Part 4 of 5 HY09 Report

RNS Number : 9696W

Aviva PLC

06 August 2009

___________

Part 4 of 5

Page 91

Aviva MCEV condensed financial statements

Condensed consolidated income statement - MCEV basis

For the six month period ended 30 June 2009

6 months 2009 €m		6 months 2009 £m		Restated 6 months 2008 £m	Restated full year 2008 £m
	Operating profit before tax attributable to shareholders' profits
1,806	Long-term business	1,607		1,280	2,810
612	General insurance and health	545		528	1,198
(5)	Fund management1	(4)		30	42
	Other:
(111)	Other operations and regional costs2	(99)		(57)	(163)
(52)	Corporate centre	(46)		(71)	(141)
(357)	Group debt costs and other interest	(318)		(201)	(379)
1,893	Operating profit before tax attributable to shareholders' profits	1,685		1,509	3,367
	Adjusted for the following:
(32)	Economic variances on long-term business	(29)		(4,086)	(12,058)
(140)	Short-term fluctuation in return on investments on non-long-term business	(125)		(314)	(819)
58	Economic assumption changes on general insurance and health business	52		6	(94)
(6)	Impairment of goodwill	(5)		(42)	(66)
(58)	Amortisation and impairment of intangibles	(52)		(44)	(108)
22	Profit on the disposal of subsidiaries and associates	20		9	7
(166)	Integration and restructuring costs	(148)		(132)	(326)
(245)	Exceptional items3	(218)		(155)	(754)
1,326	Profit/(loss) before tax	1,180		(3,249)	(10,851)
(467)	Tax on operating profit	(416)		(453)	(841)
359	Tax on other activities	320		1,341	4,252
(108)		(96)	888		3,411
1,218	Profit/(loss) for the period	1,084		(2,361)	(7,440)

All profit is from continuing operations.

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

2. Excludes the proportion of the results of subsidiaries providing services to the Life business. These results are included within the life MCEV operating earnings consistent with Aviva's MCEV methodology.

3. Exceptional item of £218 million for the six month period to 30 June 2009 is in relation to legislation changes on pensions in Poland.

Earnings per share - MCEV basis

6 months 2009		6 months 2009	Restated 6 months 2008	Restated full year 2008
	Operating earnings per share on an MCEV basis after tax, attributable to ordinary shareholders of Aviva plc
46.6c	Basic (pence per share)	41.4p	33.9p	83.4p
46.3c	Diluted (pence per share)	41.2p	33.6p	82.7p
	Earnings after tax on an MCEV basis, attributable to ordinary shareholders of Aviva plc
43.9c	Basic (pence per share)	39.1p	(91.6)p	(272.5)p
43.7c	Diluted (pence per share)	38.9p	(91.6)p	(272.5)p

___________

Page 92

Aviva MCEV condensed financial statements continued

Condensed statement of comprehensive income - MCEV basis

For the six month period ended 30 June 2009

6 months 2009 €m		6 months 2009 £m	Restated 6 months 2008 £m	Restated Full year 2008 £m
1,218	Profit/(loss) for the period	1,084	(2,361)	(7,440)
	Other comprehensive income
(134)	Fair value losses on AFS securities, owner-occupied properties and hedging instruments	(121)	(130)	(278)
(6)	Fair value gains transferred to profit	(5)	(10)	(8)
(1,551)	Actuarial losses on pension schemes	(1,380)	(690)	(929)
166	Actuarial gains on pension schemes transferred to unallocated divisible surplus and other movements	148	71	78
17	Impairment losses	15	74	81
(1,962)	Foreign exchange rate movements	(1,746)	997	3,098
30	Aggregate tax effect - shareholder tax	27	11	66
(3,440)	Other comprehensive income for the period, net tax	(3,062)	323	2,108
(2,222)	Total comprehensive (expense)/income for the period	(1,978)	(2,038)	(5,332)
	Attributable to:
(1,851)	Equity shareholders of Aviva plc	(1,648)	(2,263)	(5,985)
(371)	Minority interests	(330)	225	653
(2,222)		(1,978)	(2,038)	(5,332)

Condensed statement of changes in equity - MCEV basis

For the six month period ended 30 June 2009

30 June 2009 €m		30 June 2009 £m	Restated 6 months 2008 £m	Restated 31 December 2008 £m
20,765	Balance at 1 January	17,650	23,848	23,848
(2,328)	Total comprehensive (expense)/income for the period	(1,978)	(2,038)	(5,332)
(631)	Dividends and appropriations	(536)	(563)	(975)
-	Issues of share capital	-	31	20
216	Shares issued in lieu of dividends	184	170	170
7	Capital contributions from minority shareholders	6	7	36
(42)	Minority share of dividends declared in the year	(36)	(75)	(106)
(2)	Minority interest in (disposed)/acquired subsidiaries	(2)	59	43
-	Changes in minority interest in existing subsidiaries	-	(78)	(65)
-	Shares acquired by employee trusts	-	-	(29)
24	Reserves credit for equity compensation plans	20	27	39
18,009	Total equity	15,308	21,388	17,649
(3,198)	Minority interests	(2,719)	(2,657)	(3,080)
14,811	Balance at 30 June/31 December	12,589	18,731	14,569

_________

Page 93

Condensed consolidated statement of financial position
- MCEV basis

As at 30 June 2009

30 June 2009 €m		30 June 2009 £m	Restated 30 June 2008 £m	Restated 31 December 2008 £m
	Assets
3,954	Goodwill	3,361	3,048	3,578
3,846	Acquired value of in-force business and intangible assets	3,269	3,170	4,038
2,941	Additional value of in-force long-term business1	2,500	6,714	3,203
1,612	Interests in, and loans to, joint ventures	1,370	2,588	1,737
1,282	Interests in, and loans to, associates	1,090	1,211	1,246
947	Property and equipment	805	996	964
14,374	Investment property	12,218	15,048	14,426
46,727	Loans	39,718	37,387	42,237
	Financial investments
171,727	Debt securities	145,968	125,661	150,255
42,500	Equity securities	36,125	51,027	43,351
34,041	Other investments	28,935	34,510	36,116
8,241	Reinsurance assets	7,005	8,273	7,894
2,944	Deferred tax assets	2,502	249	2,642
522	Current tax assets	444	534	622
12,666	Receivables and other financial assets	10,765	10,750	9,816
7,346	Deferred acquisition costs and other assets	6,244	5,074	6,147
4,322	Prepayments and accrued income	3,674	3,183	3,762
30,056	Cash and cash equivalents	25,548	18,783	24,181
2,965	Assets of operations classified as held for sale2	2,520	6,643	1,550
393,013	Total assets	334,061	334,849	357,765
	Equity
806	Ordinary share capital	685	664	664
5,275	Capital reserves	4,484	4,516	4,505
2,391	Other reserves	2,032	1,601	3,539
(39)	Shares held by employee trusts	(33)	(10)	(33)
3,442	Retained earnings	2,926	5,244	3,806
1,536	Additional retained earnings on an MCEV basis1	1,305	5,526	898
13,411	Equity attributable to ordinary shareholders of Aviva plc	11,399	17,541	13,379
1,400	Preference share capital and direct capital instruments	1,190	1,190	1,190
3,198	Minority interests1	2,719	2,657	3,080
18,009	Total equity	15,308	21,388	17,649
	Liabilities
190,324	Gross insurance liabilities	161,775	154,593	174,850
114,754	Gross liabilities for investment contracts	97,541	98,627	107,559
2,686	Unallocated divisible surplus	2,283	4,065	2,325
9,380	Net asset value attributable to unitholders	7,973	7,861	6,918
4,653	Provisions	3,955	2,398	2,984
3,236	Deferred tax liabilities	2,751	1,257	3,020
445	Current tax liabilities	378	1,125	642
16,853	Borrowings	14,325	13,373	15,201
24,834	Payables and other financial liabilities	21,109	19,720	20,840
5,504	Other liabilities	4,678	4,537	4,556
2,335	Liabilities of operations classified as held for sale	1,985	5,905	1,221
375,004	Total liabilities	318,753	313,461	340,116
393,013	Total equity and liabilities	334,061	334,849	357,765

The summarised consolidated statement of financial position presented above is unaltered from the corresponding IFRS summarised consolidated statement of financial position with the exception of the following:

1. Adding the excess of the Life MCEV, including minority interests, over the corresponding Life IFRS net assets represented as the additional value of in-force long-term business; corresponding item within equity represented by the additional retained profit on an MCEV basis; and, corresponding adjustments to minority interests.

2. Assets of operations classified as held for sale per IFRS note A3 c (ii) has been increased by £69 million (30 June 2008: £nil; 31 December 2008: £nil) to reflect the additional value of in-force long-term business included in these operations.

