NU Response to Sandler Review

Aviva PLC
9 July 2002


NORWICH UNION RESPONSE TO PUBLICATION OF SANDLER REVIEW
                              
Norwich Union, Aviva plc's UK life business and the UK's largest insurer, 
today welcomed publication of the Sandler Review, which is aimed at closing 
the savings gap in the UK and therefore increasing the size of the long-term 
savings market.  During the course of the Review, Norwich Union is pleased 
to have worked closely with the Sandler team.  The Review is very 
comprehensive and needs detailed examination and consultation.

Norwich Union expects that its share of the UK long-term savings market will
grow profitably within an expanded market as consumers are encouraged to make
greater provision for their future financial well-being through improved
consumer education and a new range of simple products. It believes there will
be a continued 'flight to  quality' as consumers select strong brands as their
choice of long-term savings provider.  Norwich Union has doubled its share of
the UK life market over the past five years to approximately 12% and is
targeting a market share of 15% by the end of 2005.

Norwich Union is particularly pleased that:

* Consumer access to financial services products is to be widened through the 
  development of a new range of simple products.  Norwich Union has supported 
  the idea of new products which would significantly widen access and could 
  be sold under a 'lighter touch' regulatory regime.
  
  There is a clear need for a range of products that enable access to be 
  provided to the mass market at an affordable cost.

* Complex and overlapping regulation, which confuses consumers and increases 
  costs, is to be tackled.  We are pleased that the Review recommends the 
  removal of overlapping regulation where both products and the advice
  process are regulated.  This will reduce distribution costs substantially.  
  However, we need to ensure that consumers receive sufficient protection.

* There is to be a major programme of consumer education.  There needs to be 
  a major focus on stimulating informed consumer demand and a regulatory 
  environment that allows consumers to be encouraged to save.

* The value of with-profits investments to UK consumers has been recognised.  
  We agree with the desire for greater transparency and better customer 
  communications across the industry on with-profits policies and Norwich  
  Union is already at the forefront of the industry in these areas.  Such 
  changes will greatly enhance the attractiveness of with-profits plans to 
  consumers.

  Norwich Union remains committed to with-profits as a key investment choice 
  that has proved most suitable for the vast majority of customers who want 
  access to a low to medium risk investment option and to benefit from 
  investing in equities without the short term volatility of the stock 
  market.

* The cost of financial advice is to be made clearer.  We are pleased the 
  Review recognises the value of advice, particularly independent advice.  
  We are also pleased that, in the proposals for remuneration, the Review 
  recognises that this remuneration can be contingent on a sale.  This   
  overcomes a number of the weaknesses within the defined payment system  
  (DPS) under CP121 (the  FSA's 'Reforming Polarisation' consultation paper).

  However, we are concerned that any proposals remain practical and 
  cost-effective, and do not result in a reduction in the independent advice 
  sector.  In addition, any changes must be made within a transitional period 
  and must be accompanied by a programme of consumer education.

* There is to be a simpler and easier tax regime.  The recommendation 
  relating to tax requires detailed consideration.

  We are concerned that there should be a level playing field across all 
  sectors of the industry, both in terms of personal taxation and corporate 
  taxation.  The regulatory regime and requirements for regulatory capital 
  need to be consistent across unit trusts, investment trusts, Open Ended 
  Investment Companies (OEICS) and life companies.


With-Profits Business

It has been proposed that with-profits business should operate on the basis 
of 'charges less expenses', also called a 100:0 basis.  Whilst we believe 
that there is nothing intrinsically wrong in operating a 90:10  basis, we 
are confident that there is value in both methods. Norwich Union already 
has considerable experience of operating on a 100:0 basis, for example,  
all of our with-profits stakeholder pensions business operates in this way  
as does some of Norwich Union's existing with-profits investment bonds
business.

Under Sandler's proposals, some future with-profits new business would be 
offered on a 100:0 basis, although in the shorter term, all relevant Norwich 
Union products would continue to be marketed on a 90:10 basis.

The impact on new business margins is unclear at this early stage and the 
actual effects on financial results will be determined by a number of 
factors, including product mix, distribution costs, efficiency gains, 
improving volumes and competitive forces.  However, Norwich Union estimates  
that if this change had occurred in 2001 then based, on our new business  
and distribution mix, the average margin achieved on the UK life and pensions
business would have been reduced by no more than five percentage points. 
Levels of absolute profitability will benefit from targeting an increased
market share in what Norwich Union sees as an expanding UK long-term savings 
market.

In addition, Norwich Union believes that these proposals could lead to 
a reattribution of the inherited estate (see Notes to Editors) being in 
the interests of policyholders and shareholders, and will pursue the 
investigation of this. This process would require approval by the courts,
regulators and other experts, which Norwich Union would hope to have  
been completed by the end of 2004. The inherited estate was estimated 
to be £5 billion at 31 December 2001.


Philip  Scott, Chief Executive of Norwich Union Life, commented:

'The objective of the Sandler Review is to close the savings gap in the 
UK and this brings with it a significant growth opportunity for us.

'Consumers will benefit from new, simple, low-cost products which are  
easily accessible and can be sold within a 'lighter-touch' regulatory 
regime.  They will seek companies such as Norwich Union with strong brands  
and financial strength with whom to entrust their savings.

'We have the size and scale to produce low-cost products efficiently and 
at a profit. Our growth in market share over the past five years demonstrates 
our ability to grow in a changing market environment. With products available 
through a range of distribution channels, we are well-placed to take a 
growing share of a growing market.'


Enquiries:

Analysts / Investors:  
Steve Riley, Investor Relations Director                  [phone]

Media:
James Evans, Head of Media Relations, Norwich Union Life  [phone]
Hayley Stimpson, Director of External Affairs, Aviva plc  [phone]
Alex Child-Villiers, Financial Dynamics                   [phone]
                              
                              
NOTES TO EDITORS
                              
The inherited estate, held within the  main  with-profits funds, consists 
of free reserves that do not form part of policyholders' reasonable 
expectations, and that are unlikely to be distributed to existing 
with-profits policyholders.  A reattribution of the inherited estate is an 
exercise where shareholders offer to buy out the interests of existing 
policyholders now, in return for ownership and eventual distribution of the 
estate in the future. 

Norwich Union is the UK's largest insurer.  It is the  UK's largest provider 
of life, pensions and investment  products and one of the leading IFA 
providers.  IFAs provide around 75% of the company's long-term savings 
business.   Norwich Union has strategic alliances with building societies  
and other leading UK brand names including Tesco Personal Finance and 
The Royal Bank of Scotland Group.  Norwich Union is part of Aviva plc.

Aviva plc is the UK's largest insurance group, one of the top-five   
life insurers in Europe and has substantial positions in other markets 
around the world. Aviva is the world's seventh-largest insurer based  
on worldwide gross written premiums.

Norwich Union's news releases are available on the Aviva plc website at 
www.aviva.com

A selection of images are available from the Norwich Union Newscast site at 
www.Newscast.co.uk


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