity is measured and against which the corresponding Group target is expressed.

(ii) Regulatory bases

Individual regulated subsidiaries measure and report solvency based on applicable local regulations, including in the UK the regulations established by the Financial Services Authority (FSA). These measures are also consolidated under the European Insurance Groups Directive (IGD) to calculate regulatory capital adequacy at an aggregate Group level. The Group has fully complied with these regulatory requirements during the year.

(iii) Rating agency bases

The group's ratings are an important indicator of financial strength and maintenance of these ratings is one of the key drivers of capital risk appetite. Certain rating agencies have proprietary capital models which they use to assess available capital resources against capital requirements, as a component of their overall criteria for assigning ratings. In addition, rating agency measures and targets in respect of gearing and fixed charge cover are important in evaluating the level of borrowings utilised by the group. While not mandatory external requirements, in practice rating agency capital measures tend to act as one of the primary drivers of capital requirements, reflecting the capital strength required in relation to our target ratings.

Page 20

18 - Capital continued

(iv) Economic bases

The group also measures its capital using an economic capital model that takes into account a more realistic set of financial and non-financial assumptions. This model has been developed considerably over the past few years and is increasingly relevant in the internal management and external assessment of the group's capital resources. The economic capital model is used to assess the group's capital strength in accordance with the Individual Capital Assessment (ICA) requirements established by the FSA. Further developments are planned to meet the emerging requirements of the Solvency II framework.

Accounting basis and capital employed by segment

The table below shows how our capital, on an EEV basis, is deployed by segment and how that capital is funded.

	30 June 2008 £m	31 December 2007 £m
Long-term savings	22,900	23,272
General insurance and health	5,212	5,487
Other business including fund management	684	1,056
Corporate1	(32)	(31)
Total capital employed	28,764	29,784
Financed by:
Equity shareholders funds	18,672	20,253
Minority interests	3,385	3,131
Direct capital instrument	990	990
Preference shares	200	200
Subordinated debt	3,911	3,054
External debt	721	1,257
Net internal debt	885	899
	28,764	29,784
Net asset value per share - EEV basis	702p	772p

1. The 'Corporate' net liabilities represent the element of the pension scheme deficit held centrally.

At 30 June 2008 the group had £28.8 billion (31 December 2007: £29.8 billion) of total capital employed in its trading operations, measured on an EEV basis. Net asset value per ordinary share, based on equity shareholders' funds, has decreased to 702 pence per share (31 December 2007: 772 pence per share).

Total capital employed is financed by a combination of equity shareholders' funds, preference capital, subordinated debt and borrowings. In addition to our external funding sources, we have certain internal borrowing arrangements in place which allow some of the assets that support technical liabilities to be invested in a pool of central assets for use across the group. These internal debt balances allow for the capital allocated to business operations to exceed the externally sourced capital resources of the group. Although intra-group in nature, they are included as part of the capital base for the purpose of capital management. These arrangements arise in relation to the following:

Certain subsidiaries, subject to continuing to satisfy standalone capital and liquidity requirements, loan funds to corporate and holding entities, these loans satisfy arms length criteria and all interest payments are made when due.

Aviva International Insurance (AII) Ltd acts as both a UK general insurer and as the primary holding company for the group's foreign subsidiaries. Internal capital management mechanisms in place allocate a portion of the total capital of the company to the UK general insurance operations. These mechanisms also allow for some of the assets backing technical liabilities to be made available for use across the group. Balances in respect of these arrangements are also treated as internal debt for capital management purposes.

Net internal debt represents the balance of the above amounts due from corporate and holding entities, less the tangible net assets held by these entities.

On 13 May 2008 the group issued £0.8 billion equivalent of Lower Tier 2 hybrid in a dual-tranche transaction (£400 million and €500 million). £0.6 billion of the proceeds was used to repay short-term Commercial Paper borrowings. This transaction had a positive impact on Group IGD Solvency and Economic capital measures.

Financial leverage, the ratio of the group's external senior and subordinated debt to EEV capital and reserves, was 20% (31 December 2007: 17%). Fixed charge cover, which measures the extent to which external interest costs, including subordinated debt interest and preference dividends, are covered by EEV operating profit was 11.8 times (31 December 2007: 9.8 times).