___________

Page 94

Aviva MCEV condensed financial statements continued

Reconciliation of shareholders' equity on IFRS and MCEV bases

For the six month period to 30 June 2009

30 June 2009	IFRS £m	Adjustment £m	MCEV £m
Ordinary share capital	685	-	685
Capital reserves	4,484	-	4,484
Other reserves	1,487	545	2,032
Shares held by employee trusts	(33)	-	(33)
Retained earnings	2,926	-	2,926
Additional retained earnings on an MCEV basis	-	1,305	1,305
Equity attributable to ordinary shareholders of Aviva plc	9,549	1,850	11,399
Preference share capital	200	-	200
Direct capital instruments	990	-	990
Minority interests	2,000	719	2,719
Total equity	12,739	2,569	15,308

Restated 30 June 2008	IFRS £m	Adjustment £m	MCEV £m
Ordinary share capital	664	-	664
Capital reserves	4,516	-	4,516
Other reserves	1,211	390	1,601
Shares held by employee trusts	(10)	-	(10)
Retained earnings	5,244	-	5,244
Additional retained earnings on an MCEV basis	-	5,526	5,526
Equity attributable to ordinary shareholders of Aviva plc	11,625	5,916	17,541
Preference share capital	200	-	200
Direct capital instruments	990	-	990
Minority interests	1,859	798	2,657
Total equity	14,674	6,714	21,388

Restated 31 December 2008	IFRS £m	Adjustment £m	MCEV £m
Ordinary share capital	664	-	664
Capital reserves	4,505	-	4,505
Other reserves	2,110	1,429	3,539
Shares held by employee trusts	(33)	-	(33)
Retained earnings	3,806	-	3,806
Additional retained earnings on an MCEV basis	-	898	898
Equity attributable to ordinary shareholders of Aviva plc	11,052	2,327	13,379
Preference share capital	200	-	200
Direct capital instruments	990	-	990
Minority interests	2,204	876	3,080
Total equity	14,446	3,203	17,649

___________

Page 95

Reconciliation of IFRS total equity to MCEV net worth

For the six month period to 30 June 2009

	30 June 2009 £m	Restated 30 June 2008 £m	Restated 31 December 2008 £m
Net assets on a statutory IFRS net basis	12,739	14,674	14,446
Adjusting for general business and other net assets on a statutory IFRS net basis	3,165	(282)	2,135
Life and related businesses net assets on a statutory IFRS net basis	15,904	14,392	16,581
Goodwill and other intangibles	(2,579)	(2,495)	(2,947)
Acquired value of in-force business	(1,913)	(1,834)	(2,490)
Adjustment for share of joint ventures and associates	(389)	(433)	(472)
Adjustment for assets to regulatory value net of tax	740	563	1,474
Adjustment for DAC and DIR net of tax	(2,918)	(2,018)	(2,680)
Adjustment for differences in technical provisions	1,275	781	406
Other accounting and tax differences	474	545	937
MCEV net worth	10,594	9,501	10,809
MCEV value of in-force	5,759	9,250	6,114
MCEV1	16,353	18,751	16,923

1. Comprises embedded value of £14,263 million (30 June 2008: £16,729 million; 31 December 2008: £14,556 million) and minority interest in long-term business assets of £2,090 million (30 June 2008: £2,022 million; 31 December 2008: £2,367 million).

Group MCEV analysis of earnings

30 June 2009 (net of tax and minority interests)	Covered business1 £m A	Non- covered but related to life business2 £m B	Total life business3 £m A+B	Non-covered relating to non-life £m C	Total non- covered business £m B+C	Total £m A+B+C
Opening group MCEV	14,556	2,639	17,195	(2,626)	13	14,569
Opening adjustments	-	-	-	-	-	-
Adjusted opening group MCEV	14,556	2,639	17,195	(2,626)	13	14,569
Operating MCEV earnings	1,030	-	1,030	86	86	1,116
Non-operating MCEV earnings	17	(29)	(12)	(51)	(80)	(63)
Total MCEV earnings	1,047	(29)	1,018	35	6	1,053
Other movements in IFRS net equity	-	(373)	(373)	(943)	(1,316)	(1,316)
Capital and dividend flows	(48)	-	(48)	(284)	(284)	(332)
Foreign exchange variances	(1,294)	(281)	(1,575)	190	(91)	(1,385)
Acquired/divested businesses	2	(29)	(27)	27	(2)	-
Closing group MCEV	14,263	1,927	16,190	(3,601)	(1,674)	12,589
Preference share capital and direct capital instruments						(1,190)
Equity attributable to ordinary shareholders of Aviva plc on an MCEV basis						11,399

___________

Page 96

Aviva MCEV condensed financial statements continued

Group MCEV analysis of earnings continued

Restated 30 June 2008 (net of tax and minority interests)	Covered business1 £m A	Non-covered but related to life business2 £m B	Total life business3 £m A+B	Non-covered relating to non-life £m C	Total non- covered business £m B+C	Total £m A+B+C
Opening group MCEV	18,389	2,059	20,448	881	2,940	21,329
Opening adjustments	-	-	-	-	-	-
Adjusted opening group MCEV	18,389	2,059	20,448	881	2,940	21,329
Operating MCEV earnings	774	-	774	126	126	900
Non-operating MCEV earnings	(2,836)	(19)	(2,855)	(446)	(465)	(3,301)
Total MCEV earnings	(2,062)	(19)	(2,081)	(320)	(339)	(2,401)
Other movements in IFRS net equity	-	(88)	(88)	(674)	(762)	(762)
Capital and dividend flows	(599)	-	(599)	264	264	(335)
Foreign exchange variances	811	102	913	(13)	89	900
Acquired/divested businesses	190	117	307	(307)	(190)	-
Closing group MCEV	16,729	2,171	18,900	(169)	2,002	18,731
Preference share capital and direct capital instruments						(1,190)
Equity attributable to ordinary shareholders of Aviva plc on an MCEV basis						17,541

Restated 31 December 2008 (net of tax and minority interests)	Covered business1 £m A	Non-covered but related to life business2 £m B	Total life business3 £m A+B	Non-covered relating to non-life £m C	Total non-covered business £m B+C	Total £m A+B+C
Opening group MCEV	18,389	2,059	20,448	881	2,940	21,329
Opening adjustments	-	-	-	-	-	-
Adjusted opening group MCEV	18,389	2,059	20,448	881	2,940	21,329
Operating MCEV earnings	1,760	-	1,760	535	535	2,295
Non-operating MCEV earnings	(8,411)	(53)	(8,464)	(1,229)	(1,282)	(9,693)
Total MCEV earnings	(6,651)	(53)	(6,704)	(694)	(747)	(7,398)
Other movements in IFRS net equity	-	(28)	(28)	(994)	(1,022)	(1,022)
Capital and dividend flows	(63)	-	(63)	(712)	(712)	(775)
Foreign exchange variances	2,794	567	3,361	(926)	(359)	2,435
Acquired/divested businesses	87	94	181	(181)	(87)	-
Closing group MCEV	14,556	2,639	17,195	(2,626)	13	14,569
Preference share capital and direct capital instruments						(1,190)
Equity attributable to ordinary shareholders of Aviva plc on an MCEV basis						13,379

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

2. Non-covered but related to life business represents the adjustments to the MCEV, including goodwill, to calculate the long-term business net assets on an MCEV basis. An analysis of net assets on an MCEV basis gross of minority interests is provided on page 108.

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

___________

Page 97

B1 - Basis of preparation

The consolidated income statement and condensed consolidated statement of financial position on pages 91 to 93 present the Group's results and financial position for the life and related businesses on Aviva's Market Consistent Embedded Value (MCEV) basis and for its non-life businesses on the International Financial Reporting Standards (IFRS) basis. The MCEV methodology adopted is in accordance with the MCEV Principles published by the CFO Forum in June 2008 with the exception of the use of an adjusted risk-free yield due to current market conditions for all contracts that contain features similar to immediate annuities and are backed by appropriate assets, including paid up group deferred annuities in the Netherlands, and deferred annuities and all other contracts in the US.

The CFO Forum MCEV Principles were designed during a period of relatively stable market conditions. As announced on 19 December 2008, the CFO Forum has agreed to conduct a review of the impact of turbulent market conditions on the MCEV Principles, the result of which may lead to changes to the published MCEV Principles or the issuance of guidance. The particular areas under review include implied volatilities, the cost of non-hedgeable risks, the use of swap rates as a proxy for risk-free rates and the effect of liquidity premia.
On the 22 May 2009, the CFO Forum announced that it was continuing work to seek to improve the consistency in the adjustments made for liquidity premium and volatilities. The CFO Forum stated that a further update will be provided later in 2009.

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

Embedded value is also consistent with the way pricing is assessed and the business is managed. The results for our half year report have been reviewed by our auditors, Ernst & Young LLP. Their report in respect of the half year report can be found on page 125.

Covered business

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

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

Adjusted risk-free rate

In stable markets, swap curves are an appropriate risk-free rate. However, in the current turbulent market it is possible, for products where backing asset portfolios can be held to maturity, to earn returns in excess of swaps by investing in corporate bonds and credit default swaps (CDS). Aviva's MCEV methodology for the 2008 Annual Report and Accounts adopted the CFO Forum Principles and Guidance with the exception of the use of an adjusted risk-free yield due to market conditions for UK and Netherlands immediate annuities and for immediate annuities, deferred annuities and all other contracts in the US.

Following a review the scope of business using adjusted swap rates has been increased to cover all contracts that contain features similar to immediate annuity contracts. Prior period results have been restated to include the effect of adjusting the risk free rates on paid-up and single premium group deferred annuity business in the Netherlands and immediate annuities in France and Spain. At 31 December 2008, this increased the embedded value by £467 million (30 June 2008: £152 million, 31 December 2007: £141 million), and increased total earnings by £234 million in 2008 (six months to 30 June 2008: £nil). The impact of these changes by country at 31 December 2008 was the Netherlands (£352 million), France (£48 million) and Spain (£67 million).

The reference rate for these products has been increased above the swap curve to estimate the additional returns available through replicating portfolios where backing assets can be held to maturity in the current market. Due to the limited availability of CDS assets, particularly at the long durations, this is a material area of judgement and sensitivity analysis has been provided on page 120 on the additions to the swap curves.

Further details regarding the adjustments can be found on page 115.

New business premiums

New business premiums include:

premiums arising from the sale of new contracts during the period;
non-contractual additional premiums, including future Department of Work and Pensions (DWP) rebate premiums; and
expected renewals on new contracts and expected future contractual alterations to new contracts.

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

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

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

___________

Page 98

Aviva MCEV condensed financial statements continued

B1 - Basis of preparation continued

The 2008 figures for present value of new business premiums and value of new business have been restated to reclassify premium increases on Spanish Annual Renewable Term (ART) business as other operating variances rather than new business. There is no impact on profit.

Life and pensions operating earnings

For life and pensions operating earnings, Aviva uses normalised investment returns. The use of asset risk premia reflects management's long-term expectations of asset returns in excess of the swap yield from investing in different asset classes.

Within the 2008 results, the normalised investment returns were calculated by reference to the one year swap rate in the relevant currency plus an appropriate risk premium for bonds, equities and properties. For 2009, the group considers that the return over the typical duration of the assets held is more appropriate and is more consistent with the group's expectation of long-term rates of return.

Therefore, the expected return on equities and properties has been calculated by reference to the 10 year swap rate in the relevant currency plus an appropriate risk premium. The expected return on bonds has been calculated by reference to the swap rate consistent to the duration of the backing assets in the relevant currency plus an appropriate risk premium.

This assumption does not impact the embedded value as asset risk premia are not recognised until earned.

MCEV methodology

Overview

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

Calculation of the embedded value

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

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

Net worth

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

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

The level of capital at which the local regulator is empowered to take action;
The capital requirement of the business unit under the group's economic capital requirements; and,
The target capital level of the business unit.

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

The free surplus is the market value of any assets allocated to, but not required to support, the in-force covered business at the valuation date. The level of required capital across the business units expressed as a percentage of the EU minimum solvency margin (or equivalent) can be found on page 116.

Value of in-force covered business (VIF)

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

present value of future profits;
time value of financial options and guarantees;
frictional costs of required capital; and
cost of residual non-hedgeable risks.

Present value of future profits (PVFP)

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

___________

Page 99

B1 - Basis of preparation continued

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

Future profits are projected using best estimate non-economic assumptions and market consistent economic assumptions. In principle, each cash flow is discounted at a rate that appropriately reflects the riskiness of that cash flow, so higher risk cash flows are discounted at higher rates. In practice, the PVFP is calculated using the 'certainty equivalent' approach, under which the reference rate is used for both the investment return and the discount rate. This approach ensures that asset cash flows are valued consistently with the market prices of assets without options and guarantees. Further information on the risk-free rates is given in note B12.

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

Time value of financial options and guarantees (TVOG)

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

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

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

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

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

Frictional costs of required capital

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

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

Cost of residual non-hedgeable risks (CNHR)

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

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

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

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

___________

Page 100

Aviva MCEV condensed financial statements continued

B1 - Basis of preparation continued

Participating business

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

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

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

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

Consolidation adjustments

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

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

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

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

Exchange rates

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

The results and cash flows of these operations have been translated at the average rates for that period and the assets and liabilities have been translated at the period end rates. Please refer to note A2 on page 54.

___________

Page 101

Aviva MCEV condensed financial statements continued

B2 - Geographical analysis of MCEV operating earnings

Gross of tax and minority interests 30 June 2009	UK £m	France £m	Ireland £m	Italy £m	Nether-lands £m	Poland £m	Spain £m	Other Europe £m	Europe £m	North America £m	Asia £m	Australia £m	Asia Pacific £m	Total £m
Value of new business	101	72	4	81	(34)	27	78	6	234	16	6	10	16	367
Earnings from existing business
- expected existing business contribution (reference rate)	41	81	12	6	43	33	22	10	207	36	8	8	16	300
- expected existing business contribution (in excess of reference rate)	153	153	5	4	116	3	55	(1)	335	111	2	-	2	601
Experience variances
- maintenance expense1	25	1	2	(3)	16	3	(1)	3	21	-	2	1	3	49
- project and other related expenses	(36)	(3)	(4)	(2)	(2)	(1)	(3)	(2)	(17)	(5)	1	-	1	(57)
- mortality/morbidity2	6	10	8	-	(6)	9	(4)	1	18	(4)	4	4	8	28
- lapses3	(17)	(18)	(22)	(3)	(6)	8	(35)	(10)	(86)	(8)	(24)	-	(24)	(135)
- other4	(5)	(13)	(5)	11	21	5	1	-	20	(74)	1	(2)	(1)	(60)
	(27)	(23)	(21)	3	23	24	(42)	(8)	(44)	(91)	(16)	3	(13)	(175)
Operating assumption changes:
- maintenance expense	2	-	-	-	-	-	-	-	-	-	-	4	4	6
- project and other related expenses	-	-	-	-	-	-	-	-	-	-	-	-	-	-
- mortality/morbidity	(1)	-	6	-	1	-	-	-	7	-	(2)	-	(2)	4
- lapses5	1	-	-	-	(31)	-	-	-	(31)	-	(11)	-	(11)	(41)
- other6	-	-	(2)	-	116	-	-	1	115	-	2	-	2	117
	2	-	4	-	86	-	-	1	91	-	(11)	4	(7)	86
Expected return on shareholders' net worth	68	34	9	29	39	5	13	4	133	47	4	3	7	255
Other operating variances7	7	60	5	(3)	56	-	28	3	149	1	17	(1)	16	173
Earnings before tax and minority interests	345	377	18	120	329	92	154	15	1,105	120	10	27	37	1,607

1. Maintenance expense experience in the UK and Netherlands relates to profits from existing business administration and cost savings, respectively. Project and other related expenses in the UK reflect project costs associated with strategic initiatives, including developments designed to offer a wider range of products to customers, and the simplification of systems and processes.

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

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

4. In the Netherlands, favourable other experience variances arise from policy alterations on group business. In the USA, other experience reflects the cost of enhancing policyholder crediting rates.

5. In the Netherlands, adverse lapse assumption changes have been made in the German business.

6. Favourable other assumption changes in the Netherlands are in respect of revisions to investment and bonus strategies in Germany as this business is repositioned.

7. Other operating variances in France and the Netherlands relate to modelling refinements. In Spain, these reflect the impact of re-pricing actions on risk products.

___________

Page 102

Aviva MCEV condensed financial statements continued

B2 - Geographical analysis of MCEV operating earnings continued

Gross of tax and minority interests Restated 30 June 2008	UK £m	France £m	Ireland £m	Italy £m	Nether-lands £m	Poland £m	Spain £m	Other Europe £m	Europe £m	North America £m	Asia £m	Australia £m	Asia Pacific £m	Total £m
Value of new business	73	69	8	35	(29)	31	116	19	249	(8)	26	6	32	346
Earnings from existing business
- expected existing business contribution (reference rate)	158	77	19	13	53	42	30	9	243	43	7	13	20	464
- expected existing business contribution (in excess of reference rate)	82	19	3	2	68	4	14	-	110	24	1	2	3	219
Experience variances
- maintenance expense	-	(1)	(4)	(1)	3	3	(1)	(4)	(5)	-	2	(1)	1	(4)
- project and other related expenses1	(27)	-	(5)	-	(1)	-	(1)	(3)	(10)	(1)	(1)	(1)	(2)	(40)
- mortality/morbidity2	11	17	2	1	(15)	10	(2)	1	14	1	2	2	4	30
- lapses3	(12)	5	-	(1)	18	14	(5)	(2)	29	(1)	(9)	1	(8)	8
- other4	33	13	(9)	11	2	2	2	1	22	(6)	-	1	1	50
	5	34	(16)	10	7	29	(7)	(7)	50	(7)	(6)	2	(4)	44
Operating assumption changes:
- maintenance expense	-	-	(1)	-	(10)	-	-	-	(11)	(7)	(1)	-	(1)	(19)
- mortality/morbidity5	-	-	-	-	(120)	-	(2)	-	(122)	-	-	-	-	(122)
- lapses	-	-	-	-	18	-	-	-	18	-	-	-	-	18
- other6	22	(5)	-	12	(3)	-	-	-	4	-	-	-	-	26
	22	(5)	(1)	12	(115)	-	(2)	-	(111)	(7)	(1)	-	(1)	(97)
Expected return on shareholders' net worth	78	51	15	30	74	8	11	3	192	28	7	4	11	309
Other operating variances7	(1)	(4)	12	(1)	(23)	-	11	-	(5)	1	-	-	-	(5)
Earnings before tax and minority interests	417	241	40	101	35	114	173	24	728	74	34	27	61	1,280

1. Project and other related expenses in the UK reflect project costs associated with strategic initiatives, including developments designed to offer simpler products to customers, and the simplification of systems and processes

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

3. Lapse experience has been volatile, in part reflecting wider economic volatility. In the UK, lapse experience for non-profit pension and bond products was worse than expected. In Poland, lapse experience continued to be better than the long-term assumptions for both Life and Pension products. In the Netherlands, the positive lapse variance reflects better than expected persistency in the group pensions business.

4. Other experience profits reflect an accumulation of small items.

5. Mortality assumption changes in the Netherlands reflect the impact of using a new industry mortality basis.

6. Other operating assumption changes in the UK reflect the distribution of a special bonus to with-profit policyholders.

7. Other operating variances reflect the impact of various small modelling changes. In Spain, these reflect the impact of re-pricing actions on risk products.