Page 21

18 - Capital continued

Regulatory bases

Regulatory basis - Group: European Insurance Groups Directive

	30 June 2008	31 December 2007
Insurance Groups Directive (IGD) excess solvency	£1.8 billion	£2.9 billion
Cover (times) over EU minimum	1.3 times	1.5 times

The group has a regulatory obligation to have positive solvency on a regulatory IGD basis at all times. The group's risk management processes ensure adequate review of this measure. At 30 June 2008, the estimated excess regulatory capital was £1.8 billion (31 December 2007: £2.9 billion). This measure represents the excess of the aggregate value of regulatory capital employed in our business over the aggregate minimum solvency requirements imposed by local regulators, excluding the surplus held in the group's UK life funds. The minimum solvency requirement for the group's European businesses is based on the Solvency I Directive. In broad terms, for EU operations, this is set at 4% and 1% of non-linked and unit-linked life reserves respectively and for Aviva's general insurance portfolio of business is the higher of 18% of gross premiums or 26% of gross claims, in both cases adjusted to reflect the level of reinsurance recoveries. For the Group's major non-European businesses (the US, Australia and Canada) a risk charge on assets and liabilities approach is used. The IGD is a pure aggregation test with no credit given for the considerable diversification benefits of Aviva.

Our excess solvency of £1.8 billion reflects a net decrease of £1.1 billion since 31 December 2007 mainly reflecting the market downturn over the last six months.

Regulatory basis - General insurance and International

Our principal UK general insurance regulated subsidiary is Aviva International Insurance Group (AII). The combined businesses of the AII group have a strong solvency position as set out in the table below. On an aggregate basis the estimated excess solvency margin (representing the regulatory value of excess available assets over the required minimum margin) amounted to £1.9 billion (31 December 2007: £3.5 billion) after covering the minimum capital base of £6.3 billion (31 December 2007: £5.5 billion).

	30 June 2008	31 December 2007
Capital resources	£8.2 billion	£9.0 billion
Capital resources requirement	£6.3 billion	£5.5 billion
Solvency surplus	£1.9 billion	£3.5 billion
Cover	1.3 times	1.6 times

Regulatory basis - Long-term businesses

For the group's non-participating worldwide life assurance businesses, our capital requirements, expressed as a percentage of the EU minimum, are set for internal management and embedded value reporting purposes as the higher of:

Target levels set by reference to internal risk assessment and internal objectives, taking account of the level of operational, demographic, market and currency risk

Minimum capital level (i.e. level of solvency capital at which local regulator is empowered to take action)

The required capital across the group's life businesses varies between 100% and 250% of EU minimum or equivalent. The weighted average level of required capital for the group's non-participating life business, expressed as a percentage of the EU minimum (or equivalent) solvency margin has remained stable at 130% (31 December 2007: 130%).

These levels of required capital are used in the calculation of the group's embedded value to evaluate the cost of locked in capital. At 30 June 2008 the aggregate regulatory requirements based on the EU minimum test amounted to £5.5 billion (31 December 2007: £5.1 billion). At this date, the actual net worth held in the group's long-term business was £9.7 billion (31 December 2007: £10.5 billion) which represents 176% (31 December 2007: 205%) of these minimum requirements.

Regulatory basis - UK Life with-profit funds

The available capital of the with-profit funds is represented by the realistic inherited estate. The estate represents the assets of the long-term with-profit funds less the realistic liabilities for non-profit policies within the funds, less asset shares aggregated across the with-profit policies and any additional amounts expected at the valuation date to be paid to in-force policyholders in the future in respect of smoothing costs, guarantees and promises. Realistic balance sheet information is shown below for the three main UK with-profit funds; CGNU Life, Commercial Union Life Assurance Company (CULAC) and Norwich Union Life & Pensions (NUL&P). These realistic liabilities have been included within the long-term business provision and the liability for insurance and investment contracts on the group's IFRS balance sheet at 30 June 2008 and 31 December 2007.

Page 22

18 - Capital continued

	30 June 2008					31 December 2007
	Estimated realistic assets £bn	Estimated realistic liabilities1,2 £bn	Estimated realistic inherited estate3 £bn	Estimated risk capital margin4 £bn	Estimated excess £bn	Estimated excess £bn
CGNU Life	13.5	(12.4)	1.1	(0.3)	0.8	1.1
CULAC	13.0	(12.0)	1.0	(0.3)	0.7	0.8
NUL&P5	23.3	(21.6)	1.7	(0.4)	1.3	1.3
Aggregate	49.8	(46.0)	3.8	(1.0)	2.8	3.2

1. These realistic liabilities include the shareholders' share of future bonuses of £0.9 billion (31 December 2007: £1.2 billion). Realistic liabilities adjusted to eliminate the shareholders' share of future bonuses are £45.1 billion (31 December 2007: £48.8 billion).