___________

Page 103

B2 - Geographical analysis of MCEV operating earnings continued

Gross of tax and minority interests Restated 31 December 2008	UK £m	France £m	Ireland £m	Italy £m	Nether-lands £m	Poland £m	Spain £m	Other Europe £m	Europe £m	North America £m	Asia £m	Australia £m	Asia Pacific £m	Total £m
Value of new business	204	135	15	71	(47)	65	202	29	470	55	30	13	43	772
Earnings from existing business
- expected existing business contribution (reference rate)	338	188	39	30	107	91	60	19	534	86	9	25	34	992
- expected existing business contribution (in excess of reference rate)	210	38	8	6	78	8	22	-	160	53	4	2	6	429
Experience variances
- maintenance expense	20	2	(2)	(6)	(35)	6	(1)	(1)	(37)	-	(2)	-	(2)	(19)
- project and other related expenses1	(62)	(10)	(7)	-	(26)	-	(6)	(6)	(55)	(14)	-	-	-	(131)
- mortality/morbidity2	18	42	2	2	19	20	4	1	90	-	5	2	7	115
- lapses3	(23)	(8)	(7)	(15)	(11)	26	(24)	(10)	(49)	(5)	(4)	3	(1)	(78)
- other4	7	(45)	(42)	(15)	34	(8)	2	(1)	(75)	(31)	(1)	(11)	(12)	(111)
	(40)	(19)	(56)	(34)	(19)	44	(25)	(17)	(126)	(50)	(2)	(6)	(8)	(224)
Operating assumption changes:
- maintenance expense5	(15)	(12)	(2)	(9)	(167)	4	-	(12)	(198)	(5)	(3)	-	(3)	(221)
- project and other related expenses	13	-	-	-	9	-	-	-	9	-	-	-	-	22
- mortality/morbidity6	54	-	25	11	(79)	4	(1)	-	(40)	-	1	(1)	-	14
- lapses7	(73)	108	7	(9)	-	(10)	(19)	(20)	57	-	(12)	1	(11)	(27)
- other8	16	(1)	23	3	(28)	24	-	13	34	1	(10)	6	(4)	47
	(5)	95	53	(4)	(265)	22	(20)	(19)	(138)	(4)	(24)	6	(18)	(165)
Expected return on shareholders' net worth	166	107	34	63	204	13	23	8	452	61	14	8	22	701
Other operating variances9	10	148	(15)	(1)	138	(2)	24	3	295	-	-	-	-	305
Earnings before tax and minority interests	883	692	78	131	196	241	286	23	1,647	201	31	48	79	2,810

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

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

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

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

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

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

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

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

___________

Page 104

Aviva MCEV condensed financial statements continued

B2 - Geographical analysis of MCEV operating earnings continued

Net of tax and minority interests 30 June 2009	UK £m	France £m	Ireland £m	Italy £m	Nether-lands £m	Poland £m	Spain £m	Other Europe £m	Europe £m	North America £m	Asia £m	Australia £m	Asia Pacific £m	Total £m
Value of new business	72	40	3	25	(28)	19	26	5	90	16	5	7	12	190
Earnings from existing business
- expected existing business contribution (reference rate)	30	50	8	2	31	23	9	8	131	36	5	5	10	207
- expected existing business contribution (in excess of reference rate)	110	93	3	1	85	2	21	-	205	111	1	-	1	427
Experience variances
- maintenance expense1	18	1	1	(1)	14	2	(1)	3	19	-	2	-	2	39
- project and other related expenses	(26)	(2)	(3)	(1)	(2)	-	(2)	(2)	(12)	(5)	1	-	1	(42)
- mortality/ morbidity2	4	6	5	-	(7)	6	(1)	2	11	(4)	3	3	6	17
- lapses3	(13)	(11)	(16)	(1)	(4)	6	(12)	(8)	(46)	(8)	(19)	-	(19)	(86)
- other4	(3)	(8)	(3)	6	18	4	1	(1)	17	(74)	-	(1)	(1)	(61)
	(20)	(14)	(16)	3	19	18	(15)	(6)	(11)	(91)	(13)	2	(11)	(133)
Operating assumption changes:
- maintenance expense	2	-	-	-	-	-	-	-	-	-	(1)	3	2	4
- project and other related expenses	-	-	-	-	-	-	-	-	-	-	-	-	-	-
- mortality/morbidity	(1)	-	4	-	-	-	-	-	4	-	-	-	-	3
- lapses5	1	-	-	-	(22)	-	-	-	(22)	-	(10)	-	(10)	(31)
- other6	-	-	(1)	-	82	-	-	-	81	-	2	-	2	83
	2	-	3	-	60	-	-	-	63	-	(9)	3	(6)	59
Expected return on shareholders' net worth	49	19	6	10	27	4	5	2	73	47	2	2	4	173
Other operating variances7	6	36	4	(1)	40	(1)	8	4	90	1	9	1	10	107
Earnings after tax and minority interests	249	224	11	40	234	65	54	13	641	120	-	20	20	1,030

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

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

4. In the Netherlands, favourable other experience variances arise from policy alterations on group business. In the USA, other experience reflects the cost of enhancing policyholder crediting rates.

5. In the Netherlands, adverse lapse assumption changes have been made in the German business.

6. Favourable other assumption changes in the Netherlands are in respect of revisions to investment and bonus strategies in Germany as this business is repositioned.

7. Other operating variances in France and the Netherlands relate to modelling refinements. In Spain, these reflect the impact of re-pricing actions on risk products.

___________

Page 105

B2 - Geographical analysis of MCEV operating earnings continued

Net of tax and minority interests Restated 30 June 2008	UK £m	France £m	Ireland £m	Italy £m	Nether-lands £m	Poland £m	Spain £m	Other Europe £m	Europe £m	North America £m	Asia £m	Australia £m	Asia Pacific £m	Total £m
Value of new business	53	38	6	12	(25)	22	38	16	107	(5)	21	4	25	180
Earnings from existing business
- expected existing business contribution (reference rate)	114	47	12	4	36	30	12	7	148	28	6	10	16	306
- expected existing business contribution (in excess of reference rate)	59	12	2	1	48	3	6	-	72	16	1	1	2	149
Experience variances
- maintenance expense	-	-	(3)	-	1	2	(1)	(4)	(5)	-	2	(1)	1	(4)
- project and other related expenses1	(20)	-	(3)	-	(1)	-	(1)	(2)	(7)	(1)	-	-	-	(28)
- mortality/morbidity2	8	11	1	-	(11)	8	(1)	1	9	1	2	1	3	21
- lapses3	(9)	3	-	-	14	10	(3)	(2)	22	(1)	(8)	1	(7)	5
- other4	24	6	(6)	4	4	1	1	-	10	(3)	(1)	-	(1)	30
	3	20	(11)	4	7	21	(5)	(7)	29	(4)	(5)	1	(4)	24
Operating assumption changes:
- maintenance expense	-	-	(1)	-	(4)	-	-	-	(5)	(5)	-	-	-	(10)
- mortality/morbidity5	-	-	-	-	(89)	-	(1)	-	(90)	-	-	-	-	(90)
- lapses	-	-	-	-	7	-	-	-	7	-	-	-	-	7
- other6	16	(3)	-	4	(1)	-	-	-	-	-	-	-	-	16
	16	(3)	(1)	4	(87)	-	(1)	-	(88)	(5)	-	-	-	(77)
Expected return on shareholders' net worth	56	31	10	10	53	5	5	4	118	18	4	3	7	199
Other operating variances7	(1)	(1)	7	(1)	(17)	-	5	-	(7)	-	1	-	1	(7)
Earnings after tax and minority interests	300	144	25	34	15	81	60	20	379	48	28	19	47	774

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

4. Other experience profits reflect an accumulation of small items.

5. Mortality assumption changes in the Netherlands reflect the impact of using a new industry mortality basis.

6. Other operating assumption changes in the UK reflect the distribution of a special bonus to with-profit policyholders.

7. Other operating variances reflect the impact of various small modelling changes. In Spain, these reflect the impact of re-pricing actions on risk products.

___________

Page 106

Aviva MCEV condensed financial statements continued

B2 - Geographical analysis of MCEV operating earnings continued

Net of tax and minority interests Restated 31 December 2008	UK £m	France £m	Ireland £m	Italy £m	Nether-lands £m	Poland £m	Spain £m	Other Europe £m	Europe £m	North America £m	Asia £m	Australia £m	Asia Pacific £m	Total £m
Value of new business	147	79	10	21	(48)	46	68	24	200	36	24	9	33	416
Earnings from existing business
- expected existing business contribution (reference rate)	244	115	26	9	74	64	23	15	326	56	10	18	28	654
- expected existing business contribution (in excess of reference rate)	151	24	5	2	56	6	9	-	102	35	2	1	3	291
Experience variances
- maintenance expense	15	1	(1)	(2)	(22)	4	-	(1)	(21)	-	(3)	-	(3)	(9)
- project and other related expenses1	(45)	(7)	(5)	-	(18)	-	(4)	(5)	(39)	(9)	-	-	-	(93)
- mortality/morbidity2	13	26	1	1	12	15	-	1	56	-	4	1	5	74
- lapses3	(17)	(4)	(5)	(5)	(1)	18	(10)	(9)	(16)	(2)	(3)	2	(1)	(36)
- other4	5	(29)	(27)	(6)	29	(6)	1	(1)	(39)	(20)	(1)	(8)	(9)	(63)
	(29)	(13)	(37)	(12)	-	31	(13)	(15)	(59)	(31)	(3)	(5)	(8)	(127)
Operating assumption changes:
- maintenance expense5	(11)	(8)	(1)	(3)	(109)	3	-	(10)	(128)	(3)	(3)	-	(3)	(145)
- project and other related expenses	9	-	-	-	4	-	-	-	4	-	-	-	-	13
- mortality/morbidity6	39	-	16	4	(77)	3	(1)	-	(55)	-	1	(1)	-	(16)
- lapses7	(53)	65	4	(3)	-	(8)	(7)	(16)	35	-	(10)	1	(9)	(27)
- other8	12	-	15	1	(13)	18	-	11	32	-	(8)	4	(4)	40
	(4)	57	34	(1)	(195)	16	(8)	(15)	(112)	(3)	(20)	4	(16)	(135)
Expected return on shareholders' net worth	119	66	23	20	145	10	10	6	280	39	8	6	14	452
Other operating variances9	7	98	(11)	(1)	104	(1)	8	2	199	-	3	-	3	209
Earnings after tax and minority interests	635	426	50	38	136	172	97	17	936	132	24	33	57	1,760

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

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

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

___________

Page 107

B3 - Geographical analysis of fund management operating earnings

The summarised consolidated income statement - MCEV basis, includes earnings from the group's fund management operations as analysed below. As explained in note B10, this excludes the proportion of the results of Aviva Investors fund management businesses and other fund management operations within the group that arise from the provision of fund management services to our Life businesses. These results are included within the Life MCEV operating earnings.

	6 months 2009 £m	Restated 6 months 2008 £m	Full year 2008 £m
United Kingdom	1	13	34
Europe	5	6	9
North America	(5)	1	(3)
Asia Pacific	(1)	-	1
Aviva Investors	-	20	41
United Kingdom	(12)	(8)	(18)
Netherlands	6	6	2
Other Europe	1	3	4
Asia Pacific	1	9	13
Total	(4)	30	42

B4 - Analysis of other operations and regional costs

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

	6 months 2009			Restated 6 months 2008			Full year 2008
	Regional costs £m	Other operations £m	Total £m	Regional costs £m	Other operations £m	Total £m	Regional costs £m	Other operations £m	Total £m
United Kingdom	-	(36)	(36)	-	(33)	(33)	-	(12)	(12)
Europe	(11)	(29)	(40)	(12)	(1)	(13)	(28)	(88)	(116)
North America	(9)	1	(8)	(5)	1	(4)	(14)	2	(12)
Asia Pacific	(15)	-	(15)	(9)	2	(7)	(23)	-	(23)
Total	(35)	(64)	(99)	(26)	(31)	(57)	(65)	(98)	(163)

___________

Page 108

Aviva MCEV condensed financial statements continued

B5 - Segmentation of condensed consolidated statement of financial position

	30 June 2009			Restated 30 June 2008			Restated 31 December 2008
	Life and related businesses £m	General business and other £m	Group £m	Life and related businesses £m	General business and other £m	Group £m	Life and related businesses £m	General business and other £m	Group £m
Total assets before acquired value of in-force long-term business	286,846	42,835	329,681	282,765	43,564	326,329	305,562	46,634	352,196
Acquired additional value of in-force long-term business	1,811	-	1,811	1,806	-	1,806	2,366	-	2,366
Total assets included in the IFRS statement of financial position	288,657	42,835	331,492	284,571	43,564	328,135	307,928	46,634	354,562
Liabilities of the long-term business	(272,753)	-	(272,753)	(270,179)	-	(270,179)	(291,347)	-	(291,347)
Liabilities of the general insurance and other businesses	-	(46,000)	(46,000)	-	(43,282)	(43,282)	-	(48,769)	(48,769)
Net assets on a statutory IFRS basis	15,904	(3,165)	12,739	14,392	282	14,674	16,581	(2,135)	14,446
Additional value of in-force long-term business1	2,569	-	2,569	6,714	-	6,714	3,203	-	3,203
Net assets on an MCEV basis2	18,473	(3,165)	15,308	21,106	282	21,388	19,784	(2,135)	17,649
Equity capital, capital reserves, shares held by employee trusts and other reserves			7,168			6,771			8,675
IFRS basis retained earnings			2,926			5,244			3,806
Additional MCEV basis retained earnings			1,305			5,526			898
Equity attributable to ordinary shareholders of Aviva plc on an MCEV basis			11,399			17,541			13,379
Preference share capital and direct capital instruments			1,190			1,190			1,190
Minority interests			2,719			2,657			3,080
MCEV basis total equity			15,308			21,388			17,649

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

	30 June 2009	31 December 2008	Movement in period
Group's share included in shareholders' funds	1,305	898	407
Minority interests' share	719	876	(157)
Movements in AFS securities	545	1,429	(884)
Additional value of in-force long-term business	2,569	3,203	(634)

Additional value of in-force long-term business includes £69 million (30 June 2008: £nil; 31 December 2008: £nil) of assets classified as held for sale in the condensed consolidated statement of financial position - MCEV basis.

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

	30 June 2009	Restated 30 June 2008	31 December 2008
Embedded value	14,263	16,729	14,556
Minority interests	2,090	2,022	2,367
	16,353	18,751	16,923
Goodwill and intangible assets allocated to long-term business3	2,579	2,495	2,947
Notional allocation of IAS19 pension fund deficit to long-term business4	(459)	(140)	(86)
Long-term business net assets on an MCEV basis	18,473	21,106	19,784

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

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

___________

Page 109

B6 - Free surplus emergence

	Existing business					New business			Total business
30 June 2009	Transfer from VIF to net worth £m	Return on net worth £m	Impact of experience variances and assumption changes on net worth £m	Release of required capital to free surplus £m	Total existing business surplus generation £m	Impact on net worth £m	Reduction in free surplus from required capital £m	Total new business surplus generation £m	Total free surplus generation £m
United Kingdom	76	49	180	3	308	(77)	(62)	(139)	169
Europe	319	73	(76)	143	459	(130)	(193)	(323)	136
North America	99	47	(75)	170	241	(191)	(277)	(468)	(227)
Asia Pacific	46	4	18	18	86	(30)	(30)	(60)	26
Total	540	173	47	334	1,094	(428)	(562)	(990)	104

	Existing business					New business			Total business
Restated 30 June 2008	Transfer from VIF to net worth £m	Return on net worth £m	Impact of experience variances and assumption changes on net worth £m	Release of required capital to free surplus £m	Total existing business surplus generation £m	Impact on net worth £m	Reduction in free surplus from required capital £m	Total new business surplus generation £m	Total free surplus generation £m
United Kingdom	208	56	125	29	418	(135)	(81)	(216)	202
Europe	284	118	17	221	640	(175)	(230)	(405)	235
North America	109	18	(1)	90	216	(53)	(174)	(227)	(11)
Asia Pacific	40	7	(4)	(1)	42	(31)	(26)	(57)	(15)
Total	641	199	137	339	1,316	(394)	(511)	(905)	411

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

___________

Page 110

Aviva MCEV condensed financial statements continued

B7 - Segmental analysis of life and related business embedded value

	Net worth
30 June 2009	Free surplus £m	Required capital1 £m	VIF £m	Total Embedded value £m
United Kingdom	1,401	1,546	2,090	5,037
France2	(195)	1,449	1,106	2,360
Ireland	125	218	486	829
Italy	231	230	148	609
Netherlands (including Belgium and Germany)	679	1,580	66	2,325
Poland	138	109	617	864
Spain	120	203	305	628
Other Europe	42	25	151	218
Europe	1,140	3,814	2,879	7,833
North America3	(455)	1,376	(358)	563
Asia	105	156	216	477
Australia	26	258	69	353
Asia Pacific	131	414	285	830
Total	2,217	7,150	4,896	14,263

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

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

3. Aviva USA's holding company debt amounting to £819 million at 30 June 2009 has been included within non-covered business.

	Net worth
Restated 30 June 2008	Free surplus £m	Required capital1 £m	VIF £m	Total Embedded value £m
United Kingdom	931	1,395	3,450	5,776
France2	(58)	1,260	1,149	2,351
Ireland	156	205	502	863
Italy	217	227	157	601
Netherlands (including Belgium and Germany)	516	1,936	1,004	3,456
Poland	69	134	933	1,136
Spain	83	191	379	653
Other Europe	35	26	150	211
Europe	1,018	3,979	4,274	9,271
North America3	(305)	1,039	240	974
Asia	110	66	228	404
Australia	17	215	72	304
Asia Pacific	127	281	300	708
Total	1,771	6,694	8,264	16,729

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

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

3. Aviva USA's holding company debt amounting to £356 million at 30 June 2008 has been included within non-covered business.

___________

Page 111

B7 - Segmental analysis of life and related business embedded value continued

Restated 31 December 2008	Free surplus £m	Required capital1 £m	VIF £m	Total Embedded value £m
United Kingdom	1,357	1,477	2,053	4,887
France2	(92)	1,567	1,092	2,567
Ireland	135	252	603	990
Italy	261	235	149	645
Netherlands (including Belgium and Germany) 2	(333)	2,284	511	2,462
Poland	115	134	979	1,228
Spain	143	225	354	722
Other Europe	43	34	159	236
Europe	272	4,731	3,847	8,850
North America2, 3	(362)	1,528	(1,102)	64
Asia	72	159	193	424
Australia	9	253	69	331
Asia Pacific	81	412	262	755
Total	1,348	8,148	5,060	14,556

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

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

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

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

B8 - Risk allowance within present value of in-force (VIF)

Within the VIF in the tables on page 110, there are additional allowances for risks not included within the basic present value of future profits calculation.