2. These realistic liabilities make provision for guarantees, options and promises on a market consistent stochastic basis. The value of the provision net of charges included within realistic liabilities is £0.8 billion, £0.8 billion and £2.3 billion for CGNU Life, CULAC and NUL&P respectively (31 December 2007: £0.6 billion, £0.7 billion and £2.3 billion for CGNU Life, CULAC and NUL&P respectively).

3. Estimated realistic inherited estate at 31 December 2007 was £1.4 billion, £1.2 billion and £1.9 billion for CGNU Life, CULAC and NUL&P respectively.

4. The risk capital margin (RCM) is 3.9 times covered by the inherited estate (31 December 2007: 3.7 times).

5. The NUL&P fund includes the Provident Mutual (PM) fund which has realistic assets of £1.9 billion and liabilities of £1.9 billion and therefore does not impact the realistic inherited estate.

Investment mix

The aggregate investment mix of the assets in the three main with-profit funds at 30 June 2008 was:

	30 June 2008 %	31 December 2007 %
Equity	30%	37%
Property	13%	13%
Fixed interest	42%	37%
Other	15%	13%
	100%	100%

The equity backing ratios, including property, supporting with-profit asset shares are 69% in CGNU Life, CULAC and 68% in NUL&P. New with-profit business is mainly written through CGNU Life.

Reattribution of inherited estate

Aviva has been pursuing the possibility of a reattribution of the inherited estate of two of Norwich Union's with-profit funds (CGNU Life and Commercial Union Life Assurance Company (CULAC)). As part of this process in November 2006 Aviva appointed Clare Spottiswoode as independent Policyholder Advocate, a consumer led role created to represent policyholders under the Financial Services Authority (FSA) rules governing reattribution. Following eighteen months of negotiations between Aviva and the Policyholder Advocate on the reattribution of the inherited estate of the two funds, negotiations have now concluded and an offer of £1 billion has been agreed for the one million eligible policyholders. The intention is to make an offer later this year to each policyholder, that will give them a free choice as to whether to accept the offer or not in a voting process. Norwich Union and Aviva will take into account a number of factors (including financial and practical considerations) before finally deciding to make offers to individual eligible policyholders. The FSA has conducted a preliminary review and has not objected to the offer being put to policyholders, and will make its final review once the policyholder election is complete. Once the election process concludes, the reattribution and associated fund transfer will also require the approval of the High Court and final confirmation by the boards of Aviva and the relevant Norwich Union Life companies. Payments are currently expected to be made in summer 2009.

Regulatory basis - Solvency II

Solvency II represents new legislation which proposes a fundamental review of the capital adequacy regime for the European insurance industry. It aims to establish a revised set of EU-wide capital requirements and risk management standards that will replace the current requirements applicable to European insurance firms and groups. Solvency II is a unique opportunity to modernise the regulation of insurance companies and groups. Aviva's vision for Solvency II is to establish a risk based and transparent European 'best in class' solvency regime, under which the industry's stakeholders, including customers, investors and regulators, will have greater confidence in the entire industry. Aviva is fully committed to contributing to its success and continues to play an active role in its development through participation in the consultation and quantitative impact studies run by the European Commission and European regulators, as well as working with industry forums and working parties.

Solvency II has the potential to align regulatory capital with internal risk processes and measures, provided the possible problems and pitfalls are avoided. The European Commission published its draft proposal for the high level principles, 'Level 1 Framework Directive', in July 2007. Negotiations on the Framework Directive are gradually drawing to a conclusion and it is hoped significant political agreement will be reached by the end of 2008. It is envisaged that the full suite of rules will be in place by the end of 2010, with full implementation by 2012.

Page 23

18 - Capital continued

Rating agency bases

Ratings are important in supporting access to debt capital markets and in providing assurance to business partners and policyholders over the financial strength of the group and its ability to service contractual obligations. In recognition of this, the group has solicited rating relationships with a number of rating agencies. Rating agencies generally assign ratings based on an assessment of a range of financial (e.g. capital strength, gearing and fixed charge cover ratios) and non- financial (e.g. competitive position and quality of management) factors. Managing our capital and liquidity position in accordance with the group's target rating levels is a core consideration in all material capital management and capital allocation decisions.

Economic bases

The group uses a risk based capital model to assess its economic capital requirements and to aid in risk and capital management across the group. This model is also used to support the group's Individual Capital Assessments (ICA) which are reported to the FSA for all UK regulated insurance businesses. The model is based on a framework for identifying the risks to which business units, and the group as a whole, are exposed. A mixture of scenario based approaches and stochastic models are used to capture the group's market risk, credit risk, insurance risk and operational risk. Scenarios are specified centrally to provide consistency across businesses and to achieve a minimum standard. Where appropriate, businesses also supplement these with additional risk models specific to their own risk profile. When aggregating capital requirements at business unit and group level, we allow for diversification benefits between risks and between businesses, with restrictions to allow for non-fungibility of capital when appropriate. This means that the aggregate capital requirement is less than the sum of capital required to cover all of the individual risks.

For internal management purposes, our economic capital model is calibrated to our target capital adequacy rating. Financial modelling techniques enhance our practice of active risk and capital management, ensuring sufficient capital is available to protect against unforeseen events and adverse scenarios. Our aim continues to be the optimal usage of capital through appropriate allocation to our businesses. We continue to develop our economic capital modelling capability for all our businesses as part of our development programme to increase the focus on economic capital management.

The FSA uses the results of our ICA process when setting target levels of capital for the UK regulated businesses. In line with FSA requirements, the ICA estimates the capital required to mitigate the risk of insolvency to a 99.5% confidence level over a one year time horizon (equivalent to events occurring in 1 out of 200 years) against financial and non-financial tests.

Page 24

18 - Capital continued

Capital Generation and Utilisation

As part of its capital management processes, the group regularly reviews the generation and deployment of capital. The table below demonstrates the net capital generation of the group on a regulatory basis. The net capital generated can be considered as a measure of the change in the group's surplus capital on a regulatory basis. A reconciliation of the movement in IGD surplus is also shown.

	30 June 2008 £bn	30 June 2007 £bn	31 December 2007 £bn
Operational capital generation:
Life in-force profits	1.1	1.1	1.9
New business strain	(0.4)	(0.3)	(0.6)
Non-life profits	0.3	0.4	0.6
Operational capital generated	1.0	1.2	1.9
Increase in capital requirements	(0.3)	(0.2)	(0.5)
Free operational capital generated	0.7	1.0	1.4
Interest cost	(0.1)	(0.1)	(0.2)
External dividend	(0.6)	(0.5)	(0.9)
Scrip dividend	0.2	0.2	0.3
Capital generation after financing	0.2	0.6	0.6
Investment return variances and economic assumption changes	(1.7)	0.5	0.2
Profit on disposals	-	-	0.1
Capital raising	0.8	-	-
Cost of acquisitions	(0.3)	(0.1)	(0.6)
Qualifying assets acquired net of capital requirements	0.1	-	0.1
Pension funding and restructuring costs	(0.4)	-	(0.1)
Foreign exchange impact on surplus capital	0.1	(0.1)	0.2
Other	(0.1)	0.1	-
Net capital (consumed)/generated	(1.3)	1.0	0.5
Reconciliation to movement in IGD surplus
Opening IGD surplus	2.9	3.5	3.5
Net capital (consumed)/generated	(1.3)	1.0	0.5
Regulatory changes	(0.4)	(0.2)	(0.4)
Additional capital requirements over regulatory minimum	0.2	0.1	0.4
Non-IGD qualifying capital generated within life funds	0.3	(0.4)	(0.6)
Minorities	(0.1)	(0.1)	(0.2)
Other	0.2	0.1	(0.3)
Closing IGD surplus	1.8	4.0	2.9

Free operational capital generated represents the net of the following:

Operating profits emerging on a statutory basis for the life in-force business, net of new business strain and before any changes in inadmissible assets, and IFRS operating profits earned by the group's non-life businesses.

The increase in capital requirements of the group's ongoing businesses. Capital requirements represent target operating capital levels rather than regulatory minimum levels, as this is considered a better reflection of capital utilised in the business. For the life businesses this is the capital used in the calculation of the group's embedded value to evaluate the cost of locked in capital. For general insurance businesses we have calculated target capital based on two times the regulatory minimum. Where appropriate, the increase in capital requirements shown has been adjusted for the impact of foreign exchange movements and other one off changes to required capital.