30 June 2009	PVFP £m	Frictional costs £m	Non-hedgeable risks £m	Time value of financial options and guarantees £m	VIF £m
United Kingdom	2,518	(197)	(157)	(74)	2,090
France	1,775	(170)	(124)	(375)	1,106
Ireland	516	(11)	(19)	-	486
Italy	195	(22)	(10)	(15)	148
Netherlands (including Belgium and Germany)	710	(175)	(167)	(302)	66
Poland	689	(17)	(46)	(9)	617
Spain	368	(16)	(30)	(17)	305
Other Europe	159	(3)	(3)	(2)	151
Europe	4,412	(414)	(399)	(720)	2,879
North America	105	(8)	(33)	(422)	(358)
Asia	289	(17)	(27)	(29)	216
Australia	135	(31)	(24)	(11)	69
Asia Pacific	424	(48)	(51)	(40)	285
Total	7,459	(667)	(640)	(1,256)	4,896

___________

Page 112

Aviva MCEV condensed financial statements continued

B8 - Risk allowance within present value of in-force (PVIF) continued

Restated 30 June 2008	PVFP £m	Frictional costs £m	Non-hedgeable risks £m	Time value of financial options and guarantees £m	VIF £m
United Kingdom	3,893	(200)	(154)	(89)	3,450
France	1,726	(150)	(133)	(294)	1,149
Ireland	530	(10)	(17)	(1)	502
Italy	200	(24)	(7)	(12)	157
Netherlands (including Belgium and Germany)	1,669	(306)	(76)	(283)	1,004
Poland	1,029	(19)	(69)	(8)	933
Spain	430	(20)	(26)	(5)	379
Other Europe	158	(4)	(3)	(1)	150
Europe	5,742	(533)	(331)	(604)	4,274
North America	516	(110)	(27)	(139)	240
Asia	256	(10)	(9)	(9)	228
Australia	130	(34)	(18)	(6)	72
Asia Pacific	386	(44)	(27)	(15)	300
Total	10,537	(887)	(539)	(847)	8,264

Restated 31 December 2008	PVFP £m	Frictional costs £m	Non-hedgeable risks £m	Time value of financial options and guarantees £m	VIF £m
United Kingdom	2,470	(176)	(165)	(76)	2,053
France	1,827	(174)	(147)	(414)	1,092
Ireland	637	(10)	(24)	-	603
Italy	196	(22)	(12)	(13)	149
Netherlands (including Belgium and Germany)	1,208	(246)	(132)	(319)	511
Poland	1,074	(14)	(73)	(8)	979
Spain	422	(18)	(32)	(18)	354
Other Europe	169	(4)	(4)	(2)	159
Europe	5,533	(488)	(424)	(774)	3,847
North America	(864)	(15)	(43)	(180)	(1,102)
Asia	262	(20)	(23)	(26)	193
Australia	132	(27)	(26)	(10)	69
Asia Pacific	394	(47)	(49)	(36)	262
Total	7,533	(726)	(681)	(1,066)	5,060

___________

Page 113

B9 - Implied discount rates (IDR)

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

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

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

30 June 2009	Total in-force business %
United Kingdom	6.2%
France	7.0%
Ireland	4.7%
Italy	4.9%
Netherlands (including Belgium and Germany)	13.5%
Poland	7.5%
Spain	5.3%
Other Europe	11.7%
Europe	8.2%
North America	21.4%
Asia	7.3%
Australia	8.8%
Asia Pacific	8.1%
Total	8.6%

B10 - Analysis of fund management and service company business within embedded value

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

	6 months 2009			Restated 6 months 2008	Full year 2008
	Fund management £m	Other operations £m	Total £m	Total £m	Total £m
United Kingdom	150	(153)	(3)	(2)	(8)
France	151	63	214	170	212
Netherlands	114	(135)	(21)	38	(23)
United States1	195	-	195	91	209
Other	53	-	53	39	69
Total	663	(225)	438	336	459

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

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

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

___________

Page 114

Aviva MCEV condensed financial statements continued

B11 - Summary of minority interest in life and related businesses' MCEV results

30 June 2009	France £m	Ireland £m	Italy £m	Nether-lands £m	Poland £m	Spain £m	Europe £m	Asia Pacific £m	Total £m	Share-holders' interest £m	Group £m
Value of new business, net of tax	7	1	29	6	3	28	74	-	74	190	264
Life MCEV operating earnings after tax	22	5	41	10	9	54	141	1	142	1,030	1,172
Life MCEV (loss)/ earnings after tax	14	(11)	40	(1)	(24)	1	19	4	23	1,047	1,070
Closing covered businesses' embedded value	270	271	697	178	119	539	2,074	16	2,090	14,263	16,353

Restated 30 June 2008	France £m	Ireland £m	Italy £m	Nether-lands £m	Poland £m	Spain £m	Europe £m	Asia Pacific £m	Total £m	Share-holders' interest £m	Group £m
Value of new business, net of tax	7	1	12	3	3	43	69	-	69	180	249
Life MCEV operating earnings after tax	14	9	35	10	12	66	146	-	146	774	920
Life MCEV (loss)/ earnings after tax	(7)	(6)	27	(18)	8	22	26	-	26	(2,062)	(2,036)
Closing covered businesses' embedded value	243	279	620	159	169	540	2,010	12	2,022	16,729	18,751

Restated 31 December 2008	France £m	Ireland £m	Italy £m	Nether-lands £m	Poland £m	Spain £m	Europe £m	Asia Pacific £m	Total £m	Share-holders' interest £m	Group £m
Value of new business, net of tax	9	3	27	12	7	73	131	-	131	416	547
Life MCEV operating earnings after tax	29	17	50	5	24	102	227	-	227	1,760	1,987
Life MCEV (loss)/ earnings after tax	18	(21)	(30)	(22)	20	(36)	(71)	-	(71)	(6,651)	(6,722)
Closing covered businesses' embedded value	304	323	727	204	177	617	2,352	15	2,367	14,556	16,923

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

B12 - Principal economic assumptions

(a) Economic assumptions - Deterministic calculations

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

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

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

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

The adjustments made to swap rates to derive a risk-free rate for immediate annuity type contracts and all US contracts are shown below the reference rate table.

The principal economic assumptions used are as follows:

Reference rate and expense inflation

	United Kingdom				Eurozone (excluding the Netherlands)
	30 June 2009	30 June 2008	31 December 2008	31 December 2007	30 June 2009	30 June 2008	31 December 2008	31 December 2007
Reference rate - term 1 year	1.6%	6.4%	2.8%	5.7%	1.4%	5.4%	2.5%	4.8%
Reference rate - term 5 years	3.8%	6.1%	3.2%	5.1%	2.9%	5.1%	3.3%	4.6%%
Reference rate - term 10 years	4.3%	5.7%	3.5%	5.0%	3.7%	5.1%	3.8%	4.7%
Reference rate - term 15 years	4.6%	5.3%	3.8%	4.9%	4.2%	5.1%	3.9%	4.9%
Reference rate - term 20 years	4.6%	5.0%	3.8%	4.8%	4.2%	5.1%	3.9%	4.9%
Expense inflation	3.4%	4.4%	2.4%	3.6%	2.1%	2.9%	2.1%	2.9%

___________

Page 115

B12 - Principal economic assumptions continued

	Netherlands1				Poland
	30 June 2009	30 June 2008	31 December 2008	31 December 2007	30 June 2009	30 June 2008	31 December 2008	31 December 2007
Reference rate - term 1 year	1.4%	5.1%	2.5%	4.7%	4.5%	6.9%	4.4%	6.2%
Reference rate - term 5 years	2.9%	4.7%	3.3%	4.6%	5.5%	6.4%	4.3%	5.8%
Reference rate - term 10 years	3.7%	4.8%	3.8%	4.7%	5.6%	5.9%	4.2%	5.5%
Reference rate - term 15 years	4.1%	5.0%	4.0%	4.9%	5.5%	5.7%	4.1%	5.4%
Reference rate - term 20 years	4.3%	5.1%	3.9%	5.0%	5.4%	5.7%	4.0%	5.4%
Expense inflation	2.5%	2.9%	2.5%	3.0%	3.2%	5.9%	2.9%	4.7%

	United States
	30 June 2009	30 June 2008	31 December 2008	31 December 2007
Reference rate - term 1 year	1.6%	3.0%	1.3%	4.2%
Reference rate - term 5 years	3.0%	4.0%	2.2%	4.2%
Reference rate - term 10 years	3.8%	4.6%	2.6%	4.7%
Reference rate - term 15 years	4.1%	4.8%	2.9%	4.9%
Reference rate - term 20 years	4.1%	5.0%	2.9%	5.0%
Expense inflation	3.0%	3.0%	3.0%	3.5%

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

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

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

	New business				Embedded value
	First half 2009	First half 2008	Third quarter 2008	Fourth quarter 2008	30 June 2009	30 June 2008	31 December 2008
UK	1.50%	0.55%	0.85%	1.45%	1.25%	0.50%	1.50%
France	n/a	n/a	n/a	n/a	0.50%	0.35%	1.00%
Netherlands	1.50%	0.30%	0.45%	0.75%	0.40%	0.25%	0.80%
Spain	1.00%	0.35%	0.55%	0.95%	0.50%	0.35%	1.00%
US immediate annuities	3.00%	0.55%	0.65%	2.00%	1.50%	0.50%	3.00%
US deferred annuities and all other contracts	2.50%	0.55%	0.65%	1.50%	1.25%	0.50%	2.50%

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

For life and pensions operating earnings, Aviva uses normalised investment returns. For 2008, the normalised investment returns were expressed as one year swap returns plus an asset risk premium. For 2009, the normalised investment returns are expressed as a swap rate based on the typical duration of the assets held plus an asset risk premium. More detail is given in Note B1 - Basis of Preparation.

The use of asset risk premia only impacts operating earnings as expected returns reflect management's long-term expectations of asset returns in excess of the reference rate from investing in different asset classes. This assumption does not impact the embedded value or value of new business as asset risk premia are not recognised until earned. The asset risk premia set out in the table below are added to the ten year swap rate to calculate expected returns.

	All territories
	30 June 2009	30 June 2008	31 December 2008	31 December 2007
Equity risk premium	3.5%	3.5%	3.5%	3.5%
Property risk premium	2.0%	2.0%	2.0%	2.0%

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

___________

Page 116

Aviva MCEV condensed financial statements continued

B12 - Principal economic assumptions continued

Required capital and tax

	Tax rates1				Required capital (% EU minimum or equivalent)
	30 June 2009	30 June 2008	31 December 2008	31 December 2007	30 June 2009	30 June 2008	31 December 2008
United Kingdom	28.0%	28.0%	28.0%	28.0%	100%/110%	100%/110%	100%/110%
France	34.4%	34.4%	34.4%	34.4%	110%	110%	110%
Ireland	12.5%	12.5%	12.5%	12.5%	150%	150%	150%
Italy	32.4%	32.4%	32.4%	32.4%	115%/184%	115%/184%	115%/184%
Netherlands	25.5%	25.5%	25.5%	25.5%	132%	193%	168%
Poland	19.0%	19.0%	19.0%	19.0%	150%	150%	150%
Spain	30.0%	30.0%	30.0%	30.0%	110%/125%	110%/125%	110%/125%
United States	0.0%	35.0%	0.0%	35.0%	325%	325%	325%

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

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

3. Required capital in the Netherlands is 132%. This capital level is the aggregate capital required for the Netherlands.