The reconciliation of the net capital generated to the movement in the group's IGD surplus takes into account capital generated within life funds which fall outside the perimeter of the group's IGD calculation.

Page 25

Glossary

Definitions of Group key performance indicators and other terms
Annual premium equivalent (APE)	Method for calculating life, pensions and investment new business levels. It equals the total of new annualised regular premiums plus 10% of single premiums.
AII (previously named CGUII)	A principal UK general insurance company and the parent of the majority of the Group's overseas general insurance and life assurance subsidiaries.
Combined operating ratio (COR)	The aggregate of incurred claims expressed as a percentage of earned premiums and written expenses and written commissions expressed as a percentage of written premiums.
Covered business	The contracts to which the EEV methodology has, in line with the EEV Principles, been applied.
EU solvency	The excess of assets over liabilities and the world-wide minimum solvency margins, excluding goodwill and the additional value of in-force long-term business, and excluding the surplus held in the Group's life funds. The Group solvency calculation is determined according to the UK Financial Services Authority application of EU Insurance Groups Directive rules.
Financial options and guarantees	Features of the covered business conferring potentially valuable guarantees underlying, or options to change, the level or nature of policyholder benefits and exercisable at the discretion of the policyholder, whose potential value is impacted by the behaviour of financial variables.
Free surplus	The amount of any capital and surplus allocated to, but not required to support, the in-force covered business.
Funds under management	Represents all assets actively managed or administered by or on behalf of the Group including those funds managed by third parties.
Funds under management by Aviva	Represents all assets actively managed or administered by the fund management operations of the Group.
Gross risk free yields	Gross of tax yields on risk free fixed interest investments, generally Government bonds.
Holding company	A legal entity with a function of being a consolidating entity for primary financial reporting of covered business.
IFRS operating profit	From continuing operations on an IFRS basis, stated before tax attributable to shareholders' profits, impairment of goodwill and exceptional items.
Implicit items	Amounts allowed by local regulators to be deducted from capital amounts when determining the EU required minimum margin.
Inherited estate	The assets of the long-term with-profit funds less the realistic reserves for non-profit policies, less asset shares aggregated across the with-profit policies and any additional amounts expected at the valuation date to be paid to in-force policyholders in the future in respect of smoothing costs and guarantees.
Life EEV operating return	Operating return on the EEV basis relating to the lines of business included in the embedded value calculations. From continuing operations and is stated before tax, impairment of goodwill and exceptional items.
Life EEV return	Total return on the EEV basis relating to the lines of business included in the embedded value calculations. From continuing operations.
Look-through basis	Inclusion of the capitalised value of profits and losses arising from subsidiary companies providing administration, investment management and other services to the extent that they relate to covered business.
Net asset value per ordinary share	Net asset value divided by the number of ordinary shares in issue. Net asset value is based on equity shareholders' funds.
New business contribution	Is calculated using the same economic assumptions as those used to determine the embedded values at the beginning of each year and is stated before tax and the effect of required capital.

Net worth	The market value of the shareholders' funds and the shareholders' interest in the surplus held in the non-profit component of the long-term business funds, determined on a statutory solvency basis and adjusted to add back any non-admissible assets, and consists of the required capital and free surplus.
New business margin	New business margins are calculated as the new business contribution divided by the present value of new business premiums (PVNBP), and expressed as a percentage. Previously, under the Achieved Profits basis, they were expressed as new business contribution divided by premiums measured on an annual premium equivalent (APE) basis.
Page 26 Present value of new business premiums (PVNBP)	Present value of new regular premiums plus 100% of single premiums, calculated using assumptions consistent with those used to determine new business contribution.
Required capital	The amount of assets, over and above the value placed on liabilities in respect of covered business, whose distribution to shareholders is restricted.
Service companies	Companies providing administration or fund management services to the covered business.
Solvency cover	The excess of the regulatory value of total assets over total liabilities, divided by the regulatory value of the required minimum solvency margin.
Statutory basis	The valuation basis and approach used for reporting financial statements to local regulators.
Stochastic techniques	Techniques that incorporate the potential future variability in assumptions.
Time value and intrinsic value	A financial option or guarantee has two elements of value, the time value and intrinsic value. The intrinsic value is the discounted value of the option or guarantee at expiry, assuming that future economic conditions follow best estimate assumptions. The time value is the additional value arising from uncertainty about future economic conditions.

End of Part 1 of 4

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