4. Required capital in Spain is 125% of the EU minimum for Aviva Vida y Pensiones and 115% for bancassurance companies.

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

Other economic assumptions

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

(b) Economic Assumptions - Stochastic calculations

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

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

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

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

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

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

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

___________

Page 117

B12 - Principal economic assumptions continued

Model - Netherlands

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

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

Asset classes

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

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

Summary statistics

Swaption implied volatilities

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

	30 June 20091 Swap length				30 June 2008 Swap length				31 December 2008 Swap length
Option length	10 years	15 years	20 years	25 years	10 years	15 years	20 years	25 years	10 years	15 years	20 years	25 years
UK sterling
10 years	n/a	n/a	11.8%	n/a	n/a	n/a	11.8%	n/a	n/a	n/a	11.8%	n/a
15 years	n/a	n/a	11.9%	n/a	n/a	n/a	11.9%	n/a	n/a	n/a	11.9%	n/a
20 years	n/a	n/a	12.1%	n/a	n/a	n/a	12.1%	n/a	n/a	n/a	12.1%	n/a
25 years	n/a	n/a	12.4%	n/a	n/a	n/a	12.4%	n/a	n/a	n/a	12.4%	n/a
Euro
10 years	11.7%	11.7%	11.7%	11.8%	11.3%	11.0%	10.5%	10.1%	11.7%	11.7%	11.7%	11.8%
15 years	10.9%	10.9%	10.4%	10.9%	10.8%	10.7%	10.3%	9.9%	10.9%	10.9%	10.4%	10.9%
20 years	10.5%	10.4%	10.4%	10.3%	10.4%	9.9%	9.5%	9.2%	10.5%	10.4%	10.4%	10.3%
25 years	10.0%	10.0%	9.9%	9.5%	9.9%	9.4%	9.1%	8.8%	10.0%	10.0%	9.9%	9.5%
Netherlands
10 years	11.6%	11.6%	11.7%	11.7%	11.3%	11.2%	11.3%	11.4%	11.6%	11.6%	11.7%	11.7%
15 years	10.8%	10.7%	10.6%	10.8%	10.8%	10.6%	10.7%	10.8%	10.8%	10.7%	10.6%	10.8%
20 years	10.5%	10.3%	10.2%	10.3%	10.8%	10.5%	10.4%	10.5%	10.5%	10.3%	10.2%	10.3%
25 years	10.0%	9.8%	9.8%	9.7%	10.1%	10.3%	10.1%	10.2%	10.0%	9.8%	9.8%	9.7%
US dollar
10 years	15.2%	14.4%	14.0%	14.0%	18.3%	15.7%	13.6%	11.9%	15.2%	14.4%	14.0%	14.0%
15 years	13.9%	13.0%	12.8%	12.7%	15.7%	13.2%	11.3%	9.8%	13.9%	13.0%	12.8%	12.7%
20 years	13.3%	12.4%	12.1%	12.1%	13.4%	11.3%	9.6%	8.4%	13.3%	12.4%	12.1%	12.1%
25 years	12.9%	11.9%	11.6%	11.7%	12.0%	10.2%	8.8%	8.0%	12.9%	11.9%	11.6%	11.7%

1. Volatilities are calibrated to end August 2008.

___________

Page 118

Aviva MCEV condensed financial statements continued

B12 - Principal economic assumptions continued

Equity implied volatilities

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

30 June 2009 Option length	Country
30 June 2009 Option length	UK	France	Italy	Ireland	Netherlands	Spain	US
5 years	25.8%	24.9%	24.4%	24.5%	26.1%	26.3%	24.6%
10 years	27.2%	26.3%	n/a	26.2%	26.8%	28.8%	27.3%
15 years	27.7%	n/a	n/a	27.0%	27.1%	n/a	28.9%

30 June 2008 Option length	Country
30 June 2008 Option length	UK	France	Italy	Ireland	Netherlands	Spain	US
5 years	25.8%	26.0%	22.4%	24.6%	24.0%	24.8%	23.8%
10 years	27.2%	27.5%	24.4%	25.9%	25.5%	26.0%	25.9%
15 years	27.7%	29.5%	24.6%	26.9%	26.5%	27.3%	28.0%

30 December 2008 Option length	Country
30 December 2008 Option length	UK	France	Italy	Ireland	Netherlands	Spain	US
5 years	25.8%	24.9%	24.4%	24.5%	26.1%	26.3%	24.6%
10 years	27.2%	26.3%	n/a	26.2%	26.8%	28.8%	27.3%
15 years	27.7%	n/a	n/a	27.0%	27.1%	n/a	28.9%

1. Volatilities are calibrated to end August 2008.

Property implied volatilities

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

For the UK and the Netherlands, model property implied volatility is 15% for 30 June 2009 (30 June 2008: 15%).

Demographic assumptions

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

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

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

Expense assumptions

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

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

Non-hedgeable risk

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

___________

Page 119

B12 - Principal economic assumptions continued

Valuation of debt

Borrowings in the MCEV consolidated statement of financial position are valued on an IFRS basis, consistent with the primary financial statements. At 30 June 2009 the market value of the group's external debt, subordinated debt, preference shares including General Accident plc preference shares of £250 million (classified as minority interests) and direct capital instrument was £5,422 million (30 June 2008: £5,753 million; 31 December 2008: £4,911 million).

	30 June 2009	Restated 30 June 2008	31 December 2008
Borrowings per summarised consolidated statement of financial position - MCEV basis	14,325	13,373	15,201
Add: amount included within held for sale	-	13	-
Less: Securitised mortgage funding	(6,807)	(7,620)	(7,785)
Borrowings excluding non-recourse funding - MCEV basis	7,518	5,766	7,416
Less: Operational financing by businesses	(1,694)	(1,134)	(1,891)
External debt and subordinated debt - MCEV basis	5,824	4,632	5,525
Add: Preference shares (including General Accident plc) and direct capital instrument	1,440	1,440	1,440
External debt, subordinated debt, preference shares and direct capital instrument - MCEV basis	7,264	6,072	6,965
Effect of marking these instruments to market	(1,842)	(319)	(2,054)
Market value of external debt, subordinated debt, preference shares and direct capital instrument	5,422	5,753	4,911

Other

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

B13 - Sensitivity analysis

(a) Economic assumptions

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

50 basis point reduction in the adjustment to risk free rates for immediate annuity type contracts and all US contracts;
one and two percentage point increase and decrease in the risk-free rate, including all consequential changes (including assumed investment returns for all asset classes, market values of fixed interest assets, risk discount rates);
10% increase and decrease in market values of equity and property assets;
25% increase in equity and swaption volatilities;
50 basis point increase and decrease in credit spreads; and
decrease in the level of required capital to 100% EU minimum (or equivalent).

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

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

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

The credit spread sensitivities assume that the change relates to credit risk and not liquidity risk; in practice, credit spread movements may be partially offset due to changes in liquidity risk.

___________

Page 120

Aviva MCEV condensed financial statements continued

B13 - Sensitivity analysis continued

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

Embedded value

			Interest Rates
30 June 2009 Embedded value (net of tax and minority interest)	As reported on page 110 £m	50bp reduction in adjustment to risk-free rates* £m	1% increase £m	1% decrease £m	2% increase £m	2% decrease £m
United Kingdom	5,037	(588)	(145)	160	(300)	325
France	2,360	(21)	(55)	(30)	(190)	(245)
Ireland	829	-	(30)	35	(55)	45
Italy	609	-	15	(30)	15	(100)
Netherlands (including Belgium and Germany)	2,325	(280)	85	(480)	5	(1,245)
Poland	864	-	(30)	40	(55)	85
Spain	628	(34)	(15)	15	(30)	30
Other Europe	218	-	(5)	5	(10)	10
Europe	7,833	(335)	(35)	(445)	(320)	(1,420)
North America	563	(695)	-	(125)	(35)	(475)
Asia	477	-	10	(35)	20	(80)
Australia	353	-	(10)	10	(20)	20
Asia Pacific	830	-	-	(25)	-	(60)
Total	14,263	(1,618)	(180)	(435)	(655)	(1,630)
* 40bps in respect of the Netherlands

The sensitivity to adjusting risk-free rates by 50bp only reflects a reduction in future investment returns and discount rates. The interest rate sensitivities include consequential impacts such as the change in market values of fixed assets as well as the change in future investment returns and discount rates.

	Equity/property
	As reported on page 110 £m	Market values		Volatility 25% increase £m
30 June 2009 Embedded value (net of tax and minority interest)	As reported on page 110 £m	10% increase £m	10% decrease £m	Volatility 25% increase £m
United Kingdom	5,037	295	(290)	(25)
France	2,360	135	(140)	(120)
Ireland	829	10	(10)	-
Italy	609	5	(5)	(5)
Netherlands (including Belgium and Germany)	2,325	375	(375)	(50)
Poland	864	10	(10)	-
Spain	628	10	(10)	(5)
Other Europe	218	-	-	-
Europe	7,833	545	(550)	(180)
North America	563	-	-	-
Asia	477	10	(10)	-
Australia	353	5	(5)	-
Asia Pacific	830	15	(15)	-
Total	14,263	855	(855)	(205)

___________

Page 121

B13 - Sensitivity analysis continued

	As reported on page 110 £m	Swaption implied volatilities 25% increase £m	Corporate bond credit spreads		EU minimum capital (or equivalent) £m
30 June 2009 Embedded value (net of tax and minority interest)	As reported on page 110 £m	Swaption implied volatilities 25% increase £m	50bps increase £m	50bps decrease £m	EU minimum capital (or equivalent) £m
United Kingdom	5,037	-	(605)	655	10
France	2,360	(100)	(135)	135	15
Ireland	829	-	-	-	5
Italy	609	(5)	-	-	5
Netherlands (including Belgium and Germany)	2,325	(40)	(120)	135	15
Poland	864	-	-	-	5
Spain	628	-	(55)	60	-
Other Europe	218	-	-	-	-
Europe	7,833	(145)	(310)	330	45
North America	563	(145)	(510)	475	5
Asia	477	-	(10)	10	10
Australia	353	-	(5)	5	5
Asia Pacific	830	-	(15)	15	15
Total	14,263	(290)	(1,440)	1,475	75

Value of new business

30 June 2009 Value of new business (net of tax and minority interest)			Risk free rates
	As reported on page 104 £m	50bp reduction in adjustment to risk-free rates £m	1% increase £m	1% decrease £m	2% increase £m	2% decrease £m
United Kingdom	72	(34)	(4)	4	(8)	7
France	40	-	1	(4)	6	(8)
Ireland	3	-	-	-	-	-
Italy	25	-	(2)	2	(4)	2
Netherlands (including Belgium and Germany)	(28)	(6)	38	(49)	52	(111)
Poland	19	-	(1)	1	(2)	3
Spain	26	(1)	(1)	1	(2)	2
Other Europe	5	-	(1)	1	-	(1)
Europe	90	(7)	34	(48)	50	(113)
North America	16	(98)	(22)	13	(47)	5
Asia	5	-	3	(5)	6	(12)
Australia	7	-	(1)	1	(2)	2
Asia Pacific	12	-	2	(4)	4	(10)
Total	190	(139)	10	(35)	(1)	(111)

___________

Page 122

Aviva MCEV condensed financial statements continued

B13 - Sensitivity analysis continued

30 June 2009 Value of new business (net of tax and minority interest)	Equity/property
	As reported on page 104 £m	Market values		Volatility 25% increase £m
	As reported on page 104 £m	10% increase £m	10% decrease £m	Volatility 25% increase £m
United Kingdom	72	2	(3)	(2)
France	40	3	(2)	(2)
Ireland	3	-	-	-
Italy	25	-	-	-
Netherlands (including Belgium and Germany)	(28)	-	-	(2)
Poland	19	-	-	-
Spain	26	-	-	-
Other Europe	5	-	-	-
Europe	90	3	(2)	(4)
North America	16	-	-	-
Asia	5	-	-	-
Australia	7	-	-	-
Asia Pacific	12	-	-	-
Total	190	5	(5)	(6)

	As reported on page 104 £m	Swaption implied volatilities 25% increase £m	Corporate bond credit spreads		EU minimum capital (or equivalent) £m
30 June 2009 Value of new business (net of tax and minority interest)	As reported on page 104 £m	Swaption implied volatilities 25% increase £m	50bps increase £m	50bps decrease £m	EU minimum capital (or equivalent) £m
United Kingdom	72	-	(15)	17	-
France	40	-	(9)	8	-
Ireland	3	-	-	-	-
Italy	25	-	-	-	1
Netherlands (including Belgium and Germany)	(28)	-	-	-	-
Poland	19	-	-	-	-
Spain	26	-	(3)	3	-
Other Europe	5	-	-	(1)	1
Europe	90	-	(12)	10	2
North America	16	(4)	(38)	25	1
Asia	5	-	-	-	1
Australia	7	-	-	-	-
Asia Pacific	12	-	-	-	1
Total	190	(4)	(65)	52	4

(b) Non-economic assumptions

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

10% decrease in maintenance expenses (a 10% sensitivity on a base expense assumption of £10 pa would represent an expense assumption of £9 pa). Where there is a 'look through' into service company expenses the fee charged by the service company is unchanged while the underlying expense decreases;
10% decrease in lapse rates (a 10% sensitivity on a base assumption of 5% pa would represent a lapse rate of 4.5% pa); and
5% decrease in both mortality and morbidity rates disclosed separately for life assurance and annuity business.

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

___________

Page 123

B13 - Sensitivity analysis continued

Embedded value

30 June 2009 Embedded value (net of tax)	As reported on page 110 £m	10% decrease in maintenance expenses £m	10% decrease in lapse rates £m	5% decrease in mortality/ morbidity rates - life assurance £m	5% decrease in mortality/ morbidity rates -annuity business £m
United Kingdom	5,037	170	100	65	(195)
France	2,360	40	35	25	-
Ireland	829	15	25	5	(5)
Italy	609	5	-	-	-
Netherlands (including Belgium and Germany)	2,325	150	-	35	(90)
Poland	864	25	35	10	-
Spain	628	10	45	15	(5)
Other Europe	218	5	15	-	-
Europe	7,833	250	155	90	(100)
North America	563	55	90	50	(10)
Asia	477	15	5	10	-
Australia	353	5	15	15	-
Asia Pacific	830	20	20	25	-
Total	14,263	495	365	230	(305)

Value of new business

30 June 2009 Value of new business (net of tax)	As reported on page 104 £m	10% decrease in maintenance expenses £m	10% decrease in lapse rates £m	5% decrease in mortality/ morbidity rates - life assurance £m	5% decrease in mortality/ morbidity rates -annuity business £m
United Kingdom	72	10	8	4	(5)
France	40	1	2	1	-
Ireland	3	-	1	-	-
Italy	25	1	1	1	-
Netherlands (including Belgium and Germany)	(28)	9	3	1	(1)
Poland	19	1	2	1	-
Spain	26	1	4	1	-
Other Europe	5	1	2	-	-
Europe	90	14	15	5	(1)
North America	16	5	4	6	-
Asia	5	4	1	2	-
Australia	7	-	1	1	-
Asia Pacific	12	4	2	3	-
Total	190	33	29	18	(6)

__________________
Page 124
Statement of directors' responsibilities in respect of the Market Consistent Embedded Value (MCEV) basis

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

In preparing this supplementary information, the directors have done so in accordance with these MCEV Principles and have also fully complied with all the guidance included therein, with the exception of the use of an adjusted risk-free yield due to current market conditions for all contracts that contain features similar to immediate annuities and are backed by appropriate assets, including paid up group deferred annuities in the Netherlands, and deferred annuities and all other contracts in the US. Specifically, the directors have:

determined assumptions on a realistic basis, having regard to past, current and expected future experience and to relevant external data, and then applied them consistently;
made estimates that are reasonable and consistent; and,
provided additional disclosures when compliance with the specific requirements of the MCEV Principles is insufficient to enable users to understand the impact of particular transactions, other events and conditions and the group's financial position and financial performance.

Information on the directors can be found on page 84 of Aviva plc's 2008 Annual Report and Accounts.

By order of the Board

Philip Scott

Chief Financial Officer

5 August 2009

______________________

Page 125

Independent Review report to Aviva plc

Introduction

We have been engaged by the Company to review the Aviva MCEV condensed set of financial statements in the half-yearly financial report for the six months ended 30 June 2009 which comprises the Condensed Consolidated Income Statement - MCEV Basis, the Condensed Statement of Comprehensive Income - MCEV Basis, the Condensed Statement of Changes in Equity - MCEV Basis, the Condensed Consolidated Statement of Financial Position - MCEV Basis, the Reconciliation of Shareholders' Equity on IFRS and MCEV bases, the Reconciliation of IFRS Total Equity to MCEV Net Worth, the Group MCEV Analysis of Earnings and the related notes B1 to B13 on pages 91 to 123; and Analysis of Life and Pension Earnings on pages 23 to 24. We have read the other information contained in the half-yearly financial report and considered whether it contains any apparent misstatements or material inconsistencies with the information in the Aviva MCEV condensed set of financial statements.

We have reported separately on the condensed financial statements of Aviva plc for the six months ended 30 June 2009. The information contained in the Aviva MCEV condensed set of financial statements should be read in conjunction with the condensed set of financial statements prepared on an IFRS basis. This information is described within the Aviva MCEV condensed set of financial statements in the half-yearly financial report as having being reviewed.

This report is made solely to the Company in accordance with guidance contained in International Standards on Review Engagements (UK and Ireland) 2410, 'Review of Interim Financial Information Performed by the Independent Auditor of the Entity' issued by the Auditing Practices Board for use in the United Kingdom (ISRE 2410). To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the Company, for our work, for this report, or for the conclusions we have formed.

Directors' Responsibilities

The Aviva MCEV condensed set of financial statements in the half-yearly financial report is the responsibility of, and has been approved by, the directors. The directors are responsible for preparing the Aviva MCEV condensed set of financial statements in the half-yearly financial report in accordance with the Basis of Preparation set out on pages 97 to 100.

Our Responsibility

Our responsibilities, as independent auditors, in relation to the Aviva MCEV condensed set of financial statements in the half-yearly financial report are set out in our engagement letter with you dated 5 August 2009. We report to you our opinion as to whether the Aviva MCEV condensed set of financial statements in the half-yearly financial report have been properly prepared, in all material respects, in accordance with the Basis of Preparation set out on pages 97 to 100.

Scope of Review

We conducted our review in accordance with ISRE 2410. A review of interim financial information consists of making enquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures. A review is substantially less in scope than an audit conducted in accordance with International Standards on Auditing (UK and Ireland) and consequently does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion.

Conclusion

Based on our review, nothing has come to our attention that causes us to believe that the Aviva MCEV condensed set of financial statements in the half-yearly financial report for the six months ended 30 June 2009 is not prepared, in all material respects, in accordance with the Basis of Preparation set out on pages 97 to 100.

Ernst & Young LLP

London

5 August 2009

__________________

Page 126

MCEV Glossary

Definitions of group key performance indicators and other terms

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

_________________

Page 127

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